Q4 2024 iA Financial Corp Inc Earnings Call
Thank you for standing by this is the conference operator, welcome to the Industrial Alliance financial groups fourth quarter 2024 earnings results Conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation, there will be an opportunity to ask questions to join the question queue. You May Press Star then one on your telephone keypad should you need assistance during the conference call you May signal, an operator by pressing Star then zero.
Speaker Change: I would now like to turn the conference over to Kathleen till the Wang head of Investor Relations with I a financial group. Please go ahead.
Speaker Change: Thank you operator, good morning, everyone and welcome to our fourth quarter 'twenty 'twenty four conference call all of our Q4 documents, including our press release slides for this conference call supplemental information package and annual MD&A are posted in the Investor Relations section of our web.
Speaker Change: Right at I C E D.
Speaker Change: This conference call is open to the financial community.
Speaker Change: And the public I remind you that our question period is reserved for financial analysts.
Speaker Change: A recording of this call will be available for one week starting this evening.
Speaker Change: Archived webcast will be available for 90 days and a transcript will be available on our website in the next week.
Speaker Change: Also I draw your attention to the forward looking statement information on slide two as well as the non ifr S and additional financial measures.
Speaker Change: Formation on slide three.
Speaker Change: Also please note that a detailed discussion of the Companys of asks is provided in our 'twenty 'twenty four MD&A available on SEDAR and on our website.
Danielle: So with that I will turn the call over to Danielle to call President and CEO.
Good morning, everyone and thank you for being with us on the call today.
Speaker Change: As usual I will start by introducing everyone attending on behalf of E. G.
Speaker Change: Joining me are you think July Chief Financial Officer, and Chief Actuary.
Speaker Change: I think those are all chief investment officer.
Speaker Change: If uncle Benin responsible for wealth management operations.
Speaker Change: And Charles individuals' saving individual insurance savings and retirement.
Speaker Change: Oh Gee, we're talking to several of our Canadian operations and responsible for dealer services, Canada, and I always want a whole shot.
Speaker Change: Shawn O'brien, Chief growth officer of our U S operations.
Speaker Change: And we sit at Kodiak, and Charger group benefits and retirement solutions.
Speaker Change: Uh huh.
Speaker Change: We're excited to be here this morning to discuss our strong performance in the fourth quarter.
Speaker Change: We had an impressive fourth quarter for profitability.
Speaker Change: Our capital position and for growth.
Speaker Change: These results Mark a year of consistent strong performance and are a testament to the soundness of our growth strategy.
Starting with slide eight for an overview of our fourth quarter results.
Speaker Change: Record profitability was achieved in the fourth quarter with core EPS of $3.04.
Speaker Change: Representing a solid 30% increase year over year.
Also car or OE for Q4 stands at 16, 9% on a quarterly annualized basis.
Speaker Change: The strong sales momentum that we saw during the first three quarters of 'twenty 'twenty four carried over into the fourth quarter in both Canada and the U S leading to an impressive 39% year over year increase in premiums and deposits.
Speaker Change: And an 18% increase in assets under management and administration.
Speaker Change: As for our capital position it remains robust with the solvency ratio of 139%.
Speaker Change: Well in excess of our operating target.
Speaker Change: This financial strength is supported by ongoing organic capital generation of $150 million in Q4.
Speaker Change: Our book value per share rish.
Speaker Change: Reached.
Speaker Change: $73.44.
Speaker Change: December 31.
Speaker Change: This represents a 10% year over year increase.
Speaker Change: The increase in book value per share is 13%, if we exclude the impact of share buybacks.
Speaker Change: Now going to slide nine to look at the Q4 business growth.
Speaker Change: For insurance, Canada.
Speaker Change: This segment has consistently demonstrated robust performance with all business units delivering solid sales results once again this quarter.
Speaker Change: In individual insurance, we maintained our leading position in the number of policies sold in Canada with strong sales of $102 million in Q4.
Speaker Change: The growth was driven by the performance of our unique distribution networks are best in class digital tools and our comprehensive product portfolio.
Speaker Change: In group insurance premiums and deposits increased by 8% year over year totaling $524 million driven by strong sales, including record sales in special markets well, but also by keeping clients through his return high retention rates.
Speaker Change: And dealer services total sales amounted to $176 million in the fourth quarter, representing a 10% year over year increase.
Speaker Change: This performance was primarily driven by sales of extended warranties and ancillary products, highlighting our diversified distribution model and national presence across Canada.
