Greetings, welcome to the Industrial Alliance first quarter earnings results 2023 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, May 10th, 2023. I would now like to turn the conference over to Marie-Annick Bonneau, Head of Investor Relations. Please go ahead.
Good morning. Welcome to our 2023 first quarter conference call. All our Q1 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 forward-looking statement information on Slide 2, as well as the non-IFRS and additional financial measures information and the note regarding 2022 restated results under IFRS 17 and IFRS 9 on slide three.
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, with an update in our Q1 2023 MD&A released earlier today. 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 U.S. operations. Alain Bergeron, Chief Investment Officer. Renée Laflamme, in charge of Individual Insurance and Annuities. Stephan Bourbonnais, Executive VP responsible for our mutual fund business and wealth management distribution affiliates, and Sean O'Brien, now responsible for our group businesses. This morning, we reported our Q1 results, the first ones under the new accounting standards, IFRS 9 and 17, and we can now confirm that the transition to these new standards is positive for iA, thanks to our long-term vision and prudent approach. Please go to Slide 8 while I comment on three key favorable impacts.
First, our business model is enhanced as we can now have much more capital available to invest for future growth and ultimately to create value for our shareholders. Indeed, as at March 31st, 2023, we have CAD 1.8 billion available for deployment. Second, as our core earnings power is expected to be higher under IFRS 9 and 17, we're now targeting higher core ROE of 15%+ and a solid core EPS growth with a 2023 target of 10%+ mid-single digit growth over IFRS 4 2022 results. Our financial strength is better reflected under the new accounting standards, which explains our increased solvency ratio of 149% and low leverage ratio of 14.7% as at March 31st, 2023. About the first quarter results now.
As presented on Slide 9, we reported a good performance today. Looking at our main KPIs in terms of profitability, core EPS of CAD 2.08 is 16% higher than a year earlier under IFRS 4, and therefore, in line with this growth target indication given in February. Core ROE of 14.6% is close to our midterm target. Moving to our financial position. As expected, it is more robust under the new standards with a solvency ratio of 149%, and it continues to be supported by good organic capital generation. More specifically, organic capital generation amounted to CAD 125 million in the first quarter.
As we continue to invest in digital transformation and employee experience, two key enablers for sustainable growth, we're happy to also return value to our shareholders through a significant 13% increase in the dividend, which is consistent with our higher core earnings power under the new standards. I also want to comment on book value per share, an important accounting metric. Following our stable book value at transition, growth in book value per share was very good during the first quarter, with an increase of 3%, supported by the record quarterly net income of CAD 270 million achieved in Q1. Moving to Slide 10. With the substantial amount of de-deployable capital of CAD 1.8 billion as of March 31st, 2023, it is our intent to continue to invest in our growth organically and through acquisitions.
More attention and energy will be devoted to growing the business, which is one of the reasons for the changes to the executive committee announced this morning. With two Chief Growth Officers, one for Canadian businesses and one for the U.S., and two Co-Heads of Acquisition, three seasoned executives will be dedicated to the execution of iA's growth strategy. Mike's increased focus on the U.S. market and on acquisitions will enhance our ability to leverage his expertise and capitalize on opportunities to further accelerate our growth trajectory. Among the other changes to the executive committee announced this morning, noteworthy is the upcoming retirement of Jacques.
After many accomplishments, including most recently, the transition to the new accounting standards, Jacques will be leaving his position following Q2 earnings disclosure, will stay on until the end of the year to ensure a smooth transition with Éric Jobin, currently Executive VP, Operational Efficiency, who will become CFO and Chief Actuary in August. This concludes my remark. I will now turn it over to Mike, who will comment on business growth. Following Mike, Jacques will provide more information about Q1 results and our capital strength. Mike?
Thank you. Thank you, Denis, and good morning, everyone. Sales were strong in Q1 for most business units, such as individual insurance in Canada and in the U.S., dealer services Canada, iA Auto and Home, and our group businesses. In light of macroeconomic conditions, we are pleased with wealth management sales results. Only U.S. dealer services business growth is below expectation as the environment continues to be challenging. Please refer to Slide 12 as I will comment more specifically for each business unit. Starting with our insurance Canada, Canadian business segment, individual insurance sales totaled CAD 89 million, which compares to a particularly strong quarter a year earlier. This year's result is 53% higher than the sales achieved in the first quarter of 2021.
