iA Financial Corporation Inc. Q1 2023 Earnings Call
Yeah.
Greetings and welcome to the Industrial Alliance first quarter earnings results 2023 conference call. During the presentation, all participants will be in a listen only mode and afterwards, we will conduct a question and answer session at that time. If you have a question. Please press the one followed by the four on your tongue.
The phone if at any time during the conference you need to reach an operator, Please press star zero.
As a reminder, this conference is being recorded on Wednesday may 10th 2023.
I would now like to turn the conference over to <unk> head of Investor Relations. Please go ahead.
Good morning, and welcome to our 2023 first quarter conference call. All our Q1 documents, including press release slides for this conference call and D E and supplementary information package are posted in the Investor Relations section of our website I E. That's C diff.
Conference call is open to the financial community the media and the public I remind you that the question for you did you reserve for financial entities.
According of this call will be available for one week starting this evening the archived webcast will be available. They both for 90 days and a transcript will be available on our website in the next week.
I draw your attention to their forward looking statement information on slide two as well as the number of your phrase and additional financial measures information and denotes regarding 2022 restated results under idea for 17 and I if I sign on slide three.
Also please note that the detailed discussion of the company's risks is provided in our 2022 MD&A available on SEDAR and on our website with an update in our Q1 2023 M. D. N E released earlier today I will now turn the call over to didn't usually cop president and CEO.
Good morning, everyone and thank you for joining us on the call today as usual I will start by introducing everyone attending on behalf of Hawaii.
First jackpot, Zhang Chief Actuary and CFO Mike.
Mike Stickney, Chief growth officer, and responsible among other things for our U S operations.
And it does at all Chief investment Officer.
That's what I'm in charge of individual insurance and annuities.
Defendable Banana executive VP responsible for our mutual fund business and the wealth management distribution affiliates and Sean O'brien now responsible for our group businesses.
This morning, we reported our Q1 results the first ones, although the new accounting standards <unk> nine and 17.
Cannot confirm that the transition to these new standards is positive for our thanks to our long term vision and prudent approach.
Please go to slide eight why like comment on three favorable key favorable impacts.
First our business model is enhanced as we can now have much more capital available to invest for future growth and ultimately to create value for our shareholders.
Indeed as at March 31st in 'twenty to 'twenty, three we have $1.8 billion available for deployment.
Second.
It was all core earnings power is expected to be higher on the forest nine and 17, we're now targeting higher coral reef, a 15% plus and our solid core EPS growth with a 20 2023 target of 10% plus mid single digit growth over our forecast for 2022 results.
Finally, our financial strength is better reflected under the new accounting standards, which explains our increased solvency ratio of 149% and low leverage ratio of 14, 7%.
As at March 31, 2023.
About the first quarter results now.
As presented on slide nine we reported good performance to date.
Looking at our main keep your eyes in terms of profitability core EPS of $2.08 is 16% higher than a year earlier on there are you forest for them and therefore in line with this growth our get the indication given in February .
Carl we are 14.6% is close to our midterm target.
Moving to our financial position as expected it is more robust, although the new standards with a solvency ratio of 149%.
And it continues to be supported by good organic capital generation.
More specifically organic capital generation amounted to $125 million in the first quarter.
As we continue to invest in digital transformation and employee experience to key enablers for sustainable growth.
Happy to also return value to our shareholders through a significant 13% increase in the dividend, which is consistent with our higher core earnings power under the new standards.
Yeah.
I also want to comment on book value per share and important accounting metric.
Following our stable book value a transition growth and book value per share was very good during the first quarter with an increase of 3% supported by a record quarterly net income of $270 million achieved in Q1.
Moving to slide 10.
With the substantial amount of deployable capital of $1 $8 billion as of March 31st 2023.
It is our intent to continue to invest in our growth organically and through acquisitions.
More attention and energy will be devoted to growing the business, which is one of the reasons for the changes to the Executive Committee announced this morning.
With two cheap growth officers, one for Canadian businesses, and one for the U S.
And two co heads of acquisition three season, you could see it would be skewed due to the execution of our growth strategy.
In addition, Mike's increased focus on the U S market and on acquisitions will enhance our ability to leverage his expertise and capitalize on opportunities to further accelerate our growth trajectory.
Among the other changes to the Executive Committee announced this morning, North worthy is the upcoming retirement of Jacques.
Indeed, after many accomplishments, including most recently the transition to the new accounting standards.
It would be leaving his position following Q2 earnings disclosure.
But we will stay on until the end of the year to ensure a smooth transition with earrings debate currently executive VP operational efficiency, who will become CFO and chief Actuary in August .
This concludes my remark I will now turn it over to Mike who will comment on business growth following Mike Jacques would provide more information about Q1 results and our capital strength Mike.
Thank you.
Thank you Danny and good morning, everyone.