Speaker Change: Finally, I will turn the whole achieved remarkable sales with direct written premiums totaling $134 million in the fourth quarter.
Speaker Change: Okay.
Speaker Change: This significant 17% year over year increase.
Speaker Change: <unk> our success in generating new sales in a context of rising premiums.
Speaker Change: Turning to slide 10 to comment on sales results of wealth management.
Speaker Change: The wealth management segment maintains a strong momentum and this is translating into strong sales in the fourth quarter.
Speaker Change: <unk> continues to lead the market in both gross and net fund sales.
Speaker Change: Gross sales of six funds achieved a quarterly record record high of nearly $1.6 billion in the fourth quarter, marking a significant increase of 87% year over year.
Speaker Change: Net inflows amounted to nearly $1 billion, demonstrating the strength of our distribution networks and our growing position as a market leader.
Speaker Change: Okay.
Speaker Change: Mutual fund gross sales for the quarter totaled $597 million.
Speaker Change: Up 52% year over year.
Speaker Change: We saw a substantial improvement in net sales with outflows reduced to $33 million during Q4.
Speaker Change: Sales of insured annuities and other savings product reached $434 million during the quarter. This is a positive result in an environment, where investors are more optimistic about riskier asset classes.
Speaker Change: Finally sales in group savings and retirement exceed $1.8 billion.
Speaker Change: This is about three times the resolved for the same quarter last year.
Speaker Change: This impressive performance was driven by a major insurer to annuities sell in excess of $9 billion and a strong 29% year over year increase in sales Commission products.
Speaker Change: Yeah.
Speaker Change: Turning to slide.
Speaker Change: Sorry.
Speaker Change: Turning to slide 11, and outlining our sales results in the U S.
Speaker Change: In 2024, we have allocated capital to grow in scale in the U S life sector.
Speaker Change: In individual insurance sales remained strong totaling 68 U S. Six.
Speaker Change: Six Sigma and U S.
Speaker Change: The 55% year over year increase reflects a consistent overall performance.
Speaker Change: Reinforced by the addition of sales from <unk>.
Speaker Change: And dealer services fourth quarter sales reached $274 million U S, representing a 21% increase compared to December of last year.
Speaker Change: This outcome is noteworthy sales traditionally experience a dip during the fourth quarter due to seasonality.
Speaker Change: This performance highlights the quality of our products and services, particularly in the more favorable context, where dealers are integrating more F&I products into vehicle sales.
Speaker Change: The strong sales results, we are seeing in our U S business units demonstrated the value of our unique diversified business model and growth potential in these markets.
Speaker Change: Turning to slide 12, we share some of the key highlights and progress for the year.
Speaker Change: In light of all great results. It is evident that 'twenty 'twenty four was a standout year in all aspects.
Speaker Change: Profitability soared to a record levels with core earnings exceeding $1 billion and in expanding our Roe.
Speaker Change: And 'twenty 'twenty four our core EPS increased by 20% compared to the previous year.
Speaker Change: While our EPS grew by 31% during the same Peru.
Speaker Change: This performance was driven by fundamentals such as a 22% growth in core insurance service results.
Speaker Change: And 15% growth in non core.
Speaker Change: Core non insurance activities.
Speaker Change: Our business growth momentum accelerated in 2024, ultimately generating a 22% increase in premiums and deposits.
Speaker Change: And in an 18% increase in assets all business units contributed to these outstanding results with strong and sustained sales.
Speaker Change: Our capital position remains strong throughout the year supported by a continuous high level of organic capital generation.
Speaker Change: In 'twenty 'twenty four we deployed significant capital investing in our organic growth in our digital transformation.
Speaker Change: While successfully completing three acquisitions and repurchasing over 600 million insurers.
Speaker Change: On top of this we maintain financial flexibility and paid a dividend that is 13% higher than what it was in 2023.
Speaker Change: These initiatives demonstrate <unk> ability to create and return value to its shareholders.
Speaker Change: Finally, our book value grew by 10% in 2024, and we closed a year.
Speaker Change: With $12 5 billion market cap today being at $13 billion.
Speaker Change: The rise in our market cap represents an important milestone for our.
Speaker Change: Our 'twenty 'twenty four performance highlights our strong foundation, the soundness of our growth strategy.
Speaker Change: Our prudent financial approach and.
Speaker Change: It's skewed to the first of our employees and distributors.
Speaker Change: We're moving into 'twenty, and 'twenty, five with confidence and momentum and we are set up well for continued growth.
