Q2 2023 iA Financial Corporation Inc Earnings Call

Yeah.

Greetings and welcome to the Industrial Alliance second quarter earnings results 2023 conference call during.

During the presentation, all participants will be in a listen only mode. 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 telephone.

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 Friday August 4th 2023, I would now like to turn the conference over to MS. Maggie I think but no head of Investor Relations. Please go ahead.

Good morning, and welcome to our 2023 second quarter conference call on our Q2 documents, including press release slides for this conference call and Dandy and supplementary information package are posted in the Investor Relations section of our website at I E C.

The conference call is booked into their findings show can you eat the major ended ugly.

I remind you that the questions here Yeah. These reserve for financial entities.

A recording of this call will be available for one week starting this evening.

Archived webcast will be available for 90 days and a transcript will be available on our website in the next week I draw your attention to their forward looking statements information on slide two as well as you know by far is an additional financial measures information and their notes regarding 'twenty 'twenty to restate those results under <unk>.

17, and I FRS nine on slide three.

Also please note that the detailed discussion of the company's risk is provided in our 2022 MD&A available on SEDAR and on our website with an update in our Q2 2023 M. D. M. He released earlier today.

Oh, sorry, released yesterday my apologies I will now turn the call over to Dennis Mccaffrey incident and feel.

Good morning, everyone and thank you for joining us on the call today.

Well I will start by introducing everyone attending on behalf of <unk>.

First Mike Stickney, Chief growth officer, and responsible among other things for our U S operations.

And then does all chief investment Officer.

Bundle Bunnia executive VP responsible for our mutual fund business and wealth management distribution affiliates.

How do you not fly in charge of individual insurance and annuities.

Kim Jong responsible for Ddos service scatter or you would do on a home Sean.

Shawn O'brien in charge of our group businesses.

And also I think his last earnings call today is shocked our chief actuary and CFO .

As you know Josh would be retiring at the end of this year. After 33 years of dedicated service for which I. Thank him on behalf of the board and the management team.

Over the years in addition to leading several strategic projects, including most recently the transition to <unk> and our flexible work from anywhere working model.

<unk> developed strong and genuine connections, which is teams and had a positive lasting effect on their professional development.

Our incoming chief actuary and CFO Izzy.

I've.

I've been with you for more than 29 years.

Yeah, I think that's probably the roles of increasing responsibility over the years, including in corporate actuarial services group benefits and retirement solution and most recently operational efficiency I wish them, both all the best for the years to come.

Now for the results yesterday, we reported our results for the second quarter.

I refer you to slide eight why I comment on the main keep your eyes core EPS is $2.39. She is higher 3% higher than a year earlier.

Quarter in which our results were particularly strong.

And 50% higher than in the first quarter of 2023.

Carl We are 14, 5% is close to our medium term target.

Our capital position continues to be very robust with a solvency ratio of 154%.

June 30th.

Our strong organic capital generation contributes to this solid result.

In Q2, it amounted to $150 million keeping us in line to meet our 2023 organic capital generation target of at least $600 million.

Business growth also remained strong with very good sales in almost all business units. This performance led to a solid 12% year over year growth in premium and deposits and a 10% year over year growth in our U S.

Yeah.

Finally, following a smooth transition to the new accounting standard without any impact on our book value.

The latter will continue to grow during the quarter, reaching 4% growth year to date.

Overall, our second quarter results confirm a very robust capital position along with continued sales momentum from almost all business units.

And increased profitability year over year.

Moving to slide nine to look at our year to date results I will comment briefly on the first six months of the year.

Since the beginning of the year, our core profit has grown by 7% compared with last year for.

For core EPS.

This is a good result, given the slower recovery in our U S dealer services division and the economic context.

However.

Following the recent developments in the environment, such as higher mortality and P&C claims as well as the worsening of the yield curve inversion.

On the positive changes occurred during the second half of the year. It now seems less likely that core EPS will grow by at least 15% over 2022 four as for results.

In 2023.

Okay.

Building on our on the robust company fundamentals business model growth potential and strategy, we continue to be fully committed to creating value for our shareholders and delivering average core EPS growth of 10% plus per annum in line with our midterm market guidance.

Looking at the other matrix, our solvency ratio is well above target car are we is near and midterm targets and our dividend payout ratio is well within target.

As far organic capital generation, we expect to reach our $600 million.

Target in 2023.

In conclusion.