Sales were strong in Q1 for most business units such as individual insurance in Canada and in the U S dealer services, Canada, I auto and home and our group businesses in light of macroeconomic conditions. We are pleased with wealth management sales results all of our U S dealer services business growth is below X.
Spectation.
Environment continues to be challenging.
Now please refer to slide 12, as I will comment more specifically for each business unit.
Starting with our insurance, Canada Canadian business segment individual insurance sales totaled $89 million, which compares to a particularly strong quarter a year earlier. This year as a result is 53% higher than the sales achieved in the first quarter of 2021 this.
This year saw the level of sales was mainly attributable to the strength of our distribution networks and the excellent performance of our digital tools.
Our performance sorry, our comprehensive range of products was also a key driver of sales were notably strong for participating.
<unk> term and living benefit products.
He continues to lead the Canadian market in terms of number of policies issued based on the latest industry data.
For group insurance results strong growth in sales combined with good retention of enforced business drove net premiums up 10% year over year to reach $407 million.
Sales of employee plans divisions were nearly doubled compared to a year earlier and amounted to $21 million.
For special markets totaled $91 million up 23% year over year.
And the dealer services division sales amounted to $143 million up 19% from the same period of 2022. Good sales results were driven by P&C products up 31% year over year, a solid result, given the current reduced affordability for consumers.
As far as for our P&C affiliate I Auto and home direct written premiums were also strong with an 11% increase when compared to the same period.
Last year.
Turning to slide 13 to the wealth management business segment.
In retail businesses, all the clients continue to favor cash equivalent products over funds segregated fund sales were doing quite well.
As the company continues to rank first in Canada in gross and net segregated fund sales solidifying our leading position in the industry.
More specifically segregated fund gross sales totaled just over $1 billion in net sales resulted in inflows of $368 million.
Mutual fund results were unfavorably impacted by market volatility, resulting in gross sales totaling $479 million and net outflows of $88 million.
Together together total net funding trees amounted to $280 million in the first quarter a very good result in the current context.
For insured annuities and other savings products first quarter sales reached an all time high of $716 million Tripling last year's results we.
We believe that many clients of these other savings products are likely to switch to our sag fun and mutual funds when markets become less volatile.
Finally sales of group savings and retirement amounted to $787 million in Q1. This represents a solid 26% increase year over year, mainly.
Mainly driven by a large transaction and accumulation products during the quarter.
Turning to slide 14 for our U S operations business segments.
Sales of individual insurance division amounted to $42 million and were up 27% for the same period in 2022.
This solid growth was driven by overall good performance in all of our niche target markets.
And the dealer services Division first quarter sales amounted to $230 million compared to $243 million a year earlier.
Decrease mainly attributable to reduced affordability, resulting from higher financing costs for consumer and persisting inventory constraints, although the ladder has begun to show signs of improvement.
The impacts of the prevailing macroeconomic environment on the U S vehicle warranty industry in the short term, we expect very modest growth from this otherwise high potential growth.
Yeah.
In the meantime, we are currently reviewing our business operations to improve efficiency and strengthen our fundamentals such as new partnerships and enhancements to our systems for greater efficiency and client experience. This will position us well for rapid growth when market conditions improve.
Overall, we are generally pleased with sales results for the beginning of 2023 with some areas are very strong growth and others showing resiliency now.
Now I will turn it over to Jack to comment on Q1 earnings and capital strength.
Thank you Mike and good morning, everyone. Today, we are pleased to report good results for our first disclosure on the first nine and 17.
The long term vision and prudent approach with which we manage the company resulted in a smooth transition to the next second things turned off and good performance in the first quarter.
Starting with slide 16, which presented an overview of our profitability and financial strength for Q1, 2023.
Core earnings per share is 16% higher than the previous year idea for risk for result, which is in line with our increased core EPS growth target for 2023.
Also net income of 270 million is a quarterly record.
There's really good. Good result was achieved from a strong entrenched service resolved and so did nip investment result.
Moving to our solvency ratio, which at 149% is since currently how you're following the transition to the new accounting standards.
Given the better recognition of our financial strength and to a lesser extent ongoing organic kept on generation.
I also want to highlight our book value, which for the wing a neutral impact at transition increased by a meaningful three person.
In the first quarter to reach $60 69 at March 31.
Book value is the unbiased indication of value creation and as such.
It is an important component of our <unk> investor story to which we will continue to be attention.
Lastly, I want to comment on the value return to our shareholders. During the first quarter, we deployed more than $111 million to buy back shares.
Over we have announced today, a senior scan, 13% increase in our dividend to reflect our increased earning power under the new accounting regime.
Now turning to slide 17.
Let's dig a little into Q1 resolved through the new drivers of earnings.
The Coinsurance service result increased by 11% year over year supported by a similar answer so do you.
Increase in expected insurance earnings, which arise mainly from our strong business growth in the last 12 months.