Speaker Change: Let's move to slide 13 to review our performance against our financial targets set at the beginning of 'twenty 'twenty four.
Speaker Change: I'm very proud to announce today that we have successfully met all our objectives for each of the five metrics outlined in our guidance.
Speaker Change: Our core EPS has seen a 20% increase and car arias.
Speaker Change: I was reached 15, 9% along with other remarkable results that meet or exceed targets.
Speaker Change: We invite you to join our Investor event scheduled for next Monday, either in person or virtually dream to seven where we'll introduce our new market guidance.
Our executive management team is fully engaged and would be presenting on the key objectives of our Canadian businesses and an in depth review of our U S operations.
Speaker Change: I will now hand, it over to Eric who will comment further on the fourth quarter profitability and capital strength. Following Eric's comments, we will take questions Eric.
Eric: Thank you Denis and good morning, everyone.
Eric: I will start with slide 16 for an overview of Q4 stability financial strength.
Eric: In Q4, our quarterly annualized ROE reached an impressive 16, 9%.
Eric: The positive result in Q4, and if it took the core ROE for the full year at 15, 9%, maintaining our midterm target of 15% plus.
Eric: Strong earnings combined with the strategic capital deployment initiatives played an important role in the expansion of the autos.
Eric: Core EPS at three or four represents a notable 30% increase year over year. This strong performance is supported by growth in core insurance services and growth in car uninsured <unk> activities.
Eric: With core earnings of 287 million in the fourth quarter. We are happy to report that we have now surpassed the billion dollar core earnings Mark for 2024.
Eric: This solid performance was supported by the increase in premiums and deposits as well as asset growth attributed to sustained sales momentum.
Organic capital generation remained strong in the fourth quarter, enabling us to meet our annual target of over 600 million set at the beginning of the year.
Eric: Our book value per common share has increased by 10% over the past year, excluding the impact of the share buyback the book value increased by 13%, reflecting our ability to create and return value to our shareholder also it's important to notice that on there.
Eric: Quarter over quarter basis book value has increased 3%.
Eric: First in insurance, Canada co earnings for the quarter reached $116 million.
Eric: This represents a significant 49% increase year over year.
Eric: Yeah.
Eric: This growth was fueled by higher expected insurance earnings driven by strong sales and favorable insurance experience, notably lower claims at <unk> E <unk>.
Eric: In addition, carbon insurance activities showed a year results driven by good performances from dealer services and distribution activities.
In the wealth management segment fourth quarter core earnings were $112 million, Mark King a robust 22% increase from the previous year.
Eric: This growth comes from higher CSM recognized for services provided and higher risk adjustment are these coming from reputable net fund sales.
Eric: This segment also benefited from a 27% year over year increase of core earnings of non insurance activities coming from very strong performance from our distribution affiliates in <unk>.
Eric: Lastly.
Eric: Hover above macroeconomic environment continued to positively impact this segment.
Eric: In our U S operations core earnings for Q4 totaled 26 million in line with last year performance.
Eric: The addition of very city and prosperity blocks of business had a positive impact on unexpected insurer uncertain names, while favorable mortality experience contributed to positive car insurance experience.
Eric: Core non insurance activities declined slightly compared to the previous year, reflecting the impact of the distribution activities of the river City acquisition that are performing in line with expectations.
Eric: Now turning your attention to slide 18, starting with the investment result.
Eric: Expected investment earnings rose by 12% from the previous quarter attributed to the favorable impact of the Steepening interest rate due to lower long term nature of our businesses.
Eric: This coupled with strong performance from our I quality investment portfolio led to a 28% increase in core earnings compared to the previous quarter.
Eric: However, the credit experience resulted in a 7 million dollar loss.
Eric: Primarily preliminary view to higher impacts from downgrades and upgrades in the investment portfolio and increased our allowance for credit losses at <unk> Auto finance.
Eric: In the corporate segment car other expenses totaled 82 million before tax 65 $69 million. After tax those numbers include an 18 million charge related to variable compensation, resulting from the company's outstanding performance in 2024.
Eric: Uh huh.
Eric: I would like to call out that excluding discharge the Q4 call other expenses.
Eric: It would have been 64 million pre tax is well in line with our quarterly target of $65 million plus or minus $5 million.
Our focus remains on operational efficiency cost conscious execution and discipline project and workforce management.
Eric: Turning to the noncore adjustment on the right of the slide net income to common shareholders was $220 million.
Eric: Adjustment leading to core earnings include impact of favorable markets really took variations the impact of year end assumption review and many each month actions.
