Q1 2024 iA Financial Corporation Inc Earnings Call
Operator: Good morning, ladies and gentlemen, and welcome to the Industrial Alliance Insurance and Financial Services, Inc. 2024 First Quarter Results Conference Call. At this time, all lines are in a listen-only mode.
Good morning, ladies and gentlemen, and welcome to the Industrial Alliance insurance and financial Services, Inc. 2024 first quarter results conference call. At this time all lines are in a listen only mode.
Operator: Following the presentation, we'll conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star 0 for the operator. This call is being recorded on Thursday, May 9, 2024. I would now like to turn the conference over to Marie-Annick Bonneau, Head of Investor Relations. Please go ahead.
Operator: Following the presentation, we will conduct a question and answer session. If at any time. During this call. If you require immediate assistance. Please press star zero.
Marie-Annick Bonneau: This call is being recorded on Thursday may nine 'twenty 'twenty four I would now like to turn the conference over to Maggie.
Marie-Annick Bonneau: Head of Investor Relations. Please go ahead.
Marie-Annick Bonneau: Good morning, and welcome to our 2024 first quarter conference call on our Q1 documents, including press release slides for this conference call supplementary information package in part to the M. D. N E. R posted in the Investor Relations section of our website at I E C.
Marie-Annick Bonneau: Good morning and welcome to our 2024 first quarter conference call. All our Q1 documents, including the press release, slides for this conference call, supplementary information package, and quarterly MD&A, are posted in the investor relations section of our website at ia.ca. This conference call is open to the financial community, the media, and the public. However, I remind you that the question period is reserved for financial analysts. A recording of this call will be available for one week starting this evening.
Marie-Annick Bonneau: This conference call is open to the financial community to me giant public I remind you that a question for you. These reserve for financial analysts a recording of this call will be available for one week. Starting this evening. The archived webcast will be available for 90 days and a transcript will be available on our website in the next week.
Marie-Annick Bonneau: The archived webcast will be available for 90 days, and a transcript will be available on our website within the next week. I draw your attention to the forward-looking statements information on slide 2, as well as the non-IFRS and additional financial measures information on slide 3. Also, please note that a detailed discussion of the company's risk is provided in our 2023 MD&A, available on CDAR and on our website, with an update in our Q1 MD&A released this morning. I will now turn the call over to Denis Ricard, President and CEO. Good morning, everyone.
Denis Yves Ricard: I draw your attention to the forward looking statements information on slide two as well as the number of your friends. In addition, all financial measures information on slide three also please note that a detailed discussion of the company's risks is provided in our 2023 MD&A available on SEDAR and on our website within them.
Denis Yves Ricard: In our Q1 MD&A released this morning, I will now turn the call over to Denise.
Denis Yves Ricard: President and CEO.
Denis Yves Ricard: 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 IE. First of all, Eric Jobin, Chief Financial Officer and Chief Actuary. Alain Bergeron, Chief Investment Officer. Stéphane Bourbonnet, responsible for Wealth Management Operations Renée Laflamme, in charge of Individual Insurance and Annuities, Pierre Miron, Chief Growth Officer of our Canadian operations and responsible for Dealer Services Canada and IOTO in Rome. Sean O'Brien, in charge of our group businesses And Mike Stickney, Chief Growth Officer of our U.S. operations and co-head of acquisitions. This morning, we announced that Mike Stickney will retire in the coming month.
Denis Yves Ricard: Good morning, everyone and thank you for being with us on the call today.
Denis Yves Ricard: As usual I will start by introducing everyone attending on behalf of I <unk>.
Denis Yves Ricard: Over the years, Mike took on various responsibilities at IE, including as Chief Growth Officer. Most recently, he's been Chief Growth Officer for the U.S. Operations and Co-Head of Acquisitions since August 2023. This is Mike's last earnings call, and I want to congratulate him on his career and thank him for his contribution to IEA's growth over the past 25 years. With Mike's departure, we announced three changes to the Exec Committee, which highlight the depth of our management team.
Denis Yves Ricard: First of all the rigs are my Chief Financial Officer, and Chief Actuary.
Denis Yves Ricard: I think there was a whole chief investment officer.
Denis Yves Ricard: If I can build on it you're responsible for our wealth management operations.
Denis Yves Ricard: I need a fun and charge them individually insurance and annuities.
Denis Yves Ricard: Oh Gee growth for some of our Canadian operations and are responsible for Ddos services, Canada and are you doing home Shlomo.
Denis Yves Ricard: Shawn O'brien and charter of our group businesses and my Stickney, Chief growth officer of our U S operation and co head of acquisitions.
Speaker Change: This morning, we announced that Mike Stickney will retire in the coming months.
Denis Yves Ricard: First, Sean O'Brien will succeed Mike as Executive VP and Chief Growth Officer of our U.S. operations. And Sean is currently President of Group Benefits and Retirement Solutions. He's a seasoned executive, well prepared to take on this new role after leading, among other things, our dealer services, Canadian operations for a number of years, as well as our wealth management business. Denis Mertiaume, who was co-head of acquisitions with Mike since August 2023, will be the sole head of acquisitions as executive VP, strategy, performance, merger, and acquisition. Finally, Louis-Philippe Pouliot will join the Executive Committee as he will be succeeding Sean as Executive VP of Group Benefits and Retirement Solutions. Now to the results.
Denis Yves Ricard: Over the years my two cons various responsibilities at all.
Denis Yves Ricard: Including as Chief growth Officer.
Denis Yves Ricard: Most recently he's been chief growth officer for the U S operations and co head of acquisitions since August 2023.
Denis Yves Ricard: This is mikes last earnings call and I want to congratulate him on his career and thank him for his contribution to <unk> growth over the past 25 years.
Denis Yves Ricard: With Mike's departure, we announced a three changes to the Exec Committee, which I liked the depth of our management team first Sean O'brien will succeed Mark as executive VP and Chief growth officer of our U S operations.
Denis Yves Ricard: He is currently executive VP of group benefits and retirement solution. He's a seasoned executive we're prepared to take on this new role after leading among other things our Ddos services Canadian operations for a number of years as well as our wealth management business.
Denis Yves Ricard: Then you may have so let's go ahead of acquisition with Mike Since August 'twenty to 'twenty three will be the sole head of acquisitions as executive VP strategy performance merger and acquisitions.
Denis Yves Ricard: Finally, Louis Philippe will join the Executive Committee as you will be succeeding Sean as executed V. P of group benefits and retirement solutions.
Denis Yves Ricard: Now to the results.
Denis Yves Ricard: 2024 got off to a strong start in terms of profitability and business growth, demonstrating the dynamism of our business unit. Core EPS recorded a strong increase. Sales were generally high, and our capital position continues to be robust. Starting with slide eight for an overview of Q1 results.
Denis Yves Ricard: 'twenty 'twenty four got off to a strong start in terms of profitability and business growth demonstrating that didnt engine of our business units.
Denis Yves Ricard: E. P. S recorded a strong increase sales were generally high and our capital position continues to be robust.
Denis Yves Ricard: Starting with slide eight for an overview of Q1 results.
Denis Yves Ricard: All our three operating business segments, including Insurance Canada, Wealth Management, and U.S. Operations, have double-digit core earnings growth, leading to a core EPS of $2.44, up by 17% year-over-year. Car ROE of 14.6% is close to our midterm target of 15%. Our business growth also showed strong momentum in Q1, with significant sales growth in almost all business units. As a result, we concluded the quarter with assets under management and administration up 11% year-over-year, and premiums and deposits up 8%.
Denis Yves Ricard: All of our three operating business segments include insurance, Canada, well management and U S operations had double digit core earnings growth, leading to a core EPS of $2.44.
Denis Yves Ricard: Up by 17% year over year.
Denis Yves Ricard: Car or are we a 14.6% is close to our midterm target of 15% plus.
Denis Yves Ricard: Our business growth also showed strong momentum in Q1 with significant sales growth in almost all business units. As a result, we concluded the quarter with assets under management and administration up 11% year over year in premiums and deposits up 8%.
Denis Yves Ricard: Our book value per share of $68.93 on March 31st recorded a healthy increase of more than 8% when we exclude the impact of share buybacks and our capital position is robust with a solvency ratio of 142% supported by continued strong organic capital generation.
Denis Yves Ricard: Our book value per share of $68.93 on March 31st recorded a healthy increase of more than 8% when we exclude the impact of share buybacks. And our capital position is robust, with a solvency ratio of 142%, supported by continued strong organic capital generation and good risk management practices.
Denis Yves Ricard: And good risk management practices.
Denis Yves Ricard: Now to slide nine to look at Q1 business growth for the insurance Canada segment.
Denis Yves Ricard: Now to slide 9 to look at Q1 business growth for the Insurance Canada segment. This segment started the year strongly, with all business units posting good sales results. For individual insurance, we continue to be in a leading position in the number of policies sold, with sales of $89 million during the first quarter. The strength and diversification of our distribution networks, our close relationship with distributors, as well as the high performance and simplicity of our digital tools, among other things, remain key to our growth strategy.
Denis Yves Ricard: This segment started the year strongly with all business units posting good sales results.
Denis Yves Ricard: For individual insurance, we continue to be in a leading position in number of policies sold which sales of $89 million during the first quarter.
Denis Yves Ricard: The strength and diversification of our distribution networks.
