Full Year 2023 iA Financial Corp Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the industrial Industrial Alliance 2023 fourth quarter results Conference call. At this time all lines in a listen only mode. Following the presentation. We will conduct a question and answer session. If at any time during this call you require immediate.
Statements. Please press star zero for the operator.
Call is being recorded on Wednesday February 22nd 'twenty 'twenty four I would now like to turn the conference over to Maggie ethnic Bono. Please go ahead.
Good morning, and welcome to our 2023 fourth quarter conference call all of our Q4 documents, including press release slides for this conference call supplemental information package and annual MD&A posted in the Investor Relations section of our website at <unk>.
He does see this conference call is open to the financial community at the major in the public I remind you that a question for Ian just reserve for financial Analyst a recording of this call will be available for one week. Starting this evening you archive 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 the forward looking statements and information on slides two and three.
Well as there are no <unk>.
And our additional financial measures information and Douglas regarding 2020 to restate those results under Ias 17, and <unk> nine.
On slide three.
Also pleased that a detailed discussion of the company's rich is provided in our 2023 MD&A available on SEDAR and on our website I will now turn the call to over to <unk> President and CEO.
Good morning, everyone and thank you for being with US on the call today as usual I will start by introducing everyone attending on behalf of <unk>.
First <unk>, Chief financial Officer, and Chief Actuary.
<unk> Chief investment Officer.
Defensible bundle is responsible for our wealth management operations.
Good afternoon, and charge off individual insurance and annuities.
Yes.
Chief growth officer of our Canadian operations, and responsible for Bureau services, Canada, and Io twin holes.
Shawn O'brien in charge of the group businesses.
And Mike Stickney, Chief growth officer of our U S operations and co head of acquisitions.
We're here today to present, our Q4 results a quarter, which we ended with a robust capital position.
And in which almost all business units performed very well in terms of both sales and earnings.
Starting with slide eight for an overview of our fourth quarter results.
Core EPS of $2 34.
It reflects this good performance.
Excuse me, which was however negatively affected by the immediate impact of new business in group insurance.
Looking ahead. These group insurance contracts are expected to contribute positively to future earnings and overall growth.
Hello all.
On a trailing 12 month basis was 14, 4% for 2023, which is which is aligned with our mid term target.
With the solvency ratio of 145% our capital position continues to be very solid.
It is simple supported by our good risk management practices.
Strong organic capital generation, Indeed in 2023 with.
We generated 600 million of organic capital, reaching our annual targets.
Business growth was also strong in almost all our business units and we concluded 2023 with assets under management and administration up by 11% year over year.
Premiums and deposits increased by 8% year over year.
And as I measure to which we attach great importance because of its unbiased assessment of the value created for investors is book value.
We were therefore very pleased at the start of the year that our book value was not affected by the transition to <unk> nine and 17.
And we are equally pleased to see how it grew over the course of 2023.
Our book value per share of $66 90 at yearend recorded a substantial increase of more than 6% or 8%. If we exclude the impact of share buybacks.
Now to slide nine to look at Q4 business growth for the insurance Canada segment.
Individual insurance in Canada delivered another very good performance with sales of $95 million during the fourth quarter rounding off a strong year end sales and confirming our leading position in number of policies sold.
This result reflects notably the strength and diversification of our distribution networks as well as the high performance of our digital tools, providing our advisers and clients with simplicity and flexibility.
In group insurance premiums and deposits increased by 4% to $487 million.
With several renewals of large groups.
In the dealer services Division sales continued to be strong, reaching $160 million up 8% over the previous year.
This result brought sales for the full year to $686 million to achieve a solid 12% increase over 2022.
Our leading position in Canada, our comprehensive product range and our extensive distribution networks contributor to this very solid results, regardless of the rather challenging macroeconomic environment for buying we're proud of our end consumers.
Finally, <unk> home generated solid growth in direct written premiums in the fourth quarter reached.
Reaching $116 million.
An increase of 15% over the same period last year. This result was supported by the strong retention of enforced business.
Turning to slide 10 to comment on wealth management sales results wherever we did quite well despite the difficult environment, particularly in the fund sales industry.
Indeed, the company continued to rank first in 2023 in both gross and net <unk> sales.
Gross sales of sick fund reached $837 million.
Up 19% year over year.
Net outflows were registered during the fourth quarter auto positive for the full year 2023.
Mutual fund sales over $393 million were up 12% in the fourth quarter without growth in line with the industry.
However, positive combined net sales of $83 million for 2023 were recorded.
Hey, Good result in this environment.
Meanwhile, clients continued to favor a cash equivalent products and sales of insurance annuities and other savings products increased significantly to reach $711 million properly in 2023 sales to nearly double last year's level.
Finally in group savings and retirement, good sales of $534 million at the fourth quarter compared to those of a very strong quarter in 2022, when sales have totaled more than 1 billion. Following the signing of several large groups.
Now looking at slide 11 regarding our business growth resulted in the U S.
Yes.
In our individual insurance division sales continued to be strong totaling $44 million U S. Dollar. This is solid 19, 19% increase from a year earlier, bringing.
Bringing sales for the full year to a record high.
This performance is driven among other things by our strong distribution channels and.
It confirms the growth potential of this market as we continue to strengthen our presence in the U S.
In the Ddos services Division fourth quarter sales amounted to 200 to 227 U S dollar million compared.
Compared to 241, a year earlier as higher financing costs for consumers continue to have a negative impact on sales of F&I products.
While we wait for the environment to become more favorable we are taking action to improve sales and profitability and to be well positioned for the recovery such as expanding our distribution channels.
