Greetings, and welcome to the Industrial Alliance Q4 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 1 followed by 4 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, February 15th, 2023. I would now like to turn the conference over to Marie-Annick Bonneau, Head of Investor Relations. Please go ahead.
Good morning, and welcome to our 2022 Q4 Conference Call. All our Q4 documents, including press release, slides for this Conference Call, annual 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 1 week starting this evening. The archive webcast will be available for 90 days. A transcript will be available on our website in the next week. I'll draw your attention to the information on forward-looking statements on slide 2 and on non-IFRS and additional financial measures on slide 3.
Please note that a detailed discussion of the company's risk is provided in our 2022 MD&A available on SEDAR and on our website. I will now turn the call over to Denis Ricard, President and CEO.
Good morning, 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 US operations and our dealer services business in Canada. Alain Bergeron, Chief Investment Officer. Renée Laflamme, in charge of individual insurance and annuities. Stephan Bourbonnais, who was recently appointed as Executive Vice President, responsible for our mutual fund business and wealth management distribution affiliates. Sean O'Brien, now responsible for our group businesses. Yesterday, we reported solid Q4 results, as illustrated by the key metrics shown on slide seven. Starting with profitability, which was very good regardless of the volatile macroeconomic environment, core EPS of $2.40 is 19% higher than a year earlier and within guidance.
Core ROE of 14.2% is also within guidance, more specifically in the top half of our target range. Our solvency ratio of 126% remains robust and well above our target range, notably due to the continued strong contribution of organic capital generation. Under the new regime, as Jacques will explain in a moment, this same solvency ratio is even higher, and organic capital generation is expected to remain strong as well. As we create additional value, we're committed to returning value to our investors, which we did in 2022, primarily through a dividend pay that was 25% higher than in 2021, and through the repurchase of more than 3 million common shares under our NCIB program.
While our priorities in deploying capital are still to grow the company organically and by acquisition, share buybacks and dividend payments within our target range of 25%-35% based on our core earnings remain important component of our capital deployment strategy. I will now comment on the book value per share, an important accounting metric as it is one of the few indicators of a company's unbiased value. According to the most recent estimates, our book value under IFRS 9 and 17 is expected to be at about the same level as under IFRS 4, both at transition on January 1st, 2022, and on December 31st, 2022.
By having a stable book value at transition, I like to say that the IFRS 17 accounting regime is basically acknowledging the past profitability shown by iA Financial Group under the previous accounting regime, that it was appropriate, and in a way, it is a testimony to our sound and prudent management, and it is aligned with our long-term growth vision. Moving to slide 8. We concluded year 2022 with a core EPS of $8.85 and a core ROE of 14.2%, both well within guidance, along with a robust capital position. Strong sales were recorded in most business units, in particular in individual insurance. This very good performance is largely attributable to our committed and talented employees and distributors.
To attract and retain such talent, we need to provide a superior employee experience, which we do by offering flexibility through our Work From Anywhere program, but mainly by providing rewarding careers and opportunities for people development. Our best-in-class employee experience strategy was recently recognized by Glassdoor and Forbes when iA was listed as one of Canada's top employers. We are very pleased that the quality of our employee experience has been acknowledged as it is an important asset in times of talent shortage. In parallel, we also aspire to offer a premium experience for clients and advisors. More specifically, we aim at making it as easy as possible for them to interact with iA. Our efforts were recently rewarded with a top position for overall company rating in the Advisor Perception Study for the second consecutive year.
Now, looking at 2023, we are very confident about our future results under the new accounting regime. In a few minutes, Jacques will be presenting an update of our IFRS 9 and our seventeen outlook, including the fact that we are now guiding towards a significant increase in profitability in 2023 on and on. This is in addition to the very favorable outlook already provided earlier in 2022 regarding the increase in our solvency ratio and our capital available for deployment. In deploying our excess capital, we will exercise our usual degree of caution, taking into account a number of factors, notably profitability and the fit with our culture and business model. All these elements are favorable to the pursuit of our growth strategy and the creation of more value for our shareholders.
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 the Q4 results and our capital strength. Mike.
Thank you, Denis. Good morning, everyone. We ended the quarter and the year with strong sales in most business units. Diversification makes our business model resilient in addition to delivering synergies and competitive advantages. Our close relationships with distributors are a key driver of our continued business growth, which becomes even more valuable in times of economic volatility like 2022. Please refer to Slide 11 as I will now comment briefly on Q4. Four of our five lines of business recorded a year-over-year increase in premium and deposits. Only the individual wealth management line of business saw a decline as the wealth industry as a whole faced a challenging environment. In total, premiums and deposits amounted to CAD 3.9 billion in Q4, compared to a strong CAD 4.2 billion in 2021.