Our strategy is and has always been based on the long term vision for sustainable growth.

On the strength of our solid capital position, we continue to invest organically in our future growth, particularly in our digital transformation, while looking for acquisition opportunities that meet our criteria.

With this in mind and in keeping with our purpose of making our clients feel confident and secure about their future.

Will it be able to continue to deliver average annual core EPS growth of 10% plus and to reach our core or are we target a 15% plus.

This concludes my remarks, I will now turn it over to Mike who will comment on business growth and following Mike Jacques will provide more information about Q2 results and our capital strength and we will then take questions Mike.

Thank you Denis and good morning, everyone.

In Q2, our business growth momentum continued in almost all our business units sales were particularly good in Canada and individual insurance dealer services auto and home for insured annuities and for our group businesses as well in U S. Individual insurance. We're also pleased with wealth.

Management sales results given the volatility of market conditions.

Sorry, you asked dealer services the environment continued to be challenging.

Now please refer to slide 11, as I will comment more specifically for each business unit.

Starting with insurance, Canada individual insurance continues to lead the Canadian market in terms of the number of policies issued.

During the second quarter individual insurance sales totaled $89 million a.

A solid result that compares to a strong quarter of $98 million, a year earlier, and which is 22% higher than the $73 million in sales recorded in the second quarter of 2021.

In addition to the strength of our extensive distribution networks and the performance of our digital tools. This good result was attributable to our comprehensive range of products.

Incidentally, we are constantly striving to offer new products to better meet our clients' needs with this in mind the company launched a new universal life product for the high end market in the second quarter, which was well received.

For group insurance results strong growth of sales drove net premiums up 6% year over year to reach $404 million.

Sales of employee plans divisions were up 8% compared to a year earlier and amounted to $13 million sales for special markets totaled $86 million up 25% year over year.

And the dealer services division sales amounted to $190 million up 10% to a year earlier. This performance is a continuation of past quarters with very good growth in the sale of P&C products, which include extended warranties and replacement and insurance up 21% from the same period in 2022.

As for our P&C affiliate I auto and home direct written premiums registered a strong result, with a 12% increase when compared to the same period last year.

Now turning to slide 12, which focused on wells on the wealth management business segment.

Segregated fund sales continued to do well as the company is still ranks first in Canada for gross and net segregated fund sales strengthening our leading position in the industry.

More specifically segregated fund sales totaled $829 million in net sales resulted in inflows of $188 million.

Mutual fund gross sales totaled $370 million of results similar to last year with net outflows of $139 million.

Together total net entries amounted to $49 million for the second quarter.

For insured annuities and other savings products second quarter sales reached $646 million almost tripling last year's result, we continue to believe that many clients of these products will transfer to their friends, who are segregated fund and mutual funds when markets become less volatile.

Finally sales in group savings retirement totaled $747 million in the second quarter. This represents a 7% increase year over year, mainly driven by a large transaction an inch and the insurer to annuity products during the quarter.

Going to slide 13 for our U S operations business segment sales of individual insurance division amounted to $43 million U S and are up 13% for the same period of 2022. This good growth was driven by strong performance from the middle and family and final expense markets.

And the dealer services Division second quarter sales amounted to 246 million.

Impaired to $266 million a year earlier. This result is mainly attributable to reduced affordability resulted from higher financing costs for consumers.

Assisting inventory constraints on a positive note. We are pleased with the eight awards received by U S dealer services at the 2023 dealer Dealers' Choice Awards for the second year in a row, we received the highest number of awards confirming how well we are perceived by dealers. Moreover, during the last quarter, we increased our dealer count for our <unk>.

Alex by 6%.

Overall sales results for the quarter, but also for the first half of 2023 are quite strong for most business units.

It shows that with long term vision and discipline, we continue to successfully generate solid business growth now I will turn it over to Jack to comment on our Q2 earnings and capital strength.

Thank you, Mike and good morning, everyone I will start with slide 15, which presents an overview of our profitability and financial strength for Q2 2023.

EPS increased by 2% year over year and <unk> for the last 12 months is 14, 5%.

The increase in earnings is mainly due to a 14% year over year rise in the core net investment results and the 11% increase in expected insurance earnings and Thats Shang overhauled car insurance expert <unk>, mainly as a result, our fiberglass boats.

Yes.

In terms of kept down we ended the first half of the year in a very robust capital position highlighted by our solvency ratio of 154%.