Turning to slide 12 hour a comparison between 2023 results and our midterm guidance.
Therefore, the core EPS, which is 4% higher than 2022 restated results all metrics compare favorably with their respective targets.
ROE of 14, 4% is well aligned with our mid term target of 15% and above.
And by deploying our available capital, we will accelerate that.
<unk> of our mid term profitability targets, including ROE expansion.
Our solvency ratio is well above our operating target.
Both the dividend payout ratio and organic capital generation are on target.
Noteworthy, we expect organic capital generation to remain strong and our target for this metric in 2024.
<unk> be $600 million or more.
Now looking at slide 13 for an overview of the year.
We can see that 2023 was a very good year on most fronts.
Sales and profitability were very good in almost all business units.
Our capital position is robust and supported by a strong and ongoing capital generation.
Our book value EMEA.
EMEA trick for which he has a strong track record.
Continues to grow very nicely.
We are progressing well in our distribution sorry in our digital transformation.
We returned value to our shareholders through a 14% dividend increase and the buyback of nearly half a billion dollars worth of shares.
And we still have $1 6 billion in capital available for deployment.
That brings me to our outlook for 2024 on slide 14.
And insurance, Canada, we expect our sales momentum in profitable growth to continue at a good pace.
And by our high performing distribution networks, leading edge digital tools, and well position assumptions and pricing.
In wealth management, we expect our sales momentum and overall strong performance to continue.
Particularly in the <unk> funds.
And even on our distribution subsidiaries.
In our U S insurance Division, we intend to build on 2023 record sales and the various city acquisition.
While in our dealers division, we're taking action to gradually grew sales and earnings.
As far our investments we will continue to focus on asset liability management.
Maintaining a very high quality investment portfolio.
Finally, we will continue to invest with discipline in organic growth and digital transformation, while growing earnings using the same level of corporate expenses as in 2023.
A solid target given inflation.
All things considered we enter 2024 with optimism and confidence in our ability to create value and successfully pursue growth.
I will now turn it over to Eric.
We will comment on Q4 profitability and capital strength.
And we will then take questions Eric.
Thank you Denis and good morning, everyone.
Starting with slide 16 for an overview of Q4 profitability and financial strength.
Our EPS of $2 34 includes the image yet additional negative impact.
<unk> around 11, seven EPS arising from new business and group insurance, which should however be positive for future profitability.
I will comment further in a moment about this.
Q4 earnings were supported among other things by the expected insurance earnings growth combined with favorable car insurance experience gain of 18% year over year increase in core net investment results.
The net income to common shareholders of $248 million in Q4 is higher than the quarterly core earnings result, mainly due to favorable impact of macroeconomic variations.
Note that these two metrics are already converging to some extent as Q4 is the second quarter of 2023 for which our reported earnings exceeded core earnings.
Our financial position to continue to be very robust supported by organic capital generation.
As far the book value per share excluding the impact of share buyback in 2023, it increased by 8% during the year.
Now turning to slide 17 for our results by operating business segments.
In insurance, Canada core earnings of 78 million compares to an abnormally high.
Forest restated results for Q4, 'twenty to 2022 that includes $22 million of mostly unusual gains in the context of the accounting transition.
In addition, the Q4 2023 results include an important impact of new business of 26 million pre tax from our employee plan group insurance business due to the renewal of some large groups in Q4.
This negative impact and to be recorded in Q4, but the expected positive impact on future profitability is much greater.
Insurance experience, while also in line with expectations and for the second consecutive quarter mortality experience was close to expectations.
In the wealth management segment fourth quarter core earnings of $91 million were 30% higher than during the same period a year over year as a result of good business growth and lower expenses.
Net.
Earnings from Sig funds annuities were strong with a 20% year over year increase in expected earnings and favorable insurance experience.
In addition, core non insurance activities grew by 33% Q2, another solid performance from distribution affiliates.
With respect to U S operations core earnings amounted to 26 million in the last quarter of 2023, compared with 27 million during the same period of 2020.
The individual insurance division continued to deliver strong results with favorable mortality experience leading to a 15% increase in the core insurance service results.
In the <unk> dealer service Division Carl non insurance activities were lower than planned last year due to reduced profitability for clients from higher financing costs and vehicle prices.
Continuing on slide 18, with the investments segment Q4 core net investment result was 18% higher than a year ago, leading to strong core earnings of 95 million for the quarter.
This performance is the result of the investments for portfolio optimization, and the favorable impact of a year in interest rate asset.
At September 30th.
Finally, our corporate segment recorded after tax expense saves of $54 million.
These expenses represent only a fraction of our expenses and ready to among other things to the investments for our digital transformation and our M&A prospecting activities.
The Q4 result was near our expectations.
Please note that we target the same level of corporate expenses in 2020 for us in 2023, which is a good target defended current influx here in that environment.
Now looking at the non core adjustment, which are presented on the right side of the slide Q4 reported earnings were higher than core earnings as the favorable market related impacts differing from management long term expectation were only partially offset by the impact of assumption change.
Just management action and other usual smaller adjustments.
Moving to slide 19 to look at the company robust capital position.
Our solvency ratio was unchanged at 145% at the end of the year and is well above our operating target of 120%.
During the quarter discoverable impact of organic capital generation and favorable macroeconomic variations were offset by capital deployment activities, mainly share buybacks of $171 million.
During the fourth quarter, the company organically generated $160 million in additional capital for a total of 600 million for the full year.
We therefore achieve our 2023 target of at least 600 million in organic capital generation and we maintain the same target for 2024.