The core net investment result increased by 9% for the same period last year, driven by our investment portfolio optimization, which was completed during the first quarter of 2023 and your interest rate have you been men between the two quarters.
Finally results from non insurance activities were up 6% from very good performance of our wealth distributor distribution affiliates, which was partly offset by soft results from U S dealer services.
Now looking at slide 18, which presents the performance of our operating business segments.
Starting with insurance, Canada, which recall, but it was a very solid solid 17 year over year increase in core earnings driver and mainly by the fiberglass boat in back of our strong last 12 month business grow unexpected insurance earnings and by the fiberglass boat experience for the beauty and home.
Insurance during the quarter.
I saw mortality or your claims experienced during the quarter were more than offset.
More than offsetting the beauty and home insurance Propagable experience contributing to a 6 million net insurance experience loss for this segment.
It is worth taking a moment to point out that the new accounting standard are recognized mortality claims in P&L why the corresponding reserve release are reflected in the CSM, where did generate a gain in Q1.
Moving to the wealth management segment gardening for the first quarter of wealth, 10% higher than a year earlier. This performance is essentially due to good results from the distribution of 58 are you a result from group saving and the good growth in expected insurance earnings Fox fake phones.
Yeah.
These are very good results given that the equity market levels are lower than a year ago.
I swung our U S operation.
Results in the industry that insurance division were good.
However, the results for non insurance activities was lower than expected due to and I'm talking about business mix and lower sales in the U S dealer service Division.
Salt were also impacted by our your expenses, mainly attributable to digital investment to improve to improve efficiency and client experience as well as salary and benefits for employees.
Continuing on slide 19, with the investment segment for which girl earnings of 108 million were <unk> 29 per cent or your than a year earlier.
This performance, which was achieved in spite of lower equity markets than a year ago is the result of the investment portfolio optimization that occur throughout 2022 entering the first quarter of 2023.
Of our your interest rates.
Our corporate segment reports all expenses that are not allocated to other segments and they totaled 47 million post tax in Q1 compared to 32 million a year before.
The year over year increase is attributable to accelerate the digital transformation and then and for your experience to support talent retention and regulatory compliance projects, including the transition to higher for risks.
Finally in addition to the strong core insurance service result, and solid core net investment result, Nokia related impacts, where if I look at both in the quarter pushing net income to a record 270 million.
Now on slide 20, which shows our robust capital position following the transition to a your first nine and 17 at 149, 449% a quarter again, our solvency ratio is well above I worked on yep.
120%.
Okay, Nick capital generation continues to be strong I sit amount to 125 millions of ring the coop her.
Our financial leverage ratio, including both stacks CSM at March 31st is very low at 14, 7%.
As a result, our business model is finance, which much more capital to support our growth strategy with $1 8 billion of capital available for deployment.
Ali Slide 31st presented the progress of five important key.
Keep your eyes towards our medium term target.
Showing the full book about position after one quarter to conclude the results reported today confirmed that under the new standoff our earnings by worries increased our capital position is better reflected in the performance of our book value is solid.
Operator, we will now take questions.
Thank you.
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One moment please for the first question.
Our first question comes from the Duchenne with National Bank Financial Please proceed.
Hi, good.
Good morning.
Just wanted to start with the U S business and Oh, when I first saw the profit decline there I thought it was you know mainly tied to the sales of warranties, but it looks more of an expense.
Issue and.
Can you lay out some of the initiatives that youre spending on and I'm. Just wondering about the timeline of this level of expenses is it going to persist for a while.
Come back to a normal level or is this a new run rate.
Yeah, but he is al speaking.
Sadly, we all are transforming our client experience dealer experience and for your experience. So we are just starting actually we did the integration last year and by doing that we are.
Made some analysis in which we need to develop those systems to provide those with her experience that will support our future growth. We are getting in that business for the long term. That's the way we see it I wouldn't think that it will last fall.
At least a couple of years and.
It will.
I don't see that as being a run rate because at one point investment in.
In technology, we love to we would have to say it will slow.
However, the thing that is tough to see today is if you recall last year, we discuss about the eikon thing off.
We say.
She developed man, if you use cloud computing and all of those kind of stuff that you can no longer.
The expense with the revenue so that creates some noise. So bottom line. We will continue to have a level of expenses and invest for at least two year, but after that the runway.
It's a little bit tough to call, but I would say it would be lower than what we what you see as the total expenses, maybe it's one thing Oh, so we'd like to what extent you here Hi Gab.
The one thing that I would say is that we are obviously, taking a closer look at our expenses in there in that particular business.
Considering the fact that you know the results of our soft this quarter.
And so more attention are we believe that there are opportunities are you know to to have some gains in certain areas of the operation. So at the same time as we are investing significantly in technology to bed for greater efficiency and a great client experience.
We are also reviewing some of the operations to get some synergies.