This year's solid level of sales is mainly attributable to the strength of our distribution networks and the excellent performance of our digital tools. Our comprehensive range of products was also a key driver, as sales were notably strong for participating insurance term and living benefit products. The company continues to lead the Canadian market in terms of number of policies issued based on the latest industry data. Group insurance results, strong growth in sales combined with good retention of in-force business drove net premiums up 10% year-over-year to reach CAD 407 million. Sales in the employee plans divisions were nearly double compared to a year earlier and amounted to CAD 21 million. Sales for special markets totaled CAD 91 million, up 23% year-over-year.
In the dealer services division, sales amounted to CAD 143 million, up 19% from the same period in 2022. Good sales results were driven by P&C products up 31% year-over-year, a solid result given the current reduced affordability for consumers. As for our P&C affiliate, iA Auto and Home, direct written premiums were also strong with an 11% increase when compared to the same period last year. Turning to Slide 13 to the wealth management business segment. In retail businesses, although clients continue to favor cash equivalent products over funds, iA segregated fund sales were doing quite well as the company continues to rank first in Canada in gross and net segregated fund sales, solidifying our leading position in the industry.
More specifically, segregated fund gross sales totaled just over CAD 1 billion, and net sales resulted in inflows of CAD 368 million. Mutual fund results were unfavorably impacted by market volatility, resulting in gross sales totaling CAD 479 million and net outflows of CAD 88 million. Together, total net fund entries amounted to CAD 280 million in the first quarter, a very good result in the current context. For insured annuities and other savings products, first quarter sales reached an all-time high of CAD 716 million, tripling last year's results. We believe that many clients of these other savings products are likely to switch to our seg fund and mutual funds when markets become less volatile. Finally, sales of group savings and retirement amounted to CAD 787 million at Q1.
This represents a solid 26% increase year-over-year, mainly driven by a large transaction in accumulation products during the quarter. Going to S lide 14 for our U.S. operations business segment. Sales in the individual insurance division amounted to $42 million and were up 27% for the same period in 2022. The solid growth was driven by overall good performance in all of our niche target markets. In the dealer services division, first quarter sales amounted to $230 million compared to $243 million a year earlier. A decrease mainly attributable to reduced affordability resulting from higher financing costs for consumer and persisting inventory constraints, although the latter has begun to show signs of improvement.
In view of the impacts of the prevailing macroeconomic environment on the U.S. vehicle warranty industry in the short term, we expect very modest growth from this otherwise high potential growth business unit. In the meantime, we are currently reviewing our business operations to improve efficiency and to strengthen our fundamentals, such as new partnerships and enhancements to our systems for greater efficiency and client experience. This will position us well for rapid growth when market conditions improve. Overall, we are generally pleased with sales results for the beginning of 2023, with some areas of very strong growth and others showing resiliency. Now I'll turn it over to Jacques to comment on Q1 earnings and capital strength.
Thank you, Mike, and good morning, everyone. Today, we are pleased to report good results for our first disclosure under IFRS 9 and 17. The long-term vision and prudent approach with which we manage the company have resulted in a smooth transition to the next accounting standards and good performance in the first quarter. Starting with Slide 16, which present an overview of our profitability and financial strength for Q1 2023. Core earnings per share is 16% higher than the previous year IFRS 4 result, which is in line with our increased core EPS growth target for 2023. Net income of CAD 270 million is a quarterly record. This very good result was achieved from a strong insurance service result and a solid net investment result.
Moving to our solvency ratio, which at 149% is significantly higher following the transition to the new accounting standards, given the better recognition of our financial strength and to a lesser extent, ongoing organic capital generation. I also want to highlight our book value, which following a neutral impact at transition, increased by a meaningful 3% in the first quarter to reach CAD 60.69 at March 31st. Book value is an unbiased indication of value creation, and as such, it is an important component of iA's investor story to which we will continue to pay attention. Lastly, I want to comment on the value returned to our shareholders. During the first quarter, we deployed more than CAD 111 million to buy back shares.
We have announced today a significant 13% increase in our dividend to reflect our increased earning power under the new accounting regime. Turning to Slide 17. Let's dig a little into Q1 results through the new drivers of earnings. The core insurance service result increased by 11% year-over-year, supported by a similar solid increase in expected insurance earnings, which arise mainly from our strong business growth in the last 12 months. The core net investment result increased by 9% for the same period last year, driven by our investment portfolio optimization, which was completed during the first quarter of 2023, and the higher interest rate environment between the two quarters. Results from non-insurance activities were up 6% from very good performance of our wealth distribution affiliates, which was partly offset by soft results from U.S. dealer services.