Eric: Non core expenses related to acquisition and pension plans.
Eric: Additionally, adjustment were made for specific items, including an 8 million tax adjustment for previous fiscal years 9 million software write down in insurance, Canada, and 16 million provision for outstanding balances related to accounts receivable in the U S operations. The later I just am.
<unk> relates to old accounts for the wing management action in a prudent risk management approach.
Eric: Please refer to slide 19 to look at company robust capital position.
Eric: Fourth quarter results are solid and aligned with the performance seen throughout the year, reflecting a flexible balance sheet and sound risk management practices.
Eric: Our solvency ratio as of December 31 stands at $139 million.
Eric: 139%.
Eric: Well above our operating target of 120%.
Eric: The one percentage point variation during the fourth quarter was driven by the impacts of Nonorganic items, including the other all yearend assumption review and management actions macroeconomic variation capital deployment initiatives, such as share buyback Ikea investment and in the investment Oxford.
Eric: <unk> well these items were offset by strong favorable impact of the 400 million subordinated debenture issuance and strong organic capital generation of 150 million during the fourth quarter.
Eric: Organic capital generation in 2024 amounted to 635 million meeting our target of 600 million plus for the year.
Eric: We have included values on a pro forma basis to account for the three material items.
Eric: Subsequent to the quarter. These items include the acquisition of global warranty the impact of the a M. F revised Carly guidelines as of January one.
Eric: And the redemption of subordinated debentures.
Eric: Therefore on a pro forma basis, the solvency ratio is 133% the capital available for deployment totaled $1 4 billion and our financial leverage ratio was 15%.
Eric: We will remain disciplined in our capital deployment, preserving our financial strength and flexibility in the current environment.
Eric: Moving onto slide 20 with.
Eric: We presented the results of our yearend assumption review and many instrument action.
Eric: The completion of this Honeywell process, resulting in slightly positive overall impact of 9 million pre tax during the fourth quarter. Most specifically the yearend review, where the negative impact of 22 million pretax on fourth quarter net income and positive impact of 31 million.
Eric: Pre tax on future profit.
Eric: The result of the process was positive for mobility policyholder behavior financial and expense assumptions, while negate CFO mortality assumptions.
Eric: A number of management actions at the negative impact.
Eric: One of the main action relates to adjustments to win yards of segregated funds Mither minor model refinement across all segments were overall positive to net income but negative on the CSO.
Eric: With solid profitability Significative significant capital over the both our deployment and lawyer expected investment earnings. We concluded 2024 on the subject no 10, 10, <unk> 2025 with continued confidence in our strategy, our capabilities and our path to delivering long term sustainable.
Eric: Growth.
Eric: These conclude my remarks, operator, we are now ready for the question period.
Eric: Thank you.
Speaker Change: Now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you'll hear atone acknowledging your request if youre using a speakerphone. Please pick up your handset before pressing any keys to withdraw your question. Please press Star then two.
Speaker Change: The first question comes from Tom Mackinnon from BMO capital markets. Please go ahead.
Tom Mackinnon: Yeah, Thanks, and good morning.
Tom Mackinnon: Two things first Canada group business, the strain seem to be.
Tom Mackinnon: Lower than what we've.
Tom Mackinnon: We've seen in the first and the fourth quarter of 2023 can remind us of the seasonality associated with that and the fact that sales were up in the net premiums were up AR and the strain was down how should we be reading that and how should we be thinking about this strain number going forward, thanks, and I have a follow up.
Tom Mackinnon: Thank you Tom I guess I will take the question it's Eric Thank.
Thank you for the question.
Tom Mackinnon: You'll see that the strain in Q4 group businesses is slightly lower or well, it's it's lower than last year, mostly for the fact that we add less proportionally.
Tom Mackinnon: Arthur on the Atlas venue walls falter enforced business. Okay. So so that's what that's what explains the big difference last year, we add to that big chunk of business that renewed in the in Q4 and that resulted in the higher strain than we normally see in Q4. So that's one piece.
Tom Mackinnon: Second piece to your answer is what you see in terms of premiums and now we're in our disclosure is really the premiums that are at.
Tom Mackinnon: <unk> in our books right now, okay, and the strain has to do with call concern business. So the strain for new business.
Tom Mackinnon: That comes from from group.
Tom Mackinnon: Sometimes it takes a while remember I said that there's a lag effect between the implementation and the confirmation so for the new business part of the strain it does to connect with the confirmed sales and while what you see in their report third.