Denis Yves Ricard: Our close relationship with distributors as well as the high performance and simplicity of our digital tools among other things.
Denis Yves Ricard: Key to our growth strategy.
Denis Yves Ricard: In group insurance, sales increased by 21% year over year, leading premiums and deposits, along with good retention, to $506 million, which is 8% higher than a year ago. In the Dealer Services Division, first quarter sales of $148 million were up 3% year-over-year, a good result given the challenging environment that continues to impact vehicle affordability. Finally, IOTO and Home Direct written premiums in the first quarter reached $114 million, a robust increase of 16% over the same period last year.
Denis Yves Ricard: In group insurance sales increased by 21% year over year.
Denis Yves Ricard: Leading premiums and deposits along with good retention to $506 million, which is 8% higher than a year ago.
Denis Yves Ricard: In the Ddos services Division first quarter sales of $148 million were up 3% year over year. A good result, given the challenging environment that continues to impact vehicle affordability.
Denis Yves Ricard: Finally.
Denis Yves Ricard: Are you doing home direct written premiums in the first quarter reached $114 million a robust increase of 16% over the same period last year. This result was supported by strong sales and higher premiums.
Denis Yves Ricard: This result was supported by strong sales and higher premiums. Turning to slide 10, to comment on Wealth Management's sales results, where we reported very solid results, most notably with net fund inflows of more than $400 million. IE continued to rank first in both growth and net sex on sales. Gross sales of SEC funds reached nearly $1.3 billion, up 24% year-over-year, and net inflows of $557 million were recorded during the first quarter. Richard von Seelow said $486 million were slightly higher than last year, but inflows were lower than outflows as the mutual fund industry continued to be challenged.
Denis Yves Ricard: Turning to slide 10 to come in on the wealth management sales results, where we reported very solid results, most notably with net fund inflows of more than $400 million.
Denis Yves Ricard: I continue to rank first in both gross and net six on sales.
Denis Yves Ricard: Gross sales of six funds reached nearly $1 $3 billion up 24% year over year and net inflows of $557 million were recorded during the first quarter.
Denis Yves Ricard: Mutual fund sales.
Denis Yves Ricard: $486 million were slightly higher than last year, but inflows were lower than outflows as the mutual fund industry continue to be challenged.
Denis Yves Ricard: In addition, while improved financial market performance prompted investors to shift away from guaranteed investments, sales of insured annuities and other savings products remain elevated, reaching $581 million, a very good result, even if lower than last year, which had been a record quarter. Finally, in group savings and retirement, solid sales of $918 million in the first quarter, up by 18% year-over-year, were driven by strong sales of accumulation products. Now, look at slide 11 regarding our business growth results in the U.S.
Denis Yves Ricard: In addition, while improved financial market performance prompted investors to shift away from guaranteed investments sales of insurance annuities and other savings products remain elevated reaching $581 million a very good result, even if lower than last year, which had the which had been a record quarter.
Denis Yves Ricard: Finally in groups savings and retirement solid sales of $918 million in the first quarter up by 18% year over year were driven by strong sales of our accumulation products.
Denis Yves Ricard: Now looking at slide 11 regarding our business growth results in the U S and individual insurance sales of $42 million were up 2% from a year earlier supported by our distribution networks and our product range. The activity remains strong in this business unit as we continue to.
Denis Yves Ricard: In individual insurance, sales of $42 million were up 2% from a year earlier. Supported by our distribution networks and our product range, activity remains strong in this business unit as we continue to strengthen our presence and grow organically. However, a temporary timing issue related to the recognition of new sales tempered slightly the growth pace in the first quarter.
Denis Yves Ricard: To strengthen our presence and grow organically.
Denis Yves Ricard: However, it temporary timing issue related to the recognition of new cells tempered slightly the growth pace in the first quarter.
Denis Yves Ricard: In dealer services.
Denis Yves Ricard: First quarter sales amounted to $248 million, which is a good 8% increase compared to the same quarter a year earlier. While these results reflect the positive impact of improved inventories and lower vehicle prices, we continue to take actions to ensure that we are well positioned for a full recovery, such as expanding our distribution channels. Turning to slide 12, where our key financial and key PIs for the quarter compare favorably with our mid-term targets.
Denis Yves Ricard: First quarter ourselves amounted to $248 million, which is a good 8% increase compared to the same quarter a year earlier.
Denis Yves Ricard: While this results reflects the positive impact of improved inventories and lower vehicle prices. We continue to take actions to ensure that we are well positioned for a full recovery such as such as expanding our distribution channels.
Denis Yves Ricard: Turning to slide 12.
Denis Yves Ricard: Our key financial keep your eyes for the quarter compare favorably with our midterm targets.
Denis Yves Ricard: Indeed, core EPS, which is 17% higher than Q1 2023, is well above the targeted 10% plus annual average growth. Core ROE of 14.6% is progressing toward our midterm target of 15% and above. Our solvency ratio is well above our operating target while we continue to invest in growing all our businesses. Continued organic capital generation of $130 million during the quarter is higher than during the same period last year and is in line with projections to exceed $600 million in 2024.
Denis Yves Ricard: Indeed core EPS, which is 17% higher than Q1, 2023 is well above the targeted 10% plus annual average growth.
Denis Yves Ricard: ROE of 14.6% is progressing toward our midterm target of 15% and above.
Denis Yves Ricard: Our solvency ratio is well above our operating target why do we continue to invest in growing all of our business.
Denis Yves Ricard: Continued organic capital generation of $130 million during the quarter is higher than during the same period last year and is in line with projections to exceed $600 million in 2020 four.
Denis Yves Ricard: And lastly, the dividend payout ratio for Q1 is near the top end of our guidance, mainly due to the significant dividend increase that was announced in February. As we continue to invest in growing all our businesses, our robust capital position and strong ongoing organic capital generation allow us to increase from 5% to 8% the maximum number of repurchases authorized under our share buyback program. This gives us the flexibility to create and return value to our shareholders while pursuing acquisition opportunities.
Denis Yves Ricard: And lastly, the dividend payout ratio for Q1 is near the top end of our guidance, mainly due to the significant dividend increase there was announced in February.
Denis Yves Ricard: As we continue to invest in growing all of our businesses, our robust capital position and strong ongoing organic capital generation allow us to increase from 5% to 8% the maximum number of repurchases authorized under our share buyback program.
Denis Yves Ricard: This gives us the flexibility to create and return value to our shareholders, while pursuing acquisition opportunities.
Denis Yves Ricard: We continue to be very active, but disciplined, in seeking acquisitions to grow our current operating business segments. However, there are greater opportunities for certain business units, such as our U.S. operations. To conclude, I want to highlight that we have reduced the sensitivity of our core earnings to interest rate variations and, therefore, in addition to being a better representation of underlying recurring earnings power, core earnings should be less volatile going forward. I will now hand this over to Eric, who will comment on this initiative following his remarks on first-quarter profitability and capital strength. Following Eric's comment, we will take questions. (inaudible]
Denis Yves Ricard: We continue to be very active but disciplined in seeking acquisitions to grow our current operating business segments. However, there are greater opportunities for certain business units. So it's our U S operations.
Eric: To conclude I want to highlight that we have reduced the sensitivity of our core earnings to the interest rate variations and therefore in addition to bet to being a better representation of underlying recurring earning power core earnings should be less volatile going forward.
Denis Yves Ricard: I will now hand, it over to Eric who will comment on this initiative. Following his remarks on the first quarter profitability and capital strength. Following Eric's comment we will take questions.
Denis Yves Ricard: Yeah.
Eric Jobin: Thank you, Denis, and good morning, everyone. Starting with slide 14 for an overview of Q1 Profitability and Financial. Profitability, as mentioned by Denis, was really good in the first quarter, with a 17% core EPS increase year-over-year, driven by solid management results, lower claims at IEO Minotaux, and favorable mortality experience in all operating business segments. These favorable items are reflected in the year-over-year 21% increase in insurance results and in the higher result from non-insurance activities. Lower core other expense also contributed to the strong core earnings group. Trading 12-month ROE at 14.6% is near to our mid-term ROE target of 15% plus.
Eric: Thank you Denis and good morning, everyone.
Eric Jobin: With slide 14 for an overview of Q1 profitability and financial strength.
Eric Jobin: Profitability as mentioned by Danny was really good in the first quarter with 17% core EPS increase year over year.
Eric Jobin: Even by solid managements results lower claims I tell you we know too.
Eric Jobin: And favorable mortality experience since all operating business segment.
Eric Jobin: These favorable items are conflicted in the year over year, 21% increase in insurance results and in the higher result from non insurance activities.
Eric Jobin: Lower core other expense also contributed to the strong core earnings growth.
Eric Jobin: Trailing 12 month ROE at 14, 6% is near to our midterm target of 15% plus.
Eric Jobin: Our solvency ratio continues to be robust and comfortably above our operating target with strong ongoing organic capital generation. As for the book value, which is a key metric for measuring value creation, it has increased by more than 8% over the past 12 months, excluding the impact of share buyback. Now moving to slide 15 to take a closer look at the results by segment.
Eric Jobin: Our solvency ratio continues to be robust and comfortably above our operating target with strong ongoing organic capital generation.
Eric Jobin: As far as the book value, which is a key metric for measuring value creation. It does create it has increased by more than 8% over the past 12 months, excluding the impact of share buybacks.
Eric Jobin: Now moving to slide 15 to take a closer look at the results by segment.