Now, looking at Slide 18, which present the performance of our operating business segments. Starting with Insurance Canada, which recorded a very solid 17% year-over-year increase in core earnings, driven mainly by the favorable impact of our strong last 12-month business growth on expected insurance earnings and by the favorable experience for disability and home insurance during the quarter. As for mortality, higher claims experienced during the quarter were more than offset disability and home insurance favorable experience, contributing to a CAD 6 million net insurance experience loss for the segment. It is worth taking a moment to point out that the new accounting standard recognized mortality claims in P&L, while the corresponding reserve release are reflected in the CSM, where they generate a gain in Q1.
Moving to the wealth management segment, core earnings for the first quarter were 10% higher than a year earlier. This performance is essentially due to good results from the distribution affiliates, higher results from group saving, and a good growth in expected insurance earnings for seg funds. These are very good results given that the equity market levels are lower than a year ago. As for our U.S. operation, results in the individual insurance division were good. The results for non-insurance activities was lower than expected due to an unfavorable business mix and lower sales in the U.S. dealer service division. Results were also impacted by higher expenses, mainly attributable to digital investment to improve efficiency and client experience, as well as salary and benefits for employees.
Continuing on Slide 19 with the investment segment for which core earnings of CAD 108 million were 29% higher than a year earlier. This performance, which was achieved in spite of lower equity markets than a year ago, is the result of the investment portfolio optimization that occurred throughout 2022 and during the first quarter of 2023 and of higher interest rates. Our corporate segments report all expenses that are not allocated to other segments and they total CAD 47 million post-tax in Q1 compared to CAD 32 million a year before. The year-over-year increase is attributable to accelerated digital transformation, enhanced employee experience to support talent retention and regulatory compliance projects, including the transition to IFRS 17.
In addition to the strong core insurance service result and solid core net investment result, market-related impacts were favorable in the quarter, pushing net income to a record CAD 270 million. On slide 20, we chose our robust capital position following the transition to IFRS 9 and IFRS 17. At 149% at quarter end, our solvency ratio is well above our target of 120%. Organic capital generation continues to be strong as it amount to CAD 125 million during the quarter. Our financial leverage ratio, including post-tax CSM at March 31st, is very low at 14.7%. Our business model is enhanced with much more capital to support our growth strategy with CAD 1.8 billion of capital available for deployment.
Finally, Slide 31st present the progress of five important key, KPIs towards our medium-term targets, showing their favorable position after one quarter. To conclude, the results reported today confirm that under the new standards, our earnings power is increased, our capital position is better reflected, and the relative performance of our book value is solid. 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 Gabriel Dechaine with National Bank Financial. Please proceed.
Hey, good morning, yeah. Just wanted to start with the U.S. business and, you know, when I first saw the profit, the decline there, I thought it was, you know, mainly tied to the sales of warranties, but it looks more of an expense issue. You lay out some of the initiatives that you're spending on. I'm just wondering about the timeline of this level of expenses. Is it gonna persist for a while? Will it come back to a normal level or is this a new run rate?
Gabriel, Jacques speaking. Actually, we are transforming our client experience, dealer experience, employee experience. We are just starting. Actually, we did the integration last year, and by doing that we have made some analysis in which we need to develop those systems to provide those better experience that will support future growth. We're in that business for the long term. That's the way we see it.
Got it.
I would expect that it will last for at least 2 years, and I don't see that as being a run rate because at one point investment in technology will have to slow. However, t he thing that is tough to say today is if you recall last year, we discussed about the accounting of IT development. If you use cloud computing and all those kind of stuff that you can no longer match the expense with the revenue, that creates some noise. Bottom line, we will continue to have a level of expenses and invest for at least two year, but after that, the runway, it's a little bit tough to call, but I will say it will be lower than what you see as the total expenses today.
Maybe one thing, Gabriel, also I would like to add. It's Denis here. Hi Gabriel. The one thing that I would say is that we are obviously taking a closer look at our expenses in that particular business, considering the fact that, you know, the results are soft this quarter. More attention. We believe that there are opportunities, you know, to have some gains in certain areas of the operations. At the same time as we are investing significantly in technology to build for greater efficiency and greater client experience, we are also reviewing some of the operations to get some synergies.
Got it. Thanks. moving to the investment experience, you know, positive from interest rates and also positive from equity markets and real estate. I'm just wondering, I mean, I forget the numbers off the top of my head, like CAD 70 million combined. Were they all positive this quarter? because I see the real estate is, you know, doesn't seem like that would be a positive outcome, just on valuation and occupancy trends which are heading downward.
Hi, Gabriel. It's Alain Bergeron here.
Hey, Alain.