Tom Mackinnon: <unk> growth is the implemented sales and what we have in the books.
Tom Mackinnon: And how should we be looking at this stream going forward.
Tom Mackinnon:
Tom Mackinnon: It's well said.
Tom Mackinnon: A little more higher than it would normally would have.
Tom Mackinnon: It is 2024 kind of in line with what we should be thinking about that was a fourth quarter fourth quarter in 2023, a little bit of an outlier.
Yeah, I would say yeah, I would say that yes. We are we would expect it more in line, but we never say no to business growth. When we have good oral wheat group insurance is kind of lumpy as long as the auto we have net profit expected under.
Tom Mackinnon: The group is is appealing to us we will that we will book the sales. So it's remember that this is a lumpy business that bring some some fluctuation, but youre right that 'twenty 'twenty fall is more aligned with the past in 23 was more of an exception, but we will.
Tom Mackinnon: Never say no to good business growth that are profitable.
Tom Mackinnon: Okay and the follow up just a quick maybe numbers question the tax rate here, just a little under 20% I think he'd been kind of run in 'twenty two to 'twenty three how should we be thinking about core tax rate going forward.
Tom Mackinnon: Yeah My guidance for you Tom would be a 21% plus or minus 1% going for Q4 was slightly lower for two reasons. Our Ci, yes, you know the Canadian investments harmful.
Tom Mackinnon: Our states are soft minutes multinational insurer has been the separate bowls into Kuwait and Couldnt in the quarter and also we had the larger portion of investment income that war not taxable. So those were a slightly higher than the than usual, but the guidance for me would be 21, plus or minus one.
Tom Mackinnon: Okay. Thanks.
Tom Mackinnon: Okay.
Speaker Change: Next question is from many Crown men from Scotiabank. Please go ahead.
Speaker Change: Hi, Good morning, Denise I'm curious from your perspective.
Speaker Change: Should we be thinking about the impact of tariff tariff risk, especially on your your various auto related businesses. That's one area that are trying to think through obviously a lot of uncertainty, but just wanted to get your perspective on that.
Speaker Change: Yes, I think the human for the question.
Speaker Change: Well, let me see further.
Speaker Change: Since we don't produce goods I mean, the tariff don't have any impact directly to our business, but it might be that there was some indirect impact.
Speaker Change: And then you mentioned the <unk>.
Speaker Change: <unk> business.
Speaker Change: The one thing that I believe is that at the end of the day.
Speaker Change: The American government the U S government.
Speaker Change: Is is trying to at the end of the day put more money into the pockets of their citizens.
Speaker Change: I believe that he would want to avoid inflation it would be responsive to the financial markets at some point.
Speaker Change: So there's a lot of noise and what they're saying, but at the end of the day. When we look at the long view because we are in the long term business at the end of the day.
Speaker Change: We believe that to whatever they're going to do it at the end of the deal will not be detrimental to their economy. It could not be the case, because they will face an election at some point. So yeah. There was a lot of noise right now.
Speaker Change: But I think mid term long term.
Speaker Change: Because what I said, it's going to be OK now in the short term that there might be some disruption.
Speaker Change: But the one thing I would say is that we have a diversified business throughout all our organization.
Speaker Change: We've gone through some kind of recession in the past I mean, it might trigger some slowdown in the economy.
Speaker Change: But because of our diversified business, the fact that would've make doing business with distributors.
Speaker Change: It kind of gave us a good I would say a good hedge against a recession. That's what we've seen in the past. So we're not that concerned about the tariffs are as far as our business is concerned.
Speaker Change: And then just wanted to get a related question just in terms of any change to your M&A outlook again more the indirect side of things.
Speaker Change: In terms of how you're viewing the outlook here.
Speaker Change: And so does that change any priorities on the on the on the M&A side for you.
Speaker Change: It does not at all.
Speaker Change: We see the U S is a great a great place to invest and so we're looking at opportunities on both sides of the border and so it doesn't change anything.
Speaker Change: Thank you.
Speaker Change: The next question is from Gateway Altus, Shane from National Bank Financial. Please go ahead.
Speaker Change: Hey, good morning, I have a a numbers question and then more of a I guess.
Speaker Change: Look the question.
Speaker Change: The numbers, what I don't want to get too into the weeds here, but if I look at the the CSM recognize for any given period there was a 15 per se.
Speaker Change: 6% year over year for the 'twenty 'twenty four but if I look at that number as a ratio of the actual fifth imbalance. It's like there is a.
