Q2 2025 iA Financial Corp Inc Earnings Call
Speaker #3: Thank you for standing by. This is the conference operator. Welcome to the iA Financial Group second quarter 2025 earnings results conference call. As a reminder, all participants are in listen-only mode, and the conference is being recorded.
Speaker #3: 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.
Speaker #3: Should you need assistance with the call, you may signal an operator by pressing star, then zero. I would now like turn the conference over to Caroline Drouin, head of investor relations.
Speaker #3: Please go ahead.
Speaker #4: Good morning, everyone. Bonjour à tous. Welcome to our second quarter 2025 conference call. All of our Q2 documents, including press release, slides for this conference call, supplementary information package, and quarterly MDNA, are posted in the investor relations section of our website at ia.ca.
Speaker #4: This conference call is open to the financial community, the media, and the public, and a reminder that a question period is reserved for financial analysts.
Speaker #4: A recording of this call will be available for one week starting this evening. And the archived webcast will be available for 90 days and a transcript will be available on our website in the next week.
Speaker #4: Now, I draw your ention to the forward-looking statements information on slide two. As well as the non-IFRS and additional financial measures information on slide three.
Speaker #4: Also, please note that a detailed discussion of the company's risk is provided in our 2024 MDNA available on CDAR and on our website, with an update in our Q2 2025 MDNA, which was released yesterday.
Speaker #4: I will now turn the call over to Denis Ricard, President and CEO.
Speaker #5: 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 iA.
Speaker #5: Joining me are Eric Jobin, Chief Financial Officer and Chief Actuary, Alain Bergeron, Chief Investment Officer, Stéphane Bourbonnet, responsible for our wealth management operations, René Laflamme in charge individual insurance savings and retirement, Pierre Miron, Chief Growth Officer of our Canadian operations and responsible for dealer services Canada and IO Townhome, Sean O'Brien, Chief Growth Officer of our US operations, and Louis-Philippe Pouliot in charge of our group benefits and retirement solutions.
Speaker #5: There's a lot to be excited about, both in terms of our financial performance this quarter and the execution of our growth strategy. As you saw, we just announced our intention to acquire RF Capital, an exciting and valuable addition to our wealth management platform.
Speaker #5: It's only been a week since the announcement, so while we're not providing new details today, we're more than happy to give you an early read on how it's been received.
Speaker #5: Stéphane, Stéphane has been meeting with advisors across the country, and during the question period, he can share a bit of the tone and energy he's observing on the ground.
Speaker #5: If you have questions, obviously. Let's begin with slide eight for a summary of our second quarter results. We will not use the word exceptional but this quarter makes a strong case for it.
Speaker #5: This is one of those quarters where the profitability numbers really do all the talking. We delivered a very strong quarter. With core EPS reaching $3.49, up 27% year over year.
Speaker #5: Our core ROE reached 17% on a trading 12-month basis. Already at our 2027 target. These results reflect the quality of our earnings, significant insurance experience gains, and the consistency of our performance across all business segments.
Speaker #5: Sales momentum remains strong across all business segments with premiums and deposits up 4% year over year, and assets under management and administration up 16%.
Speaker #5: This growth highlights the strength of our distribution networks, the relevance of our product offerings, and the trust we continue to build with our clients.
Speaker #5: Our capital position is robust, with a solvency ratio of 138% at the end of Q2. Supported by strong organic capital generation, and prudent risk management.
Speaker #5: Our book value per share has risen to $76.02 up 9% year over year, and excluding the impact of the NCIB, the increase over the last 12 months, is 11%.
Speaker #5: Let's now turn to slide nine for insurance Canada. We saw good growth across all business units. Individual insurance sales increased by 5% year over year, reaching $103 million dollars.
Speaker #5: This growth highlights the strength of our distribution networks, the effectiveness of our digital tools, and diversity of our product offering. We maintained our leading position in the number of policies issued in Canada.
Speaker #5: In group insurance, premiums and deposits rose by 7%, fueled by premium adjustments over the past year. In dealer services, sales reached $225 million this quarter, marking a 16% increase over the same period last year.
Speaker #5: The strong performance was driven by sustained momentum in P&C sales, and the contribution of global warranty. Lastly, IO Townhome delivers strong results with sales up 10% year over year to reach $206 million dollars.