Eric Jobin: All three of our operating business segments recorded year-over-year double-digit core earnings growth. In Insurance Canada, core earnings increased significantly by 24% over 12 months to $92 million. This strong result was mainly due to experience gains attributable to lower claims at IA Omenoto and to favorable mortality experience in individual and group insurance. Haye, Otto, and Aum's positive experience was mainly the result of this year's mild winter, together with the favorable impact of premium increases implemented in 2023. As for the main experience results, they were all near expectations.
Eric Jobin: All three of our operating business segments recorded year over year double digit core earnings growth.
Eric Jobin: In insurance, Canada core earnings increased significantly by 24% over 12 months to $92 million.
Eric Jobin: This strong result was mainly due to experience gains attributable to lower claims that I E.
Eric Jobin: And two favorable mortality experience in individual and group insurance.
Eric Jobin: Hi, Oh I'm positive experience was mainly the result of this year mild winter.
Eric Jobin: The other with deferrable and pack of premium increases implemented in 2023.
Eric Jobin: As for the main experience results there were all near expectations.
Eric Jobin: In the wealth management segment first quarter core earnings reached 95 million well above the previous year result of 65 million.
Eric Jobin: In the wealth management segment, first quarter core earnings reached $95 million, well above the previous year's result of $65 million. SEC funds and annuities made a significant contribution to this solid result, with a year-over-year growth of 32% in the core insurance service reserve. This increase is due to a higher CSM recognized for the services provided and the impact of strong net sales. Car non-insurance activities also increased by 32% year-over-year, with another very good performance from our distribution affiliates. This may need you to hire net commissions and better margins.
Eric Jobin: Sick funds and annuities made a significant contribution to this solid result, with a year over year growth of 32% in the core insurance service results.
Eric Jobin: This increase is due to a higher CSM recognized scores of services provided and the impact of strong net sales.
Eric Jobin: Car non insurance activities also increased by 32% year over year with another very good performance from our distribution affiliates, mainly due to higher net commissions and better margins.
Eric Jobin: Lastly, core other expenses in this segment were lower than a year ago. The U.S. operation also recorded a good result with a 12% year-over-year increase in core earnings supported by lower core other expenses and taxes. In individual insurance, the impact of good business growth and favorable mortality experience was partially offset by the impact of more onerous contracts.
Eric Jobin: Lastly car are there expense in this segment were lower than a year ago.
Eric Jobin: U S. Operation also he called that a good result, with our with the 12% year over year increase in core earnings supported by lower core other expenses and taxes in individual insurance the impact of good business growth and favorable mortality experience.
Eric Jobin: That's partially offset by the impact of Mohan It was contracts.
Eric Jobin: In dealer services, the favorable impact of sales during Q1 2024 was offset by a slightly less profitable business mix and, to a lesser extent, by the impact of lower sales in 2022. Now turning to slide 16, looking first at the investment segment. Core earnings of $86 million for the first quarter compared to $95 million during the previous quarter. Most of the decrees come from CoreNet Investment Resolve and are due to the decline in interest rates in Q4, and is in line with the sensitivities that we provided in February 2024.
Eric Jobin: In dealer services, the favorable impact of sales during Q1, 'twenty 'twenty four was offset by a slightly less profitable business mix and to a certain extent by the impact of lower sales in 2023.
Eric Jobin: Now turning to slide 16, looking first at the investment segment.
Eric Jobin: Core earnings of 86 million for the first quarter as compared to 95 million during the previous quarter.
Eric Jobin: Most of the decrease come from core net investment result, and is due to the declining interest rate in Q4.
Eric Jobin: And is in line with the sensitivities that we provided in February 2024.
Eric Jobin: As a reminder, the core net investment result for a given quarter is dependent on the yield curve at the beginning of the quarter since we assume for core earnings purposes that the interest rate remains constant throughout the quarter. Looking forward, we expect core net investment results to be more stable following recent actions that have reduced the sensitivity of our core earnings to interest rate variation by more than 40%. We are very pleased with this reduction in future volatility of our core earnings and will provide you with more details shortly.
Eric Jobin: As a reminder, the coordinates investments result for us.
Eric Jobin: Given quarter is dependent on the yield curve at the beginning of the quarter since we assume for core earnings purposes that interest rates remains constant throughout the quarter.
Eric Jobin: Looking forward, we expect core net investments result to be more stable. Following recent actions that have reduced the sensitivity of our core earnings to interest rates valuation by more than 40%.
Eric Jobin: We are very pleased with this reduction in Denmark in the in future volatility of our core earnings and I will provide you with more details shortly.
Eric Jobin: Returning now to the investment results for the first quarter, credit experience was near expectation with a slight $1 million credit loss, which may need you to more downgrade and upgrade the bond portfolio. In the corporate segment, core other expenses before taxes of $66 million are in line with our 2024 quarterly expectation of $65 million, plus or minus $5 million. This good result is mainly due to our discipline and focus on operational efficiency initiatives. Now look at the right side of the slide for non-core adjustments.
Eric Jobin: Returning now to the investment results for the first quarter credit experience was near expectation with a slight 1 million credit loss, mainly due to more downgrades and upgrades in the bond portfolio.
Eric Jobin: In the corporate segment, Colorado expenses before taxes of 66 million are in line with our 2024 quarterly expectation of 65 million plus or minus $5 million.
Eric Jobin: This good result is mainly due to our discipline and focus on operational efficiency initiatives.
Eric Jobin: Now looking at the right side of the slide four noncore adjustments.
Eric Jobin: Q1 core earnings exceeded reported earnings by only $10 million. As for rebel market-related impacts and assumption changes, we're more than upset by other items mostly related to acquisitions. Please go to slide 17 to look at the company's robust capital position. Our solvency ratio of 142% at March 31st is well above our operating target of 120%. The slight decline of 3 percentage points during the quarter was mainly due to an unfavorable impact of macroeconomic variations and other non-organic items.
Eric Jobin: Q1 core earnings exceeded reported earnings by only $10 million.
Eric Jobin: As for rebar market related impacts and that assumption changes were more than offset by other items, mostly related to acquisitions.
Eric Jobin: Please go to slide 17 to look at the company robust capital position.
Eric Jobin: Our solvency ratio of 142% at Smart at March 31 is well above our operating target of 120 person.
Eric Jobin: The slight decline of three percentage points during the quarter was mainly due to an unfavorable impact of macroeconomic valuation.
Eric Jobin: And other nonorganic items as far the positive contribution of all kidney capital generation. It was more than sufficient to cover Q1 capital deployment, which essentially consisted of share buybacks.
Eric Jobin: As for the positive contribution of organic capital generation, it was more than sufficient to cover Q1 capital deployment, which essentially consisted of share buybacks. Organic capital generation continued to be strong, reaching $130 million in the first quarter. This result is higher than last year for the same period. It is also in line with our projection to exceed the minimum target of $600 million in 2024 as, due to seasonality, organic generation is generally stronger from the second quarter onwards.
Eric Jobin: Organic capital generation continue to be strong re Chico, reaching 130 million in the first quarter.
Eric Jobin: This result is higher than last year for the same period. It is also in line with our projection to exceed the minimum target of 600 million in 2024 as due to seasonality organic generation is generally stronger from the second quarter onwards.
Eric Jobin: With such a solid capital position, we ended the quarter with approximately $1.5 billion in capital available for deployment, for organic growth and acquisition, as well as dividends and share buybacks. On this topic, we announced earlier today that we have raised the maximum number of shares that can be repurchased under the current NCIB program from 5 to 8%.
Eric Jobin: With such a solid capital position, we ended the quarter with approximately $1 5 billion in capital available for deployment.
Eric Jobin: Organic growth and acquisition as well as dividends and share buybacks.
Eric Jobin: On this topic, we announced earlier today that we raised the maximum number of shares that can be repurchased under the current and CIB program from 5% to 8%.
Eric Jobin: Continuing on slide 18 to discuss some recent operational efficiency initiatives.
Eric Jobin: Continuing on slide 18 to discuss some recent operational efficiency initiatives, IE has always been known as a cost-conscious company, investing wisely to support sustainable growth. In recent years, we have prioritized the deployment of capital in organic growth, most notably in our digital transformation. This has been done following a rigorous process to prioritize and ensure that expected benefits will materialize. As a number of these projects gradually come to an end, our disciplined approach is showing results.
Eric Jobin: He has always been known as a cost conscious company investing wisely to support sustainable growth in recent years, we have prioritized a deployment of capital in organic growth, most notably in our digital transformation.
Eric Jobin: As has been done following a rigorous process to prioritize and ensure that the expected benefits will materialize has a number of these projects gradually come to win in our disciplined approach is showing results. Indeed total core other expenses in Q1.
Eric Jobin: Indeed, total car other expenses in Q1 were lower than during the previous quarter and then a year ago. Also, core other expenses for the corporate segment were $66 million in Q1 2024, which is in line with the expected quarterly run rate of about $65 million.
Eric Jobin: Lower than during the previous quarter, and then a year ago.
Eric Jobin: Also core other expenses for the corporate segment were $66 million in Q1, 2024, which is in line with the expected quarterly run rate.
Eric Jobin: Of about 65 million.
Eric Jobin: Now I'm going to slide 19 to comment on the actions taken to reduce sensitivity of our core earnings to interest rate valuations.