Speaker Change: And increasing.
Ratio, meaning you're releasing more C. S M a.
Speaker Change: <unk>.
<unk> 17 was adopted I'm wondering if there's any explanation you can provide there you've been selling more short term product.
Speaker Change: You know amortize them to income faster or what we can expect biggest from that line item because its been growing pretty nicely.
Speaker Change: Yeah. The CSM may get the Yale is amortization is he is increasing fault. Most see two reasons. The first one is it a nice team are doing an exceptional job on the sales of sites or market.
Speaker Change: The net sales outgrew wing. So it has a direct impact on the on the CSM being recognized and I would say the second thing is the market are related in fact Q2 'twenty 'twenty four was a great market.
Speaker Change: Our performance year that resulted in an increase in the funds under management and with the CSM and Ifr risks.
Speaker Change: Processes, what happens when the market is bad there is that we need to keep the same amortization schedule as the beginning and so that tends to increase.
Speaker Change: The CSM amortization in dollars.
Speaker Change: Okay.
Uh huh.
Speaker Change: Then I.
Speaker Change: I guess the outlook question and I know Youre doing your Investor Day next week, but.
Speaker Change: If I can.
Just a you know.
Speaker Change: Take a high level view of the last couple of years and Denise at this year I think he covered astounding are exceptional which definitely I agree with that.
Speaker Change: But sulfur contrast against twenty-three three were.
Speaker Change: That you're ended up not being as strong as you had anticipated.
Speaker Change: So I guess my question is you know you had one social year, one great year.
Speaker Change: At this point do you think investors should temper expectations, a little bit given that there are you know what I'm just talking about two years, there, but theres some variability of outcome certainly should.
Speaker Change: Should we temper expectations or are you still really bullish and but what we saw in 'twenty 'twenty four is repeatable.
Speaker Change: Right.
Speaker Change: I have to disagree with the word you as you can get it in because and the word exceptional.
Speaker Change: Another word that is exception so exception mean that is Smith again.
Speaker Change: Maybe it was astounding right now, but I mean, I'm getting sarcastic here.
Speaker Change: 2020 for it to me, it's not exceptional and excellent here.
Speaker Change: We I would quantify it its repeatable we're confident in our business model.
In fact, we are trying to accelerate and we are having strategies to accelerate our development deploy.
Speaker Change: Deployment of capital is one key thing there so on Monday next Monday, you're going to hear a recipe youre going to eat.
Speaker Change: Recipe for success.
Speaker Change: And you won't feel it and hopefully that the executive team is quite confident about the.
Speaker Change: They don't go going forward.
Speaker Change: Okay great.
Speaker Change: Great and I look forward to next week.
Speaker Change: <unk>.
Doug Young: Next question is from Doug Young from <unk> capital markets. Please go ahead.
Doug Young: Hi, Good morning, I'm not sure this question's for Erica for Sean just on the U S business.
Doug Young: To understand the provision for outstanding balances related to the account receivables I mean, what does this.
Doug Young: <unk> statements related to the dealer services as this part of the affiliated side of the business can you quantify or just hoping to get a little bit more detail.
Eric: Yes, I will take him Doug it's Eric.
Eric: That provision has to do with you're right to say in the U S dealer.
Eric: Business and you know since SCHUNK took over last year.
Eric: In default at summer time.
Eric: With this new management team the undertook.
Eric: A lot of management actions to improve the situation and Walnut Doles management action was to go after some accounts.
Eric: The source of some amounts that were accounts receivable from dealers. So those had to do with charge back to dealers and while they were doing that job in the fall, we realized that our provision for the potential recovery needed to be strengthened and so that's what took place.
Eric: In Q4 in terms of putting the provision at the prudent level. So that we put this thing behind us.
Speaker Change: And here I'd like to ask something about it.
Speaker Change: Yeah, I mean in terms of the U S business.
Speaker Change: You might recall that I got several questions in previous calls about have we turned the corner there.
Speaker Change: And I was quite prudent in the best thing that you know a few quarters to go.
Speaker Change: And we knew at the time that we.
Speaker Change: We needed to look at those those provisions.
Speaker Change: We didn't know exactly what would be deemed results. So we were prudent now we know we put it behind us and so if you ask me if we turned the corner there.
Speaker Change: We're closer to the turning the corner than we were in the last quarter for sure.
Speaker Change: But that would still be prudent in but we've got a management team right now is really focused on improving the situations.
Speaker Change: And you'll hear on next Monday, because we spend more time on next Monday on the U S business.