Ongoing good organic capital generation and sunk capital and risk management practices contribute to this capital strength.

Book value now.

Thanks to our prudent and long term management approach it was not affected by the transition to the new accounting regime.

During the first six months of 2023 are you book value increased by 4%. Despite the volatility expected from you for risk nine and 17.

Now turning to slide 16 to look at the result by hope everything business segment.

Indian Schranz, Canada segment core earnings of 91 million compared to a particularly strong results for the same period in 2022.

During the second quarter of 2023, a solid 12% year over year growth in expected earnings while it was recorded including a 27% increase in the CSM recognized for service provider.

Insurance experience in this business segment was neutral as public about long term Vicksburg Yancey number you plan and other smaller experience game.

ZIP by unfavorable mortality in Internet insurance and higher claims.

At the end of May.

They fall auto coverages due to inflation, but also as a result of weather events.

In the wealth management segment core earnings of 76 million for the second quarter were 15% higher than a year earlier.

This performance is a result of the 12% year over year growth in expected earnings for sick funds lower expenses and strong results from the distribution actually.

As far our U S operations Q2 core earnings were $26 million.

Chris.

In the instance that insurance division were strong.

Supporting the core insurance risk result, which is 15% higher than a year ago.

The result from non insurance activities was lower due to an unfavorable business mix and lower sales in the dealer. So this division also we continue to invest in digital technology to improve efficiency and client experience and will be well positioned to benefit from a fortunate days when.

So you just pick up again.

Continuing on slide 17.

Looking at the investment segment Q2 core earnings were 106 million compared to 74 million a year on year.

Scott took months isn't attributable to the corporate corporate 14% core net investment result growth.

Following the investment portfolio optimization that occur mainly throughout 2022.

Also the second quarter result was supported by the impact of the rise in interest rates in 2022, as well as a little working come tax charge due to the tax filing adjustment.

It occurs every year into.

Finally, our corporate segment recorded after tax expenses of 52 million, resulting from the accelerated digital transformation.

And then employee experience to support talent retention and regulatory compliance projects.

Looking at noncore items on the right side of the slides the impact of market variations in the second quarter was unfavorable by 72 million, mainly due to interest rate fluctuations during the quarter.

Please refer to slide 26 for more details on net investment results included gains core earnings.

Also this quarter at Samsung changes led to a post tax net reserve release of $43 million as model improvements and project. Some refinements we implemented following the transition to the new accounting standard.

It is worth mentioning that while non current macroeconomic valuation that the near term impact on the FERC out of 'twenty to 'twenty three the recent worsening of the interest rate yield curve inversion is an emphatic I both factor for core earnings in the short term.

Now onto slide 18.

Which shows our very robust capital position standing up 154% at quarter again, our solvency ratio is well above our operating target of 420%.

Organic capital generation of 150 million is strong.

And we are on track to reach our 600 million tons, yes.

Our solvency ratio continues to have little sensitive to macroeconomic variations and our financial leverage ratio at June took tier is low at 17, 3%.

As a result, the amount of capital available for deployment to support our growth strategy stands at one 8 billion.

This concludes my last remarks, as the CFO of <unk> and I want to take this opportunity to thank the two tanks the financial community.

What a pleasure it has been to work with you and to exchange with you over the years.

I also want to thank my team my colleagues the adult member and didn't.

The continued support and trust and wish them success in their continued effort and performing for all of our different stakeholders.

Okay I thought we will now take questions.

Thank you.

If you are an analyst and would like to register a question. Please press. The one followed by the four on your telephone you will hear it III pump technology a request. If your question has been answered and you would like to withdraw your registration. Please press. The one followed by the three once again to register a question. Please press the one four on your telephone.

Phone.

One moment please for the first question.

Our first question comes from Gabrielle Duchenne with National Bank Financial Please proceed.

Hi, good morning, I would like to start off with.

The growth for <unk>.

Drivers in the <unk>.

Targets for this year and it's.

Based upon a few of the items that have.

Oh affected the outlook there one.

The P&C business.

It's not as easy to see in your disclosures now how that one did you quantify like the.

Earnings year over year for PNC.

The size of the.

Cat losses, perhaps and then on the yield curve you mentioned the I don't know.

We've spoken or something but it sounds more like a recent phenomenon, but we got the yield curve inverted for quite a while but now I'm wondering if I'm just looking at the right.

Parts of the curve.