Your numbers are right. But you have to look at and think about this as a diversified portfolio if we focus on the, on the equity and investment properties. There are some headwind that our FIS portfolio is subject to, like in the sector in general. I think in the past, and you see that in the slides, there's many characteristics that shows that this is a fairly defensive or fairly high quality portfolio. That's number one. Number two, the exposures are fairly broad. You'll see, or you can, I don't think you can see from the disclosure, but on our private equity, on our infrastructure, we had very solid returns. Net-net, it shows the power of diversification and the quality of the assets that we have.
Okay. Excuse me. organic capital generation, is this more of a ramp up to the you know, 'cause CAD 125 million x 4 = CAD 500 million, so that would be shy of the full- year target, but are you expecting that to ramp up over the course of the year? I guess tying into that, given the comments I just heard about expenses and maybe some other headwinds, you still, you know, the 13%-18% EPS growth, you're still confident in that range this year?
I think I would take those two, Gabriel. Jacques speaking. The way I look at our results in Q1 there, I will on the return s-side, earning side, I will say three buckets. I split that in three bucket. Things that we strongly believe will continue during the year, things that are statistical fluctuation and a comment on expenses, be the third element. For thing that we expect to continue, there are two positive and one negative. Actually, disability experience that show through like the Canada insurance bucket will continue to be positive. We were expecting that the market concern will hurt us more, and now we're confident we will continue to have positive during the year. Affiliate distribution in Wealth will continue.
We will continue to do well above what we were expecting. In the U.S., we expect that what we have had in Q1 will continue throughout the year. Bottom line for those three buckets, it's a slight positive, and we expect that to continue. When I look at what I call statistical fluctuation, so experience, gain and loss, the one that we've been hit on during Q1 is mortality. Mortality, if we were under IFRS 4, we will have had the impact of CSM and P&L all in the same, in the earnings, and it would have been a slight positive, okay? Here, with the geography of that new standard, it just the impact on the claim that happened there, and it's a negative for us. It's a significant negative actually.
We had some small positive. For the moment, I see that completely as statistical fluctuation. We just increase, make a business change, according to our mortality study. This, I would expect it will reverse back during the year because I don't expect it's a trend that start on those different elements. On the expenses, we were expecting, and we told you so, at the investor event, that expense will be higher. During the quarter, there are a couple of things that are one-time element, and some of them, I would say, related to the huge stock performance during the quarter. There are element that we say probably CAD 5 million-CAD 7 million that it's just a question of timing. They will revert back in the future.
Two element that have been negative in the first quarter that I expect to be much better in the future. The permanent one, the slight positive, I expect it to be there. To answer your question, yes, w e still believe what we said at the investor event, so that 13%-18% to be the bottom. We said it would be more the low end of that range, so we still strongly believe in that. About the capital organic generation, Q1 is always a softer quarter than the other one, so we still believe in the CAD 600 million for sure.
Okay. That's the ramp up for capital. Anyway, I'll leave my questions there. Jacques, I'll wish you good luck in retirement, I guess, on the next call. I'll save it for then.
Yeah. Let's wait the next call.
Our next question comes from Meny Grauman with Scotiabank. Please proceed.
Hi, good afternoon. Just to continue on the discussion of the U.S. dealer services. It sounds like you're pointing to some improvement in the inventory picture, but still the overall outlook doesn't seem to be improving based on your previous comments. I'm just wondering what you see as sort of offsetting that inventory improvement. Is that just a comment on the rate environment, or is there something else going on? Is it also just a comment also on the elevated expense level continuing? Just wanted to clarify the outlook there.
I think at this time, I'll leave it to Mike to comment on the business.
Sure. Yeah, good morning, Meny. Yeah, the inventory situation, as you said, is improving a bit. It's not, we're not back to the old days or anything, but it is showing signs of improvement. You know, the offsetting issue or the, you know, thing that I'd say we're dealing with now is kind of an odd combination of a slowing economy in the U.S., higher interest rates and high car prices. You could just think of a financial equation going on there where, you know, someone's trying to buy a car and, you know, it's not happening all the time, but it's quite possible that the F&I product or the financing in the F&I product is getting squeezed out of the equation. That's, that's basically what's going on.
That's a, you know, a fairly material headwind that's hitting us. It's not just us, it's hitting the whole industry. You know, we've seen I guess some reports from industry sources that are commenting on this issue. The CEO of Lithia made a comment about F&I revenue being down in Q1 for them. It's an industry-wide issue. I to be honest, I've never seen it before. Usually, you know, when you're going into a slowdown or recession or whatever, you know, you get higher interest rates, you get the consumer being more worried. Usually car prices are quite reasonable during that period, and that's not what we have right now.