Assets under management administration totaled $200 billion, an increase 3% quarter-over-quarter, while being 9% lower than a year ago, as asset growth in 2022 was adversely impacted by financial market conditions and rising interest rates. Q4 individual sales totaled $95 million, up 9% when compared to a particularly solid quarter last year. These strong results are mainly driven by the good performance of all distribution networks, and to a lesser degree, the increase in average premium per policy sold. Once again, iA's broad range of products, including the success of the PAR products, as well as the excellent performance of our digital tools, continue to be significant growth drivers for this line of business. Based on the latest industry data, the company continues to rank first in terms of the number of individual insurance policies sold in Canada.
In fact, more than one in four policies are sold by iA in Canada. For the full year in 2022, our sales amounted to $387 million, a large 35% increase from the previous year when they were $286 million. For several quarters, individual insurance has experienced remarkable growth. In this context, while our distribution networks continue to achieve strong performance, the year-over-year growth should eventually get closer to our annual growth target of 5%-8%. Turning to Slide 12 for individual wealth management, starting with seg funds, gross sales totaled $702 million, and net fund inflows of $172 million were recorded despite a challenging context for the industry.
The company continued to solidify its leading position in the sector and still ranks first in Canada for gross and net seg fund sales. Mutual fund results at Q4 were unfavorably impacted by market conditions with gross sales of $350 million and net outflows of $290 million. As for sales of guaranteed products, they totaled a strong $408 million, up 79% from a year earlier as clients continued to favor cash equivalent products as markets remained volatile. Finally, sales at group savings and retirement sector totaled over $1 billion at Q4. This represents a solid 65% year-over-year. Sorry, 65% increase year-over-year, driven by the signing of several new large groups during the quarter. Moving to Slide 13 for group, the group insurance results.
In the employee plans division, sales were 20% higher than a year earlier and amounted to CAD 18 million. These sales, combined with a good retention of in-force business, drove premiums up 11% year-over-year. In the dealer services division, sales totaled CAD 296 million, up 11% for the same period in 2021. Good sales results were driven by P&C products and car loan originations, respectively up 22% and 14% year-over-year. In the Special Markets division, sales of CAD 102 million were up 34% year-over-year, driven by strong sales of travel insurance as travel volumes are returning to a more normal level. As for our P&C affiliate, iA Auto and Home, direct written premiums recorded were strong with a 10% year-over-year increase.
Going to slide 14 for our US operations, sales in the individual insurance division amounted to $37 million USD and were up 12% compared to the same period last year, with growth coming from the final expense in middle family market. In the dealer services division, Tthe Q4 sales amounted to $241 million USD, compared to sales of $255 million USD for the same period in 2021, a result mainly explained by persisting inventory constraints and higher financing costs for clients. Overall, sales results for the quarter, but also for the whole year, were quite strong for most business units, which once again demonstrates our ability to grow in different macroeconomic situations through the robustness of our business model. I will now turn it over to Jacques to comment on earnings, capital strength, and 2023 perspectives. Thank you.
Thank you, Mike, and good morning, everyone. Today, we are reporting very good Q4 results in terms of profitability and capital position. Just as importantly, as we move into the new accounting regime, we are presenting a positive update outlook for our performance in 2023 and beyond. Starting with slide 16, we are very pleased with our results for the Q4 and for 2022. Core EPS was CAD 2.40, which is 19% higher than in 2021, and along with core EPS for 2022 is well within guidance. The core ROE of 14.2% is at the top half of guidance. The impact of new business and the effective tax rate were both favorable, and the solvency ratio remains robust, with continued organic capital generation above target.
As a result, all metrics are in line or better than guidance, not only for Q4, but also for the full year. Slide 17 presents the source of earnings on a core basis. Core expected profit was about the same as a year earlier, being held back by the quarterly adjustment to reflect lower financial market level. Core experience was positive, mainly from favorable policyholder experience in incident insurance, including for mortality, morbidity, and lapse from favorable longevity experience in group savings and from favorable claims experience in dealer services in Canada. Disability experience in the employee plan division was also favorable. The impact of new business result in a gain, mainly due to the recognition of a portion of the long-term interest rate increase that occurred during 2022.