How much of an impact as the inverted yield curve have on the.

The earnings profile of the business.

So I was speaking about the P&C earnings although weather than it was at $2 5 million in Q2.

And and beginning of June beginning of July it's a post tax.

Beginning of July got warehouse, so advent in Quebec.

Understanding at this point you to would be the same kind of magnitude. So just the guidance for Q3.

About the yield curve.

In fact.

Why for the.

The P&C profit overall, because it's buried in the Canadian insurance I'm just wondering what.

The absolute number.

For profits there.

I don't have it on the top of my head I know that Ah I more I've compared to expect third compared to expected. We have 5 million after tax slower than expected, we were expecting less than last year because.

We knew that following the Covid situation people were driving more.

And so.

That's what you have on top of my head at this point and give it you.

Okay. That's good.

And ended up in fact.

You're right, we all exposed at all I would say it is the reason on the yield curve and every quarter. There are some evolution of our liability portfolio asset portfolio and that is something that varies from quarter to quarter.

However, at the end of the quarter, we like we said that was called the Phoenician we use we don't recognize movement of interest rate movement of crude that's right. So it means that at the end of the quarter. We have the new yield curve that will be used to calculate core for the following quarter and we're providing those sensitivity.

We're providing those sensitive data in our slide deck and what your win nuts is what we have not this with the current situation. If I wore a satellite demand matching in the yield curve. It would be a drag I would say between five and 10 cents over.

Over Q3, that's what we were expecting.

Right now.

Maybe one thing I'd like to yes, yes.

It's been you here just want to add on this because.

The investment you know careful may create some kind of noise.

When it happens.

But at the end of the day when you look on a long term basis.

Obviously positive yield curve is most of the time on what is happening and keep in mind that for IEP positivity that curve with the let's say the level of long term interest rates as they are right now I mean, they have increased significantly I guess.

It's a very positive. So my my my conclusion is that short term there was some noise in this inverted yield curve, which brings some dragon and the earnings but long term, it's very positive for value creation.

Okay and.

Good luck in retirement and enjoy.

Spending more time on the tractor.

Thank you very much.

Our next question comes from many Grumman with Scotiabank. Please proceed.

Hi, Good morning, I'll start off with Dave Best wishes Jacques for you.

Your retirement I think I speak for everyone. All the analysts you made our jobs easier. So thank you.

In terms of the question.

You highlighted factors impacting the growth outlook for 2023.

Previous answer you touched on on one aspect of that I'm curious as you look to 2024.

How are you viewing these factors in terms of how temporary they are and.

Is it you know what sense do you have in terms of in terms of those factors not being so relevant as we look into next year.

Well.

Let me start with let's say the P&C business for example.

This is short term business and short term is this a cyclical we've seen that through the through the years I mean, it's always been like that.

And the idea right now is that the industry is repricing.

So I can see that.

We are going through a cycle, where the results are lower and I mean, we've seen it for the whole industry, but the good news is that this can be repriced and so I see the light at the end of the tunnel here for that.

In terms of the mortality mortality I mean, and Jack can comment on that but it's more of an unknown I mean, we've had two quarters in a row with mortality that's been negative.

But we'll see.

Going forward and Chuck you might comment after but.

And the other the other point is the U S and in the U S. We're taking actions and it's I mean to some extent it's under our control also because we can take some actions were as Mike mentioned, we are emphasizing big time our growth strategy.

Getting new a new dealers are increasing the pipeline and so to some extent we can there's something we can do about it even if the economic context, or let's say the auto industry context is it might not be positive.

So at the end of the day when I look at everything and I'm very confident about the fact that we can deliver over time like a midterm target.

At 10% on an average of EPS growth. So our business model is very strong.

Is that because in the short term there's been some bumps that are it does change anything about our business model and Mike and Mike sorry, but the Doctor you might comment on the mortality.

In fact for the mortality when I saw the Q1 result, I really.

At the time it was purely a static calculate tuition and the effect of having the same kind of result in Q2, we did get more into it and there may be some part of it the top of it that would be a recurring probably.

We associate that to the aftermath of Covid in fact zinc of it if you recall when I spoke about three of them that I am seeing affecting mortality. The first one is people that permits relate die during COVID-19.

Di.

So again. So this is something that will have been posted for the fall of 2022 with Andover.

Got it and then posted CV is the fact that theres been a lot of research.

In medicine so.