Speaker #5: This growth was supported by an increased number of policies and agile repricing. Moving to slide 10, where we highlight our wealth management results. iA continues to lead the Canadian market in sec fund sales, both in gross and net sales.
Speaker #5: Gross sales were up 8% year over year, approaching $1.4 billion, while net sales reached $670 million. These results reflect the strength of our distribution networks and the competitiveness of our product lineup.
Speaker #5: Mutual fund gross sales declined slightly, but net outflows and other individual savings products were down 21%. Reflecting investor preference for higher return asset classes.
Speaker #5: Finally, in group savings and retirement, total assets under management rose by 18% year over year, while total sales were down 4%, driven by the growth in accumulation product sales.
Speaker #5: Let's look at Slide 11, where we continue to see strong momentum in our U.S. operations. Individual insurance sales increased by 59% year over year, reaching $78 million.
Speaker #5: Equivalent to $108 million Canadian dollars. So in Canadian dollars, this marks the first time our individual insurance sales in the US have surpassed those in Canada.
Speaker #5: This impressive performance is driven by organic growth in our core markets and the successful integration of varicity. Which continues to meet our expectations. The added scale in digital capabilities from the acquisition are already making a significant contribution to our results and reinforcing our long-term growth ambitions.
Speaker #5: In dealer services, sales increased by 6%, supported by a strong product offering. And the effectiveness of our distribution channels. The strong performance across both US business units highlights the value of our diversified business model, and demonstrates our ability to scale effectively in the US market.
Speaker #5: Finally, turning to slide 12, which clearly illustrates how our core financial matrix are tracking well toward our targets. The core EPS growth for the first six months of 2025 is 23% year over year.
Speaker #5: This impressive result exceeds our mid-term annual growth target of 10% plus. Core ROE stands at 17%, which is already in line with the 2027 target.
Speaker #5: Eric will discuss this achievement in a moment. So far, in 2025, we've generated $325 million in organic capital. Keeping us well on track to meet our 2025 target of over $650 million.
Speaker #5: Lastly, our dividend payout ratio is well within our target range of 25 to 35%, and the 10% dividend increase announced yesterday is expected to support this ratio in the coming quarters.
Speaker #5: Having reviewed our financial targets, I would ike to conclude by highlighting a key strategic initiative currently underway to support these goals. Please turn to slide 13 as we discuss the recent announcement of our acquisition of RF Capital.
Speaker #5: We remain focused on strategic capital deployment and our capital allocation priorities remain unchanged. Investing in organic rowth, pursuing disciplined acquisition, and returning capital through share buybacks and dividends.
Speaker #5: Our active share buyback program, the dividend increase we announced yesterday, and the acquisition of RF Capital announced last week all align with our commitment to delivering long-term value to our shareholders.
Speaker #5: Our intent to acquire RF Capital marks an exciting milestone for iA. This strategic move significantly accelerates our growth in the high-net-worth segment and strengthens our national presence in wealth management.
Speaker #5: With over $40 billion in assets under administration, RF Capital is one of the largest independent wealth management firms in the country. Its entrepreneurial culture and advisor-centric model align perfectly with iA.
Speaker #5: The transaction valued at $597 million and fully funded with cash on hand is expected to be neutral to core earnings in year one and aggressive to core EPS by at least 15 cents in year two.
Speaker #5: We're also excited about the potential for meaningful synergies while maintaining RF Capital's operational independence and strong brand. This acquisition clearly demonstrates our disciplined growth strategy in action, and represents a major step forward in creating long-term value for our shareholders.
Speaker #5: Heading into the second half of the year, we do so with solid momentum and a focused strategy to deliver on our commitments. I have consistently emphasized that the iA way is the cornerstone of our performance, and once again, the results speak for themselves.
Speaker #5: It's a winning formula, and I will continue to highlight its importance in the future. With that, I will now hand it to Eric, who will comment on the second quarter profitability and capital strength.
Speaker #5: Following Eric's comment, we will take questions. Eric.
Speaker #6: Thank you, Denis, and good morning, everyone. I'm pleased to walk you through a quarter that reflects discipline, execution, strong segment performance, and continued momentum toward our strategic goals.
Speaker #6: Let's begin with slide 15, which provides an overview of our profitability and financial strength for the second quarter. We concluded the first half of 2025 on a very high note, with core EPS of $3.49, representing an increase of 27% year over year, and a reported EPS of $3.43 for the second quarter.