In common, capital was below expectation due to lower revenues from iA Auto and Home, which experienced an adverse windstorm in December and a higher volume of vehicle theft. The tax charge was lower than expected due to a higher proportion of capital gains, dividend, and non-taxable revenue. All these elements result in a solid core EPS of $2.40. As shown on slide 18, the net impact of our annual assumption review was near neutral on results, as expected. Reserve adjustment from the annual update of experience studies were almost all offset by the update of economic assumptions. Sorry. We have applied our usual prudence to this exercise, the last one under IFRS 4. As the new accounting regimes come into effect, we are very satisfied with the level of our reserves.
Our solvency ratio presented on slide 19 is comfortably above our target range at 126%. The contribution of CAD 130 million in organic capital generation was again a positive element. The slight decrease in the quarter is primarily due to management actions and portfolio adjustment in view of the transition to IFRS 9 17. It is important to note that the impact of those adjustments will be mostly reversed under the new regime. Also, although all calculation of 2022 parallel results under IFRS 9 17 are not finalized, we expect the ratio under the new regime to be at least 20 percentage points higher than the 126 ratio presented today.
In fact, the application of the capital standard under the new regime further recognized the robustness of our capital position and balance sheet. As for organic capital generation, it totaled $550 million in 2022, which exceeds our target range for the year. We expect organic capital generation to remain strong under the new accounting regime. Slide 20 presents the most recent information about iA favorable positioning under IFRS 9 17. While the finalization of the financial statement at the transition date is still in progress, we expect the impact on our book value to be neutral at transition, with an increase of about $10 million and the level of our CSM to be at $5.5 billion. As for 2022 parallel results, we currently expect the book value at year-end to be similar to the one disclosed today under the IFRS 4 regime.
We also expect several key metrics such as core ROE and core EPS results, as well as organic capital generation, to be favorably impacted. In addition, as mentioned previously, the solvency ratio should be materially higher under the new regime, which will translate into a very high level of capital available for deployment to support future growth and the value creation for our shareholders. Now looking to the future, we confirm that we are maintaining our medium-term target of 10%+ core EPS growth on average per annum. In addition to the solid 10%+ growth target in 2023, we expect additional one-time mid-single-digit growth from the favorable impacts of the new accounting regime and of the recent increase in long-term interest rate.
The core EPS guidance for 2023 takes into account higher expenses due to the continued investment in our digital transformation and growth expectation for our various businesses in the current environment. We have often mentioned our conservative management approach, including additional protections and profit recognition. This prudence allows us to start 2023 under the new accounting regimes with our book value maintained at transition with a very high level of capital available for deployment and with a very favorable outlook for core EPS growth. In conclusion, we are pleased to invite you to a virtual information session that will be held on March 28. Among other things, we will then present our key performance indicators under IFRS 9 and 17 and our medium-term targets, and we will further discuss our growth outlook. Operator, we will now take questions.
Thank you. If you would like to register a question, please press the 1 4 on your telephone. You will hear a 3-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the 1 followed by the 3. One moment please for the first question. Our first question comes from Meny Grauman with Scotiabank. Please proceed.
Hi, good afternoon. Just a question on the US dealer services business. You highlight inventory constraints and higher financing costs as being adverse forces this past quarter. Just wondering, I mean, both of those things are not in your control, but I'm wondering if there are certain mitigation factors that you have in order to deal with these issues. Just more broadly, how you see those two factors developing as you look to 2023.
I guess, Mike, you want to go on that one?
Sure, yeah. Thanks, Meny. Yeah, those things are, as you said, they are pretty much out of our control. You know, basically what, you know, we follow a lot of whatever industry forecasts and data, and so far it appears that 2023 is not going to look that different in the automotive sector compared to 2022. There is signs of more inventory coming out, so that kind of makes me hopeful. On the other hand, interest rates are higher and that could affect consumer demand as well. You know, the key measure is looking at month-by-month car sales, and so far, they're running flat, but, you know, maybe it picks up. In the meantime, you know, we aren't standing still for sure.
We are very focused on organic growth as a priority for us. You know, we've been adding new accounts through 2021 and 2022, but you don't really see much of the effects of it because, you know, the market has been soft. But it's something we monitor carefully. You know, we set an objective for 2023 in terms of signing new accounts of basically 2.5%-3% per quarter. Obviously if you annualize that, you're up to 10%-12%. You know, that's what we're working on and you know, obviously looking for better results.
Just as a follow-up, I'm curious how that relates to your willingness to do M&A. You talk about bolt-on acquisitions. You'll have a lot of excess capital once IFRS 17 kicks in, even more excess capital. I'm just wondering the outlook that you have for the business makes you more cautious about deploying capitals or anything you need to see change in that environment before you'd be willing to pull the trigger on any bolt-on acquisitions.