Improving mortality, but this may be more long term mid term long term debt short term and the third which was then to get to me is the fact that during this transition people were not able to attend and go to the fusion as much as they were doing before so that's why I believe that he put the fact that they have a stronger back half.

Time, so that's the way we see it so.

We believe that.

Two thirds, Charlie if I were of that mortality could be affected by that and the remaining is the scale fluctuation. So we can come back like we saw in previous year.

Thanks for that and just wanted to ask on the corporate segment.

We've seen an increase.

In expenses, there and you highlight a number of factors for that and then again similar question in terms of.

How much does that persist going forward like when I look at some of the drivers that you highlight like.

Mike.

Related to talent retention and regulatory projects I think.

The labor market is changing and maybe some of these factors are likely to moderate relatively soon so I'm just curious on.

Negative $52 million in corporate this quarter.

How should we think about this number going forward can you kind of go back to what we saw sort of an early 2022.

So could you talk speaking Manny it won't come back to 2022 Lavelle for sure for the remaining of the year, we expect to be in the same ballpark as what you've seen so far in 2023.

In 2020 fall, we will see there is a big I would say compliance project, we're working on right now and this project.

The level of capitalization ease is low compared to most of the.

But nothing holes, but all older digital transformation project, we are doing so all of that all the way we manage we manage expenses over all of them.

The fact with ire for 17 is that some.

And even without that you first 17 down some expenses when you transform you've said that you can't capitalize some of those that you can not capitalized.

And this stuff it's when we work on the project sometime that we all get built to have their real value. So when we do <expletive> gas, we don't have exactly ALDA.

Solutions for some time, we may be off a little bit and this is a thing a little bit this year on the P&L, but that's not the big Ecmo and Joe the only man hours. So he's the she will get a few of expenses of what.

The P&L versus what.

What effect the CSM, so there will be some refinements in our model.

For next year, but for this year overhead expenses were okay. It's just that the P&L is slightly negatively affect that so far this year.

Thanks for that.

Our next question comes from Doug Young with dish I think capital markets. Please proceed.

Hi.

Maybe we can start with just the assumption changes shot can you talk about what that was.

Now you talk.

<unk> modeling refinements and stuff like that that I mean, it's not an insignificant number so I'm curious what it was and can you talk about the mechanics of how this works like why does it positive positively impact earnings negatively impact like at CSM can you talk about the moving parts.

Hello, Doug.

In fact in fact.

No are you first 17.

It's a brand new big fan Dugan, we have two chance valuation of all insurance product.

Hum the organization. So it's not now that we have unmatched your processes and there are some places we would find refinement. So we were still finding refined Monday night, you first fall and it has been therefore for quite a long time. So this is not what is happening this quarter, we've made skew.

Yes.

I would say improvement.

We will go with the mechanic first when you do business change related to extra the Caribbean like mortality lapse smoke.

Expenses this will flow through the CSM.

But it is calculated with the locked in rate and you have to do a second calculation with the current rate and.

Just friends between both calculation will go through the P&L, so down even for those actual decrement the big pop would be in CSM ripple effect in the P&L and if you move your economic assumption your valuation assumption for like <unk> did goes directly to the P&L.

And so specifically for the refinement. We brought this year there have been some refinement on the CSM was more of a boardwalk pop product we modernized product.

And on the.

P&L it while it has to do with a refined plan about the trend.

Instrument, we are using to support our long term liability I will speak more about the.

And Frank options, so we improve our modernization and the warehouse segunda demand that he's ready to reflect not kept the expectation for the expected credit loss return than our own expectations. So that's where the big element depth, where we've refined this quarter.

Okay, you and I may have to sit down and talk more about this but I'll leave it at that.

For the call.

Thinking of the second question CSM.

The impact of new insurance business declined 13% quarter over quarter Denny talked about how sales were strong and if I look at Canadian individual insurance, yes quarter over quarter was flat and I assume that's one of the bigger drivers of that particular mine.

A mix impact what else drove the decline in that line item and the CSM.

Okay.

Sorry, again on that previous question I should mention that we're working with our partners.

Do you have more than 30 billion. So when you said earlier that it was a big number it's not big number when you work with a top 3 billion.

Yes.

Okay about the CSM phone you say so if we look at Taco Bell Corp. Her there are few of them in there.

The phase we're nowhere like you said also there has been a business change that we made at the end of Q4. So in the CSM, we reflect those new assumption.

And it doesn't affect also the business mix like you said.