Speaker #6: This performance notably highlights the solid contribution from all three operating segments, driven by significant experience gains, higher expected insurance earnings, and sustained growth in non-insurance activities.
Speaker #6: As Denis pointed out, while we would not level this quarter as exceptional, it was a period where everything aligned perfectly. This resulted in strong profitability growth and a core ROE of 17% for the last 12 months.
Speaker #6: We are pleased to highlight that our ROE is running ahead of schedule against our ROE target of 17% plus, in 2027. Thanks to our strong year-to-date performance driven by important experience gain and favorable macroeconomic tailwinds.
Speaker #6: Building on this momentum, we anticipate that our core ROE will remain at its current level of approximately 17% in the coming core quarters, assuming macroeconomic factors stay where they are now.
Speaker #6: While we remain prudent given macro and ongoing trade uncertainties, our trajectory toward our 2027 ROE target of 17% plus remains firmly on track, and we remain committed to reaching this goal.
Speaker #6: Our robust capital position is supported by our ongoing ability to generate organic capital, providing us with the flexibility to pursue both organic growth and strategic acquisitions.
Speaker #6: Over the last 12 months, our book value per share has increased by 9%, and excluding the impact of our active share buyback, this increase would have been 11%.
Speaker #6: Additionally, we announced a 10% increase in the dividend for common shareholders, underscoring our confidence in our sustainable earning power. Together, this speaks to the discipline execution of our capital strategy and our commitment to creating shareholder value.
Speaker #6: Building on this strong profitability, let's now look at how each segment contributed. Turning to slide 16 for an overview of the Q2 total earnings performance by segment.
Speaker #6: Net income and core earnings rose sharply year over year by 56% and 22% respectively. This growth was broad-based, without reoperating segments, and the investment result contributing to both reported and core performances.
Speaker #6: Now, moving to slide 17, let's take a closer look at how each segment performed in the second quarter. In Insurance Canada, core earnings for the quarter reached $133 million, marking a solid 25% year-over-year increase.
Speaker #6: This growth was primarily driven by important core insurance experience gains, including favorable morbidity in employee plans, favorable mortality in individual insurance, and lower claims at iA Omenoto.
Speaker #6: The segment also benefited from higher expected earnings, from iA Omenoto, along with the increase in combined risk adjustment release and CSM recognized for service provided.
Speaker #6: Moreover, core non-insurance activities contributed positively to this growth, supported by the good performance of dealer services. Lower core other expenses were also recorded. Finally, the impact from new insurance business in employee plan was more pronounced this quarter, reflecting a higher volume of confirmed sales.
Speaker #6: Let's now move from insurance Canada to wealth management. On slide 18, you can see that in the wealth management segment, second quarter core earnings rose to $113 million, up 15% year over year.
Speaker #6: This growth was primarily driven by an increase in the CSM recognized for services provided, largely due to strong net segregated fund sales, and positive financial market performance over the past 12 months.
Speaker #6: Core non-insurance activities also saw a slight uptick, thanks to the good performance from group savings and retirement, and iA Clarington. Where net revenue on asset was recorded.
Speaker #6: Higher net revenue on asset was recorded. Turning to our US operations, on slide 19, core earnings totaled $36 million in Q2, representing a significant 64% increase year over year.
Speaker #6: This performance was mainly driven by a pretax $28 million increase in core insurance service results, fueled by contributions from the Varicity and Prosperity blocks of business.
Speaker #6: As well as core insurance experience gains from favorable mortality experience in individual insurance. Core non-insurance activities increased by $1 million year over year, driven by higher earnings from dealer services, resulting from the discipline management action we've been putting in place.
Speaker #6: As we continue to integrate varicity and focus on realizing synergies, it is important to note that during Q2, the combined impact of varicity and prosperity acquisition was slightly positive on core earnings, aligning with our expectation at the time of acquisition.
Speaker #6: Additionally, as part of the adjustments to net income for the quarter, an adjustment was made to Varicity's deferred tax asset related to tax losses incurred prior to the acquisition by iA, resulting in a favorable impact of $30 million on net income.
Speaker #6: Now turning to slide 20 for the results of the investment segments. Core earnings for the quarter were $102 million, up 12% year over year.