Sure. Well, I'll start. Denis might want to skip in here. you know, we remain bullish on this business, you know, in terms of the long term, looking ahead. you know, basically, we're in a position at this point where we want to start looking at acquisition opportunities in 2023. We've been through, you know, a lot with COVID and then the integration with DAC, and we've ended up doing some upgrades to our system as well. At this point, we're ready to move forward on acquisitions and, you know, starting to look for opportunities, it's early days in that process.
Just I want to add, like Mike said, but at the end of the day, we'll also do it on an orderly manner, I mean, in a disciplined manner. Certainly, this is an area where we are putting some attention as we speak.
Thanks, Potvin.
Our next question comes from Gabriel Dechaine with National Bank Financial. Please proceed.
Hey. Good morning. Couple questions. 1. On the non-prime auto lending, just to confirm, you had, like, just about a 4% loss rate this quarter, and you're describing that ratio as about what you expect the post-pandemic norm to be. If that's correct, please let me know. 2. There is, you know, if we do get a recession, they could still move higher than that, right?
Hello, Gabriel, Jacques speaking. Yes, you're right. This is pretty much what we expect. We believe we return back to pre-pandemic level. Our near- prime portfolio, we mentioned it many times during the year, we have improved the underwriting of that portfolio over time. That's why we don't expect at all to return back to that, the 5% plus we were getting pre-pandemic. You're right that things could go more sour there. One thing that I want to put to your attention is the fact that in our IFRS 9 seventeen metrics we're providing, we are building within those numbers, we are building the provision for the car loan according to the rule of IFRS 9. It means that all the recent credit experience has been factoring into the provision as of December 31st, 2022. I just want to let you know that.
That loss rate isn't, you know, the actual losses that includes the, you know, the losses on performing loans as well that you're under standard IFRS 9?
Yeah. Actually, IFRS 9, yeah, not only you need to recognize the experience, but you need to assume that that experience will last forever until the end of the loan. That's the difference between IAS 39. That's why the provision is larger.
Okay.
Yeah. If you don't mind, Gabriel, I'd like to just add on this. I mean, we've been very pleased with that business for, I mean, many years. We bought that business in 2015. We've improved the quality of the portfolio since then. Profitability is pretty good. There's gonna be some, obviously, cycle along the way. At the end of the day, I mean, we are very disciplined in the way we underwrite that risk. The profitability is rewarding our investment, you know, very significantly. I mean, obviously there is an appetite for that business up to a point, and we are reevaluating as we go, you know. Like, we have a maximum of $1.5 billion right now in terms of outstanding loan. We might revisit that at some point, but right now, this is the appetite that we have for that business.
Okay, great. Thanks for that. I mean, I got to ask the P&C business. I get the weather event, but there's a big uptick in car theft. Is that I mean, I know that happens, but I've never seen it called out like that. How was this like a unusual surge? Like, how does that work?
No, actually, since, the fact that there's less new car, we see value of used cars increase, and it triggered that kind of behavior, unfortunately. It's an issue that's not related just to iA, but it's the whole industry facing that, which is a good thing in regard of the fact that we When I say it's a good thing, it's a good thing that it's the industry, it affect all industries. It's not a good thing that people are stealing cars. Don't get me wrong here.
I understand.
The thing is that you can reprice your product. I think that's a good thing there. Also there's a coalition between insurer to try to help with the police to try to get rid of those kind of people.
Okay. And then, I guess my last one here on the, well, the excess growth that you're, guiding to the 5%. On one hand, the higher interest rates, I guess, where would we see that if it was the SOE, kind of framework? You know, can you specify a bit more of some of the favorable accounting changes that are, that are, you know, giving you that one-time boost?
Good point. About the interest rate, it would be expected profit for sure that will show that, particularly it would be for our long-term businesses. Both in life insurance in Canada, US When you speak about regime switch, I would say there are many different things, okay? The construct of the two regime IFRS 4 compared to IFRS 9 seventeen, the construct is quite different. There are a couple of things I would say that one that affect negatively maybe more our peers than us is certainly the strength profit recognition on new business. We're not negatively impacted on that at all. I can give you another example. Seg funds. Seg funds, the former regime, didn't allow you to defer your acquisition costs, while the new regime is allowing you to do that.
We're doing that for the new sales. There are many different things like that. Overall, it's positive for us.
Yeah, maybe one thing, Gabriel, I'd like to mention, because, I mean, we acknowledge that it is very difficult, for you financial analysts, for investors to gauge, you know, how IFRS 17 is going to influence and change the outlook going forward. That's why we provided this additional guidance for 2023, you know, the 10%, which is the regular one, plus this, let's say, one- time just to as a kind of a reset. We debated internally, I mean, where do we go, in terms of disclosure?