Finally, our balance sheet is flexible with 14, 6% leverage ratio and $1 6 billion and deployable capital for organic growth.
Digital transformation and acquisition as well as dividend and NCI.
We are pleased to announce a dividend increase of 7% totally.
Since the transition to <unk>, our dividend is therefore, an increase by 20% demonstrating our commitment to returning value to shareholders.
Continuing on slide 20, showing the results of our assumption review.
Under the Ifr Ias 17 accounting standards. The result of assumption changes and management actions and in fact that Ricky.
With new wins in the first quarter and is being implemented in the in Q1 off of the year. So what has happened in Q4 is that we.
We have to renew some groups and it's not all process for the first quarter of 'twenty, when you're full and that we add some investment.
It's normal business.
For this but we have to renew a couple of larger groups that generated.
This additional strain and but that being said.
Those group, we're happy to keep them because they.
We know the clients and they will generate future profits in the coming years. So that's one piece of the equation and the other one has to do with new business.
The acquisition, we were able to.
Win some accounts that also required a bit of investment to audit the strained at issue in those group will generate profit as well in the in the in the coming quarters and years and what do you as a CFO as I look at this business.
Those future profits.
Or will be.
Is it both in the CSM created by this segment and the risk adjustment as well and when I think about this as a CFO as long as those two buckets.
Later than that the strain that was contract and delivers on the target ROE of the company.
Comfortable with this and I want to see more so so I wouldn't look for.
Our run rate on this item.
For something that makes sense for us and is profitable in the long term.
Okay, and then the follow up questions with respect to corporate expenses they were up significantly in 2023.
And now you're guiding them to be flat.
2024.
Does that mean a lot of your extra spends too for digital digital enhancements this kind of complete now.
I mean.
Is there any fear you're gonna be underinvested in this regard going forward.
I guess, what gives you confidence that you.
Have done all the heavy lifting with respect to these expenses in 2023 and that you can keep them flat in 2024 and still be able to.
Uh huh.
And without fear of being Underinvested. Thanks.
Yes.
Thanks again, Tom for the question I would start first by saying that we're never done with the digital transformation you know with digital reality. This is a non going thing that we need to get used to so so we have that ramp up in 2023 compared to $22 22, Europe Saluki right.
But we are confidence right now with our capacity and we.
We prioritize internally.
Those projects to be able to sustain the corporate expense at the same level as it has.
2023 fall 'twenty 'twenty, four which you know is kind of good targets in the context of high inflation environment, but when we look at what's coming in front of US we're confident.
That we would be able to manage.
Within <unk>.
<unk>.
For 2024.
Okay. Thanks.
Your next question comes from Gabrielle Zhou Chen from National Bank Financial. Please go ahead.
I'm sorry, if this is.
Repetitive.
To the last question I was distracted but the.
New business strain on our group contract I would assume that's a CSM.
CSM the profit emerging from that is pretty short duration like two maybe three years is that Mike will be seamless.
Stream recouped in short order.
For Wheeler real people.
<unk>.
Yes, yes on this one that.
The normal practice in group.
<unk> is that group when you acquire them and in a prior year goals with a cat year. The group will see between 5% to seven years. So.
So when you win cure a.
Strained at issue.
You expect to recover and make your target profit within that five to seven years. So that's always look at this at this business. So you are right that in.
We should recall that.
Strain in a couple of years and X 12, new walls between the five and seven years with deliver accompanied target profitability.
Okay and just.
So Andre.
Understand that even though.
Better the reason.
Any extenuating circumstances to explain why the number or the.
The extreme number was so large this quarter.
Or was it a.
This happened to be that.
<unk>.
We have two large very large customer of ours in them.
A couple of other new fields.
And then.
What kind of investments are you talking about when you say there were some additional investments required to.
So bring all of these customers.
The yield of this result.
Yes that will start to get there yet.
And then to Sean.
Our leader on group insurance I would see first that we had a couple of clients remember you might not have heard but I said that in group insurance a lot of business is kind of renewing on January one.
That's one key element to keep in mind and second we added a couple of big accounts that were falling into that bucket of renewing on January one. So we knew those clients. They would they worked with us for a long time and it was no launch.
<unk> for them to go up market, and we decided to invest in retaining those clients as the CFO when I when I look at this I love when we keep those big groups that we know the experience and that we're comfortable with the business because.
When you think it's better to keep a client that you know and that in depth.
Trying to acquire a new one because you had a lot of acquisition costs and implementation costs to incur to acquire new business. So when I look at those renewals I kind of see them separately as long as we are with the business. So so this out with the ended too short to see if you want to add anything.
Yeah. Thanks, Eric I think you covered it fairly well Jamie just a couple.
In the quarter it was about 80% renewals, 20% new confirmations in that similar proportion to what we've seen in and the stream relative to premium was also very stable. So it's consistent we're not seeing an added investment. It was just we had like Eric said.
A few couple of larger accounts that renewed which is great news for US I think we're seeing good.
Good results on the retention side, because the last 12 months, our ethylene really strong for our plan members. So a real focus on operations and delivering good service and I think we're kind of standing up being recognized for that and some of them are some of the rules were seeing so no. This is excellent news for me. This reflects our long term profit and.
And healthy group business.
Okay.
To the U S.
In your outlook or strategy slide there if youre one of those call but.
There was one line and they're talking about taking some actions I'm paraphrasing, but taking some actions to improve earnings and growth of the business have you.
Expand on that.
So we can better understand what you're doing and I mean, a lot of the business relies on auto sales volume right, we're talking about but warranty business in particular.