Speaker #6: Before accounting for taxes, financing charges on debentures and dividends, the core net investment results were $127 million, up from $108 million a year ago.
Speaker #6: This strong performance was supported by several factors, including the favorable impact of interest rate variation in recent quarters. In addition, credit experience was positive in Q2, with higher impacts from upgrades than downgrades, in the fixed income portfolio, and positive credit experience in the iA Auto Finance column portfolio.
Speaker #6: Moving to slide 21, the corporate segment core other expenses totaled $79 million, pretax. Maintaining our focus on operational efficiency, this amount includes $68 million pretax in core other expenses, in line with our quarterly expectation of $68 million plus or minus $5 million.
Speaker #6: It also includes a higher provision of $11 million pretax, for the variable compensation related to the company's strong performance since the beginning of the 2025.
Speaker #6: I would like to say a few words regarding the management action related to our pension plan. Which has accumulated a significant surplus over the years.
Speaker #6: We have decided to use a portion of this surplus to recognize current retirees and employees. For retirees, a special one-time increase in retirement benefits resulted in a $14 million charge to Q2 net income.
Speaker #6: For employees, a temporary reduction in pension contributions will be in effect from Q3 2025 through Q2 2026, with an expected impact of approximately $4 million on net income over each of the next four quarters.
Speaker #6: Additionally, this initiative stems from the surplus position of our pension plan and underscores our appreciation of our employees and retirees to the company's growth and success.
Speaker #6: Please go to slide 22 now to review our solvency ratio and capital available for deployment, as of June 30th. As of June 30th, 2025, our solvency ratio stands at $138%, well above the regulatory minimum ratio of 90%.
Speaker #6: The 6th centage point increase during the quarter the second quarter was mainly driven by the impact of strong organic capital generation and the issuance of preferred shares.
Speaker #6: This increase was partially offset by strategic capital deployment activities, including share buybacks and IT investments. As a reminder, on pro forma basis, taking into account the proposed acquisition of RF Capital announced on July 28th, the solvency ratio is estimated at $132%.
Speaker #6: Our consistent ability to generate strong and ongoing organic capital is evident with quarterly record of $200 million in additional capital in the second quarter, keeping us on track to reach our target of $650 million plus in 2025.
Speaker #6: As of June 30th, the capital available for deployment was assessed at $1.5 billion, positively impacted by organic capital generation. As a reminder, on a pro forma basis, and taking into account the proposed acquisition of RF Capital, the capital available for deployment is estimated at $900 million.
Speaker #6: Our second quarter results clearly highlight the momentum of our operations. We delivered strong profitability while continuing to generate and deploy capital effectively. This financial discipline gives us the flexibility to support and drive our growth ambitions.
Speaker #6: As we progress through the reminder of 2025, we remain confident in our strategy execution, capabilities, and ability to deliver sustainable long-term value. This concludes my remarks operator.
Speaker #6: We are now ready to take questions.
Speaker #3: Thank you. We will now begin the question-and-answer session. To join the question queue, you may press star, then one on your telephone keypad.
Speaker #3: You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two.
Speaker #3: One moment, please, while callers join the queue. The first question is from Doug Young from Desjardins Capital Markets. Please go ahead.
Speaker #7: Hi. Good morning. I guess the question's for Eric or maybe Sean. Is there any way you can quantify the year-over-year improvement in core earnings at the US dealer services business versus the US life insurance business?
Speaker #7: I mean, it seems like there's, you know, the gradual improvement in US dealership profitability is flowing through as you'd signaled you expected. But I just find it sometimes hard to quantify between what goes through the non the core non-insurance activities and what goes through on the insurance activities for that business.
Speaker #7: So I don't ow if you can kind of give a little bit more color there.
Speaker #8: Yeah. It's Denis here. First, I mean, we are very pleased with the increase in the US business profitability this quarter. We don't disclose the specific of each of these businesses separately.
Speaker #8: But I mean, I'm going to k maybe Sean to give some color about, you know, all the initiatives that we did that are paying off right .
Speaker #8: I mean, because there are things you control, and other things you 't control. And for the things that we do control, we've made several initiatives that improve the profitability.
Speaker #8: So keep in mind that both the US life and the US dealer has improved. Sean?
Speaker #9: Yeah, thanks, Denis. And yeah, I'd sort of been thinking about it as, you know, those gradual improvements really being driven by four key initiatives we've taken.