I guess my point would be that if I had to choose a range, let's say for 2023, I would have gone as far as saying that, you know, it could be between 13% and 18% increase in APS versus the 2022 IFRS 4. We're saying like 10 plus mid single digit. You know, you can translate that into, you know, between 13% and 18%.
That's off the 85 of this year, yeah. Okay. Thank you. Enjoy the rest of your week.
Our next question comes from Doug Young with Desjardins Capital Markets. Please proceed.
Hi. Good morning. I guess it's probably for Jacques, but it looks like you released all the downside market protection with the year-end actual review. You know, it was my understanding that this was part of the buffers that was gonna be released on transition. That was one of the reasons there was gonna be a book value hit at transition come January 1st on. There was gonna be a positive impact on the LICAT ratio of 20 points. Now that it was released at year-end, you know, before the transition happened, you know, what's supporting the book value and the LICAT ratio at transition? Like, I guess there's an other item and is it rising interest rates? Just trying to figure out what I'm missing here, if anything.
Yeah, that's a good question, Doug. Actually, transition happened as of January 1, 2022, and since that time, you have to consider that both regimes are acting independently. When we provide you number on the IFRS 9 seventeen, it's really calculated according to the standard. All liabilities, all assets, they are calculated by themselves. What remained a big constant there is the underlying business. It's the same underlying business, and we've told you many times we're trying to do our best in regard of managing our risks. On an economic basis, and for us, that's really the value. After that, we calculate the different number according to the two regime.
The macro protection, what they helped to do is really to help to transition at January 1, 2022, without having a negative impact on the book value. Since that time, you're right, long-term interest rate increase is certainly a positive for our performance on the IFRS 17. However, market has not been positive, so it has been a drag on the IFRS 17, IFRS 9, and short-term interest rate midterm has been a negative in 2022. Bottom line, though, it's positive. Hope this give you more color.
Yeah. Maybe I can follow up. Is essentially the long-term interest rate, so the discount rate you're using to calculate the liabilities, you know, has gone up, I would assume. Is that that's more than offsetting the negative impact from lower stock market protection, is that? Is that how to think of it?
Yeah. The valuation rate on the IFRS 17 is higher, recognizing actually the illiquidity of our portfolio and built according to the IFRS 17 standard.
That would be the main driver. You know what? I'll leave it at that. We can maybe follow up, and I wouldn't mind getting into some technical stuff offline. The second question. You know, it looks like the portfolio adjustments you know, in advance of the IFRS 17 transition boosted the individual insurance results. I'm trying to kind of understand two kind of components here. I mean, what were these portfolio adjustments? I mean, I think you might have been lengthening asset duration, so maybe there's less mismatch reserve. I think you've kind of changed over more into corporates than governments. So maybe that had a positive impact on earnings yield enhancement. Then on the flip side, because you're owning less risky or more riskier assets, your LICAT ratio is negatively impacted. Do I have all of that correct, or is maybe you can kind of opine on that point?
How you look at it. If you look at it under IFRS 4, I would say what you said is correct. We have improved, and we mentioned it, we transition. In 2022 we are very proud to where we are right now. In 2022 we really transition our asset liability management into a global ALM strategy commingling all our liability together. It allow us to do a much better job on that risk, on the ALM risk. It allow us to take more credit risk on the asset without increasing the risk profile of the organization as a whole. It was a great strategy for us, and it brings value. If you look at result under IFRS 4, those are the results that are affecting Q4.
It's improving, it's giving some return on the income, but affecting negatively the LICAT ratio. However, like we said, it will reverse under the IFRS 17 calculation of the ratio. We said, we said to everyone we were fortunate enough to start 2022 with a strong macro protection. With that strong macro protection and strong capital position, we were able to do smoothly the transition over all the year 2022. We knew that it will reduce the macro protection. It will have some impact on the ratio. Bottom line, today we are under IFRS 9 17, and we are very pleased to where we are in regard of risk management.
How does that reverse, Jacques? Like, so you've had to put aside or you had a negative LICAT impact because you've gone into riskier investments, and I get that. Why does that reverse under IFRS 17?
It's just a calculation. It's just, the calculation. It's really technical, Doug, but it's calculation.
Okay.
The way that the both regime are calculated are different. This is like I'm sorry, differently than that.
Okay. Okay. I'll leave it there. Thank you.
You're welcome.