And keep in mind Guy he's very important CSN doesn't rejection of CSN doesn't mean that that business will be worse, because it depends on the product you sell a long term guaranteed product will have a high your CSM, even if it's less profitable that the term product so keep that in 19th Bergen.

Important so.

That's why we prefer organic generation of capital that kept through the course of kept all of the capital required to support the business is very important although 11 or so there have been some reallocation.

Sure.

Statements or information.

Package in fact in fact, there were element that last year, we consider as a new series and we add back.

Back in the gain and loss. So we reclassified that then it has a negative impact on the value of new site as well.

This is what I explained.

Those number.

Oh, Yes, and then if I can sneak just one last one in Atlanta.

There's been a $28 million Mark on your investment property this quarter $48 million year to date.

A little higher than we would have expected can you talk about details on this business. All office, Canada is there other region I don't think you really have a big exposure outside of Canada, and then just a bit on the outlook for that investment property portfolio.

Sure sure first of all Youre right its a 100% in Canada.

Yeah.

And as you see we have an overweight in <unk> and <unk>.

Office space in the office.

It's a sector in the real estate right now that there is some uncertainty uncertainty.

Yes.

I don't expect that the headwinds will start tomorrow.

On the other hand, if you look at the quality of our portfolio.

Even if there is a lot of uncertainty in the short term.

This should help mitigate the impact think about our leaf starting with a weighted average lease term is nine years.

We have a lot of good governance leases in the portfolio is unlevered.

Another thing I would mention is that the recent activity.

Okay.

We can see that.

And if you look through the numbers, you'll notice that the vacancy.

Went down very slightly.

Youll also notice that actually you will notice what I like to hit in Q1 and Q2.

Sure.

Net new leases has been greater than the termination. So that means that this is a leading indicator of things getting better.

And finally, when I one thing I would say is that we have sown.

Potential upside in the portfolio.

We have a few value creation opportunities that we are pursuing of course. This is not something for the next quarter, but this is something that midterm.

There is some upside in the portfolio.

Great. Thank you and Jack all the best in retirement. Thank you.

Thank you very much Doug.

Okay.

Our next question comes from Paul Holden with CIBC World markets. Please proceed.

Thank you good morning.

I guess, where I want to start is try and.

Get a little bit more.

Or I guess narrow the range of 2023 guidance. So when you say no longer expected to be about 13%, but you seem to be reiterating the 10% growth objective over the medium term.

I kind of think of a range of something like 10% to 13%.

Is there is that is that a correct interpretation of what youre trying to tell us or because it because of the headwinds that could be something less than your normal medium term target.

It's been you here I think it would be fair to say that and we've seen that over time that there are some years, where there's been more bumps and we've hit list something lower than 10% in the past after six months, we're about 7%.

So to get to the what you were talking about here to 10% to 13%. They would be they will have to be a significant turnover about the various factors that we mentioned.

So.

Under that condition it could happen, but so far if it was six months, 7%. So it's your guess here, but we've seen in years, where it's been more than 10%, but 10% is an average so some years, it's higher some years is lower.

Got it okay.

Just wanted to drill down a little bit on the expected investment in time, it was down quarter over quarter.

Is that related to the yield curve inversion or is there something else going on there.

And maybe as part of that question as well it gives us a sense of sort of what we should expect in future quarters.

<unk>.

<unk> speaking.

Has to do with the huge.

Moving that happens in Q1, so I see as the main eight and then therefore to other than a year, we bought back the share and if you look at the as you'll get a feel of where it is a nice package reduced investment income because we no longer magnesia, Seth and the cost of the prep work.

On the other line. So there was an amount there and also where less slightly less in invested in EF high during the quarter, but mainly sense risks.

Okay.

Understood.

And then last question for me I guess on the U S dealer services business and the warranty in particular, so when I look at the data points coming from from the industry. It suggests.

Higher light vehicle sales. It suggests some improvement in used car pricing suggests some improvement in dealer incentives inventories.

Inventories are certainly building so theres a number of factors that.

I would look to that would point to improving industry fundamentals may be not big step function I get it but at least Q2 looked better than Q1. So I'm wondering if there is something I'm missing here that remains a challenge and maybe it's simply just financing costs are high and therefore, our sales are low but is it not practice I think.

Things are at least sequentially getting better for that business.

Hey, Paul its Mike.

Yes.