Eric Jobin: Now I go to slide 19 to comment on the actions taken to reduce the sensitivity of our core earnings to interest rate variation. Optimizing the management of our assets and liabilities has always been a key focus, and it is even more important under IFRS 917 given the accounting treatment of assets and liabilities under these new standards. After one year under these new standards, we wanted to further reduce the sensitivity of our results to interest rate variation, and we have succeeded in doing so.
Eric Jobin: Optimizing the management of our assets and liabilities has always been a key focus and it is even more important on their I FRS 917, given the accounting treatment of asset and liabilities under these new standards.
Eric Jobin: After one year under these new standards, we wanted to further reduce the sensitivity of our results to interest rate valuation, which we have succeeded in doing doing so.
Eric Jobin: It has been reduced by more than 40 percent, thereby also minimizing the future volatility of our core earnings. This has been achieved through certain initiatives, such as making the accounting approach for certain liabilities more consistent with the approach used for assets. Looking forward, the core net investment results should be more stable, and core earnings will better reflect the company's robust underlying and recurring earning power. With this sensitivity reduction and our recent operational efficiency initiatives, we are well positioned for the quarters ahead. This concludes my remarks. Operator, we will now take questions.
Eric Jobin: That's been reduced by more than 40%, thereby also minimizing the future volatility of our core earnings.
Eric Jobin: This has been achieved through certain initiatives such.
Eric Jobin: Such as making the accounting approach for certain liabilities more consistent with the approach used for assets.
Eric Jobin: Looking forward the core net investment results should be more stable and core earnings will better reflect the company robust underlying and recurring earning power.
Eric Jobin: With this sensitivity reduction and our recent operational efficiency initiatives, we are well positioned for the quarters ahead.
Speaker Change: This concludes my remark operator, we will now take questions.
Operator: Thank you, ladies and gentlemen. Should you have a question, please press star 1. To withdraw your question, press star 2. One moment please for your first question. Your first question comes from Meny Grauman from Scotiabank. Please go ahead.
Speaker Change: Thank you ladies and gentlemen, so do you have a question. Please press star one to withdraw your question Press Star two one moment. Please for your first question.
Meny Grauman: Your first question comes from many Grumman fence Scotiabank. Please go ahead.
Meny Grauman: Hi, good morning. First off, happy retirement, Mike.
Meny Grauman: Hi, Good morning, first off happy retirement, Mike I wanted to just start off by asking about the interest rate sensitivity reduction first off.
Meny Grauman: I wanted to just start by asking about the interest rate sensitivity reduction. First off... Were you able to reduce this sensitivity costlessly, or is there some cost associated with that? I wanted to clarify that first.
Meny Grauman: Were you able to reduce this sensitivity.
Meny Grauman: Costless, we or is there some cost associated with that and I wanted to clarify that first.
Meny Grauman: Okay.
Meny Grauman: Yeah perfect. Good question in fact, its costlessly, Okay and the reason is that we have just the way.
Eric Jobin: Yeah, perfect. A good question. In fact, it's costless. Okay. And the reason is that we have just, it's costless. Sorry.
Eric Jobin: It's costless, sorry, [laughter] and the reason is that the thing that we've made is applying hedge accounting on our liabilities. So that you know the liabilities more more and more in sync with the assets.
Eric Jobin: And the reason is that the thing that we've done is applying hedge accounting on our liabilities so that, you know, the liabilities move more in sync with the assets backing them. And we haven't done any economic edging or any other thing that changes the economic underwriting.
Eric Jobin: <unk> them and we have made no economic at gene or any other thing that changed the economic underwriting.
Eric Jobin: And so just to understand why you decided to do this now and not with the introduction.
Meny Grauman: And so, just to understand why you decided to do this now and not with the introduction of IFRS 17. Is there something that has changed, or how do we understand the timing of this right now?
Meny Grauman: <unk> and Avaya for 17 is there something that changed or how do we understand the timing of this right now.
Eric Jobin: It's another good question. In fact, you know, when we started IFRS 17, we made all the good choices that we thought were the right things to do. And as 2023 realized and happened, you know, lots of things happened in 2023, and the volatility of our core earnings was exceeding what we were expecting. So we constantly, throughout 2023, looked at ways to optimize and improve the situation. And this item is just the result of further analysis of the sources of this volatility that was creating distortions in accounting earnings.
Speaker Change: It's a it's another good question and sector you know when we are we started out your forest 17, we made all the good choices that we talked to were the right things to do and as 2023.
Meny Grauman: Okay, I got it. And then just a final question on the topic. You reduced the sensitivity by 40%. Is there room to go further? Is that something realistic, or should we not expect that?
Meny Grauman: Our realized and that then you know lots of things that happen in 2023, and the volatility of our core earnings was exceeding what we were expecting so we constantly throughout 2023 looked at ways to optimize and improve the situation and decide them is just.
Meny Grauman: As a result of further analysis.
Meny Grauman: The sources of this volatility that was created just creating distortions in accounting, earning.
Meny Grauman: Okay got it and then just a final question on the topic, you've reduced the sensitivity by 40% and is there room to go further.
Meny Grauman: Is that something realistic or we shouldn't expect that.
Eric Jobin: The answer is yes, we continue to work on this, and realistically, you know, it's not possible to think that this will be zero, but we continue to work toward improving the core sensitivity.
Speaker Change: The answer is yes, we continue to work on this and.
Eric Jobin: Realistically.
Eric Jobin: No.
Eric Jobin: It's not possible to think that this will be zero, but we continue to work towards improving that core.
Eric Jobin: The course sensitivity.
Speaker Change: Great I'll re queue. Thank you.
Meny Grauman: Great, I'll retreat, thank you.
Meny Grauman: Yeah.
Meny Grauman: Your next question comes from Doug Young from <unk> capital markets. Please go ahead.
Operator: Your next question comes from Doug Young from Desjardins Capital Markets. Please go ahead.
Doug Young: Hi, Good morning, just going to slide 17, just I wanted to clarify a few things there's a one point impact from.
Doug Young: Hi, good morning. Just going to slide 17, just I wanted to clarify a few things. There's a one point impact from and other non-organic variations. And I'm just hoping to understand what that relates to.
Doug Young: And the other non organic variations and just hoping to understand what that related to and it looked like the capital required for our organic growth doubled versus last year and Canadian individual insurance sales were flat group and well I don't think that's fairly capital intensive so just trying to.
Eric Jobin: And it looked like the capital required for organic growth doubled versus last year. And Canadian individual insurance sales are flat. Group and wealth, I don't think that's fairly capital intensive. So just trying to understand the capital required for organic growth and the one and a half point impact as well.
Eric Jobin: To understand the capital required for organic growth of one five point impact as well.
Doug Young: Yes, sure, Doug. First, I'll start with the non-organic variation. This is related to asset rebalancing and optimization of our portfolio. So really, it's the investment team taking proactive action on our portfolio. So that's the first answer to your question.
Speaker Change: Yes, sure Doug Yeah, first I'll start with the the Nonorganic valuation this is related to our asset rebalancing and optimization of our portfolio. So really it's our investment team.
Doug Young: Taking a proactive action on our portfolio. So that's the first answer to your question and for the other one on the capital required for kidney grille, you might notice that we are we have added a line for the risk adjustment to release. This line last year was a bundled with the <unk>.
Eric Jobin: And for the other one on the capital required for organic growth, you might notice that we have added a line for the risk adjustment release. This line last year was bundled with the capital required for organic growth. So that's one of the reasons why you have the impression that it's higher. And the other one, why on a quarterly basis, the number is higher, is that we have some seasonality that happens, especially for the group businesses and employee plans. So that business profile is tilted more toward the first half of the year. So it's normal to have more required capital in the first quarter for this reason.
Eric Jobin: Total required for organic growth. So that's one of the the reason why you have the impression that it's higher so that's one.
Eric Jobin: The reason and the other one why on a quarterly basis. The number is higher is that are we have some seasonality that happens this year for the group.
Eric Jobin: Group businesses and the employee plan, so that the that business profile is tilted more toward the first half of the year. So it's not meltwater for multi acquired kept it all in the first quarter for this reason.
Doug Young: Okay, so the second response just says Canadian group. This is on the employee benefit side, and this is just related to the additional sales, isn't it?
Speaker Change: Okay. So the second response, just Thats Canadian group and this is in the employee benefit side and this is just related to the additional sales is that.
Speaker Change: Yeah, no it's related to the in force and new business.
Eric Jobin: Yeah, no, it's related to the enforced and new business. It's all inclusive.
Eric Jobin: All inclusive.
Eric Jobin: Yeah.
Speaker Change: And then just going back to your proactive.
Doug Young: And then just going back to proactive on the portfolio. So basically, does this have anything to do with the actions you took to reduce your sensitivity or your corning sensitivity to the movements and interest rates? Or is this something in an effort to pick up yield? You can maybe dig into that.
Doug Young: Proactive on the portfolio. So basically is this has anything to do with the actions you took to reduce your sensitivity or your core earnings sensitivity in there.
Doug Young: <unk> and interest rates or is there something in an effort to pick up yield.
Doug Young:
Doug Young: Let's maybe dig into that.
Eric Jobin: No, as I mentioned earlier, Doug, the action we've taken to reduce the sensitivity is purely accounting actions. So we did not take any actions that would result in a decrease in the value of assets or anything. It's purely unrelated. Okay.