Speaker #9: The first one is repricing. I've spoken to that before. And I could say that now we have actually repriced all onerous products in the warranty business without any exception.
Speaker #9: So that's going to help to restore some of the margins. And I think discipline that we're oking for in that business. The other side is the expense management.
Speaker #9: Again, we've spoken that as well. But I'd at this point, we've reduced our total expenses by about 5% in that business. And that's meaningful.
Speaker #9: That's, you know, that's not taking into account the inflation that’s happening in all businesses. So, I'm quite happy with that. And that's just getting the business to the point where it needs to be.
Speaker #9: The business mix is proving out well as well. It's just a good reminder, especially with some of the, you know, the pressure on the new car business right now with some tariff worries.
Speaker #9: So 50% of our business is in the used car market. 50% in the new. So it does create a nice balance as there is some volatility in one segment or the other.
Speaker #9: And the other side is the differentiation in that business is proving out well. We've talked about DAC and Dealer Wizard. These are sort of alternate channels and have some nice profit delivery and sales action in those areas.
Speaker #9: And then the risky side, it's like Eric said, we're delivering our anticipated synergies. It's the business is going well. And it's on track with where we expect to be.
Speaker #9: And really happy with sort of the innovation and sort of the some of the energy that team is bringing to our overall US life initiatives.
Speaker #10: Okay. So I'm not going to the split. I get that. But I figured I'd ask. The section is that in Canada, you know, the individual Canada individual insurance, can you break down, Eric, the 31 million insurance experience between group morbidity, individual mortality, and lower home and auto?
Speaker #10: Is it a 30 each, or is there one that a candidate or more? Just hoping to get a little bit more color on that 31 million.
Speaker #8: Yeah. Doug, it's Eric. You know, we're not going to split it. But the reality is that all operations have performed very well in the quarter.
Speaker #8: I mentioned in my speaking notes some particular alignment going all in the same direction. So we have mortality positive experience gain. We have morbidity on the group side.
Speaker #8: We had IO Monoto favorable weather conditions. So it goes on like this: the $31 million is composed of, I would say, small to medium-sized experience gains arising from all those operating segments.
Speaker #10: And two for two. Okay. And then just maybe if we can go back to the RF acquisition, and I don't think you're going to give this to me, but maybe you can give some color, maybe more around like the integration plans and plans to retain advisors.
Speaker #10: And I'll give ou kind of where I'm going at this. And I know you 't want to give the cost of advisor retention, but can ou give some context in relative to the announced purchase prices at 10%, 20%, 30%?
Speaker #10: Is that what's the cost going to be to etain the advisors? And I k that just because I find it hard to get a sense of the price paid without kind of etting a sense of what the cost is going to be to retain the advisor network.
Speaker #10: And given what we've seen historically, you ow, in some cases, this cost can be quite significant. So I figured I'd throw it out there and just see what I can get.
Speaker #11: Yeah. Thank you, Doug. It's Denis here, obviously. It has to be some steps before we get into that point where we know exactly what the what the cost would be and.
Speaker #11: But at this point, think it would be quite important at least that you hear from from Stéphane the tone coming from the the discussion he's having with the various advisors and maybe Stéphane, you can give some colors at this point.
Speaker #10: Yeah. Certainly. I an, since the announcement, we've been I mean, as you mentioned, right, the advisor retention is a key success factor. So we've been since the announcement trying to be as visible as possible, meeting with the executive team, meeting with all the employees and the advisors across the country.
Speaker #10: I'm actually right in middle of a road p right now. And what we want do is we want to bring it to more of a tailored approach.
Speaker #10: And then we want to do things. So we've been listening to advisors, making sure we understand what matters to them and making sure we have a chance to share with them the vision that we have and how we see this partnership strengthening together and how we could do very well.
Speaker #10: I think what advisors are seeing is it's two proud Canadian histories coming together with one shared future. And it brings nearly 300 years of combined experience.
Speaker #10: So they're cited about it. They feel the fit in terms of culture. And we are known as being great at integrators and operators. They know we're going to respect their business model.
Speaker #10: Like we're inging this as a distinct offering to what we currently do. And everything that's been done right now is to assure a seamless transition for both them and their clients, right?
Speaker #10: So no repapering, no change in the brand, no change in the location, it's all about continuity. And I think this has been well received so far.