Outside of your control so what can you do too.
Reverse the.
The trend here of.
Declining sales in that particular business.
I'll leave it to Mike to answer, but just before I would say that youre right to say that the the.
Car sales at industry car sales or used to be a good proxy for the tail of our sales.
But.
Very recently, we've seen kind of deviation from that from that trend and then I guess, Mike is going to comment on it and then also about the actions that we're taking here.
Sure. Thanks, Thanks, Denny and Gabriel.
Yes.
For years I've been involved in this kind of business in both countries and there's always been a pretty good link between.
Car sales and F&I sales as it seems to have decoupled here lost.
Year or so so it's obviously a tough environment.
We're not doing any or not doing nothing I guess.
Our number one priority is to grow the business.
And I've said this before.
It still remains.
<unk>.
And actually we did a pretty good job of signing new accounts in 2023.
It's more or less in line with my expectations or our expectations.
But obviously lower penetration rates.
The market is actually right now shifting to selling lower priced products.
That's kind of offsetting the effect of these new accounts coming on stream. So.
It's good that we're doing that and we're going to continue to do that but.
Some point are we going to see the bottom oval penetration rates I think.
Another thing we're working on now is to increase prices on all of our products.
With this environment, we're starting to see claims ratios trending up.
It just started to happen in the last two quarters.
And the reason that at a high level. The reason this is happening I believe is that people are keeping their cars longer.
Spar reservoir exposure and secondly, there is some amount of inflation on parts and labor, which obviously FX claims costs as well so that action as it started up in the fall of this last year rather than.
We'll carry on right through two.
2024.
Thirdly, we are looking at ways J Danny mentioned his remarks waste is kind of tighten up on expenses and just improve margins that way.
And then finally.
Okay.
Question I think we all need to ask ourselves is what.
What does this market look like in the future.
Will it improve and so on it.
I believe it will it's going to be a gradual improvement and I think we need lower interest rates, which may be slow to come.
But I don't see any.
Sort of major change or disruption in this market that would cause it to.
To not go back to normal I think it will go back to normal at some point in time.
Obviously require some patience I guess, but in the meantime, we are taking action on a number of areas to improve results.
How big of an issue, but claims ratio is trending up my understanding of this.
This is largely.
The fee for service.
The dealer or the reassuring at the backend.
Great question.
It's important but it's not our biggest issue for sure okay.
There's two ways to think about our two blocks of business and think about.
First is on what we call vehicle service contracts are the main warranty type product.
That is heavily reinsured 90, something percent well, we still our job is to manage that business with a for the dealers and if we don't do a good job. Some of these dealers will go negative and it becomes a headache it could cost us some money. So it's something we need to stay on top of it we are staying on top of that basically pushing through.
Price increases.
<unk> basically has funded into the reinsurance account second block of business is what we call ancillary products and we do take some risk on those products historically, they have been quite profitable and good margins.
Margins are eroding to some extent, so we're taking price action there as well.
Okay and then you had mentioned in my last question here, you mentioned tightening up on new expenses that was an issue.
Popped up in Q1 of <unk>.
2023.
At the time.
You are.
Zach but thing.
Spending phases to update systems or whatever.
Could last for two years is that.
Still going to be a headwind then this expense.
Growth in 2024.
Yes, more the bulk of it is done at this point okay.
And then I guess lastly, we've invested as much as we can afford to at this point.
Yeah.
There is room for improvement here.
Thank you.
Okay.
Your next question comes from Doug Young from Deutsche Bank. Please go ahead.
Hi, Good morning, just maybe staying with the U S business.
Look at the pre tax profit of the proxy for pre tax profit on that vehicle warranty business. It looks like it was down by about a third or so it wasn't like it wasn't an insignificant decline I'm just wondering how much of that relates to expenses, how much relates to that pressure.
As a result of the claims ratio and do you have into maybe cover costs. Some of that business that does get reinsured, just trying to get a sense of what's really kind of the main issue on the profit side.
Yes.
Okay.
When we look at Q4 results compared to Q3, we see that this segment is down by <unk>.
Our momentum about equivalent as the corporate expense of the segment went up.
So what it means if you remember in Q3, we mentioned the fact that we have to.
And then you will all the.
Unusual that gain coming from the deferred.
Our compensation plan for the winter S acquisition, So Q3.
The corporate expense were a little low because of that so when the when I look at the run rate excluding that effect, it's running it's running fairly flat from Q3 to Q4.
And what we expect in 2020 for is to see again drove an improvement from that point, Tom So in terms of claim ratios in.
And the pricing we expect the picture to improve you have to really in 2024.
Mike I don't know if you want to add something.
No nothing to add Eric I think you covered it.
Okay, and then just back to the <unk>.
The Canadian group Strange so yeah.
I understand this and maybe you've got a few kind of follow on questions.
You renewed business you take a five to seven year view on this.
There are some expenses to set this up.
Does that strain essentially go into CSM or the risk adjustment or is it an equal split and then obviously margins come through.
As that gets released and whatnot now.
My understanding always his group is yearly renewable so as you get into one year or two years and these and these accounts need.
Or are these accounts signed up for a prolonged period of time I'm just trying to understand.
What is your assumption versus what's actually contractual.
Within those group plans.
Yes understand.
Doug in fact, the contract setting that Sir.
Is rather short in.
Generally the rig guarantee when we renew or.
The issue of new contract the rig guarantees.
Between let's say somewhere between 12 to 24 months. So so when we assess the contract under Ias 17, we asked too.
This training that would come from that.