Speaker Change: No as I mentioned earlier Doug.
Eric Jobin: The action, we've taken to reduce the sensitivity a purely accounting actions. So we did not take any actions to that would.
Eric Jobin: Our result in the end.
Eric Jobin: And the decrease of S value of assets of anything it's purely a unrelated.
Doug Young: Okay, I'm going to come back to that afterward and then just... You know, maybe related to the U.S. division, just a few questions. One, you talked about onerous contracts or a strain increasing related to more onerous contract sales. If you can kind of dig into that.
Eric Jobin: Okay.
Doug Young: I mean, it's come back to that after and then just.
Doug Young: Maybe related to the U S.
Doug Young: In addition, just a few questions one you talked about onerous contract or a strain.
Speaker Change: Increasing related to more onerous contract sales.
Doug Young: If you can kind of dig into that and then on the U S who are on the U S dealer service or extended vehicle warranty side it looks like.
Doug Young: And then on the U.S. employee or on the U.S. dealer service or extended vehicle warranty side, it looks like, you know, you're cutting employees, you're taking rate actions, results are expected to improve. And do we start seeing this improvement next quarter? Can you talk a bit about the cost savings that come from this employee reduction?
Doug Young: Youre cutting employees, you're taking rate actions in our results are expected to improve.
Doug Young: Do we start seeing this improvement next quarter.
Doug Young: Can you talk a bit about the cost saves that comes from this employee reduction.
Speaker Change: Yes, Doug Yeah first on the strain for the U S Life Division.
Eric Jobin: Yes, Doug. First, on the strain on the U.S. Life Division, what we see there is slightly higher not-taken policies that have increased the strain. You know, we're taking management action to improve the pricing and make sure that we get the desired profitability, but Q1 was a quarter where we had a bit more of those untaken policies, and by IFRS 17 definition, the acquisition cost that comes with a policy that the client does not proceed forward with needs to be recognized, so that's why it's showing up in the last component.
Eric Jobin: What we see there is slightly higher.
Eric Jobin: Not taken policies that have increased our strain you know, we're taking management actions to improve the pricing and make sure that we'll get the desired profitability, but Q1 was a quarter, where we had a bit more of dose taken policies and baidu are your forests.
Eric Jobin: <unk> definition the acquisition cost that comes with a policy that the client does not proceed forward with needs to be recognized so that's why it's showing up in the in the last component.
Eric Jobin: And as for the dealer businesses' profitability... The cost savings will, and you know, we said last year that the situation would gradually improve in terms of profitability in 2024, and this is one action that will help us improve the situation on top of the growth of the business.
Eric Jobin: And asphalt the dealer businesses profitability.
Eric Jobin: The cost savings will and you know we said last year that this tuition would gradually improve in terms of profitability in 2024, and this is one action that will.
Eric Jobin: L plus improved our situation on top of the growth of the business.
Denis Yves Ricard: Yeah, Doug, it's Dennis here. I mean, you might ask, I mean, if we turn the corner here, I think we need a couple of more quarters. There are some early signs that, you know, positive early signs in terms of an increase in sales, the fact that we've eliminated some positions, and also some repricing for some businesses. I believe that we are gradually improving, as we said, the situation, but we still need a couple of quarters to show it and just, you know, just follow up.
Eric Jobin: Yeah, Doug it's Tony here.
Denis Yves Ricard: I mean, you might you might you might ask I mean have we turned a corner here I think we need a couple of more quarters are there are some early signs that you know positive early signs in terms of increase in sales.
Denis Yves Ricard: The fact that our we've eliminated some positions.
Denis Yves Ricard: Also some some repricing for some there's some businesses so.
Denis Yves Ricard: I believe that we we are improving as we said gradually the situation, but we still need a couple of quarters to it to show with I guess.
Doug Young: And just as a follow up like on the terms of the cost saves have you quantified what that is.
Doug Young: And just, you know, just follow up, like, on the terms of the cost savings. Have you quantified what that is?
Doug Young: Yeah.
Eric Jobin: Yeah, we are not ready to disclose that information at this point, Doug, but yes, we have quantified it. Okay.
Doug Young: Yeah. We are we are not ready to disclose that information at this point, yet, but yes, we have quantified it.
Denis Yves Ricard: I would add that not only have we eliminated some positions, but we are very, very rigorous in terms of adding new people to this organization. So it's not only the positions that have been eliminated; it's also the way that we manage the expenses overall that is important in that business. And I think what you should keep in mind is that we are working towards improving profitability overall for that business. I appreciate the color, and Mike, all the best in retirement.
Speaker Change: Okay, and Doug and Doug I would say sitting here I would add that.
Denis Yves Ricard: Not only have we.
Denis Yves Ricard: It has some positions but.
Denis Yves Ricard: We are a very very rigorous in terms of adding new people and D. In this organization. So it's it's not only are the position that they have been eliminated. Its also the way that we manage the expenses overall that is important in that business. So.
Denis Yves Ricard: I think what you should keep in mind is that we are working towards.
Denis Yves Ricard: Proving profitability overall for that business.
Denis Yves Ricard: I appreciate the color and Mike all the best in retirement.
Denis Yves Ricard: Yeah.
Denis Yves Ricard: Your next question comes from Gabriel <unk> from National Bank. Please go ahead.
Operator: Your next question comes from Gabriel Dechaine from National Bank. Please go ahead.
Gabriel Dechaine: Hi, good morning or afternoon, 1201. I have to ask you a few straightforward questions, I think. Firstly, the experience gains in Canada are a pretty high number. Can you give me the split between P&C and mortality?
Gabriel Dechaine: Hi, good morning, or good afternoon prevalent I have to Oh ask you a few straightforward questions I think firstly, the the experienced gains in Canada pretty high number can.
Gabriel Dechaine: Can you give me the split between P&C and mortality.
Speaker Change: Yes, good afternoon.
Eric Jobin: Yes, good afternoon, Gabrielle. It's about two-thirds AIE or Monoto and one-third for Mortality.
Speaker Change: It's about tutored Uh huh.
Speaker Change: And one third for mortality.
Gabriel Dechaine: Got it, thanks. Now, a little curveball maybe for Alain, I'd like to hear if, you know, you have any thoughts on how the higher capital gains inclusion rate might be affecting your job? Not your job, but...
Eric Jobin: Thanks.
Speaker Change: Then oh curve ball maybe for L. A.
Speaker Change: Uh huh.
Alain: Love to hear if there you know you have any thoughts on how the higher capital gains inclusion rate might be affecting your job.
Gabriel Dechaine: Not your job, but you know what I mean.
Denis Yves Ricard: Well, I mean, Gabriel, it's Denis. So you want to know what the impact on earnings will be, right? Some of the increase in capital gains? Yeah, on earnings or how you manage the portfolio, really. No, I mean, I mean, it would impact capital gains for, let's say, business, not business, but investments like real estate, you know, whenever we decide to dispose of those, but we've made a calculation in terms of the recurring impact of that change. It's immaterial. Okay, immaterial. Okay, so it doesn't sound like any change to how you're, you know, running the portfolio then. It's not going to change the way we're going to manage our portfolio. Yeah, that's great.
Alain: Well I mean I.
Speaker Change: Got it got it so you want to know what is the impact on earnings write them up with the increase in capital gains.
Denis Yves Ricard: On earnings if or how you manage the portfolio really.
Denis Yves Ricard: No I mean is there I mean, it wasn't back capital gains for let's see.
Denis Yves Ricard: Businesses, no business, but investments like real estate and you know whenever we decide to to dispose of those but we've made the calculation.
Denis Yves Ricard: In terms of recurring impact of that change it's immaterial, okay. Mr. Ontario.
Denis Yves Ricard: So it doesn't sound like any change to how you're.
Speaker Change: You know running the portfolio then.
Denis Yves Ricard: Yeah.
Denis Yves Ricard: It's it's not going to change the way, we're going to manage our portfolio.
Gabriel Dechaine: Scott Chan, Denis Ricard, Michael Stickney, Tom MacKinnon, Doug Young, and Gabriel Dechaine know where to look for that business and how to track its performance. So there's expected earnings on PAA insurance, and this is the driver of earnings in your U.S. operations. So expected earnings on the PAA insurance business, probably some experience gains, but I don't know if I can model those. And then core non-insurance activities, what's the best place to look for?
Speaker Change: Got it great.
Gabriel Dechaine: I was hoping for something Juicy here, but that's fine it's better lastly on the U S. So this is a stupid question because there's a lot of changes taking place you're you know you're adjusting the cost base, you're increasing your pricing or expanding your your.
Gabriel Dechaine: Your distribution network and all that stuff how do I.
Speaker Change: Just wanted to know.
Gabriel Dechaine: No where to look for.
Gabriel Dechaine: But that business and how to track its performance. So there is expected earnings on P. A a insurance and the drivers of earnings in your U S. Operations are expected at earnings on P. A a insurance business, probably some experience gains, but I don't know if I model those and then core non insurance activities, where what's the.
Gabriel Dechaine: First place to look for.
Gabriel Dechaine: Short answer I gave at Yale is a boat.
Eric Jobin: The short answer, Gabriel, is both, because the PAA line represents the business that we're taking some underwriting risks on, so it's the PNC, and the other one, the non-insurance operation, represents the administration business that we have.
Eric Jobin: Because the P line represent that the business that we're tight taking some underwriting risk. So it's an ANC and the other one the non insurance operation represent the admin.