Speaker #10: So what we're seeing is great feedback from the team. The advisors are are engaged. I like to say that the knowledge is in the room and they're asking good questions.
Speaker #10: And I think they're now starting to see the real potential of what we could do together. And they're definitely leaning in. So looking forward to keep meeting our advisors across the country in the next few weeks.
Speaker #10: Appreciate the color. Thank ou.
Speaker #3: The next question is from Tom McKinnon from BMO Capital. Please go head.
Speaker #12: Yeah. Thanks, good ning. Just a question on the strain in Canada. Maybe a little bit higher than anticipated. You talked higher confirmed sales. If I look at employee benefit plan sales, they're ally where almost down.
Speaker #12: They were down significantly year over year. So I think you used the term confirmed sales. How are we to measure these confirmed sales? Does that an the sales haven't been booked yet?
Speaker #12: Just some color there, please.
Speaker #11: Yeah. This is Louis-Philippe speaking. Thanks for the question. Yeah. I think we've talked a few times about confirmed versus implemented. So the sales you are seeing in the disclosure are implemented sales.
Speaker #11: And the strain reflects sales that we have confirmed. So we are not disclosing the confirmed sales. But what I can say is we have a tremendous momentum.
Speaker #11: And many of the sales we were able to confirm will be implemented in the remainder of the year or leading in 2026.
Speaker #12: Okay. Thanks for that. And just to follow up with respect to the dealer services, income you get in the core non-insurance activities, can you remind us of any seasonality associated with that business?
Speaker #12: And especially given, I mean, just helpful, given you've got global warranty and in Canada. And your U.S. dealer services is now kind of back in more of a steady-state form.
Speaker #12: Thanks.
Speaker #11: Yeah. I will Tom, I will say that yes, there is a little bit of seasonality. And it's connected with the fact that auto sales have and guarantees have some seasonality.
Speaker #11: You know, Q4 is usually a low quarter. Q1, and then you have Q2 with spring coming. People tend to go out and buy more cars. So, you know that the product that we sell with auto is following that trend of the pattern of auto sales during the year.
Speaker #12: Okay. Thanks for that.
Speaker #3: The next question is from Gabrielle Shane from National Bank Financial. Please go ahead.
Speaker #13: Hey. A quick one here. Just a confirmed sales thing in group. So the strain came through this quarter. So you don't see a bump coming up in the next couple.
Speaker #13: There's no lag kind thing.
Speaker #5: I would say that it's actually difficult to predict the timing. Just a reminder that it's a bit of a lumpy type of business, right?
Speaker #5: There's seasonality to how the business is growing. Typically, first quarter and third quarter are a bit higher. But then in any given year, you could see fluctuation.
Speaker #5: And that's normal. I like look at it from maybe a bit of a longer-term perspective. If you look at kind of year-to-date sales, right already, you'd have two quarters in.
Speaker #5: And you'd have more of a better picture. And it's actually a 40% increase versus last year. So hard to say whether it's just a lag.
Speaker #5: But just a bit lumpy is my view on it.
Speaker #13: Got it. Just the I got a CSM question and an ROE question. Is there anything so you're CSM, the amount recognized in the quarter was up 18% year over year.
Speaker #13: And if I look at the I'm pretty sure people look at it this way for modeling anyway. How much that number represents of the beginning balance of the balance sheet balance to kind of get a sort of a ratio for how that trends over time.
Speaker #13: But what 've noticed is that the ratio of what you're ognizing each quarter relative to the actual balance has been increasing steadily for the past couple of years.
Speaker #13: Is that I don't know. Is it multifactors behind that? Your selling more short-dated products with CSM? Your interest rates are having an impact? Like what's the story there?
Speaker #12: Yeah. I guess I'll use "Are you looking at wealth, Gabrielle, when you look this?" Or are you?
Speaker #13: I'm looking at the total you know whatever the goes into. Yeah.
Speaker #5: Okay. Because you have to have two things in mind. First, the growth of the CSM amortization is following our great, you know, growth story on the insurance products.
Speaker #5: So that's one item that contributes to this increase. And the second one is mostly due to SEG funds. And market experience. You know with the new CSM approach following IFRS implementation, when there is market positive market experience, we have to stick to the initial amortization schedule.