Got it thanks.
Moving to the investment experience.
From interest rates and also positive from equity markets and real estate I'm just wondering.
Uh huh.
Forget the numbers off the top of my head like $70 million combined.
Were they all positive this quarter, because I see the real estate and you know it doesn't seem like that would be a positive outcome on valuation and occupancy trends, which are are heading downward.
Hi, Gabriel its Oh here.
So your numbers are right and.
But do you have to look at and thinking about this as a diversified portfolio. If we focus on the on the equity and investment properties.
There are some headwinds that our office portfolio as a subject who like in the sector in general.
But I think in the past and you've seen that in our slides. There's many characteristics that shows that this is a fairly defensive or fairly high quality portfolio. That's number one.
But number two D. The exposures are fairly abroad. So you'll see in our prime are you kind of don't think you can see from the disclosure but.
On our private equity on our infrastructure.
We had very solid returns so net net it shows the power of diversification and the quality of the assets that we have.
Okay [noise].
Excuse me, our organic capital generation.
Is this more of a ramp up to the you know because of 125 million times four is 500, and so that would be shy of the full year target, but are you expecting that to ramp up over the course of the year and I guess tying into that.
Given the comments I, just heard about expenses and maybe some other headwinds.
You know the 13% to 18% EPS growth, you're still confident in that range. This year.
Perfect I would think those two are again, but yeah.
So it was all speaking so the way I look at our results in Q1, there I will on the Retrans side.
The earnings side that we'll see three buckets I split that in three buckets things that I. We strongly believe will continue during the year things that effect, that's a skeptic tuition and a comment on expenses.
Would it be the that'll determine sort of a thing that we expect to continue to push it to Ben one thing gets it actually does the beauty experience.
That's flowed through our life.
The in Canada insurance bucket.
We will continue to be positive we're expecting that the market concern will earn a small and now we're confident we will continue to have with students during the year.
Your distribution in the World with continue we will continue to we will continue to do well.
What we were expecting in the U S. We expect that what we have up in Q1 will continue throughout the year. So bottom line for those three Bucks Yep.
It's a slight positive and we expect that to continue.
I look at what I call that scaled fluctuation so experience gain and loss are the one that we've been on during Q1, these mortality and morbidity and see if we were on the are you first of all.
We will have add the impact of CSM and P&L all in the same in their earnings it would have been a slight positive okay, but ear with the yoga fee of that new standoff. It just the the impact on the claim that happened there and it's ninjutsu fallouts, it's since kimpton and get to that.
And we had some small pools it seems so.
Furthermore, men I see I see that completely out of such scale fluctuation. We just increased our makeup business shands are according to our multi dose studies. So this I would expect it will give us back during the year because I don't expect it sits around that that the stocks on those different elements and on the expense.
Says, we were expecting and we told you so at the Investor event that expense will be higher.
During the quarter. There are a couple of things that are one time element and some of them I would say related to the huge stock performance during the quarter and they all are adamant that we see probably a five to 7 million that it's just a question of timing they will get back in the future so too.
Amanda had been negative in the first quarter that I expected to be much better in the in the future again that the permanent one that the slight boosted I expect it to be there. So to answer your question, Yes, we still believe what we said at the Investor event, so that 13% to 18% to be the button.
We said it would be mother loop ban.
Of that friends, who we still strongly believe in that.
The capital organic generation Q1 is always a softer quarter than the other ones. So we still believe in the 600 for sure.
So that's the ramp up for capital I'll leave my questions, there and Jacques I'll wish you. Good luck in retirement I guess on the next call.
Yeah, that's the way the next caller.
Our next question comes from many grabbing them with Scotiabank. Please proceed.
Hi, Good afternoon, just to continue on the discussion of the U S dealer.
Dealer services, so it sounds like you're pointing to some improvement in the inventory picture, but still the overall outlook doesn't seem to be improving based on your on your previous comments I'm just wondering.
What you see as sort of offsetting that inventory improvement is that just a comment on on the rate environment or is there something else going on or is it also just a comment also on the elevated expense level, continuing just wanted to clarify the outlook there.
Yeah, I think at this time I'll leave it to Mike to comment on the business.
Sure.
Good morning Manny.
Yeah, the inventory situation as you said is improving.
That's right.
We're not back to the old days or anything, but it is showing signs of improvement but.
The offsetting issue are the you know.
Thing that I'd say, we're dealing with now is kind of an odd combination of a.
Slowing economy in the U S higher interest rates.
And high car prices.
And you can just think of a financial equation going on there where you know Uh huh.
Someone's trying to buy a car.
And as you know quite fast without happy all the time and it's quite possible that the F&I products or the financing of the F&I products is getting squeezed out of the equation.
And that's that's basically what's going on so that's a you know.
A fairly material headwind that's hitting us.
Just ask what's hitting the whole industry.