Eric Jobin: And with that well, yes yep.
Gabriel Dechaine: and I suppose other expenses would be in there as well, right? So it's a bit of a mishmash. But I guess that's it. Okay. Alright. That's it for me.
Speaker Change: Got it and then I suppose fixed other expenses would be in there as well right. So it's a bit of a mismatch but.
Gabriel Dechaine: Okay.
Speaker Change: Alright, that's it for me thanks.
Gabriel Dechaine: Your next question comes from Tom Mackinnon from BMO capital. Please go ahead.
Operator: Your next question comes from Tom MacKinnon from BMO Capital. Please go ahead.
Tom MacKinnon: Yeah, thanks very much and good afternoon. And Mike, congratulations on a long, successful, and rewarding career. Question on Canada, impact of new business. I remember in the fourth quarter, this number was much more negative than everybody thought, and it seemed to be related to some of the group business. Then, if I look at this number now, it's less than half of the figure that it was in the fourth quarter, yet your group business, both in, you know, premiums and deposits, is kind of flat quarter over quarter, your sales are better, so why... You know, help us think about how to Thanks.
Tom MacKinnon: Yes, thanks, very much and good afternoon, and Mike Congratulations on a long successful and rewarding career.
Tom MacKinnon: Question on Canada impact of new business I remember in the fourth quarter. This number was a much more negative than everybody thought.
Tom MacKinnon: And it would seem to be related to some that the group business. Then if I look at this number now it's a less than half of the figure that it was in the fourth quarter yet your group business. Both in premiums and deposits is a it's kind of flat quarter over quarter. Your sales are better.
Tom MacKinnon: So oh why.
Tom MacKinnon: You know help us think about how to look at that impact of new business in Canada going forward just given the fact that it jumped a lot in the fourth quarter came back down to more reasonable level and then in the first quarter. Thanks.
Tom MacKinnon: Yes, I'm on this one we always mention that for the group it comes from.
Eric Jobin: Yes, Tom, on this one, we always mention that for the group, it comes from the employee benefit sector, group insurance, in particular. And we always mention that this is a lumpy business. And so sometimes you get those big sales that flow in, and you need to recognize the investment at the point of sale. And there are renewals also happening to some extent on the enforced business. And depending on the combination of the two, it may create a bit of volatility on that line.
Eric Jobin: Employee benefits sector in group insurance in particular.
Eric Jobin: And we always mention that this is a lumpy in a lumpy business and so so sometimes you'll get those big sales that flow in and that are that you need to recognize the investment at the point of sale and they arent renewals also happening.
Eric Jobin: <unk> had some some other extend on the enforced business and depending on the combination of the two it may create a bit of volatility on a on that line, but you know for me as I mentioned in Q4, we're being very disciplined at pricing and renew windows group to make sure that we.
Eric Jobin: But, you know, for me, as I mentioned in Q4, we're being very disciplined at pricing and renewing those groups to make sure that we get to our target profitability. But this volatility is normal. And maybe another clue I can give you is that when I look at the business model for group employee plans, it's tilted more toward the first half of the year than toward the second half. Employers tend to put their groups in force more toward the beginning of the year, on January 1st, and then the first quarter, then later in the year. So that's why you see a bit more volatility on that line.
Eric Jobin: We get to our target profitability, but this volatility is not mode and maybe another clue I can give you is that when I look at the business model for group of employee plan, it's tilted more toward the first half of the year than toward the second half employee.
Eric Jobin: Here's tend to put their group in force.
Eric Jobin: More toward the beginning of the year in January 1st and and then the first quarter than later in the year. So that's why you'll see a bit more volatility on that plane.
Eric Jobin: I mean, it was largest negative in the fourth quarter of last year, which seems to be inconsistent with your comments about when people I thought that people would be moving the cases more sexually in the first quarter, but also in the fourth quarter, but.
Tom MacKinnon: I mean, it was the largest negative in the fourth quarter of last year, which seems to be inconsistent with your comments about when people. I thought people would be moving the cases more sectionally in the first quarter, but also in the fourth quarter.
Eric Jobin: That's a very good question, Tom. And what you need to realize is that when we get an agreement with an employer, we sign the group. Sometimes it goes up to 12 months before that group is put into our books because the implementation is a quite cumbersome and lengthy process. So what happened last quarter is that we had sales confirmation, and, accountingly speaking, we need to recognize the agreement that we booked, and those premiums will come into our books in the quarters to come. So that's why there is a bit of a lag effect between the last component and the increase in premium because of that implementation process that takes a while.
Speaker Change: No. That's it that's a very good question, Tom and and what you need to realize is that when we are we get to an agreement with an employer. We signed the group sometimes it goes up to 12 months because that it could be for that group is put into our books because the implementation.
Eric Jobin: Is a quite a cumbersome and lengthy process. So what happened last quarter is that well yet sales confirmation.
Eric Jobin: And accounting Lee speaking, we need to recognize the agreement that we booked and those premiums will come into our books in the quarters to come. So that's why that's why there is a bit of lagging effect between the loss control and then an increase in premium.
Eric Jobin: Of that our implementation process that takes a while.
Tom MacKinnon: Okay, thanks, and in wealth management, the non-insurance activities, I guess that seems to be some of the, your share of earnings from some of the affiliates is up nicely year over year, and it continues to climb, and I think you mentioned commission increases. Is that a trend? Should we expect the run rate just to continue from the 50 that you booked for that line in Q1-24?
Speaker Change: Okay, Thanks and.
Tom MacKinnon: In the wealth management to the non insurance activities I guess that seems to be some of the your share of the earnings from some of the affiliates.
Tom MacKinnon: Up nicely year over year continues to climb and I think you've mentioned commission increases is that a trend should we expect the run rate just to continue from the 50 that you booked.
Tom MacKinnon: For that line in Q1 24.
Speaker Change: Well in fact felt this if stephane keeps growing the business. Yes, we can expect that we can expect this to continue to grow.
Eric Jobin: Well, in fact, for this, if Stéphane keeps growing the business, yes, we can expect this to continue to grow. And the reality for that, as you mentioned, is one good explanation about the reason why it's going up. The other one is also improved margins, and that is good. So, this sector tends to be correlated with the macroeconomic environment. And I would say that as long as macroeconomic stands where it is right now, the stock market, and interest rates, we could expect this sector to
Eric Jobin: And the reality felt that as you mentioned one that one good explanation about the about the reason why it's going up the other one also is improve margins that is good. So this sector tends to be.
Eric Jobin: Co related with macroeconomic environment, and I would say that as long as the Macroeconomy stands where it's where it is right now stock market interest rate, we could expect this sector to perform.
Stephan Bourbonnais: Recruiting is very important in that sector, and I would invite, perhaps, Stephan to comment on the recruiting activities and the trend that he's seeing in the market right now.
Speaker Change: Okay. Thank you very much.
Stephane: Tell me they need here like recruiting is very important in that sector and I would invite maybe stefan to comment on the recruiting activity is a trend that you're seeing in the market right now.
Stephan Bourbonnais: I think what we've seen, obviously, the focus has been on retaining our advisors. I think we've done a great job there because a lot of the growth is coming from organic growth. The recruiting has picked up since last year in a really strong Q4, carried over into Q1. Momentum is there as well. So we do see an appetite in the industry for that independent model, and that's been driving our assets as well as the market. And as you saw, we're also looking for acquisition opportunities and tuck-ins, and this is where the Laurentian deal came into play. So we are very much focusing on growing that distribution part of our business.
Stephane: I think what we've seen obviously the focus has been on retaining or advisory I think we've done a great job there because a lot of the growth is coming from organic growth.
Stephan Bourbonnais: The recruiting has picked up since last year and in a really strong Q4 carried over the Q1 momentum there as well so we do see an appetite in the industry for that independent model.
Stephan Bourbonnais: And that's been driving our our assets as well with the market.
Stephan Bourbonnais: And as you saw we're also looking for acquisition opportunity in tuck ins and this is where also the laurentian deal came into play. So we we are very much focusing on growing that distribution part of our business.
Tom MacKinnon: Great. I appreciate the color. Thanks.
Speaker Change: Great I appreciate the color. Thanks.
Tom MacKinnon: Your next question comes from Paul Holden from CIBC. Please go ahead.
Operator: Your next question comes from Paul Holden from CIBC. Please go ahead.
Paul David Holden: Thank you. Going back to the discussion on interest rate volatility, I think it's easy to agree that lower volatility with no cost is a good outcome. I guess what I'm curious about is also the level of net investment income. Obviously, it was down quite a bit in Q1. Now, with the change in accounting, how quickly or not might that recover to prior levels?
Paul David Holden: Thank you afternoon, I'm going back to the discussion on the interest rate volatility I think it's easy to agree that lower volatility with no cost is a good outcome I guess, what I'm curious about is also the level of net investment income obviously it was down.
Paul David Holden: Quite a bit in Q1 now with the change in accounting, how quickly or not Mike that or a cloud cover to prior levels.
Paul David Holden: Yeah.
Eric Jobin: Yes, hi, Paul, it's Eric again. On this sensitivity, you see the level we are right now with Q1, nearly 110. So that's a good starting point. Using our sensitivity and the interest rate move between the end of December and the end of March, you can use the sensitivity to guess where our next quarter's core net investment results should be.
Paul David Holden: Yes.