Speaker #5: So we take the gain from market. We increase the CSM. And then we amortize more over the remaining period. So that's what is playing out here.
Speaker #5: And that increases the ratio that you look at.
Speaker #13: Got it. And I guess my last question here on ROE. Denis, might not like the word exceptional. I don't think it's a bad word.
Speaker #13: But you know you had an 18-point nearly 19% ROE this quarter annualized. And you know if I strip out some of the you know the experience gains, you're still at around 17%.
Speaker #13: So at or on par with your target in 2027. You said that you know you're probably going to be at around that level over the next few quarters as long as the macro backdrop cooperates.
Speaker #13: You know what's I guess A, what's providing that confidence? You know the target was only provided a few months ago. And we're already there.
Speaker #13: So what's the big picture story here that so much positive can develop in so short of a time? I know equity market's been good and all.
Speaker #13: But it’s got to be more than just that.
Speaker #12: Yeah. Gabrielle, when we said the 17% plus, it the investor event. There were some obviously, there are still some geopolitical disruption, I ess. Is the word I'm going to use here.
Speaker #12: So you know we tend to be prudent in the way we set our guidance. And the reality is that our business model is quite resilient.
Speaker #12: So we are ahead of our game right now. And so I look more at the plus than the 17 to be honest with you at this point.
Speaker #12: It's too early to change our guidance. But we are very pleased that looking forward, we will be we think it's going to at the plus as opposed the minimum of the 17.
Speaker #13: Got it. All right. I mean, is there thing you ow well, you know what? I'll leave it at .
Speaker #5: Yeah. I'll just add one comment regarding your question to what Denis said. With respect to the fact that you were looking for what has been driving us ramping up, you know the macroeconomic were not the macroeconomic has been a tailwind since the investor event.
Speaker #5: The EUA, AUM, everything has been has increased. So right now, it's still a tailwind. So that's the main driver since the investor event.
Speaker #13: All right. Have a good rest of your summer.
Speaker #12: Thank ou.
Speaker #3: The next question is from Mario Mendonca from TD Securities. Please go ahead.
Speaker #14: Good morning. I have a quick question. First, on the experience gains, is it still appropriate to assume that experience gains will trend around zero going forward, or maybe over the long term?
Speaker #14: Is that an appropriate assumption?
Speaker #8: Yeah. I'll take a hello, Mario, it's Eric. I'd say a couple of things on this because you ow our iA's DNA has always been to be has always been to be prudent.
Speaker #8: At managing liabilities. And if you look historically at experience gain, you will find I looked at it through a very recently, over the last 10 years, two-thirds of the times we had positive experience gain.
Speaker #8: Experience gain where we had one-third of the times we had loss. So our prudent way of managing liabilities is putting a kind of positive bias on average over time; so that's one clue.
Speaker #8: And for the remaining of the year, when we look at, because every year we rethink liability assumptions when we do the reserve assumption change.
Speaker #8: So with it tends to reset the clock on this. And but for the remaining of 2025, you know we're ite confident that our quarterly annualized ROE will stay around 17% for the remaining the year.
Speaker #8: As I said, assuming macroeconomic conditions hold, when we look at everything altogether, that's where I would guide you to look for in terms of profitability.
Speaker #8: 17% plus.
Speaker #14: The way I'm interpreting yeah. The way 'm interpreting that answer is that until you have your assumption review, experience gains could remain positive in the next, say, two quarters.
Speaker #14: And then in 2026, you reset and maybe we get closer zero. Is that am I interpreting your answer correctly?
Speaker #5: Yeah. Absolutely, Mario. If you look just in Q1 this year, after year-end assumption review, we just had a million of experience gain. So we reset the clock annually.
Speaker #14: Okay. I think I understand. And then the second question is on buyback activity. I'm looking at the last three quarters, the average buybacks kind of modest.
Speaker #14: Works out to an average half a million shares a quarter. The previous three quarters, maybe four quarters, if you look at the average, it was closer to 2 million.
Speaker #14: So, quite a fair, quite a meaningful drop in the pace of buyback activities in the last three quarters. Relative to the last couple of years, could you talk about why that's played out, why the buyback activity has slowed so much, and what your intentions are?
Really improving the improving up their model quite well and then on the risk side as well there are they're on plan and doing well. So it's a I'd say the stars as an end in the last quarter.