That starting point and then once we start for new Ingot Route we start building up CSM and risk adjustment.
So this is out of the construction is done then why do we get comfortable with this practice is that our group doesn't go to market every 12 to 14 months because the group will get posted on the marketplace and look at a year with the with the kids. So there is a kind of.
Richmond room between the cat years in Canada that we don't bid on the on the groups.
That's been with us.
A year earlier.
Period of time. So so this is why we asked his view was that.
Five to seven years of life expectation of a contract sometimes it may get a little longer for example government files.
You know what municipalities can be even a bit longer than that but the reality is that the CSM and risk adjustment will start building upon the first when you all of the.
Okay. So you build it up.
Yeah.
Yes, yes, so you build that up over 12 months it sounds like and then and then the expectation. So the profitability of this is more tail end weighted is that does that had think of it.
Like when does this break like when does this breakeven from the cost the strained cost.
That you are incurring yes.
Yes, I would say that probably.
The break season that between three and four years, and we're making the profit target.
Between the 470 <unk>.
Okay.
Things that we.
Yes.
Sorry go ahead.
Just one.
Just want to add on this.
That's in a contract there is renewals in there that shows all the pricing would be adjusted.
Right from the start with when we acquired the group. So there is a kind of mechanical based on the experience and teams that that drives those renewals and there's no surprise for the fall.
For the employer and the advisor are declining.
And then just lastly, I missed this.
Is this something that we should be thinking of more often it's not just something I'm not used to seeing.
As much on the group side, but is this something that next.
Next Q4, we shouldnt be surprised to see something similar or is this or is this just an unusual kind of quarter.
Yes in reality.
On this.
The group business can be lumpy and volatile when we acquire and renew those groups. So so we cannot expect to have a specific run rate on this one.
It can be infective, Sean wants to get more business as long as it brings.
More CSM and.
And the risk adjustment for the future to sustain us.
I'm fine with it.
So so.
The key is really.
The aggressivity and the expected profitability above the average lifetime that we expect the group to stay with us.
Okay, and then just lastly.
And I just want to understand the corporate expenses.
The negative $54 million that we saw in corporate in Q4 as the indication that that is the new run rate on a quarterly basis going through 2020 core or is it that your corporate expenses stay level that profitability of that division improved.
As we move through the year I'm just trying to.
Thanks, sure I have that right.
Just two I missed maybe the beginning Doug on your question in the corporate expense the business segments. All in a specific line of business I just missed that.
Yes, sorry in the in the corporate line. So I think from last year's 50 $454 million in the quarter and I'm just trying to get a sense of is that the new run rate is that what youre seeing or is that the expenses.
But the profitability of that division will improve into 2024 that relates to just the question.
Okay. Thank you for the clarification I just missed the beginning so on that note you Shouldnt look at Q4 as the new run rate okay.
Q4 has been slightly higher than Q3.
A couple of I think it's.
Roughly $15 million.
But the reality with this business segment is that install mode that it gets a little volatile because it's not like running a business the comprehensive.
Line of business.
Lots of project that goes in there and for example in Q4.
Some prospecting.
Acquisition fees that went in there.
And you know what.
That was you were looking at this I would be happy to see that because it means that we're actively working at deploying our capital.
But the reality is that those files that did not result in any closings for now.
This is the kind of thing that may create a bit of volatility as well as other corporate initiative that we decide within our prioritization process to conduct because we feel it's good for the for the company long term. So that's always see Q4 now talks.
About the run rate.
What I said, when I said that the overall year over year.
Out of 260 million is or isn't it is our target for 'twenty.
24.
Would see that.
An appropriate run rate for.
Is $65 million, plus or minus $5 million per quarter and expect this to be a little bit volatile.
Depending on what we decide to look at our our do it may create a little bit affiliates.
But keeping that $260 million in mind.
The important.
And maybe a few things to.
Well done on that.
In terms of what we're doing to make sure that we.
We stay within that boundary in that in 2024, I talked about the prioritization process that we have internally to make sure that we.
We meet our expense targets for the company.
We also established last year.
An internal measure of operating leverage, which we want to what to be positive. So that's another element and we understand that.
You probably need a bit more.
And foundation to work to seek more clearly towards the water on this one so we are thinking about improving the disclosure. So that you can see what we're doing it safely to manage our overall expenses within the within our target. So those are the three things I would say that as well.
Yes.
Meet the target and hope you'll be confident about our guidance for 2024.
But to your to your last point there.
The intention was to create an operational leverage.
Yes, I think as explained by limiting.
Corporate expense to the 2020 and 2024 to 2023 level. So it's intentional as the business grow the revenue are going to grow faster than the expense.
I appreciate the color. Thank you.
Your next question comes from Mario Mendonca from TD Securities. Please go ahead.
Good morning.
For industrial lines over over the years.
Question in industrial alliances.
Our position in the individual insurance market and the scale and.
Having certainly.
Certainly being a capable player there, but the same is not true in group insurance I think there is an argument could be made that.
Business like group insurance, we're investing in systems has become.
One of the competitive advantages it really does make me.
The question does industrial alliance have the scale to.
To compete and Canadian group insurance against.
Some of these very large players that are constantly investing in and their systems.
Are we looking at a scenario here, where industrial lines, perhaps doesn't really belong in group insurance or can you can you can you compete against the larger players.
So steady here that questions comes back Andrey I don't know 10 years in Oregon injection and we did tackle that question a couple of years ago and the conclusion was that there was a space in which we could play as an alternative to other players in the industry.
Where we can be successful and so we have a we haven't planned it will follow right now and.