We've seen seeing I guess, some reports from industry industry sources that are commenting on this issue. The CEO of Lithia made a comment about F&I revenue being down in Q1 for them. So it's it's it's an industry wide issue and I to be honest I've never seen it before I.
Usually you know when you're going into a slowdown or recession or whatever you get higher interest rates, you get a consumer being more kind of more worried.
But I usually car prices are quite reasonable during that period, but that's not what we have right now so I think what's going to improve the situation.
What needs to happen, obviously inventory getting better will help but also something to watch for its factory incentives or OEM incentives.
They used to be very prevalent before COVID-19, they've kind of wound down to small numbers you know in the last three years and there's rumors that theyre going to increase but it's just early days on that issue.
That's great color and then just as it go ahead.
No I was going to say that you know it's been here. The one thing that I would add is that we are getting prepared for a rebound I mean, it it might happen you know and wherever it happens in two quarters or three quarters whatever at some I mean, there was a pent up demand and at some time, there's going to be more car being sold I mean, there is certain.
Pressure right now, but we are getting prepared we are investing in the business. We believe in the business.
And you know whenever the market reverse will be in a very good position based on our you know the platform that we are investing in and the products we have.
Got it and maybe a related question you you were talking about sort of the the investments youre, making that business out to your process. I was just trying to get a better sense of what you're trying to accomplish there in terms of those tech investments is what's going on under the hood that.
The Tech stack there is just not up to not up to snuff and so youre, bringing it up are you investing in more cutting edge types of capabilities. If you can give us a little more sense of what exactly the investments are are aimed at what are what are they trying to achieve for the business.
Yeah, it's more you know cutting edge.
Basically trying to be.
A leader in Nash and customer experience and service to dealer and all that kind of stuff with improved technology.
Oh, that's that's where we're going with it.
Thank you.
Yeah.
Our next question comes from Scott Chan with Canaccord Genuity. Please proceed.
Yeah, Thanks very much.
Going to the ER business, yes, Adam I, there are lots of things and it's hard to get high single digit growth and when I look at this quarter.
For 17 as he had a 168 nine that was down 17, Europe , just wondering what factors drove that this quarter.
Okay.
Hello, Scott Alex speaking are there two of them in there actually one on the life, Oh insurance, but get them, one and a wealth management.
In the insurance about gift we have to remember that we are comparing a very good quarter towards next felt that receives corp. During 'twenty 'twenty. Two so that's why there's a decrease use normally we would expect to grow sales every year, but it was extraordinary this the level of say last year so that.
What explains a part of it and the other part of the C. S M. A.
Gross debt is low where he's really as to do an end guy the seas.
One thing that I hate about CSM.
He's sick funds if you sell six phone you would create CSM Oliver Nowadays people moved to cash cash equivalent and two G. I see you're on that idea for us 17 product.
The insurance product or investment product and they have no see some creep that's for that.
We made very great business during the quarter to a profit will flow, but we have not treated.
And they see us and so this.
I would say.
Gross debt is not there is not really a nishu, but unfortunately, we have to live with those kind of metrics with that new regime.
Okay got it and last question and it's a two part question maybe tying in expenses.
Consolidated core earnings like the largest variance by far is total other expenses that was up 26% year over year.
Maybe kind of tie that in outside of the U S. And then I also noticed your employees were up 4% quarter over quarter.
That's part of a digital transformation or something else in terms of that the segments that you have.
Yeah.
Well I'm.
I'm not sure I understood your question to be honest.
Could you repeat repeat the question.
Oh, Yeah, no firstly, just hair employees were up 4% quarter over quarter I don't know if that's tied to digital and then on your core earnings consolidated.
In your core expenses were up 26% year over year, a massive variance.
In terms of the absolute core earnings for the quarter and just wanted to see if anything out of U S drove that.
I actually yes, good Jacques Chirac speaking here.
We mentioned it at the end of the event that we are ramping up our transformation not just in the U S. But in some of those divisions. So a large part of that increase come from that and I would also mention that I mentioned it in my notes earlier that theres been some compliance project.
And investment in two weeks for your ANZ is also part of that we've developed tremendous offices in Quebec City will continue to deploy that great investment for our employee however on the financial resolve it just costs a little bit more present compared to last year. So those are the reasons.
<unk> expenses out there and.
And I made a comment earlier about a part of.
Some some expense so that we can give it back but the other ones that were expected. It was part of our business plan, Yes, maybe one thing I would that is the the guidance incorporate.
In corporate that was all.
Really included the fact that we work.
We are let's say speed up our investments in technology to support our business. So it's not on top of our guidance I'm at its embedded in the guidance. So we do believe in the 13% to 18% more so on the low end right now, but it certainly includes death.
Okay. That's helpful. Thanks.
Yeah.
Our next question comes from Tom Mackinnon with BMO capital markets. Please proceed.
