Greetings, and welcome to the iA Financial Group Third Quarter Earnings Results Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you have a question, please press the one followed by the four on your telephone. If at any time during the conference you need to reach an operator, please press star zero. As a reminder, this conference is being recorded on Wednesday, November 9th, 2022. I would now like to turn the conference over to Ms. Marie-Annick Bonneau, Head of Investor Relations. Please go ahead.
Good afternoon, and welcome to our 2022 Third Quarter Conference Call. All our Q3 documents, including press release, slides for this conference call, MD&A, and supplementary information package, 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. 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. The archive webcast will be available for 90 days, and a transcript will be available on our website in the next week. I draw your attention to the information on forward-looking statements on slide 2 and on non-IFRS and additional financial measures on slide 3.
Also, please note that the detailed discussion of the company's risk is provided in our 2021 MD&A available on SEDAR and on our website. I will now turn the call over to Denis Ricard, President and CEO.
Good afternoon, everyone, and thank you for joining us on the call today. As usual, I will start by introducing everyone attending on behalf of iA. First, Jacques Potvin, Chief Actuary and CFO. Mike Stickney, Chief Growth Officer and responsible, among other things, for our U.S. operations. Alain Bergeron, Chief Investment Officer. Renée Laflamme, in charge of individual insurance and annuities. Sean O'Brien, responsible for our mutual fund business and wealth management distribution affiliates. Éric Jobin, responsible for group businesses. We reported good Q3 results this morning, as illustrated by the key metrics on slide 7. Core ROE of 13.8% is well within guidance, and core EPS of CAD 2.29 is 3% higher than last year and only one cent shy of Q3 guidance.
These results are quite good, especially in light of the lower financial markets that are affecting the wealth management businesses. During the quarter, sales momentum continued in most business units, particularly in individual insurance. Also, our individual wealth management sector posted net fund entries, a noteworthy performance given the current challenging environment for this industry. Our capital position remains robust and stable at 130%. In addition to our sound and prudent management approach, a key factor in the stability of our solvency ratio is our steady and strong organic capital generation, which amounted to approximately CAD 160 million in the 3rd quarter. Our financial strength provides a solid foundation for the further execution of our growth strategy. To support our future sustained growth, we must evolve with the changing environment.
With this in mind, a few years ago, we began a transformation project with an important digital focus. The experience of our clients, employees, and advisors is at the heart of this transformation, which will enhance business growth, client experience, and efficiency. In carrying out this transformation, we are progressing with both business development and back office optimization initiatives, ensuring that we prioritize based on the value created and remain focused on proper execution. In addition, in order to provide employees with a state-of-the-art experience based on a flexible approach to the workplace, we have, over the past few months, redesigned our offices to create an environment with improved technology that encourages collaboration and contributes to an engaging and productive employee experience. Our innovative approach and redesigned work environments are a definite advantage in attracting and retaining talent. I will conclude with a few comments on the share buyback program.
When it comes to capital deployment, we prioritize iA's growth, both organically and through acquisitions, but recognize that buying back shares opportunistically is an effective way to increase value to our shareholders. Therefore, we announced this morning the replacement of our current NCIB program with a new program that would allow us to buy back up to an additional 5% of shares through November 13th, 2023. This ends my remarks. I will turn it over to Mike, who will comment on business growth. Following Mike, Jacques will provide more information about Q3 results and our capital strength. Mike?
Thank you, Denis, and good afternoon, everyone. Our solid relationships with distributors are an important success factor for business growth. This distinctive strength is even more valuable in times of economic volatility and is a key reason for our continued growth momentum in the 3rd quarter. In particular, individual insurance sales remained very strong, and we recorded positive net sales in individual wealth management. Now please refer to slide 10 as I will comment on business growth during the 3rd quarter. Premiums and deposits amounted to CAD 3.3 billion in Q3 compared to CAD 4.1 billion a year earlier. The unfavorable variation is due to the individual wealth management and group pension sectors as the wealth industry is facing a challenging macroeconomic environment. All other lines of business recorded a respectable year-over-year increase.