Paul David Holden: Hi, Paul It's a it's Eric again [laughter] on this sensitivity yeah.
Eric Jobin: Do you see the level we are.
Eric Jobin: Now what are with Q1, nearly a 110, so that's a good starting points using our sensitivity and the interest rates move between the end of December and the end of March you can use the sincerity to guess where our next quarter.
Eric Jobin: Coordinate investments results should be.
Eric Jobin: Okay.
Eric Jobin: Understand.
Paul David Holden: The second question is a bit of a bigger picture one. I want to talk about core ROE. It was pretty good this quarter, 14.6 closing in on the 15% plus target but not quite there. Just wondering what gets you over the 15% target or really back to the 15% plus? Is it as simple as deployment of that excess capital you're holding, which is significant, or are there other levers you're looking at pulling?
Paul David Holden: Second question.
Paul David Holden: As a bit of a bigger picture one.
Paul David Holden: Wanted to talk about for Aro <unk> It was pretty good this quarter 14 six.
Paul David Holden: Closing in on the 15% plus target, but not quite fair just wondering what gets you over the 15% target are really back to a 15% plus is it as simple as deployment of that excess capital, you're holding which is significant or are there other leavers youre looking at.
Speaker Change: All right.
Denis Yves Ricard: Paul, it's Denis here. I would say two things. The first one is improving our current operations. And you have seen some improvements, obviously, in this quarter, and we're working to improve them even more, in particular the U.S. dealer business.
Paul David Holden: Paul It's it's Dinny here I would say two things the first one is improving our current operations and.
Dênis: I've seen you've seen some improvements obviously in this quarter and we are working to improve even more.
Denis Yves Ricard: The second would be deploying capital, as you mentioned. You've seen, for example, that we've increased the NCIB because, I mean, at the end of the day, the 5 percent maximum we had, we would have hit it very quickly. So we needed to improve it, to increase it. It's one way for us to deploy capital. It's not our, let's say, preferred choice. But if we could find areas for growth with acquisitions, it would be our first choice.
Dênis: In particular, the U S business. That's the first thing the second would be deploying.
Denis Yves Ricard: Deploying capital as you mentioned you've seen.
Denis Yves Ricard: For example that we've increased the D N CIB because I mean at the end of the day.
Denis Yves Ricard: The 5% maximum we had we would have hit it very quick.
Denis Yves Ricard: So we needed to improve it to increase it.
Denis Yves Ricard: One way for us to deploy capital and it's not our let's say a preferred choice I would say if we could find.
Denis Yves Ricard: Areas for growth with acquisitions would be our first choice, but now we have all the options available for us So to your point, yes deployment of capital would be a great too and then we've made all the tests you know, but we know how much do you or we could go up.
Denis Yves Ricard: But now we have all the options available to us. So to your point, yes, the deployment of capital would be a great tool. And we've done all the tests. We know how much DRO we could go up, depending on which kind of scenario we have. So we can – if we deploy capital, the 15 percent-plus is reachable.
Denis Yves Ricard: Depending on which kind of a scenario, where we have so where we can if we deploy the capital of the 15% Plusses is reachable.
Paul David Holden: And last one for me, another big picture one is kind of observe the results through 2023 when interest rates are higher, start thinking about maybe for IA, a lower interest rate environment might actually be better for sales, maybe for earnings and now particularly with the additional or reduction in volatility on that investment income line, wondering how you are thinking about sort of I don't know if you call it optimal interest rate environment but is lower better, is higher better, stable better, how should we be thinking about that?
Speaker Change: Got it okay.
Paul David Holden: Last one for me another big picture wanted to kind of observe the results through 2023 when interest rates are higher.
Paul David Holden: Thinking about maybe for I E.
Paul David Holden: Lower interest rate environment might actually be better for sales maybe for earnings and now, particularly with the additional I'm sorry.
Paul David Holden: And and and and volatility on that.
Paul David Holden: I spent income line wondering how you're thinking about sort of I don't know if you call. It optimal interest rate environment, but as blow or better is higher or better stable better how should we be thinking about that.
Denis Yves Ricard: All in all, higher is better. I mean, that's the short answer because when you think about most of our businesses, like the individual insurance business, the wealth management business, there are some ripple effects on macroeconomic factors. It's better.
Paul David Holden: All in all higher is better I mean, that's the short answer.
Denis Yves Ricard: Because when you think about most of our business just like the individual insurance business.
Denis Yves Ricard: The wealth the wealth management business most of them and others. There are some ripple effect on macroeconomic factors.
Denis Yves Ricard: It's better it might be a challenge on the dealer business for affordability, especially if it's combined with higher prices, which we've seen usually it's that's not the case, but that's what we've seen but it's pretty it's pretty obvious to me that are the higher the better.
Paul David Holden: It might be a challenge for the dealer business for affordability, especially if it's combined with higher prices, which we've seen. Usually that's not the case, but that's what we've seen. But it's pretty obvious to me that the higher, the better. Okay.
Paul David Holden: Okay, I got it. Thanks for your time.
Speaker Change: Okay got it thanks for your time.
Operator: Your next question comes from Mario Mendonca from TD Securities. Please go ahead.
Paul David Holden: Your next question comes from Mario Mendonca from TD Securities. Please go ahead.
Mario Mendonca: Good afternoon.
Mario Mendonca: Good afternoon. Eric, first of all...
Mario Mendonca: Eric first.
Mario Mendonca: Going back to Tom's question about the strain on domestic or Canadian Canadian business, sales and employee benefits were up 21%. And, of course, as you've shown us, the strain is mostly flat year over year. What I'm trying to understand was, was that a mix of business issues, or did the company do something different with these sales that led to the lower strain number?
Mario Mendonca: Going back to Tom's question about the strain in domestic or in Canadian the Canadian business.
Mario Mendonca: Sales and employee benefits were up 21% and of course as you can as you've shown us. The strain is mostly flat year over year, what I'm trying to understand was there was that a mix of business issue or did something the company do something different with these sales that led to the lower straight numbers.
Eric Jobin: No, absolutely nothing, Mario, no change. It's purely the impact of new business and renewal combined.
Speaker Change: No absolutely not thing Matthew no change, it's purely a the impact of new business and you're and you're all combined.
Mario Mendonca: but certainly, sales were up 21%.
Eric Jobin: But certainly sales were up 21% and train didn't really move much can you help me understand that.
Eric Jobin: Yeah, in fact, when you look at the sales up 21%, as I mentioned to Tom, those sales are confirmed, but they will be implemented, let's say, at the beginning of next year or maybe later this year. So that's why you don't see the premium increase yet, because it takes a while to implement those groups into our book. So that's why there is a...
Mario Mendonca: Yeah. In fact, it was when you look at their sales up 21% as I mentioned to time those sales are all.
Eric Jobin: Confirmed but it will be implemented let's see for beginning of next year. Maybe later this year. So that's why you don't see the premium increase.
Eric Jobin: Yet because it takes a while to implement those groups and into our books.
Speaker Change: So does that mean, there is a lagging effect between the training and the growth.
Mario Mendonca: So does that mean that those sales that you're referring to this quarter, the up 21%, will result in strain, say, 12 months from now? Is that the message?
Speaker Change: So does that mean that those sales that youre, referring to this quarter are they up 21% will result in strain say 12 months from now is that the message.
Eric Jobin: No, the strain is really when we sign those groups, and the premium income will increase in the coming quarter.
Mario Mendonca: No no the strain the strain is really when we signed those groups and the premium will lead the premium income will increase in the coming quarters.
Mario Mendonca: So is it fair then to say that the strain we saw last quarter was a reflection of the higher sales we're seeing this quarter? I'm just trying to understand how this ties in.
Eric Jobin: So is it fair then to say that the strain we saw last quarter was the reflection of the higher sales. We're seeing this quarter I'm just trying to understand how those tie them.
Eric Jobin: In fact, you cannot tie it to exactly the sales number. When we report the sales, those are the confirmed sales. And the strain is connected with those confirmed sales. And then the premium, the premium income of that sector, is really reflective of when those premiums start to flow into our balance sheet and income statement.
Speaker Change: Yes. In fact are you cannot tie it to exactly to the sales number the sales.
Eric Jobin: When we report the sales is those are the confirm sales okay.
Eric Jobin: And the strain is connected with dose confirmed sales and then prim young the premium income of that sector is really.
Eric Jobin: Reflective of when those premiums start to flow into our how we're our balance sheet and income statement.
Mario Mendonca: Let me just try this one more time then. So the 21% increase in sales we saw this quarter, was there any quarter in the past or any quarter in the future that will reflect the higher strain from those sales? I think that's what I'm trying to understand.
Speaker Change: Okay. Let me just try this one more time that the 21% increase in sales. We thought this quarter was there any quarter in the past or any quarter in the future that will reflect the higher strain from both sales and I think that's what I'm trying to understand.
Eric Jobin: In the end, sir.
Speaker Change: Yes, the answer is no.
Eric Jobin: Okay.
Eric Jobin: The strain that we have this quarter is the agreement that we signed during the quarter.
Eric Jobin: What's happening is the strain that we have this quarter is the agreements that we signed during the quarter and those sales will be.
Eric Jobin: And those cells will appear in our reports when it occurs.
Eric Jobin: And now reports when Eric in the coming quarter to quarter. So there's a disconnect between whenever we sign a deal and where you have to anchor the strain and the moment that in our report we see the sales number okay. Okay I see that that's what he's trying to that's what he was trying to get at okay. Sorry.