Speaker Change: And I'm confident that you'll have more confidence into the strategies into the U S wondering here might.
Speaker Change: People.
Speaker Change: And just a follow up is this related to the affiliate business, where you have reinsurance.
Speaker Change: The dealers and was it related to some form of.
Speaker Change: Yes.
Speaker Change: Compensating you back for certain things just trying to understand and I can take this offline or myself.
Daniel: Daniel it's better just figured I'd ask.
Daniel: This specific item at Doug is not ready to reinsurance deficit the treaty year charge backs that towards you buy by dealers that we decided to write off.
Daniel: Okay.
Daniel: And then just on the capital just wanted to understand.
Speaker Change: Stan I'm, a little slow today, but you went from $1 7 billion to $1 4 billion of deployable capital just trying to understand the mechanics on that.
Speaker Change: Just I can see on slide 19, the ins and outs, but the one item and just kind of catches means the nonorganic variations not five five points off of it and.
Speaker Change: And so just trying to understand how to think.
Speaker Change: That movement from one seven to $1 four and I get one point and that one percentage point about $80 million related to the recent acquisition. So I guess, it's more of a one five versus $1 seven.
Speaker Change: Yes, if you can kind of walk me through that.
Speaker Change: I would say you shouldn't sell essentially Doug is three things happened in there and beyond on the Nonorganic side first annual change of assumption impacted.
Speaker Change: And factored the Nonorganic growth.
Speaker Change: Second item is some changes that.
Speaker Change: Took place and that just meant in our investment portfolio to manage interest rate risk. So so that contributed some additional.
Speaker Change: Okay.
Speaker Change: Capital as well and finally, the other item is some deployment of capital in more yield he awarding investment on the island side. So so that's resulted in a bit more capital deployment, but it will come with.
Speaker Change: Improved.
Speaker Change: Investment earnings in the quarters to come.
Speaker Change: I appreciate it thank you.
Speaker Change: The next question is from Paul Holden from CIBC. Please go ahead.
Paul Holden: Thanks, Good morning, I guess, a couple of modeling questions, maybe starting with the topic of.
Speaker Change: The investment earnings to come from that's where we left off.
Speaker Change: Maybe you can talk a little bit about where the yield curve and at Q4 versus where ended Q3 and what the implications are for Q1 investment income than sort of maybe part of that yield curve has moved a lot.
Speaker Change: In the last month, or so and maybe what that pipe for the go forward investment income.
Speaker Change: Yes, sure Paula it's Erik again.
Speaker Change: What time about what happened in Q4 ear is a steepening of the yield curve like we mentioned in the document.
Speaker Change: That steepening was very favorable to us as particularly between one in seven years.
Speaker Change: And I would ask to remind you you know work we have to remind the let's.
Speaker Change: Let's see the challenge we added the year NASA glow when we add the inverted yield curve. It was a challenge and a head wind solar investment return. So now we're just returning to a more normal situation and we're getting back on track with that.
Speaker Change: The normal I would say more normal steepness in the curve and in terms of outlook for Q1, Youre right that our it's still improving a little bit we see that as a potential positive with respect to invest to our investment result, but Q4 is a good guidance for you to think.
Speaker Change: About the investment earnings in the nearest quarters.
Speaker Change: Okay. That's helpful. Thanks for that.
Speaker Change:
Speaker Change: And then kind of curious on what you're seeing in terms of flows in the wealth side and one on when I say that.
Speaker Change: I guess I'm, referring specifically to Gic's cant remember what it was it was a year ago two years ago, we had some conversations on the amount of money that was flowing in the GIC because the rates were quite attractive at the time.
Speaker Change: Imagine some of that's reversing or at least some of it probably starts reversing this year.
Speaker Change: So a can you can can you forever.
Speaker Change: Verify whether that's a correct assumption and then I'm, assuming that's going to be benefiting the Sag fund sales in particular and maybe the mutual fund sales as well.
Speaker Change: Hi, This is renee sticking and Youre right to think that the monies reversing into a into desk segregated fund business at all.
Speaker Change: On our side and of course with the outperformance of the market also with and the long term view that our advisors are bringing to the client the.
Speaker Change: <unk> is not going into <unk>, given that the markets going into this thing and they get that sponsor have been also able to recoup some of that business that was put into GI season, now is flowing back into an end to the sag funds and just for that.
Speaker Change: Better comprehension and when we talk about Gic's, we'd also refer to the he sat there high yield savings account so.