I think what's going to improve the situation, you know, what needs to happen, obviously inventory getting better will help. Something to watch for is factory incentives or OEM incentives. You know, they used to be very prevalent before COVID. They've kind of wound down to small numbers, you know, in the last three years. There's rumors that they're going to increase, but it's just early days on that issue.
That's great color. Then Go ahead.
No, I was gonna say that, you know, it's Denis here. The one thing that I would add is that we are getting prepared for a rebound. I mean, it might happen, you know, in wherever it happens, in two quarters or three quarters, whatever. I mean, there is a pent-up demand, and at some time there's gonna be more car being sold. I mean, there is certainly pressure right now. We are getting prepared. We are investing in the business. We believe in the business. You know, whenever the market reverse, we'll be in a very good position, based on our, you know, the platform that we are investing in and the products we have.
Got it. Maybe a related question. You were talking about sort of the investments you're making in that business, that two-year process. I was just trying to get a better sense of what you're trying to accomplish there, in terms of those tech investments. Is what's going on under the hood that the tech stack there is just not up to snuff, and so you're bringing it up? Or are you investing in more cutting-edge types of capabilities? If you could give us a little more sense of what exactly the investments are aimed at, what are they trying to achieve for the business?
Yeah, it's more, you know, cutting edge, you know, basically trying to be a leader in customer experience and service to dealer and all that kind of stuff with improved technology. That's where we're going with that.
Thank you.
Our next question comes from Scott Chan with Canaccord Genuity. Please proceed.
Yeah, thanks very much. going to the new business CSM, at your last update, you kind of targeted high- single-digit growth. When I look at this quarter, under IFRS 17, I see it at CAD 168 million. That was down 17% year-over-year. Just wondering what factors kinda drove that this quarter.
Hello, Scott. Jacques speaking. There's two element there actually, one on the life, on, in our insurance bucket and one in the wealth management. In the insurance bucket, we have to remember that we are comparing a very good sales quarter to an extraordinary sales quarter in 2022. That's why there's a decrease. normally we would expect to grow sales every year, but it was extraordinary the level of sale last year. That's what explain a part of it. The other part of the CSM growth that is lower is really has to do— Guys, this is one thing that I hate about CSM, is seg funds. If you sell seg fund, you will create CSM. However, nowadays, people move to cash equivalent and to GICs. They are not IFRS 17 product.
They are not the insurance product. They are investment product. There's no CSM created for that. However, we made very great business during the quarter there. Profit will flow. We have not created any CSM. This, I would say, growth that is not there is not really an issue. Unfortunately, we have to live with those kind of metric with that new regime.
Okay, got it. Last question, maybe it's a two-part question, maybe tying expenses. If I look at your consolidated core earnings, like the largest variance by far is total other expenses. That was up 26% year-over-year. Maybe kinda tie that in outside of the U.S. Then I also noticed your employees were up 4% quarter-over-quarter. I don't know if that's part of the digital transformation or something else in terms of any of the segments that you have.
Well, I'm not sure I understood your question, to be honest. Could you just repeat the question?
Yeah, no. Firstly, just your employees were up 4% quarter-by-quarter. I don't know if that's tied to digital. Then on your core earnings consolidated, your core expenses were up 26% year-over-year. It was a massive variance in terms of the absolute core earnings in the quarter. Just wanted to see if anything out of U.S. drove that?
Actually, Scott, Jacques speaking here. We mentioned it at the investor event that we are ramping up our transformation, not just in the U.S., but in some other divisions. A large part of that increase come from that. I will also mention, I mentioned it in my note earlier, that there's been some compliance project and investment in employee experience is also part of that. We've developed tremendous offices in Quebec City. We'll continue to deploy that great investment for our employee. However, on the financial result, it just costs a little bit more present compared to last year. Those are the reason that expenses are there. I made a comment earlier about a part of some expenses that will revert back, but the other one, they were expected.
It was part of our business plan.
Yeah. Maybe one thing I would add is the guidance incorporate that was already included the fact that we were to, let's say, speed up our investments in technology to support our business. It's not on top of the guidance. It, it's embedded in the guidance. We, we do believe in the 13%-18% more so on the low end right now. It, it certainly includes that.
Okay, that's helpful. Thanks.
Our next question comes from Tom MacKinnon with BMO Capital Markets. Please proceed.
Yeah, thanks very much, good afternoon. Just two questions. The first is with respect to your tax guidance. I think you talked about core taxes before being in the 21%-23% range. They were just about 24% in the quarter. Was there anything unusual in the quarter that moved that core tax rate up, and should we be still looking at the 21%-23% going forward? I have a follow-up. Thanks.