The plan is pretty much on schedule.
The target market is being defined the profitability target is being defined and we believe that we can be successful at the end of the day and so that's.
That question has been resolved for the last three years and it might be that the eight years that we were going to revisit I don't know.
But that's the reality as we soon.
But what makes you different in group insurance, what space or you and that's different from the other large players.
I will leave it to Shawn to give a bit more insight in terms of dollars target market than maybe other things here.
Yeah, Yeah. Thanks, Tony.
The area, we really densify and opportunity is in what we call. The mid market. So sort of between 50 and 1000 lives. The large carriers are really going after the bigger accounts and focus on that.
Theres not as much opportunity for us in that area, but the mid market. There is a really nice sweet spot for us where it's a combination of sort of our personal touch how close we can get to the plan sponsor in that business.
The amount of focus we are putting onto it and then we're also investing as you mentioned and the technology to help serve the plan members.
On that but yes, the mid market is where we're at is where we've always been but we definitely see an opportunity to lean heavier into that market and we're getting good results of that that you're seeing on this stuff.
In this quarter.
Okay, Let's go to the U S dealer services for a moment.
For some time now myself and others have speculated that industrial alliance would use the excess capital to grow in that business.
Does there come a time when you reflect back on that business and conclude that it wasn't a great transaction that industrial lines, perhaps doesn't have the competitive edge.
Vantage is necessary to succeed in that business would you at some point consider exiting U S dealer services.
An experiment that didn't work out.
Okay. It's Tony here first of all it's not an experiment.
When we decided to go there it was a well thought strategy. We are a leader in Canada. We are in the top two if not the first one we know that business very well.
When you said the transaction might that have been good the tightened the timing was good and we all know that it's been announced.
The pandemic so to me. It's a question at this point, it's a question of patience to market microeconomic environment as does good.
I mean, if you look at the experience of other F&I providers Youll see that.
Sure.
They are in front of the same challenges. So at the end of the day, we believe that the market will come back and so in the meantime, we are doing everything we could to.
To offset some of those negative.
Impact of negative trend in the market. So we still believe in our strategy is just that the timing was not good and so we're positioning ourselves well when the tailwind will come back in terms of the macro economic environment that would be well positioned.
Thank you.
Your next question comes from many Chroman from Scotiabank. Please go ahead.
I just wanted to go back to the strain in the group business I think we're all trying to understand.
What's what's underlying that I guess, maybe one way to approach. It just if you could talk about the competitive dynamics in the group space and.
Are we seeing any change in competitiveness or change in competition is competition, just becoming a lot tougher and is that partly what we're seeing.
And these Q4 results.
Yes, I think it yourself to answer a question.
Yeah and the answers.
Additive business for sure, but there was no change in the quarter.
Like I mentioned before the strain relative to the amount of premium renewed or sold was stable compared to previous quarters. So it's a similar type of investment we just had a nice win.
A few large accounts that renewed in the quarter looking for a January one contract date.
Yeah, I think that's what you're seeing so no. It is competitive for sure but there is no change in that.
That mix if anything what we're seeing is we're doing well as other companies are renewing because of <unk> and the service levels compared to some of our peers or the other company. So I think theres actually a market opportunity for us.
Go ahead as opposed to that.
Pressure.
Got it and then just wanted to focus on.
The 2024 outlook slide 14.
How do I translate that into core EPS growth expectations in Colorado expectations specifically.
Specifically I mean, you gave some guidance on corporate expense growth, but in terms of overall EPS growth for 'twenty four and ROE.
What should we be expecting given the outlook that you laid out.
On slide 14.
Many I'm so glad that you asked a question because.
One might.
A question.
<unk> guidance, we do believe we strongly believe that we can deliver all of that 10% EPS growth going forward and obviously this is not an annual growth rate, it's a midterm growth rate, but the reality is that they are I believe <unk>.
Environment.
In which we operate.
Is favorable to.
To that.
Because when I look at the fact that we have $1 6 billion of excess.
Capital deployed.
I look at the fact that some of the nicotine <unk> points of 2023 are getting better like mortality in 2023 and individual insurance first half of the year wasn't up that's good now it seems to be on the right the right track.
Yes.
Auto and homeowner claims were not that good in 'twenty.
Seem to be on the right track.
Training group insurance is something that the profit will come.
Come back and I would say that the interest rates environment like the fact that interest rates are higher than they used to be.
Pre.
In the past.
It is positive I would say that's a tailwind going forward now we need to work on the U S dealer business to improve it obviously, it's been a headwind recently, but I see a lot of good positive.
That makes us very confident that we can hit.
10% CAGR EPS going forward.
So just to clarify your comments there.
Focus on 24, specifically that 10% is realistic for for 24 in your view.
So last year, we decided not to provide let's see our guidance for the next year.
And we said okay. We have this 10% plus EPS growth, which is what we call our midterm guidance.
It's still it's like we are in the long term business and from one year to get US sometimes you might have some volatility.
2024.
We have a plan we believe in our plan, but I mean, when I said, 10%.
I'm, not saying that it could not be 10% in 2020, if I could.
Provided that the DTA.
The takeaway that I'm talking about are going to continue but the reality is that we don't provide a specific guidance.
For 2000 and for the next year.
Understood. Thank you.
Yeah.
Your next question comes from Paul Holden from CIBC. Please go ahead.
Thank you good morning.
A few questions and hopefully they're quick starting with the fund that fails would notice the gross sales are actually quite strong in the quarter and so that implies abnormally high gross redemptions, maybe quickly talk to the drivers of that.