Amicable that is here.
Yeah, I would say I mean keep in mind that over the last 15 years since we acquired the American amid cable the average I mean, the CAGR in terms of sales sales growth had been around 15, 16% a year. This is amazing.
And now we've we have severity that is.
Now increasing even more our U S sales. So I don't see any decrease so I don't see any stabilization of our sales growth in the U S. At this point.
So it's possible we could be a build off that that $78 million U S. This quarter in individual insurance.
I'm kind of hearing.
Sorry, I missed your question is it is something where we're going to expect some growth off that $78 million in Q2.
And individual insurance sales in the U S. That's a good starting point for additional growth.
Absolutely.
Correct.
And then one question adversity.
I'm, assuming this write up in diversity deferred tax asset was.
Given by the move towards profitability for that business I'm wondering if I have this right and if there's more to go in terms of these.
Deferred tax asset as the profitability ever city continues to improve and if you could quantify the potential write up in that deferred tax asset it would be would be helpful.
Yes sure Lamar.
Click on this one.
Just a bit of context, when we acquired very city you have to remember that this entity was running at less so they could not put any value on those past net operating losses and the balance sheet and we did not pay anything for it okay that being said of course, when we made the.
The acquisition, we had a business case, we at management actions. So we added the gains to improve profitability. So in the in the integration phase of the last year, we ought to get comfortable with the fact that eventually what we would do in terms of management action.
Would would put these are potential net.
Net operating loss recoverable. So that's what we we did from a U S tax perspective, and we recognized most of it at this point the remaining part you know the Avon expiry dates in it that they are less probable to recover but we did a we did put it.
The value of those deferred tax asset that we thought we can do we can recover with our plan.
Ongoing plan.
I would like to add on this is quite interesting because when we acquire organization obviously, we do.
Initiatives to improve <unk>.
And this is a very very interesting one because.
That change made us.
It made it possible.
This acquisition to generate an ROE over the cure rent.
Our ROE guidance, even though we acquired it in the past so I'm very pleased to to this positive development.
Okay.
Yeah.
Once again, if you have a question. Please press Star then one.
The next question is from Darko <unk> from RBC capital markets. Please go ahead.
Hi, Thank you good morning, I think my.
My main question is so deep in the weeds, maybe I'll take it offline Eric if that's possible follow up call on just a mechanic but.
My other question is for you Denny in your answer on the question of capital deployment.
As I sit back and I see the results of this quarter.
And you can sort of see the trend and the help that.
Your company gets from strong markets youre going to be adding RF capital.
You want to deploy more capital I guess the question is.
The business mix and the dependency on an equity markets really performing well I'm.
I'm not worried about immediate sensitivities you can see it is just that.
Sustained prolonged strong market really helps what happens in the reverse case and so does that change, perhaps how you might deploy capital after RF.
This.
Absolutely not.
Darko I'm when I look at our all of our businesses have a long term view and in all the businesses that we are in.
Right now we believe that we can generate in our rohit. It is above our 17% target. So we're not at a point, where we would see there isn't let's see.
The concentrate overconcentration in one sector versus the other we look at the opportunities that exist in the business that we're in I mean, we said in the past for example that the U S and it will be more opportunities, but guess, what we just announced one into Canada. So we have to look at the opportunities that present ourselves and we don't feel that there is an over concentration.
In one sector versus the other.
Okay, that's fair and with respect to.
The RF.
Acquisition and its closing.
Presumably.
The idea would be that you'd really want to sort of grow and add to that.
Business is as you move forward.
Is there maybe.
You can talk to opportunities to further grow that business.
Inorganically do you think that they exist.
There are less and less of those opportunities, but there are still some so we are on the lookout to increase our distribution. If there is one that is available we will be there.
Great. Thank you.
This concludes the question and answer session I would like to turn the conference back over to Denise account for any closing remarks.
Well. Thank you all as you've seen we are quite excited about the the the ie modeled at the organization as is.
Is generating a very significant amount of excess capital from their operations. We already had a 17%. We are now focusing on the plus as you are as you've heard today.
And the topline is great. So we feel very confident going forward and thank you for being present to this call today and see you at a great end of the summer. Thank you.
This brings to a close today's conference call. You may disconnect. Your lines. Thank you for participating and have a pleasant day.
Okay.
Okay.
Mhm.
Hum.
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