I'm agreeing with what Youre, saying Oh those are those are the positive things going on and things are improving.

There continue to be some headwinds at the same time, though is just how it all plays out.

I guess.

You see it in the overall sales, whether it's cars or insurance some.

Some of the headwinds.

As much as vehicle pricing is improving and there are some incentives.

The data we've seen is that.

45% of new car sales were still above MSRP in in the second quarter. So obviously that kind of means prices are still high we're not definitely not back to pre COVID-19 levels.

You had mentioned that used car prices are coming down.

That is true and that's what we're seeing as well, but strangely enough used car sales are not showing any increased new car sales had a pretty good increase but used car that may be just the average consumer.

For a used car is somewhat constrained and higher interest rates whatever concerns about the economy.

And I guess the other.

<unk> factor and as I mentioned last quarter higher interest rates I see it as a headwind tailwind rather just in terms of.

We're seeing more penetrations on in terms of insurance products with car.

Penetration of insurance products per car kind of thing and we're also seeing the dealers are the F&I people selling more value products as well as a way to squeeze in some insurance into the.

And to the contract, which is better than no sale, but obviously, it's a bit of a headwind overall.

So you know.

At this point I am feeling we're getting and gradual improvement I'm feeling kind of optimistic and that we grew our sales quarter over quarter.

We're increasing our <unk>.

<unk> count, but yes.

We're nowhere near pre Covid levels.

Sort of where I see it.

And sorry, just to follow up on that in terms of like you expanded your dealer relationship 6%.

And I think sales are down roughly seven year over year. So if I think going forward as those new dealer relationships roll on and then maybe something like a net neutral impact on overall sales is a reasonable expectation is that is that a right way to think about it.

It is a positive if you're going to do is you should be able to add sales.

Okay. Okay. That's it for me and again, thanks for all the help over the years and congratulations and enjoy the retirement.

Thank you very much.

Okay.

Our next question comes from Tom Mackinnon with BMO capital markets. Please proceed.

Yes, Thanks, and good morning, and just to start say, John all the best and it's been I've enjoyed our discussions and our and.

And all the best to you and thanks for all your support.

So the first question just on the core tax rate kind of running at around 18%. I think you guys have been talking sort of like 'twenty one 'twenty two.

Just some color as to what happened there and.

What the guide is and I have follow up thanks.

Hi, Thank you very much for your good warm and above the core tax rate. Yeah. We we said 21% to 23. So I would say you can use 22 as the run rate our profit is a bit lower than expected. So.

Okay.

These are just a bit lower end up what that brand is in fact.

True up and fjords aren't going to remember that we have the Cif stuff. So usual tax stuff that back then.

Yeah.

Right.

Insurance company.

Okay, Thanks and.

If we look at the organic capital that you generated that went up quarter over quarter and you talk about all this noise associated with the yield curve movements and things like that.

It doesn't seem to have impacted capital generation.

Can you talk about the outlook for capital generation is still sitting on the 600 million guide this year, how much does that increase going forward and what are the things that.

You would point to that would change this $600 million guide that you've got for 2023 for organic capital generation.

We're still on for the 600 million in fact.

Even if profits is slightly lower I would say capital requirements for business slightly.

Yeah.

Lower as well because of the business mix, we are selling.

So we are still fine with that.

And you can see the trend and back on the slide the macroeconomic.

Have you run an impact that's been a negative impact this year, but for you or just spend has been positive so.

Sure.

We're still very optimistic about our 600 million.

And the launch with the new UL for high end market that has no impact on that as well that's not going to.

Is that going to add to this or be neutral to it.

In fact, the product price according to our positive they stand dog, how their product as well. So we just hope it will increase sales and that's exactly why we developed such products. So it will help by bringing more profit.

Okay. That's good now then as a final question I guess, given the optimistic outlook here for organic capital generation, which.

Is I believe is a key.

Performance indicator for the company and a $1 8 billion of excess you're currently sitting on.

You're very comfortable from a capital generation standpoint, and an excess capital standpoint, so yes.

You have been buying back a little stock why not pick up on that more especially if there's any potential.

Weakness in the stock price.

Assuming you would believe it would be attractively priced or what are your other plants for it I mean, you talk about investments into digital spends in the company but.

You can take.

Take that question for us thanks.

Okay.

I'd like to comment on that.

<unk> here.

Great question and I get that question.

Obviously several times.

We're in a very very good position.

And in terms of allocation of capital.