Thanks.
Our next question comes from Tom MacKinnon with BMO Capital Markets. Please proceed.
Yeah, thanks very much. Good morning. Just a couple questions here. Denis, you just said sort of mentioned that you expected core EPS in 2023 to be 13%-18% higher than 2022. Then in the release, I think you talk about not issuing guidance for 2023 until you have this investor session about 6 weeks from now. What's gonna happen over the next 6 weeks, and why not issue the 2023 guidance now? I mean, you've already suggested some number. Is that kind of what we should be...
Well-
gaging towards here?
I mean, when we debated internally about disclosure, we felt that at this point, because there's gonna be a lot of information that will be given on March 28, other than the, let's say the core EPS, you know, guidance. We felt that, because of the information that we are right now, where we are in the process, in the calculation and the information that we have internally, that we had an obligation to be more specific about where this was going. Whenever we spoke with either analysts or investors, it was very difficult. It was all over the place in terms of predicting where IFRS would go. We felt that it was appropriate in terms of our obligation to disclose, to be more specific. That's why we did it, I would say probably a bit, earlier than, what we had expected.
Okay, thanks. Second question is with respect to the CAD 550 million organic capital generation in 2022. It appears to be redeployed kinda equally between buybacks and your dividend. Should we expect that same kind of redeployment in 2023? Why not kinda rejig that ratio and put more into the dividend and less into the buyback? Curious as your thoughts here. Thanks.
Yeah, good question. Thank you, Tom. Actually, I mean, as we mentioned, we want to grow the organization, you know, and go organically and then by acquisition. We need some dry powder for that. At the same time, our excess capital position is so great that I mean, we return some of the excess capital not only through dividend but through NCIB. I mean, my view right now is that, you know, stock is undervalued, and it's a great opportunity for us to buy back at this point. We are continuing doing what we were doing over the last few months, and we're buying back shares as, you know, in the current price, we believe it's undervalued. You should expect this to continue, you know, in the current condition.
Okay, thanks.
Our next question comes from Scott Chan with Canaccord Genuity. Please proceed.
Thanks. Denis, just to follow up on the 13%-18% kind of initial growth guidance you see. To get to the high end, like, what kind of factors would get there? Is it higher interest rates for longer or, is there other factors to think about on that?
Well, I would mention two things, and Jacques could complete if he wants. I would say that first of all, I mean, it's term of growth. I mean, if let's say the market was to be more favorable in terms of, let's say, on the wealth management side, for example, and let's say that our growth story, would it be even better than, you know, what we expect, that would be one of it. Obviously, I mean, we know that for iA, the interest rates, long-term interest rate is a catalyst also. In a higher interest rate environment, it would be beneficial as well.
Okay. And just on, just going back to auto for a sec. You talked about the near prime, but do you have an approximate split on what that portfolio is with subprime and near prime? On the originations, or recent originations, is that more favored towards near prime rather than subprime? Any color would be helpful. Yeah.
I think I'll be very clear. We don't do subprime. We are in the near-prime business.
Okay. Near-prime business. Okay. Okay. Thank you very much.
Our next question comes from Paul Holden with CIBC World Markets. Please proceed.
Thank you. Good morning. I guess where I want to start is going back to the US segment and vehicle warranty specifically. Mike, I understood you correctly, what you're saying is industry volumes might be flat year-over-year in 2023, but given your growth in dealer relationships, you would expect 10%-12% growth. Just want to clarify, is that the right takeaway here?
Yeah, that's a good way to describe it. It's certainly our objective.
Okay. Understood. Thank you. Thank you for that. Just going back to the IFRS 17 and the 2023 guidance, just to get a little bit more specific here, because you posted abnormally large new business gains in the individual insurance segment. My estimate would be that contributed 3% upside to full- year earnings in 2022. We know under IFRS 17 that won't repeat, and I can't imagine you're expecting those types of gains at the beginning of the year. I guess my question is, why hasn't your estimated EPS impact from IFRS 17 moved lower, maybe from a slight positive to neutral because of that factor? Like, what's the offset here?
That's a good observation, Paul. Jacques speaking. You're totally right. I believe I mentioned it on one of the calls this year that we have even not factor in and recognize other interest increase in our stream calculation in 2022. We use a rate, I believe, at the end of April, we stick to that rate because of the volatility of that long-term rate during the year. You're right, technically this one is a small headwind. The reality is that long-term interest rate, like I said, is one of the element that has impacted also our reinforced business. The different trade we made during the year are also increasing. There are many other positive that are compensating for this one, but this one is a small negative into the calculation. You're totally right.