As at September 30th, 2022, assets under management and administration of CAD 196 billion compared to CAD 214 billion last year were also adversely impacted by market volatility and rising interest rates. 3rd quarter individual sales, individual insurance sales totaled CAD 93 million, an increase of 37% over last year. With these strong results according to the latest industry data, iA remains the leader in terms of the number of individual insurance policies issued in Canada. Once again, this quarter growth was driven by the strength of all of our distribution networks, our high performance digital tools, and our broad range of products, including our PAR products. We also observed an increase in average premium per policy sold over the same period last year. Moving to slide 11, where I will comment on individual wealth management.
The company continued to rank first in Canada for gross and net segregated fund sales, reinforcing its leadership position in the industry. Gross sales totaled CAD 782 million and net fund inflows of CAD 344 million were recorded despite a difficult macroeconomic environment for the industry. Mutual fund results in the 3rd quarter were also impacted by market conditions, with gross sales of CAD 306 million and net outflows of CAD 171 million. Lastly, sales of guaranteed products amounted to CAD 326 million, up 52% year-over-year, as customers tend to turn to cash equivalent products when markets are volatile. For group savings and retirement, Q3 sales were also hampered by the macroeconomic environment and totaled CAD 482 million compared to CAD 810 million last year.
Turning to slide 12 for group insurance results. In the Employee Plans division, premiums were up by 11% compared to the 3rd quarter last year due to good retention of in-force business. While vehicle inventories continued to be low, iA Dealer Services sales of CAD 301 million were in line with last year's level. Of note, sales of P&C products were up 17% year-over-year. In the Special Markets division, the creditor and travel insurance sales led to 60% growth over the same period last year. At iA Auto and Home, our P&C affiliate, direct written premiums registered an increase of 5% year-over-year. Going to slide 13 for our U.S. operations. Sales in the individual insurance division amounted to $35 million and were up 3% year-over-year, mainly from growth in the family markets.
In our U.S. dealer division, sales amounted to $261 million compared to $295 million for the same period last year. This result is primarily due to low retail sales of new and used cars, which both continue to decline year-over-year, especially for retail used cars. Overall, we are pleased with the sales results for Q3, which demonstrate once again the robustness of our business model. I will now turn it over to Jacques to comment on earnings, capital strength, and IFRS 17 outlook.
Thank you, Mike, and good afternoon, everyone. Today, we are reporting good 3rd quarter results despite a challenging market environment for the wealth management businesses and adverse weather conditions impacting iA Auto and Home. Starting with slide 15, Core ROE is around mid target and Core EPS is near the guidance range for the quarter. On a year- to- date basis, Core EPS is well within guidance. All other metrics are in line with or better than guidance. Given this result and the impact of the low market level on wealth business profitability, we expect Core EPS to be within guidance for the year, most likely in the lower half of the target range. For the same reason, we expect Q4 Core EPS to be around the low end of the quarterly guidance. Slide 16 reconciles core earnings with reported earnings.
Non-core items adjusted from Q3 reported earnings include the usual adjustments for market acquisition and the pension plan. In addition, three items are noteworthy this quarter. Namely, the impact of a reinsurance agreement in the U.S., the book value adjustment of software premises and furnishing, and the impact of IASB decision relating to cloud computing arrangement for the 1st half of the year. The combined impact of these three items is a CAD 0.05 non-core gain. As a result, Q3 core EPS is just CAD 0.01 short of guidance. Slide 17 presents the sources of earnings for the 3rd quarter on a core basis. Core expected profit grew 2% year-over-year. Growth at 2% year-over-year was held back by lower markets as expected profit on in-force for wealth and group pension declined significantly.
Our three other sectors, Individual Insurance, Group Insurance, and U.S. operations together recorded a significant core expected profit on in-force growth of 13%. Unfavorable core experience, mainly due to the collateral impacts of the macro environment, was more than offset by favorable impact of new business, which factors into the calculation a portion of the interest rate that has occurred since the beginning of the year. Higher fees than expected also contribute to this gain on new business. Income on capital was below expectation due to the lower revenues from iA Auto and Home, which experienced severe weather events and to a lesser extent, a higher volume of vehicle thefts. Finally, the tax charge was lower than expected due to a higher proportion of capital gains.