Certainly the investment in technology is very important.

Organic growth.

It's key for us and all our products we are generating.

More than 15%.

You know.

Ro.

And second obviously, we look at acquisition and in terms of acquisition.

We always have some files that we're looking at right now I would say that at this point probably more on the life insurance side, when we look at the U S.

Versus.

U S dealer, where it's more like a tuck in acquisition.

At this point. So we are we are on the lookout.

We are actively buying back shares because we are generating so much excess capital as we go. So we are in it in a very great position to grow the organization and just keep in mind also that will stay quite obviously prudent and disciplined in the way that we acquire organization if we do.

There is something that is very important I mean, we've seen a lot of files, where we just you know.

Because it didn't meet either our strategic intent or.

Financially it didn't make sense. So we are we continue to be very disciplined in the way we allocate capital.

Okay. Thanks.

Our next question comes from Mario Mendonca with TD Securities. Please proceed.

And Chuck first for you. Thank you very much for the sort of free education, you offered me and everyone else as we especially as we got through life for 17, and all the best to you in your retirement.

Yes.

Let me get started by first asking a question on insured annuities I understand the dynamics and what's driving the growth in insured annuities, what's less clear for me under eye for 17 is how it gets reflected in your results is this something that would that growth in that asset base would it be reflected in the CSM amortization in that segment, the wealth management segment or would the spread income recaptured.

Our net investment result.

Yeah.

Thank you very much all you can work in our view.

It would be in the CFM. So you create CSM flexible.

When you sell Damnatory TSM, so I'm not <unk>.

And to the division to the wealth Division.

And of course that will be some investment revenue as well as to manage that spread there.

Which is.

Which would be the trend between the expected inject small will ensue and I would say the net core investment income.

Okay. So most of it is goes through CSM, but a portion of the spread.

Okay.

The references you made to inverted yield curve and the effect that that could have on your on your results, where where is that seen as that seen in the investment result, it would seem logical that it would go through the investment result, or is there something to something else.

You're right it's there.

Were you implying in your response when you said five to 10 cents. I think is what you said you were you, suggesting that it would be five to 10 cents worse than what we saw in Q2 'twenty three is that was that.

Yes.

Yeah, Yeah, it's comparable to Q to Q2, what I said and in our view that there are some people in fact has interest rate yield curve.

Some effect on the risk adjustment and system, because you have to calculate them, but its minor compared to what we call net investment. So most of the impact would be net investment. Okay. Next question real quickly. The U S. Dealer services you were focused on the two two quarters, you referred to the mix being unfavorable to the sort of margins you <unk>.

Right. There could you remind me what you mean by mix in U S dealer services and talk about the dynamics that are impacting that mix.

Yeah.

The mix.

Product, but also mix with the distribution that should use non affiliate.

The debt.

It's just puts the ball with the.

So this is what we're referring to when we speak about.

Distribution mix.

The non affiliate would be growing in the affiliate that'd be great.

Maybe Mike you would like to get some some details out of this.

Yes, it's just.

Marketing stuff.

Sometimes the market moves one way or the other.

The non affiliate clients, we have are doing better than selling more.

It's kind of a short term fluctuation that's why I see it.

And it's very profitable business, but profits as a percentage of the of the sales or revenue or lower but it's still quite profitable we're happy to do that business.

For some reason the affiliates.

Channel just isn't keeping pace with the non affiliates.

Right now that's the case, yeah, Okay, and then finally, our mortality if the company were to adjust the mortality assumption.

At some point down the road, but it more likely go through CSM or through P&L.

He will go through CSM.

Thank you very much.

Yes.

Yes.

There are no further questions at this time.

Okay.

Okay.

Okay.

Okay. Thank you.

Stinker here I'll take the I'll take that Mike.

Alden Ah just before I go with my conclusion I'd like to again, thank you Doc.

And also just to assure that the market <unk> is working very closely with Eric and the transition is going very well so.

You will realize over the next two quarters, we have lots of bench strength of this organization.

Well just to conclude the business model as we've said to date is.

That changed at all.

We are we have a lot of trends in the second edition capital is very very strong at the end of the Z Capitola skiing.

So we have all the tools that is necessary for us to grow.

Now for us to execute.

With that said I wish you a do you have an uptick in your location. If you wish you a great vacation certainly we.

We will take some vacation over the next couple of weeks and come back it with lots of energy. Thanks a lot.

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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