Tom , Jacques speaking. Yes, we continue to believe in the 21%- 23%. You know, it's, like in previous quarter, there's always with tax some situation in which in one quarter it will be higher, sometimes will be lower, so it's normal. We believe, the 21%- 23%, it's still the good, KPIs to keep in mind.
Right. The second question is with respect to the mark-to-market impacts. I know you did some portfolio optimization, and I think the bulk of that was done in the fourth quarter of 2022 and the first quarter of 2023. I think the part of the portfolio optimization was to make results a little bit more balanced under IFRS 17 and less volatile. Now, I appreciate that probably wasn't. I'm looking at some of the mark-to-market impacts that happened in 2022 versus the first quarter of 2023. Now, I assume the more stability. Are we seeing more stability to some extent in the first quarter of 2023 in that regard because of the impacts of that portfolio optimization and making that number less volatile? Am I correct in that assessment?
Tom, Jacques speaking. I would say you're correct in saying that nowadays we are very pleased with where we are, where we're standing, and we've provided a lot of sensitivity in our slide deck, so you can look at the sensitivity. We committed to have a strong asset liability matching. 2022, we mentioned it at the investor event. We have to forget about it. We had to deal with moving out of IFRS 4 while at the same time preparing for IFRS 17. We completed during Q1, so there's been some effect in Q1 as well. However, they've been put non-core. The best way to look at our position is really the different sensitivity we're providing. We are working our ALM within some limits, and that's where we will be. Hope I just answer what you're asking.
Yeah, that's good. Sorry, if I could just squeeze one in here as well. I think you talked about a 28 lift in the LICAT. That might have put it at around 156%. You had better reported number as well, but the LICAT's 149%. Is there any reason why it might be a little bit lower?
Actually, if you look on the slide, you see the math behind that. So the 28, it's 27.5%. So it's the 28 that is there. The transition was really what we said. We've deployed capital to NCIB. We deploy capital also with the pref share that we have not replaced. If you look at the organic capital generation Q1, like I answered Gabriel earlier, it's always softer. And you see the macroeconomic environment that costs a little bit this quarter and also the transaction. This is something that we will have to get used to. Like I said earlier, we will manage our asset liability matching within some limits, some threshold, and there will be transaction to rebalance.
Alain explained it very well during the investor event, that situation is fluid, and we will always do that. We expect that number of portfolio rebalancement , to be on average zero and to turn around zeo, but there will be some minus and some plus in the different quarters. This is really the way we look at the solvency ratio.
Okay, thanks.
Our next question comes from Doug Young with Desjardins Capital Markets. Please proceed.
Hi, good afternoon. Just looking on the set on page 20, this evolution of the CSM, there was a negative $18 million related to experience. I'm hoping, Jacques, maybe you can unpack that because I think there was negative lapse experience, but I think that was offset by, you know, positive longevity gains. If I'm correct, can you break down the numbers behind that and talk a bit about. I understand the longevity side, but if lapse was an issue, can you kind of talk about that?
Yeah, it's not longevity here. What happened on the CSM, it's there was mortality in insurance that the reserve release goes through the CSM. I said earlier that if we will have been under IFRS 4, our mortality experience for the quarter would have been positive, slightly positive. We had under this current regime, a loss in the P&L and the benefit in the reverse in the CSM. It has helped the CSM. What we have had during the quarter negative on the CSM growth for, I would say, the in-force, I already answered Scott about the new business. It's really the fact that for seg funds, we are expecting subsequent deposit. It's part of the model. Our assumption is based on pre-COVID long-term assumption.
What is happening today, people are not investing in seg fund, they are investing in other type of business. That, that has reduced, that has a negative impact on the CSM growth. Also we had some policyholder behavior, some lapses in life insurance. Here it's important to make a comment as well that it's different for us compared to the previous regime. We have to remember that CSM is the present value future profit of, on the business, i.e., was not front-ending profit under the previous regime. If I look at the lapse experience under the previous regime, we would have had a slight negative impact, a slight loss. Today, under the CSM, as you front-end all the future profit of that business, the number of amplified.
You have to remember that the amortization of the CSM will be over close to 30 years. This is what is happening. You look at CSM, but always remember the amortization period is very long.
Can you quantify, like, what the lapse kind of would have been? I may have to follow up and follow you a bit, but I think I got it, but I may have to follow up with that. can you quantify what the lapse hit would have been in the CSM?
You know, for me to understand the result, I did that math to be able to gain an understanding of the result. It would have been probably a $0.01 or $0.02 negative experience loss in the quarter if we were under the IFRS 4 regime. Nothing to worry about at this point.