As shown on slide 18, additional mortality claims were again this quarter lower than the excess mortality protection available, and the additional protection for policyholder behavior remained intact. As a result, this additional protection in the reserve totaled nearly CAD 50 million at the end of the 3rd quarter. Our solvency ratio, presented on slide 19, is comfortably above our target range at 130%, which speaks to the strength of our capital position. This ratio benefits from our continued strong organic capital generation, which totaled CAD 160 million in the 3rd quarter. It was also increased by the impact of the reinsurance treaty in the U.S.
Indeed, we took advantage of a competitive reinsurance environment to sign a new treaty that not only generated significant gain in Q3, but also led to a reduction in risk, resulting in a one percentage point increase in the solvency ratio. Moving to slide 20, which shows our leverage ratio of 23.4% and potential capital available for deployment of CAD 2,450 million. As a reminder, the latter will be favorably impacted by the transition to the new accounting regime. As such, our flexible capital position allow us to redeem and cancel 1.1 million shares during the 3rd quarter as part of the NCIB program. As we approach the end of the year, I would like to make two additional comments. First, the annual review of actuarial assumption has begun and will be finalized in the coming weeks.
As of today, we expect the impact of this exercise on the 4th quarter result to be near neutral. Second, moving to slide 21. We continue to prepare for the implementation of the new accounting regime. We still expect the impacts of transition to range from near neutral to very favorable for iA. In addition, based on our most recent estimates, our preliminary expectation is for near neutral to slightly negative impact on book value as of September 30th. As for the solvency ratio as at September 30th, we expect that it will be at least 20 percentage points higher under IFRS 9 and IFRS 17 than under IFRS 4. Given the very strong macroeconomic variation in 2022, this preliminary estimate appears positive. We are particularly pleased with our capital position, for which the outlook remains stable despite this high macro volatility.
To conclude my remarks, we are pleased with the result for the first nine months of the year with core EPS and core ROE well within guidance in a context where market fluctuation weighed heavily on the wealth management sectors. Moreover, sustained organic capital generation and favorable reinsurance agreement in the U.S. have both contributed to our continued strong financial position. Operator, we will now take questions.
Thank you. If you would like to register a question, please press the one four on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. One moment please for the first question. Our first question comes from Doug Young with Desjardins Capital Markets. Please proceed.
Hi, good afternoon. 1st quarter first question for Denis or for Jacques. Yeah, we've had several quarters, I would say, miscellaneous write-downs to software, technology and now to office space. I guess my question is, and I get that you're going through an evolution in technology and, you know, work from home and all this stuff. Are we done with the write-downs, or is there more that we should expect in future periods? And if you have a two-second explanation on the IASB impact, that might be helpful as well.
Hello, Doug. Jacques speaking. About the write-down, are we done? For everything that we know now, for sure we are done. Actually, the work from anywhere, like Denis mentioned, we're very pleased with the program we're putting in place. When we look at software, I cannot say today that, you know, that technology evolves, and at one point in time, we may adjust our strategy down the road. For the moment, we are very pleased with the decision we've taken, and everything has been recognized. For me, it's done. It's behind us now. As for IFRS 17, it's really a question of timing. We have to capitalize expenses that we will have amortized when the benefit will be realized.
The interpretation of IASB is we have to recognize them sooner than expected. It's really a question of timing. It doesn't change at all the value, the economic value of the project we're doing. That's really, Doug.
There's an expense issue or you quantified an expense hit this quarter and for next quarter. Going into next year, is there incremental expense increases that we should anticipate as a result of this as well?
Yes. Yes, actually, expenses will certainly increase more. You remember that at the beginning of the year, we told you that we factor in an increase in expenses because of inflation. For the SaaS, we will adjust for that for sure as well. For the technology, we continue to ramp up our transformation. There will be, I would say, for the next few years because of that timing issue that will be a little bit more pressure. Like I said, doesn't change the value of the project we're doing. However, we will be under a new regime, IFRS 17, and we still continue to guide to an average increase of 10% per annum EPS growth, considering that additional pressure on expenses.