And any kind of expectations on whether that's a temporary phenomenon or if its something thats, maybe an ongoing headwind for the business.
Yes. Thank you for that question. This is Rodney sticking.
And we.
We see obviously you see a strong growth in the second fund in the last quarter, but all through the year as well and still for the last quarter a lot of money went into the GIC and the Isa. So if that money would have gone to the same fun in the same pattern as in the past you would not see negative.
Negative upsell or.
For the fourth and that south.
Having said this.
We're still number one and then I'm in.
Sales and net sales and we see growth in the second fund. So we don't see this as and then new pattern and none at all and you should we see money coming back to the segments now.
Is that the money is with us our clients have deposited the money to us in six months, but even more into GIC than he has that.
All of them.
The challenge of R&D.
Needs to be done is making sure that this money stays with us and our clients are loyal to our distribution network to Ireland.
Got it so the message is basically once rates start coming down which is probably later. This sooner then takes on sales are to recover okay.
And then.
Yeah, maybe maybe maybe a similar type question on Canadian individual insurance sales.
Very strong net sales numbers sort of.
During the pandemic and coming out of the pandemic and then softened a bit this past year, but again I think thats just because of the let's call. It the high base effect, what's your what's your outlook for two.
2020 for why should we think that growth in individual insurance sales should resume to more in line with historical norms.
Yeah, well you said it right 2022 is exceptional in terms of growth so the high base to compare with the.
The reason why I am and we are confident in the growth for 2020 four realize really on the strength of our distribution and the quality of the tools that we provide to advisors and clients as well as a broad range of product.
When you look at.
At the growth over a period of three years, we've been outperforming that market.
We are also focusing on the family market, where at this point there may be a little less money available, but we're still maintaining a very high level of sales and activity even come down to that tend to make days. So so again.
We keep our objective.
Grow beyond the market.
The Apollo study.
I am very pleased with.
But the fact that we've been able to maintain.
2022 results in 2023 in the current context. It doesn't I didn't mentioned, we've grown to over three years on a CAGR of 10% in the individual insurance sales is quite an achievement and so it's really a testimony of the fact that it is a distribution play out at the end of the day in our target market.
Okay.
And then last one from me.
I mean, we've become accustomed to.
Growth on organic capital generation kind of year end year out.
Not that a $600 million targets, a bad one, but it's not any higher than 2023.
But you know your ROE target is not changing so you should still be generating a fair amount of capital. So just.
Curious where that extra capital consumption is expected to go to.
My guess would be individual insurance sales in the U S but.
You tell me why it's not growing in 'twenty four please thank you.
Well.
I think I think one of the answer of this is that when we look at the profitability of our business we're quite confident.
We're going to increase it over the years.
You say you might believe that at the end of the day.
Organic generation of capital will increase I think we've been prudent in the way that we are providing our guidance.
For 2024.
And also we are investing continuing investing in technology, continuing investing in our digital transformation internally. So at the end of the day, we came up with this estimate and hopefully I mean.
We can we can beat that estimate.
Okay.
I might have to follow up on that one but thank you for your answers.
Your next question comes from Lamar person from Carmack. Please go ahead.
Thanks for taking my questions.
I want to start off with our corporate expenses.
You suggested higher M&A prospecting activity. So it begs the question.
What should we assume for the M&A market you are in the U S. Individual insurance as it is it picking up there or is there more files coming across your desk and should we really be thinking about more deals in the in the U S. So more tuck ins, there and more aggressive deployment of that excess capital.
Thank you for the question.
We are looking at as far as Oliver to place obviously.
The U S. When I say all over the place both in Canada and the U S.
We've said in the past that there were more opportunities maybe in the U S.
Thoroughly looking into the U S life business.
And in certain of areas vessels.
This is why we came up with the various city acquisition that is going to close very soon.
But the reality is that we are open to deals in all business we're in because.
We're able to generate the 15% at least 15% ROE business at all of our businesses. So if there was an opportunity in some sectors will obviously be there for the <unk>.
Reality is that there probably.
Probably more opportunities in the <unk> space in particular.
U S life space as we speak.
Thanks Simeon.
I don't know if this is if you guys can share number on this but I'm going to try it anyway is on expenses more generally I appreciate the outlook for the corporate level, where you're suggesting it's going to be at the same level as 2023, but what if we broaden that out to the consolidated view like how should we think about.
Other expenses other expense growth that the.
Holidayed level do you have any thoughts or numbers that you could share on that it just seems like there's a lot.
A more intense focus on unexpected across all lines, so I thought I'd throw it out there.
Yes, 10-Q, one glad that you raise that point.
Really because.
This is where we are we look at our expenses to roughly.
At the organization level, because the copper business segment Youre right. Its only one part of the equation and something we think decisions ammonia into running the businesses in the end.
Corporate expense the corporate expense I Wouldnt look true.
Total expense number but can print expense.
For them to know represents maybe 12% or so of our total expense structure and the important.
That's the thing that we look for and of course year over year. We have we are facing inflation in center pressure.
Pressure, but we look out.
Starting this year.
<unk> operating leverage between the growth of expenses and the growth of <unk>, meaning that we look for a positive spread between the growth the growth of businesses and the growth of expenses overall, so because you know when you acquire a new growth.
It's a good thing too because you need to service the clients and unit went down but the important is that as we grow lowering fix it year after year.
And then a last one for me I want to come.
Come back to the dealer services in the U S. A lot of questions on this call, but is the real bottom line here that this business is just going to remain challenged and so until we see rate cuts play out or do you think there could be some recovery in this business, even if rate cuts don't play out like for all the reasons I think Mike described earlier.