Okay. Understand. We keep referring to long-term rates, I assume what we should probably benchmark to get a sense of that directionally is kind of just tracking the 10 - year and 30- year rates and particularly, government of Canada and provincials. Are those the right benchmarks?
Yes, it could be. it is, I would say. The only thing is that in 2022, we're in the transition year. Like I said, we wanted to do those transaction in an orderly manner. As we speak today, we are less, I would say, exposed to both of those three. We still have some exposure, but our goal is to manage our risk profile accordingly. Those will be the two metrics.
Okay. Got it. Last one is just observing very strong results in the group insurance business, with expected profit up significantly for the full year. Just maybe we can get more specific in terms of what lines of business are driving that growth, and more importantly, what is the outlook for those lines of business for 2023.
Jacques speaking. Actually, the dealer division in Canada has been very profitable, and it has a lot to do with the value of used car. Actually, the P&C claims on that business have been simply much better than what we were expecting at the beginning because of that. Looking forward, there will be a return to reality at one point. That's what we're expecting. We're still beneficiating from that used car value.
Okay. That's helpful. I'll hold it there. Thank you.
Our next question comes from Lemar Persaud with Cormark Securities. Please proceed.
Thanks. I'm wondering if we could go to the core EPS chart on slide 20. I'm really trying to understand that mid-single digit one-time core EPS risk to 2023. Now in that chart, you're clear in suggesting that 2023 is compared, 2023 is under IFRS 17 and 9 is being compared to the 8- 85 under IFRS 4. We know the impact of the new accounting regime on 2022 core EPS is expected to be favorable. It's right in that table, kind of off to the left. Would it be fair to suggest if you compared 2023 to 2022 results both under IFRS 17, the 2023EPS growth target will be closer to 10% versus the 13%-18% you're referencing in this Q&A session?
Jacques speaking. Actually, we're providing you those slides because those are the public number you are having. We're still working with estimate for IFRS 9 17. Our team are presently working out to complete the exact calculation so that at the end of March, we'll be able to provide you the real number of 2022 under IFRS 9 17, and we'll be able to show the growth over that. However, I can give you a little bit of color in regard of the fact that 2022 was a transition year, interest rate has increased during the year, you can expect a higher than 10% growth IFRS 9 17 over IFRS 9 17.
Okay.
We will provide you details at the end of March.
Okay. Okay. Just on the prior slide there, can you just guys talk about the 3-point temporary hit on the LICAT ratio in Q4? Is that gonna reverse immediately under IFRS 17, and is that accounted for in that, greater than 20 percentage point, lift in the LICAT ratio seventeen?
You're totally correct for both.
Okay, great. That's it for me. Thanks, guys.
Our next question comes from Mario Mendonca with TD Securities. Please proceed.
Good morning. Jacques, maybe to go to you for a moment, or actually Denis as well. The 13%-18% outlook you just provided, I wanna be clear that that's growth from the $885 in core earnings that you reported in 2022. Is that right?
You're totally right, Mario.
Okay. Now, if I could ask you, Jacques, to go back to IFRS 17, let's assume for a moment we were looking at IFRS 17 in 2022 and 2023. Maybe I think you've given us some indications here, but I wanna understand where that growth would come from. Would it come through the insurance service result, or would it be more likely to come through the net investment result or some other business altogether?
It would come from net investment results for sure, and some insurance results as well.
In the net insurance result, where would we generally see this? Would it come through the risk adjustment release, the CSM release? I'm trying to get an understanding of, like, when we see this growth emerge in 2023, I wanna make sure I understand what I'm looking at.
Okay. Mario, I will ask you to wait for March 28th to get those information, because I need, I would say, a visual support to be able to explain that well to the people. It would be too confusing just doing it verbally.
One other thing. In your response to Tom's question, It wasn't Tom. It was Gabriel. I think your response to that question about the auto finance, I almost got the impression that you've already applied IFRS 9 in the results you presented today. Isn't it more appropriate to suggest that the IFRS 9 will be applied, we'll only see it when you report your Q1 2023?
No. Actually, for the IFRS 4 result, we're still under IAS 39. When we guide you, with our estimate of the book value under IFRS 9 seventeen at the end of 2022, we factored in the reserve for loan under IFRS 9. That's what I meant.
Okay. I've got it now. Under IFRS 9, you're gonna build reserves presumably or you have built reserves for the auto finance business. Can you talk about what level of allowances you're setting up for the auto finance business? What I'm getting at here is in my re-research of the banks, it's pretty clear where a PCLs ratio is and where the allowances are, and I often compare those two. Is that something you can speak to today, like where those allowances are relative to the amount of PCLs you're currently incurring?