Okay. It takes me to the IFRS 9 and IFRS 17 impact. I think you talked about it, Jacques. You know, the impact on the book value went from neutral to favorable last quarter to neutral to slightly negative this quarter. I assume it's the macro developments. Can you talk a bit about what caused that flip-flop quarter-over-quarter?
Yeah, actually, you're totally right, Doug. It's really the macro. When I look at that and I take a step back, is really we are I would say negatively correlated to increase in short to mid-term interest rate, positively correlated to increase in long-term rate and positively correlated with the market movement. I'm speaking about risk-seeking asset or maybe non-fixed income asset. Here we have quite diversified portfolio, real estate, private placement, et cetera. Overall, when I look at that, and that's why I said in my allocution that we told you, we told the market over the past quarters and years that we will be much more volatile under IFRS 17. So far, our estimate when we look at that, I'm very pleased.
When you look at the market movement this year, it's impressive that we can still achieve solvency ratio that stay there and a book value that just slightly, I would say, near neutral to slightly negative. It's really macro related, and it's bode well for the future.
Just so I can sneak another one in, Jacques, just the U.S. reinsurance agreement, you know, obviously you're upfronting the profit. I assume this is, if you could talk about the structure of it, but I assume this is on mortality. What are you giving up in future profits from this? Obviously from your comments that you continue to target 10% EPS growth, you're not expecting this to have a negative impact on future profit emergence. But there must be something that you're giving up to upfront that profit with this U.S. So can you talk a bit about the agreement?
Yeah, that's a good point. I wouldn't say for-- I would say for IFRS 4 regime, so just for Q4, if we stay on IFRS 4, actually, it's an impact on profit of CAD 0.01 that we can expect a lower profit of CAD 0.01 coming from that. However, when we look at it under IFRS 9 and IFRS 17, it will be built into the CSM. So it won't have necessarily a big effect because it would just be the amortization of expected versus amortization of CSM. So it would be very negligible year in, year out. However, when we look at those kind of opportunity, we have to factor in three-- there's three elements at play here. There's a future profit we left on the table for sure.
At the same time, there's the view of the reinsurer versus our own view about mortality. Not just one, when we strike deal, it's because the view of the reinsurer is more aggressive than our own view. We're very pleased with that additional profit that we were not expecting. Also, don't forget, we released capital as well. The whole view of this transaction was really great for our shareholder.
Great. Appreciate it. Thank you.
Our next question comes from Gabriel Dechaine with National Bank Financial. Please proceed.
Good afternoon. First question on the non-prime, near-prime, whatever you call it, the auto lending business. I see the loss rate ticked up to 2.6%. That's a trailing 12 figure. So if I try to back into, you know, the end quarter loss rate, is it in the mid threes, 3.5% or so, if I just look solely at the quarter?
Oh, Gabriel, off the top of my head I cannot answer that question, but you're right, it's a moving average.
It's a 12-month average.
It's a 12-month average, yeah. But bottom line. Go ahead, Gabriel.
No, no, the bottom line. That's kind of what I was gonna ask.
Oh, the bottom line, we're very pleased actually with the profitability of that line. Maybe one thing for that line of business that doesn't necessarily show that much because I mentioned it in Q2, when I look at the overall dealer businesses, both U.S., Canada, of course, we're negatively impacted by the sales level of the U.S. It's an admin fee business. It's a fee business in the U.S., and fees are the key there. However, when we look at Canada, the price of used cars is really helping. There were provisions that we have to put into our balance sheet for a litigation that can settle out.
When I remove that provision, the profit of the dealer business for the P&C claim and the profit on iA Auto, iA Auto Finance would have been CAD 0.03 better than expected, which is kind of a natural edge, I would say. As long as used car values stay high, we will be good. We feel really good with that business.
Do you expect the loss rate to move back to, you know, the 5.5% level that we, you know, saw running pre-COVID, and is that in the foreseeable future?
At one point, maybe, but at the same time, we're optimistic it won't go back there because we improved the risk profile of the underwriting we've taken since the pre-COVID. So we're really optimistic in regard of the fact it will certainly continue to increase, okay, with the moving out of the COVID situation, but at the end of the day, it will not go to the five.