Okay. Second, if I go to the drivers of earnings, you know, you know, there is an impact of new business, - CAD 14 million in the quarter, and maybe this is related to your comments about front-ending profits and whatnot. Can you talk a bit about, you know, what drove that -CAD 14 million ?
This is the onerous product you're referring to. It's part of the business. Most of that amount come from group insurance, where the business model is that you price a group or you renew a group, say, knowing that they will stay with you for five years. However, the accounting regime asks you to recognize 100% of the acquisition cost over one year. It creates, I would say, a kind of a loss in the first year and future, when you will renew, they will create positive CSM, so they will be in the CSM creation. It's all good. It's normal business. When you see that, our size actually of employee plan has been much bigger than last year. That's why you see a 14 greater than a 10. It's a good news actually.
This isn't you're writing a bunch of UL policies that are onerous and taking up front hit. This is kind of more related to the group side.
Yeah, actually, when you sell policy that are not on erous, you will create CSM.
Yeah.
You front-end the profit. It's not on that line, it's really in the CSM.
Okay. Just lastly, Jacques, you know, I think you've always given guidance moving forward. I didn't see guidance given this year and then, just wanted to kind of verify that. Usually you do it on a quarterly basis. And then, you know, seasonality under the old accounting regime, Q1 to Q4 was quite wide. Is there any reason to believe that seasonality from Q1 to Q4 changes materially under IFRS 17?
I will use the mortality as an example. Okay. If you look at the first quarter, we've been hitting the P&L as a good growth in the CSM. It kind of create noise compared to the previous regime. I would say that it's early to tell what kind of seasonality. I think the basic seasonality of businesses still remains, so the underlying fundamental will be there, but there would be some element triggered by the geography of that accounting regime.
Okay. Thank you.
Our next question comes from Paul Holden with CIBC World Markets. Please proceed.
Yeah, thank you. I wanna go back to the discussion on the U.S. operations, I guess particularly drill down on the core non-insurance income line. You know, big year-over-year decline is highlighted, and I think you mentioned mix playing one factor, and I'd like to understand that mix change a little bit better. Second factor you mentioned was lower dealer volumes, which we can see in your reported numbers. What I wanna understand there better is like how quickly do those lower volumes flow through the earnings? My understanding is earnings is more of an amortization function based on historical sales. It flows through slowly over time as sales grows. It looks like the impact this quarter is more than I would have expected under that convention.
Paul, thank you for the question. Actually, in the U.S., we have to remember that it's more service fee than anything else. The impact is directly affected actually. As soon as your sales are lower, you don't make— Because most of the administration you provide to the dealer on which you're making your profit, your margin happen when the sales happen. That's why the impact is almost immediate. If you look at on the insurance part, you're right that is amortized, but we reinsure 90% of the business is reinsured. This is really the mathematics behind.
Okay. Just the change in mix.
The change in mix is really— actually, I will let Mike answer that one.
Sorry, I was on hold or on mute, rather. Yeah, the change in mix relates to just a shift in our sales. Basically, writing more non-affiliate business and less affiliate. Affiliate is where we basically are administering the policies and insuring them, I guess. Non-affiliate, we're just the insurer only. The margins in dollar terms on non-affiliate is not as good as affiliate business, although it's very profitable business on its own.
I would add that, you know, we saw a fluctuation, a statistical fluctuation for the quarter. We don't see at this point that this is a, you know, a trend that is going to last forever.
Got it. That was gonna be my follow-up question is what is the outlook for affiliated versus unaffiliated? At least maybe when I understand that maybe there might have been some deviation in the quarter and long term it should return to normal. What about short term, right? Are the factors that impacted Q1 maybe also relevant for at least the remainder of 2023?
Yeah, I mean, I think we made a comment somewhere along the way there that the outlook is, you know, we're sort of taking the position the outlook is kind of soft and probably what we're seeing will continue for a quarter or two. I'm hopeful it'll return. I think, you know, just talking to industry people that, you know, inventory levels are improving and, if the OEMs provide some, let's say, improved incentives, I think sales could pick up. There's a lot of pent-up demand out there in my mind.
Okay, great. I see you've updated and changed your disclosures, I think, around the car loan portfolio. Just to get clarity, if we were to look at sort of the loss rate on the way you used to report it, I think if I understand your disclosures correctly, it would have been down quarter-over-quarter. Is that correct?
Yeah, I would say slightly down.
Okay. Okay, that's helpful. Then final question for me, ’cause I think I understand your messaging on expenses. Again, going back to if we were still under IFRS 4 accounting, I think your message is expense experience would have been close to neutral. Is that correct? You're saying expense growth is high, but it was expected to be high, so it's, you know, it's not impacting the guidance or the expected earnings. Is that correct?