Or is it just yet.
<unk>.
But I would say about the profitability of course, the big differentiator with beef with the rate cuts because.
The business model is done you know the data.
The rate cuts that then it would mean more affordability for the clients, which will generate more single product. So that's an important piece of the equation and the second one is all that we've been doing that Mike talked about with system integration and things.
We're expecting that to start deliver benefits, even if rate cuts does not that so that's why I mentioned that.
Our situation should gradually improve in 2024 felt that and.
That's what I wanted to see them.
Yes, I don't know if Mike wants to add to this but it might also be that.
If the OEM comes back to the market with more incentives it could help in terms of the price of the car and allow more affordability for their clients.
There might be a dynamic therefore, OEM incentives as well.
Okay, Yeah, I guess I would have.
Agree with any of that.
No.
Lower copper prices.
Incentives higher incentives would help but I think youre right the biggest impact would be.
A reduction in interest rates.
It's it's.
Really hanging over this market.
Appreciate the time.
Your next question comes from Darko <unk> from RBC. Please go ahead.
Alright. Thank you for taking the time to answer my questions real quick on the U S business with the individual insurance business. Then you can you. Please just remind us how if anything changes when various city comes on because if we're talking about big growth in sales and it looks like you are having good sales there in <unk>.
<unk> comes on.
The next question for me is is it seems.
Almost too obvious that you would want to deploy more capital.
Into this business segment and would there would you be interested in blocks or is this something.
That is almost purely going to be an organic play.
And Mike you might comment on the fact that you've been trying to acquire.
Been trying to acquire organization over the last 10 years.
It's not that we don't want to acquire or it's the opportunities are not always there right.
Yeah, but I.
I guess.
The issue you raised would we look at blocks.
We decided.
While we have 10 or more years ago that we would not be looking at buying clothes blocks. We wanted.
Build a business that would grow organically.
And so that's been our focus and that's why there's been less targets theres lots of block transactions out there.
So our focus has been and I think we will continue to be we want organic growth that we want.
The operation that has some access to some kind of distribution that we're comfortable with and so <unk>.
New distribution model, but it fit.
Fit that criteria.
And does it necessarily does it or does it require maybe broadening of the product lineup.
Hey, good yeah adjacent products or a discussion we have from time to time.
So yes I.
I mean.
Sample rate I could give you I guess its worksite marketing as an idea out there we do a bit of work side through the way cooperation, but there's a whole market out there.
That could be interesting to us.
Okay. Thank you so much for that and then just one last question for me when I look at your slide deck and I look at the sort of 2023 in a nutshell on slide 13.
Okay. Thank you so much for that and then just one last question for me when I look at your slide deck and I look at the sort of 2023 in a nutshell on slide 13.
And then I see the 2020 for outlook.
Trying to piece it together with your earlier answers on Youre in a long term business and you don't want to provide significantly granular.
Kind of guidance into 2024, but.
Under Ifr S. Four you gave very granular.
<unk> in the past frankly, it was quarterly.
And you are moving away from that and maybe we can understand that maybe what would be helpful for me.
As if we talk about 2023.
How you significantly missed the very early.
View on your EPS growth.
You were talking I think double digit with some additional growth.
And maybe you can just.
Your look back conversation on 2023 <unk>.
Discuss the significant area, where there was.
It did not enable you to hit your call at Investor Day presentation kind of expectations for 2023 and tie that into.
Why granular.
Guidance is now missing.
From IAG that would be.
Alright, thank you.
Thank you Doug.
Really a great question 2023, when I look at let's say the increase in EPS versus.
The 2022 <unk> four.
It's pretty much 5% increase.
And you must recall a year ago the guidance that we provided was and im rounding here something around 15%.
So.
Yesterday.
Happy with the 5% of the answer is no.
But theres been a lot of it I would say headwind that happened during the year and.
Already mentioned some of them mortality in individual insurance, but part of the year. The U S dealer services business. The Iot <unk> home claims training group business, the inverted yield curve I mean, there's been several elements that.
Did it help on that and historically the organization because of the diversification of all these business historically, we've been able to generate a 10% EPS growth over to diamond.
Combined with the.
Deployment of capital and various businesses that we bought over the years, we've been able to generate that 10% plus now 2023 has been a challenging year for the reasons I've mentioned, but when I look at 2024.
That we have that extra capital that we can deploy that capital.
The fact that the mortality is back on track individual insurance, our wealth management business has been great in 2022 should continue going forward.
Yes.
In front of us.
That makes us very very positive in terms of the our capability of growing 10% plus I mean over the last 20 years, we didn't have like.
The I would say the organic generation of capital like we have today. This is a huge positive for us. So if we were able to generate that 10% plus in the past I mean, I see more reasons to achieve that going forward than in the past to be honest with you.
That's why we feel positive.
Okay. Thank you.
And there are no further questions at this time I will turn the call back over to Denise for closing remarks.
Yeah, I don't have much to add because I guess my my last comments was about what I. Just said the fact that we feel positive but keep in mind.
So a couple of things that affect that our book value increased even during this transition to <unk> 17 is it just too many of our business model, which is sound very soon and also I would point out to you. The fact that in 2020 and three two quarters out of four.
Reported earnings the worst.
Then the core earnings, which I think makes you stand out in the market. So with that said, thank you very much and.
Have a great day.
Ladies and gentlemen, this concludes your conference call for today, we thank you for joining and you may now disconnect your lines. Thank you.
Yeah.
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