Okay. I got a question from Mike, but before I jump to him, I just wanna stick with you, Jacques. The write down related to software, premises and furnishings. I mean, the premises part, I mean, it sounds like, you know, you're reducing your real estate footprint, you know, unless I'm mistaken there, for obvious reasons. Is this, you know, I think you own most of the real estate in which you have offices, or is this, you know, outside of, you know, Quebec or even Canada, so that it's not your own real estate that you're exiting?
I would say for most of them, we own them, but for some, we don't own them. The way I see it is like we have new spaces available for rent. This is a real positive. We don't need to invest to develop those space. They are there, and Alain's team would certainly work out to rent them, so it's a positive down the road.
It's not a major square footage.
No.
Okay.
No, no. This is not major at all.
Got it. Thanks for that. For Mike, my question is on the warranty business. Yeah, we're seeing the sales volumes dip. That's probably gonna continue. I'm wondering about, you know, something that, you know, the FTC has proposed some legislation to pretty much increase transparency of what customers are paying for when they buy a car. At least that's my read on it. You know, does that impact at all your outlook for warranty sales in addition to, you know, just what's going on generally on the volume side?
Yeah. I don't see that, at least at this point, having a big impact, the FTC you mentioned having a big impact on warranty. Their focus tends to be on lending, lending rates and disclosure of all that kind of stuff. You know, it may pull in some, let's say, disclosure on warranty sales as well, but I personally don't see it having a big impact. Right now, as you know, the market's soft. You know, it's, I think, gradually improving, you know. Looking ahead, I'm actually optimistic.
The OEMs are starting to produce more cars, and we're building up a pretty good pipeline of new accounts, you know, that started this year. It takes a few quarters for them to come on stream. You know, I guess the other factor is the price of used cars are coming down, so that should help car sales as well. Yeah, it's obviously a tough market.
Well, hopefully, I can finally get my pickup truck. All right, thanks for that.
Yeah.
Our next question comes from Scott Chan with Canaccord Genuity. Please proceed.
Good afternoon. Jacques, appreciate the near term guidance on Q4 regarding Core EPS. You know, at this point, could you maybe provide us certain, you know, factors that gives you that, you know, new detail on the low end? Like maybe specific issues like strain that should be positive, but on the negative side, maybe expenses, wealth, and auto and home or anything like that.
Thank you, Scott, for the question. I would say that I just mentioned one, which is the provision for litigation that is a one-off. Also about the experience of 2022 and on, the weather condition has been very high during the quarter. Actually, my expectation would be more something in the CAD -0.03-ish in regard of Q4. That's really what I'm expecting. After one month, actually month of October, we are CAD -0.01, so we're directly in line with my expectation. Some expenses will be there, will continue to be there. We know experience has softened a little bit. There's some inflation on repair.
That's why we believe it's more reasonable to be in that range at the CAD - 0.09 that we have experienced. Also we are also already active in regard of pricing, where we see that there are issues in regard of profitability of product. Apart from that, from the other line of business, I would say that there are good things and there are other element. There's always volatility from one quarter to the other in regard of experience. I don't see an additional negative thing coming in Q4 compared to what we have in Q3. That's really where I'm sitting right now.
Okay, thanks. Maybe for Denis. Last quarter, I think you suggested that you may provide an updated like a targeted ratio post IFRS 17, and just wondering if you kind of thought about that and could offer any new perspective.
You mean the targeted ratio, I mean the minimum or the targeted one?
Yeah, the targeted, like currently 1.10-1.16. If there's anything different that you see post IFRS?
Yeah. I mean, we are in the process right now to review that ratio. I mean, as I would say, as a principle, if it will depend on the level of volatility, you know, that this will bring volatility of the ratio. The higher the volatility, let's say, the higher the targeted ratio. So far so good. I mean, the preliminary numbers that we have are such that, you know, we might not have to, you know, increase it significantly, but we're still in the process of calculating it right now.
Okay. Thank you.
Our next question comes from Tom MacKinnon with BMO Capital Markets. Please proceed.