Actually, we can provide more details on March 28, maybe one thing I will draw your attention to is that the near prime loan react differently from normal bank loan, I would say. The reason why is the duration of the loan is much, much shorter. There's a good proportion of borrower that are there temporarily to improve their credit rating. When you look at, I would say, a provision, IFRS 9 provision for those kind of loans compared to a normal loan, you won't have the same kind of effect. We'll be able to provide maybe more details on March 28.
I think the point you're making there, Jacques, then is because of we're looking at lifetime losses, if the lifetime is necessarily shorter than, call it a mortgage, then by definition the allowance has to be less. Is that the message we're coming at?
Yeah. Yeah. That's, yeah.
Thank you.
Our next question comes from Darko Mihelic with RBC Capital Markets. Please proceed.
Thank you. I wanted to return to the car warranty business. Mike, I think in your response, you talked about your objective to grow organically. I guess the question I have is, I mean, can you speak a little bit more to that? When I read your 2021 annual report, in the end, it says 700 people are employed there, 7,000 dealerships, and those numbers are exactly the same with the annual documents you reported last night. In essence, I don't see growth in dealerships or even the number of employees. What is it that is going to change in 2023 that will create organic growth in the dealerships? Granted, car sales are still important, but my own simple thing is if you're at 10,000 dealers by the end of the year, you'll have more growth.
Can you just give me a hand with what it is that happens in 2023 that actually kickstarts organic growth?
Sure. First of all, Darko, the numbers you're referring to in the document, I guess, says that they're rounded. Another thing to bear in mind is basically the business we acquired from IAS is there's a lot of what we call ancillary accounts there. Ancillary products are the smaller ones, you know, to ensure your key fob or. One they're quite good at or had a lot of business was tire and wheel coverage. In, you know, we have a lot of dealers under contract, and we have an opportunity to sell a lot more business, other products, primarily warranties, obviously. That's, you know, a much bigger product and better margins.
You know, you have to bear that in mind. To answer your question, for me, you know, I've been managing sales operations for a long time now. A lot of it's focus. We have, you know, we kinda got distracted with, you know, new owners, integration, blah, blah. I've really, really pushed for people to get focused on growth for 2023. It sounds too simple, I get it, but it's really important.
What about, I mean, one of the things that I see that's developing in the industry, you mentioned key fobs and tire and wheel. I'm seeing, you know, phones. I'm seeing electric vehicles. Where is there anything new on the horizon for your business in the US that would also cause an acceleration in growth?
Yeah, I think the EV, you know, developers in EV is certainly an opportunity and, you know, I don't know if it's necessarily an area of growth, but people who do it better, do it well, are gonna be beneficiaries. So that is certainly one development. Apart from that, nothing else is coming to mind immediately.
Maybe one thing, it's Denis here, that I would add on this is that our team was also quite committed to, I would say, develop the income development, let's say, division of our operation. Meaning like, you know, training F&Is and helping them being more productive within the dealerships, like sort of, kind of what we do in Canada with the F&I school. That's an area where we believe that we can add value to the dealers and at the same time increase on ourselves. That should also help in terms of development in the US
Okay, great. Thank you very much.
Mr. Ricard, there are no further questions at this time. Please continue with your presentation or closing remarks.
Okay, thanks a lot. I mean, I'm sure that you've realized that IFRS 17 is a very important aspect of the disclosure of this quarter. We try to be more specific because of the need to do it at this point, and we're very proud of the results that we have. We're very proud of the positioning that we are under IFRS 17, whether it's in terms of the EPS growth, in terms of the capital for deployment, which is very significant with the new regime, it will allow us to deploy that capital in various ways. We're very pleased that we can create value to the shareholders.
Also, you've seen that, you know, even in the more difficult times, like, for some of the businesses we're in, I mean, like the wealth management. I mean, when you look at the sales for the, for the most part, we've been quite, you know, strong during the year. It's, I think it's a merit of the diversification that we have in our company. It, it helps in terms of resiliency, in terms of more difficult times. But we are quite confident that we can grow going forward on the 10% plus, and even more in 2023. With that said, thanks a lot for attending this call, and I think we've got Marie, that Marie-Annick that is going to have the last word here.
Thank you, Denis. Before we end the call, I just want to remind you that as we are now operating under IFRS 9 and 17, we will be holding a virtual information session on March 28th at 9:00 A.M. This concludes the call. Thank you everyone for attending.
That does conclude the Conference Call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day.