Yeah, Thanks, very much and good afternoon.
Just a couple of questions. The first is with respect to your tax guidance I think you talked about core taxes before being in the 21% to 23% range. They were just about 24% in the quarter.
Was there anything unusual in the quarter that a move that Tac core tax rate up and should we be still looking at the 'twenty one to 'twenty three going forward and I have a follow up thanks.
Thomas <unk> speaking, yes, we continue to be even in 'twenty, one 'twenty three and you know it's a like in previous quarters. There is always with tax some situation in which in one quarter. It will be a year or sometimes it will be lower so it's not model, but we believe the 'twenty one 'twenty three it's too good.
Keep your eyes to keep in mind.
Right and then the second question is with respect to the Mark to market impacts I know you did some portfolio optimization and I think the bulk of that was done in the fourth quarter of 2022 in the first quarter of 2023.
And I think the part of the portfolio optimization was to me.
Take a results a little bit more balanced under Ifr F 17, and less volatile and I appreciate that probably.
Hmm.
I'm looking at some of the Mark to market impacts that happened in 2022 versus the first quarter of 2023 now I assume there's more stability are we seeing more stability to some extent in 2020 in the first quarter of 2023 in that regard because of the.
Impacts of that portfolio optimization, and then making that number less volatile.
I correct in that assessment.
It's Tom Herzog speaking.
I would see Youre correct in saying that nowadays we are very pleased with where we are where we're standing and we provided a lot of sensitivity in our slide deck. So you can look at the sensitivity.
And we committed to have a strong asset liability matching and 2022 we mentioned it at the Investor event, we have to forget about it we were.
We had to deal with moving out of higher first of all while at the same time preparing for our first 17 and we completed during Q1, so theres been some effect in Q1 as well however, there they've been put noncore. So the best way to look at our pollution is read that's for instance.
Steve we are providing we are working our A&M within some limits and that's that's where we will we will be okay. I just sensor what's you asking.
Yeah, that's good and then sorry, if I could just squeeze one in here as well I think you talked about a 28 lift in the light cat are that might have put it at around 156, you had better reported number as well, but the light cats $1 49 is there any reason why it might be a little bit lower.
Yeah. So I think if you look on the slide you see the mats are behind that so the 28 are it's 27, 5%. So it's a the 28 that he's there the transition was really what we said.
We've deployed crypto too and CIB, we deploy captisol also with the pressure that we have not to replace and if you look at the organic capital generation Q1, like I and so Gabrielle earlier, it's always softer.
And you see are the macroeconomic computer unmanned that cause a little bit this quarter and also the transaction and something that we will have to get used to like I said earlier, we will manage our asset liability matching we within some limits some threshold and that would be trends.
Action to rebalance and I know you explained it very well during the investor event that situation is fluid and we will always do that so we expect the number of portfolio. But then it's meant to be oh, not religious zero and to turn that runs the rollout there would be some minor send some plus and.
In the first quarter. So this this is really the way we look at the solvency ratio.
Okay. Thanks.
Our next question comes from Doug Young with dish I think capital markets. Please proceed.
Hi, Good afternoon, just looking on the.
On page 20.
<unk> there was a negative 18 million related to experience and I'm, hoping Jacques maybe you can unpack that because I think there is negative lapse experience, but I think that was offset by a positive longevity games and so if I'm correct can you kind of can you break down the numbers behind that and talking to them about I understand the longevity.
<unk> side, but if lapses and issue can you can you kind of talk about that.
Yeah, it's not on GTA V T ear are what I've been.
On the CSM. It's there were that was the mortality morbidity in our insurance.
That the reserve release goes through the CSN. So I said earlier that if we will have been under our area for us for a while mortality experience for the quarter would have been positive slightly positive, but we are under the current regime a loss in the P&L.
And the benefit in the reverse in the CSM. So it does L. CSM, so what where that during the quarter negative on the CSM growth fall I would say the in force I already and serve a Scott about the new business.
It's really the fact that phosphate phones, we are expecting subsequent deposit at the start of the model that we're assumption is based on pre Covid long term assumption and what is happening today people all nothing the singing six on the offense and the thing you know the type of business. So that has reduced.
And they've got to be back on the CSM grow and also we had some police so there'll be some lapses in our life insurance and it's important to make a comment as well that it's different for us compared to the previous regime, we have to remember that C. S. M.
He's a he's the present value of future profit on the business.
I E was nuts front ending profit under the previous regime. So if I look at the.
Lapses lapse experience.
Under the previous regime will have had the slight and he gets it.
And back a slight loss.
But today under the CSM as your front end all the future profit of that business. The number of amplified. However, you have to remember that the amortization of the CSN will be over.
To turn to years, so sees what these happening so you look at CSN, but always remembered the amortization period.
Along.
And can you quantify like what the lapsed kind of would've been.