Speaker Change: So I hope that answers your question it.
Speaker Change: It doesn't and then sorry, I just want to ask a follow up to that how should we think about the impact that has on profitability.
Speaker Change: And it's positive, but maybe you can provide some some thoughts there as well thank you.
Speaker Change: Hi, Paul It's Eric again, we'll see it clearly I much prefer to cig funds then the gic's those are more profitable than gic's, but that being said we'd prefer to keep the client at the end. So we we accommodate them when the E. R in times when the want to add.
Speaker Change: More security with GIC, but in terms of profitability segregated funds out better.
Paul Holden: Got it thank you for your time.
Speaker Change: Once again, if you have a question. Please press Star then one.
Speaker Change: The next question is from Mario Mendonca from TD Securities. Please go ahead.
Mario Mendonca: Good morning, Eric Let me first of all you ought to make sure I understand this investment income dynamic well the increase in expected investment income from $113 million in Q3 to Q4, you are saying that relates to the steepening of the curve in Q3, and the 1% to seven years.
Speaker Change: Duration is.
Speaker Change: The message right.
Speaker Change: Yes part of it.
Speaker Change: On top of that there is some improvement as well on a yield to finance, but there is a big part that has to do with the steepening of the yield curve, but clearly its the steepening in Q3, okay.
Speaker Change: In Q4.
Speaker Change: It's the Steepening that happened in Q4.
Speaker Change: So the steep it's not remember.
Speaker Change: Yeah, and remember that we change our formula for interest rate last year, and we now take a monthly rate.
And that does that that took a I guess the rates at the beginning of each month.
Speaker Change: In the fourth quarter. So we remove what we called him in the past the lagging effect that we yet with respect to what you were suggesting to the impact on.
Speaker Change: Core earnings now is no longer lagged by a quarter.
Speaker Change: During the quarter, including what happens with interest rates, it's not like everything that happens in the quarter informs that quarter is that the right way to look at it.
Matthew: Hey, exactly Matthew Okay, and so.
Speaker Change: The.
Speaker Change: Sort of a follow up question, if nothing were to change in Q1.
Speaker Change: Nothing changes at all.
Speaker Change: $27 million that appears there as expected investment income.
Paul Holden: That becomes the base from which you grow so if your assets grow you can grow from 127, but if nothing else changed that is the appropriate starting point was that your message to Paul.
Speaker Change: Exactly.
Speaker Change: Okay, and then maybe a question for Danny.
Speaker Change: All round very strong quarter, but one quick one thing that clearly has started to contract. This is true for a lot of insurance companies is that that spread between reported.
Speaker Change: Core earnings is really starting to grow again so.
Speaker Change: And it really does detract at least for me at the traction of the story because it impacts book value growth and everything else. So the message to the question I would like to ask.
Speaker Change: You have expressed in the past that.
Speaker Change: That you would expect there to be.
Speaker Change: It should be relatively neutral, but over a short period of time, but over long periods of time.
Speaker Change: They're really should report it shouldnt be much lower than core there's plenty of quarters that go back and forth is that still your view.
Speaker Change: We're going to see quarters, where reported is materially higher than core offsetting a quarter like this because when I look at the year when I look at 2024.
Speaker Change: In total reported earnings were 12% lower than core, but I'm curious what your outlook is on us.
Speaker Change: No I mean I'm at the.
Speaker Change: At the same place.
Speaker Change: No.
Speaker Change: When you look at the last eight quarters three out of eight we had reported higher than the core and looking forward my expectation our expectation is that the difference should be very minimal.
Speaker Change: Being zero if I remove for example, the amortization of intangibles my expectation is that this should be zero overtime.
Speaker Change: Recognize that this year because of Q4 adjustment it might've been.
Speaker Change: A bit higher and the difference but.
Speaker Change: Our guidance would be that it would still be.
Speaker Change: Neutral over time.
Speaker Change: Thank you.
This concludes the question and answer session I would like to turn the conference back over to Daniela called for any closing remarks.
Speaker Change: Yeah, Okay, I'm quite excited because the next Monday.
We're going to host you for the Investor event.
Speaker Change: And so you're going to hear about us about why we have outperformed the market and also why we're so confident about our business model and we're going to continue providing opt.
Speaker Change: Performance going forward, we had a great year in 2024 things to all my team and my employees and guys.
Speaker Change: Thomistic about the future. So that's it I have a nice day. Thank you.
Speaker Change: This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Yeah.
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Speaker Change: Okay.
Speaker Change: Mhm.