I would say they will have been negative, expecting to reverse back because of a question of timing. We can say for the year, pretty close to expectation, but for the quarter, slightly negative.
Understood. That's, that's all the questions I had. Thank you.
Our next question comes from Lemar Persaud with Cormark Securities. Please proceed.
Thanks. Let me come back to the expenses. Jacques, would it seem reasonable that expenses, and I'm talking about a consolidated level, could be up 20%, versus 2022, full year 2023 versus 2022? Does that seem reasonable to you?
According to our business plan and the investment we're making in our digital transformation, yes.
Okay, thank you. I'm wondering if you could quantify the negative impact of the higher mortality claims in the Canadian insurance business and offsetting gain in the CSM. I'm really trying to understand both what the core earnings growth would have been in the Canadian insurance business and what the experience losses would have been at the CSM otherwise. That's, I think, negatively clean there.
Yeah. I just hope that I remember the number well, Lemar. I think it's CAD 13 million pre-tax on the P&L and CAD 15 million on the CSM. That's really what happened, what I don't recall if it's pre or after-tax. Sorry for that.
Okay. Okay, if you could circle back to me about the after the call, maybe IR, that'd be perfect. Now that we have that negative insurance experience, excluding the mortality benefit, what was that driven by?
Without mortality, it would have been positive because the net of insurance sector was -CAD 6 million . I just mentioned we have the CAD 13 million. I don't know if it's taxed, pre-tax. The other element on the sector was positive for iA Auto and Home and some small, other small items.
Okay, thanks. That's it for me.
Our next question comes from Darko Mihelic with RBC Capital Markets. Please proceed.
Hi. Thank you. Maybe my first question, just going back to the tax rate, Jacques. You don't have to answer now, but maybe it would be helpful for an idea of the tax rate per segment, because there's a lot of volatility in some of the segments. If you can come back to me, that would be very helpful for my modeling. My other question, though, really, is for Jacques and Alain, and it has to do with page 10 of your supplemental. This is the, or 11 in the PDF file. This would be the investment, core net investment result. Before I ask this question, I will say honestly that I have an idea of the answer, but I would like to just ask this for you on the record.
If Denis Ricard came to you, Jacques, and you, Alain, and said, "Give me a forecast for this segment," how would you go about doing it and what would the number be? 2023. Looking at—
It's a good question, Darko Mihelic, especially with the fact that under that regime, and we provided, and I believe you have the information, that slide deck, but at the investor event where we demonstrated that more businesses are affected by the economic environment. It means that next quarter core EPS are affected by the macroeconomic environment. That will be the first answer we'll tell Denis that, yes, we do our best with the ALM, et cetera, et cetera, but there are things that are not under our control that we have to live with. However, I would say that we are the margin, okay, the margin that you will see there is really the earning expectation on our asset portfolio over the rates, the yield curves used to value the different liabilities, plus investment on surplus.
This is what is there. It's not to market for asset, not to market for liabilities. Our expected, I would say you saw the growth that we have here. You see what is happening, and I think you can expect that it will grow at probably, I would say, 8%-10%, maybe a little bit more than that. It will grow with the business actually, because it's a spread over the asset and liability. Asset and liability are affected by economic environment.
Okay. Thank you very much for confirming that. Thank you.
Mr. Ricard, there are no further questions at this time. Please continue with your presentation or closing remarks.
Yeah, thank you. I guess, Jacques, since we announced your retirement, people are asking all the questions to you. They want to take advantage of you, right? Anyway, I'd like to thank you, all of you for attending this meeting. I'd like to thank also our employees who worked so hard on IFRS 17. It's been, I think, the highlight of this quarter and the highlight of the questions as well, because we all need to find some benchmark, and I guess it's gonna take a couple of quarters for sure. I guess I'd like to highlight a couple of things that are very important for us. The fact that we truly believe in our earning power and we've increased our dividend by 13% this quarter is a testimony of that.
The fact that we've increased the EPS by 16% versus last year IFRS 4, and we are still believing that we are confident that we can deliver on our, let's say, the low end of the 13%-18% that we provided is also, I think, a good testimony. Always keep in mind that the transition to IFRS 17 for us has been positive in terms of book value and also expectation of EPS going forward. Finally, the fact that our capital for deployment, we've said it so many times and now it's reality. We've got CAD 1.8 billion of capital to deploy, and we're very pleased with that. With that said, thanks a lot and see you next time. Bye.
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, everyone.