Yeah, thanks very much. Are you still looking for an additional 20 points in your solvency ratio when you move to IFRS 17? I think, Jacques, you had mentioned that that would be an additional CAD 1.4 billion in excess capital. Is that still the case this quarter as well?
Yeah. Yeah, Tom. Jacques speaking. Yes, it's still the case.
Okay. The way we would wanna look at if you have potential capital for deployment now of CAD 450 million, we're talking like, you know, CAD 1.9 billion when we get into IFRS 17. Is that correct?
This is correct.
CAD 450 million plus CAD 1.4 billion. Okay.
Yeah, this is correct.
Okay. Yeah, that does it for me in terms of questions. Thanks.
Our next question comes from Mario Mendonca with TD Securities. Please proceed.
Good afternoon. Jacques, can we go back to your comment about the neutral assumption review in Q4? Just given how rates have moved, I would have expected the IRR charge to be in the hundreds of millions range, you know, maybe CAD 350 million. I haven't updated the math just yet, but your comment about the assumption review being neutral would suggest that there are other things going in the other direction. It's hard for me to imagine what could be so significant as to offset the potential IRR charge. Am I misreading what you're suggesting?
No, maybe IRR. Hello, Mario, by the way. IRR may be a little bit too high with the number you're providing. Yes, actually, there's one thing that I mentioned maybe when I was speaking about IFRS 17 in previous quarter. One of the element for which our transition to IFRS 17 doesn't affect our book value is that we have a very conservative way of provisioning for financial guarantees. Those guarantees were in the money last year a lot because interest rate were so low. Interest rate has increased significantly this year, so those guarantees are out of the money. This is certainly a good source of financing. There are a few couple other elements that are there to help as well. That's really what's behind it.
No, Jacques, I understand that. I understand that the company has the protection, but I thought that was a day one adjustment. I don't wanna put too fine a point on this, but the assumption review should be a December 31st balance sheet, and then the IFRS should be a January 1st balance sheet adjustment. How are you getting those two to coincide with each other?
Okay. I would try something, Mario, to make sure I understand well the question. Actually, the comment I made about this change were really under the IFRS 4 regime, because we have to conclude year-end, with IFRS 4. My comment saying it's a near neutral, it's IFRS 4. For that, I'm still working with, the same way I was working in previous year, except for one big thing. We told you 2022 will be a transition year, so we decided to move right away in Q4 2021 in regard of taking risk on the higher IRR because it was putting us in a better position to transition for IFRS 17, nine seventeen.
For that, I'm willing, on the economic side of IFRS 4, to recognize some conservatism that we were holding in the past that we will no longer need to hold. As an example, those macro protection will no longer be needed. We took the decision at the beginning of the year to expose ourselves to IRR. I feel very comfortable using that margin. It was the decision that we took at that time. When I look at business plan under IFRS 17, those ones will be published more in March, April next year. Those ones will be exactly consistent with what we're doing under IFRS 4, but they will have different impact. Some of them will affect CSM. Some of them will. I will just use expenses as an example.
In IFRS 4, we're provisioning for all expenses. Under IFRS 17, we won't provision for unattributable expenses. There will be few differences. I believe it's too complicated to go over that on the call, though. We will provide more information about that. One thing that I can tell you, guide you to, there will be a negative impact on the CSM with the business change under IFRS 17. However, the EPS won't be affected. The EPS growth for 2023 won't be affected.
Jacques, can we go back to the question I was originally asking, which is, let me maybe ask this. Is there an IRR charge in Q4 2022? Whether it's CAD 300 million or CAD 200 million, is there an IRR charge in Q4 2022?
The IRR has been paid for by the protection during the year. If ever IRR move in such a way that we no longer have provision, yes, they will affect. For the moment, that's not where we are. We will completely deplete provision before that. Like I said, I have other margin that would be used as well. That's why I'm very confident to guide towards a near neutral approach under IFRS 4.
Okay. Let's flip over, if we could then, to experience. I think you might have been addressing this a little bit. The experience that the company's reported has been sort of volatile lately. Do you expect? Now, I'm talking about policyholder experience now. I'm not talking about macro items. Under IFRS 17, would you anticipate the policyholder-related experience to be as volatile, or is there an opportunity here to change the way you account for policyholders now?