And I may have to follow up and followed a bit but I think I got it but I may have a follow up with that but can you quantify what the lab set with Ben and CSM.
Uh huh.
You know for me to understand better. The result, I did that math to be able to to gain an understanding of the result, and it will have been probably a send off to Nick gets his experience loss in the quarter.
If we were under the are your first four regime, so nothing to worry about that at this point.
Okay.
And then second if I go to the drivers of earnings.
Now there is an impact of new business negative $14 million in the quarter and maybe this is related to your comments about front ending profits and whatnot can you talk a bit about.
Yeah, what drove that $14 million.
I get it.
Disease are the newest product you're referring to so it's.
It's part of the business most of most of that amount come from group insurance, where the business model is that you price.
Our group are you renew our groups and knowing that they will last week. They will stay with you for four or five years. However, the accounting regime ask you to recognize 100% of the acquisition costs over one year. So it creates I would say it kind of.
In their first year and shoot for when you will renew did we create positive CSM. So they would be in the CSM creation. So it's all good it's not in that business and when you see that well so he's actually affirm for you plan that's been much bigger than last year. So that's why you'll see a 14 Richard.
So it's a good news.
So this isn't your writing a bunch of you all policies that are onerous and taking upfront head.
This is kind of more related to the group side.
Yeah Charlie.
When you sell a policy that I'll not on their roofs, you would create CSM you are your front then you front end up profit so it's nothing.
Really the CSM.
Okay, and then just lastly, Jacques I think you've always given guidance.
Moving forward I didn't see guidance given this year and then just wanted to kind of verify that.
And then you do it on a quarterly basis, but and then seasonality under the old accounting regime. You wanted to keep bar was quite wide is there any reason to believe that seasonality from Q1 to Q4.
Changes materially under <unk> 17.
Yeah.
We'll use the mortality as an example, okay. If you look at the first quarter, we'd be nipped in the P&L.
Good growth in the C. S M a.
So it kind of creates noise compared to the previous regime. So I would say that it's early to tell what kind of.
I think the basic season into businesses to remain so the underlying fundamentals will be there, but that would be some elementary grew up by those yoga fee of that the accounting regime.
Okay.
Thank you.
Yes.
Our next question comes from Paul Holden with CIBC World markets. Please proceed.
Yeah. Thank you want to go back to the discussion on the U S operations and I guess quickly drill down on the core non insurance income line.
Big year over year decline has highlighted and I think he mentioned mix, playing one factor and I'd like to understand that mix change a little bit better and then second factor you mentioned was lower.
Dealer volumes, which we can see in your reported numbers, but what I want to understand their better like how quickly do those lower volumes flow through the earnings because my understanding is.
Earnings is more of an amortization function based on historical sales and so it flows through slowly overtime of sales grows but it looks like the impact this quarter was more than I would've expected under that convention.
Paul Thank you for the question.
Sadly in the U S wealth you have to remember that it's more for the service fee than anything else. So the impact is directly affected actually as soon as you'll see on the war you don't mean, because most of the administration you provide to the deed of under which you are making a profit.
With your margin I've been in the Windows Phase happened. So that's why the impact is almost emits yep.
If you look at on the insurance about Youre right that is amortize, but we reinsured 19, 90% of the business. He's reinsurer, so she's read them at the metrics behind.
Alright, and then it's just a change in mix.
The change in mix, he's really actually I will let Mike answer that one.
Mike Sorry, I was I was at home or on mute rather.
<unk> likes to just a shift in our in our.
Sales basically are writing more non affiliate business, there's lots of affiliate.
It is where we are.
Basically our administrative policies and ensuring them I guess and not affiliated with the insurer only so the margins in dollar terms on.
On non affiliate is is not as good as affiliate business.
Although it is very profitable business at itself.
And I would add that you know we saw a fluctuation as that scales depreciation for the quarter. We don't see at this point that this is a you know a trend that is going to last forever.
Got it.
I was going to be my follow up question is well what does that look for affiliated versus unaffiliated at least maybe I mean I understand that maybe they were already being some deviation in the quarter and long term it should return to normal, but what about short term prior to the factors that impacted Q1, maybe also relevant for at least the remainder of 'twenty three.
Yeah, I mean I think.
We made a comment somewhere along the way there that the outlook as you know we're sort of taken the position. They all look this is kind of soft and probably what we're seeing will continue for a quarter or two I'm hopeful it'll return I think you know.
Just talking to industry people that are you know inventory levels are improving.
And if.
The Oem's provide some let's say improved at San Jose I think sales could pick up.
There's a lot of pent up demand out there in my mind.
Okay great.
And then I see have you updated and changed your disclosures I think around the car who own portfolio, but just to get clarity. If you were to look at sort of the loss rate on the way you used to report it I think if I understand your disclosures correctly, it would've been down quarter over quarter is that because of that.
Correct.