Eric Jobin: In the coming quarters. So there's a disconnect between whenever we sign a deal, where you have to incur the strain, and the moment that we see the sales numbers on our report. Okay, okay, I see. That's what Mario is trying to get at.
Mario Mendonca: Okay, sorry.
Mario Mendonca: So these sales that were recorded, when were those contracts? When would those contracts have been signed?
Mario Mendonca: So the scale of that were different.
Mario Mendonca: So these sales that were recorded this quarter, one where those contracts one would those contracts have been signed.
Mario Mendonca: Because that's when the strained goes through right. That's what I think what you just said that ring did squad during this quarter Matthew.
Eric Jobin: Because that's when the strain goes through, right? That's what you, I think what you just said. The ring, this quote, the ring, this quote.
Speaker Change: Okay, well, then I clearly I clearly don't understand that.
Mario Mendonca: Well, and I clearly don't understand this, but I'll take it offline. Maybe another question for Denis, when the acquisition of IAS was announced a while back, there was a lot of enthusiasm around that, and certainly that was the case this year, shortly after. In your response to an earlier question where you sound sort of guarded about how U.S. dealer services could play out in the near term, can you talk about what's changed for you? What's made you, let's say, less enthusiastic about this business, or is this very much just a near-term statement, and you're still very optimistic about dealer services over the long run?
Speaker Change: I'll take it offline.
Mario Mendonca: Another.
Dênis: So maybe another question for Dennis.
Speaker Change: Then Denise.
Mario Mendonca: Yeah.
Mario Mendonca: When the acquisition of <unk>.
Mario Mendonca: As was announced.
Mario Mendonca: While back there was a lot of enthusiasm around that and certainly that was the case in this year. Shortly after your response to an earlier question, where you sound sort of guarded on how U S dealer services could could play out in the near term can you can you talk about what's what's changed for you. What's made you, let's say less enthusiastic.
Dênis: About this business or is this very much just a near term.
Dênis: Statements and you are still very optimistic about dealer services over the long run.
Denis Yves Ricard: Marie, obviously, I don't want to over-promise and under-deliver. I would say that would be my first comment. The pandemic has been quite detrimental to that business. I mean, it was closed. The business was, the acquisition was closed at the worst time, I would say.
Dênis: Obviously, I don't want to over promise under delivered I would say that that would be my first comment.
Denis Yves Ricard: The pandemic has has been quite detrimental to that business I mean, it was close to the business with the acquisition of West Coast.
Denis Yves Ricard: First time I would see so the results never been what we expected and so now we see some gradual improvement.
Denis Yves Ricard: So the results have never been what we expected, and now we see some gradual improvement. But I would prefer personally to see a couple of quarters of good results before, you know, I start feeling enthusiastic about the business. Now, there are good signs this quarter, which is good. But I don't want to see us turn the corner yet.
Denis Yves Ricard: But I would prefer personally to see a couple of quarters of good results before I start feeling into just think about the business now they're all good things this quarter, which is good.
Denis Yves Ricard: I don't want to say that we turned the corner yet.
Speaker Change: Okay. Thank you.
Operator: Ladies and gentlemen, as a reminder, should you have a question, please press star 1. Your next question comes from Darko Mihelic from RBC Capital Market. Please go ahead.
Speaker Change: Ladies and gentlemen, as a reminder, did you have a question. Please press star one.
Darko Mihelic: Your next question comes from Darko <unk> from RBC capital markets. Please go ahead.
Darko Mihelic: Hi, thank you. Good afternoon.
Darko Mihelic: Hi, Thank you good afternoon.
Darko Mihelic: I'm kind of in Mario's camp, where I'm not quite sure that I understand why strain.
Darko Mihelic: I'm kind of in Mario's camp where I'm not quite sure that I understand why strain wasn't higher in the quarter. Is there a way you can maybe connect it? Like, for example, last quarter, strain per dollar of sale or something like that? Is that maybe the way we can make this connection to help me understand the situation with strain, please?
Darko Mihelic: Wasn't higher in the quarter is there a way you can maybe connect it like for example last quarter strain per dollar of sale or something like that is that is that may be the way. We can make this connection to help me understand.
Darko Mihelic: The situations of a stir.
Speaker Change: <unk> please.
Darko Mihelic: Yes.
Speaker Change: Yes in fact.
Eric Jobin: Yes, in fact, you know, if you look at slide nine. I'll take you there, okay?
Speaker Change: If you look at slide <unk>.
Eric Jobin: Nine.
Speaker Change: I'll bring you there okay just to try to clarify the situation.
Eric Jobin: Just to try to clarify the situation. You know, when we talk about premiums... Those premiums reflect the ongoing premiums for groups that have been on-boarded with us, so after implementation. So the strain that we have shown in Q4, depending on where the sales will be implemented, will start to increase these premium income when this happens, when they are being implemented.
Eric Jobin: You know when we talk about premiums.
Eric Jobin: Those premiums reflect the ongoing premiums that for groups that has been that have been on boarded.
Eric Jobin: With us so okay. So after implementation so the strain that we have shown in Q4, you know depending on where the the.
Eric Jobin: The sales will be implemented will start to increase those premium income when when this happens.
Eric Jobin: When they are being implemented.
Eric Jobin: Okay.
Darko Mihelic: But, okay. Maybe I'll just take it offline. I'm not sure if you're better. And then, just my final question is, I want to go back to Denny's earlier comments. So when I think about the significant amount of capital you have, you've upped the NCIB. Clearly, there's an intention, um, to use it in case there is no other outlet for or capital. So is it fair for us to assume that even after VeriCity closes, you'll have a drop in the Likert, um, if there's nothing else... Is it fair to assume that you would simply exhaust the NCIB?
Speaker Change: But okay, maybe I'll just take it offline.
Darko Mihelic: And then.
Darko Mihelic: And then just my final question is.
Darko Mihelic: I wanted to go back to Denny your earlier comments.
Darko Mihelic: So when I think about.
Darko Mihelic: The significant amount of capital that you have.
Darko Mihelic: You've upped the NCI be clearly there is an intention.
Darko Mihelic: To use it in case, there is no other outlet or for capital.
Darko Mihelic: So is it fair for us.
Darko Mihelic: To assume that even after various city closes.
Darko Mihelic: Youll have a drop in the light cat.
Darko Mihelic: If there's nothing else.
Darko Mihelic: Is it fair to assume that you would simply exhaust the NCI.
Darko Mihelic: Yeah.
Darko Mihelic:
Speaker Change: It's I guess.
Denis Yves Ricard: I guess I... I wish I could say yes to your question, but it also depends on the price of the stock. The price of the stock was pretty depressed recently. I was not pleased with that, and we decided to be more aggressive on the buyback. So, if prices, I mean, if prices, the stock price, was to stay as it was during the last three quarters, three months, I would definitely say yes.
Denis Yves Ricard: I wish I could say, yes to your to your question, but that it's also depends on the price of the stock.
Denis Yves Ricard: The price of the stuck was pretty.
Denis Yves Ricard: Pretty depressed recently I was not pleased with that.
Denis Yves Ricard: And we decided to be more aggressive on the on the on the buyback.
Denis Yves Ricard: So if prices if prices stock price were to stay as it was during the you know in the last three quarters three months.
Denis Yves Ricard: I would say definitely yes.
Denis Yves Ricard: But if the price of the stock moves up significantly, it might be that there's a slowing of the buyback. But right now, we are on our way to using it all. But again, it depends on the stock price.
Denis Yves Ricard: But if you know if the price of the stock moves up significantly it might be that you know, there's a slowing of our of.
Denis Yves Ricard: A buyback so.
Denis Yves Ricard: But right now I mean, we are on our way to a to use at all but again it depends on the stock price.
Speaker Change: Great. Thank you very much.
Denis Yves Ricard: And there are no further questions at this time I will turn the call back over to Dennis for closing remarks.
Operator: And there are no further questions at this time. I will turn the call back over to Denis and Ricard for closing remarks. Okay.
Denis Yves Ricard: Okay, well, thank you for all your questions. We're very pleased today because we said several times that we aim for a 10% plus CPS growth, and we've delivered 17%. Obviously, the 10% is an average over time, but we're pleased with our 17% and pleased with the fact that all our three units have increased by more than 10%. And we have, I would say, broadened the options of capital deployment with the NCIB moving from 5% to 8% this quarter. So, I'm so pleased with the fact that we have this option, you know, for the time being. So, with that said, thank you very much for attending this call.
Dênis: Okay well. Thank you for all your questions are were very pleased today because.
Denis Yves Ricard: We've we've said several times that we aim for a 10% plus EPS growth and we've delivered 17%, obviously, the 10% as an average over time, but we're pleased that the of our 17% and are pleased to the fact that all our three units have increased by more than 10% and we have a.
Denis Yves Ricard: We have a I would say brother in the.
Denis Yves Ricard: Options of capital deployment with D and CIB moving from 5% to 8% this quarter. So so I'm. So pleased with the fact that we have this option you know for the time being.
Denis Yves Ricard: So with that said thank you very much for attending this call.
Operator: Ladies and gentlemen, this concludes your conference call for today. You may now disconnect. Thank you.
Speaker Change: Ladies and gentlemen. This concludes your conference call for today you may now disconnect. Thank you.
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