Yeah, that's a really good question. If we all remember, okay, in the past we had a methodology which was a four-step t hat were used to eliminate some of that volatility. Because we are trying to look at very precise number, line of business by line of business, assumption by assumption, quarter- by- quarter. You know what? There will be volatility on that side. When we manage a company's long-term business, short-term business, but we don't manage, micromanage it that way. We look at trends, we look at assumption overall, et cetera, et cetera. I think that you're right, Mario, you're raising a very good point that it's very difficult to predict quarter- by- quarter those assumption by assumption. We need to think about something. It just bring noise.
Yeah, it's something that probably should revisit because it's creating experience volatility that may not be indicative of the underlying performance of the company. Appreciate your time, though. Thank you.
I agree, Mario, with what you said. Thank you.
Our next question comes from Paul Holden with CIBC World Markets. Please proceed.
Hi. Thank you. Afternoon. Continuing with IFRS 17, a couple questions myself. Appreciate the answer you gave to Doug on the book value implications and the change from Q2 to Q3. Just wondering, given that was related to market impacts, what then gives you the confidence that on transition net neutral, given obviously the market impacts are very difficult to forecast?
Thank you, Paul, for the question. It's because transition is at January 1st, 2022, so it's already behind us. Those calculation have been done. That's why we're confident with those calculation. They are already behind us. It's important to recognize that transition doesn't happen at January 1st, 2023. It's 2022.
I see. Okay. Yeah. Understood. That's transition then. It may end up being on Q1 2023, depending on market conditions at the time would be.
Yeah, actually, Paul, that's why we're providing estimate at this point. Okay, those are estimate, but we are providing some color in regard of our estimate for quarter- by- quarter, and we follow that. That's why I think the answer I provided in regard of our exposure to risk movement negatively correlated to short-term, positively correlated to long-term rate and to market. I believe that's the best way to look at macro-wide the way our result will.
Yeah, maybe just the way I look at it, Paul, is that after nine months of very difficult economic environment, we're still in a very, very good position in terms of the impact of IFRS 17. I guess it's a testimony of the resilience of our balance sheet.
Understand. Okay. You'll also be adopting IFRS 9. It requires establishment of some credit allowances on your entire portfolio, but you're thinking about establishing that and if the original establishment of credit or earnings numbers is material enough. Again, just
That's a pretty good question. For sure that the result we're providing, IFRS 9, 17, are all inclusive, include the impact on that end. We will see how it will evolve, but our estimate for Q3 is very small amount. Actually, it would be something around CAD 0.05 each. The impact, if we would have been, because you've seen, and Gabriel referred to it, the 2.3-2.6, so it increased a little bit, the unfavorable experience. We would have had to book CAD 0.05 for that point, but it's included in the overall view of IFRS 9, IFRS 17. It's not that material.
Going back to the experience, I mean, one segment we have seen experience this year has been on the U.S. operations, but they're moving in the wrong direction. Again, maybe not by a huge amount, but at least, you know, negative. How do you think about that and the potential to assumptions particular to-
Yeah. Actually, here what's really at play is really F&I business because it's admin fee that we are earning on contract. We are not that exposed to the underwriting risk because we reinsure most of that business. Really profitability will be linked to return to normal sales when there would be more cars available for sale. That's really the metric behind the iA Dealer Services.
The message there is you're not planning to change your sales assumptions, right? That's kind of the message. Mike said the outlook is getting incrementally more constructive.
Exactly.
All right. That's it from me. Thank you.
Mr. Ricard, there are no further questions at this time.
Okay. Well, thanks a lot. So, good results for this quarter. I think the thing to keep in mind is our strong capital position, the ability to generate capital generation, CAD 160 million. We are also continuing on the sales side. We haven't got too many questions on the growth side, maybe a bit, but when you look at it, we're very pleased with where we are in terms of growth, and that it's very important for our organization. We are on a growing mode, and we have capital to grow. Thanks a lot for attending this call, and see you next time.
That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.