Yeah, I would say slightly down.
Okay. Okay. That's helpful. And then final question for me I think I understand your messaging on expenses and again going back to if we were still under a press for accounting I think your message is expense experience would've been close to neutral does that correct, you're saying expense growth is high but it was expected to be high.
So it's no it's not impacting the guidance or the expected earnings is that correct.
I would say they would have bins.
And they got says expecting to reverse back because of a question of timing.
So we can see for the year pretty close to expectation.
But for the quarter slightly and he gets it.
Understood.
That's all the questions I had thank you.
Okay.
Our next question comes from Lamar parcel with core Mark Securities. Please proceed.
Thanks, So let me come back.
Hence they shop, when it seem reasonable that expenses and I'm talking about at the consolidated level could be up 20%.
Versus 2022 full year 2023 versus 'twenty does that seem reasonable to you.
I called linked to our business plan and the investment we're making in a war torn digital transformation yes.
Okay. Thank you.
And then I'm wondering if you could quantify the negative impact of the higher mortality claims in the Canadian insurance business, an offsetting gain in the CSM I'm really trying to understand.
What the core earnings growth would have been in the Canadian insurance business and what the experience losses would have been at CSM otherwise.
So that I think negative.
Yeah.
I, just hope that I remember the number well the mall I think it's 13 million pretax on the P&L and a 15 million on the CSM. So that's really what happened what I don't recall, if its pre or after tax sorry for that.
Okay. Okay. If you could circle back to me after the call maybe.
That'd be perfect and then what we see now that we have that that negative insurance experience.
Excluding.
The mortality benefit what was that.
Without them after it it would have been positive because the net of insurance sector was 6 million. They get Susan I just mentioned, we have 13 million.
Don't know if it's tax pretax so there remain the it depends on the sector. It was suppose to far you are through in AUM and some small older small items.
Okay. Thanks, that's it for me.
Yeah.
Our next question comes from Darko <unk> with RBC capital markets. Please proceed.
Hi, Thank you.
Maybe my first question just going back to the tax rate Jacques.
You don't have to answer now, but maybe.
Maybe it would be helpful for like an idea of the tax rate per segment, because theres a lot of volatility.
Some of the segments. So if you can come back to me that would be.
Very helpful for my modeling.
And my other question, though really is.
As for Jacques in L. A and it has to do with.
On page.
10 of your supplemental.
It's just the or 11 in the PDF file.
This would be the.
Investment core net investment result.
And before I ask this question, although I will say honestly that I have an idea.
Of the answer but I would like to just ask this for you on the record if if if Denny Ricard came to use shock and UL and said give me a forecast for this segment how would you go about doing it and what would the number be.
For 2023.
The of course looking at there's one question Darko, especially with the fact that under that regime, and we provided and I believe you have the information that slide deck, but at the Investor meeting and then win where we demonstrated that small businesses are affected by the economy and so it means that Nick.
First quarter core EPS, all affected by the macroeconomic around people and so that will be the first time. So we would have felt that yes, we do our best with them et cetera, et cetera, but they all things at all not under our control that we have to live with Oliver I would say.
That we all the margin okay. The margin that you will see there is really the earning expectation on a word I said portfolio over the.
Right.
Yield curve terrible use to value the different liabilities plus investment on surplus soda sees what these there. So it's not too not careful not to market for liabilities. So I would've expected I would say you saw the growth that we have.
Here you see what these happening and I think you can expect that it will grow at probably I would say eight to 10, maybe a little bit more than that it would go with the business X study because its a spread the word the asset and liability, but I certainly have if they are affected by economic count people on them.
Okay. Thank you very much for confirming that thank you.
Mr. <unk> there are no further questions at this time, please continue with your presentation or closing remarks.
Thank you and I guess Iraq is since we announced your retirement people are asking all the questions to you if they wanted to take advantage of your right.
Anyway I'd like to thank you all of you for attending this meeting I'd like to thank all suite, our employees, who worked so hard on Ifr 17, it's been I think the highlight of this quarter and the highlight of the questions as well because we all need to find some some benchmarking I guess.
It's going to take a couple of quarters for sure. So I guess I'd like to highlight a couple of things that are very important for us.
The fact that we are we truly believe in our earning power and we've increased our dividend by 13% a quarter is a testimony of that the fact that we've increased the EPS by 16% versus last year for us for and we are still believing that we are confident that we can deliver on our let's say.
The low end of the 13% to 18% that we provided is also I think a good testimony and they'll show it always keep in mind that the transition to a for a 17 for US has been a positive in terms of book value and also expectation of our EPS going forward.
And finally, the fact that a R M.
Capital for deployment and we've said it so many times and now it's reality, we've got $1 8 billion of capital to deploy and we're very pleased with that so with that thanks. A lot. Then this you next time bye.
That does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect. Your line have a great day everyone.
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Yes.
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