Pleasure.
Thank you for joining us today.
Thank you.
I'd love to start, Denis, just by getting your thoughts on this whole Canada-U.S. tariff dynamic. You've obviously been very forefront with investors on how you sort of see the macro impacting IAG and its long-term growth trajectory. But just the current tariff risk and specifically, what does it mean for iA?
Well, we do have operations in the U.S., but obviously we don't produce goods that are exported to the U.S. So we are shareholders of a U.S. company, so it doesn't really have a lot of impact, although the geopolitical environment or the macroeconomic environment could be affected. We just hope that things will settle at some point, but so far so good. It hasn't really had any impact for the organization.
What about the indirect impacts of just the macro side? Is anything concerning you on-
I am not. My view is really long-term, and I see that for the long term. I trust that the Canadian economy will survive, and they will thrive and will find ways. Truly, I am confident about the Carney government approach, diversifying in terms of going more outside of the U.S. going forward. That is probably the way to go, and I support the government on that.
Thanks for that. Maybe going into the numbers a little bit, just on individual insurance sales in Canada. I think we saw it flat year-over-year in Q2. When you think about the sales momentum that you have had and the top-line growth trends in this business, how do you sort of see that evolving over time?
I am very optimistic about the individual insurance in Canada, in particular. In the U.S. as well, but we will talk about Canada here. It is all about distribution at the end of the day. Canadians, on average, they are underprotected. People have a tendency to procrastinate in terms of their financial security, whether it is for retirement or for protection or insurance. So basically, you need someone like an advisor to help you realize what you really need to prepare for the future. So our strategy has been to really build distribution, build relationship with existing distribution as well. So we are present in the full spectrum of the distribution spectrum in Canada. For the most dedicated, loyal to the most, let us say, independent. That has been our strategy. As an example, in Quebec, we have about 3,000 career agents.
We've grown by +200 last year, 300 the previous year. We know that when we grow distribution, the next year we're going to have a natural growth in the business. I'm not concerned about any, let's say, short-term volatility. You'd always have some volatility in the numbers. I think midterm, long term, we are quite confident that we can grow that business. In fact, at the investor event last year, we already provided some guidance that that business would grow in between 5% and 8% CAGR over the next few years.
When you think about that gap, people in Canada potentially being underinsured, how big is the gap? I don't know if you can quantify it or not, or maybe a better question is, how has the gap changed over the years? Has it widened? Has it gotten a bit smaller?
We have a chronic issue in Canada. There's not enough advisors. LIMRA, which is a well-known organization in North America, is doing survey frequently. There's always about 50%. I'm rounding obviously here, but there's always about 50% of Canadians and U.S. citizens that are underprotected. There's a huge gap between the needs and what's going on.
Anything specific that iA is doing differently to address?
Yes. Building distributions. Recruiting. We are very active in recruiting in Canada, in particular. I told the example of the career system here.
Got it. Maybe switching over to the U.S. operations. Obviously, that's a business that seems to be not quite at its long-term potential right now. When you think about the progress that you're making to improve the returns and just the profitability profile, where are you? What stage are you at? When you think about medium to longer term, do you need to scale that business up? Is it more of a just refinement approach, pricing? What are some of the dynamics at play to get you to that?
I know you've been clear in the past on what you're writing today is a lot more profitable, but what else has to happen to get that business?
There are two businesses in the U.S., as you know. There's the individual insurance business, and there's the U.S. Dealer Services business. Let's talk about life, then I'll talk about Dealer business. On the life side, we started being active in the U.S. in 2010. We acquired an organization out of Texas, and two years ago, we acquired another one out of Chicago. We are very, very pleased. We had some hiccups in the first quarters of this year in terms of lapse in mortality. But when I look at the trend of that business over the last 16 years is, we've produced a 16% CAGR in terms of sales over that period. Also the profitability is over at our target, or we have 17%. I'm really pleased. We are in a niche business.
We try to be different in a sense that we try not to compete head-on against some of the big players in the industry. That has been our strategy in all our businesses. In the U.S., we are very active in the final expense business. Now we've just broadened the scope of the breadth of our products with the Vericity acquisition. On that part, really confident, and the numbers are pretty good. When I look at the Dealer business, more disappointing. As a CEO, I'm confident that we are doing the right thing to improve that business. I've already explained in the past, it's not good timing for the acquisition in May 2020. Some headwinds in terms of macroeconomic, like inflation, loss ratio. We did what we needed to do. Repricing was something. We made also some executive changes in that business.
Today when I look at it, we can see that there are some gradual improvement. It's not going to happen overnight, but I can see that we are doing the right thing to improve the situation. A headwind become a tailwind at some point.
Got it. Just on the individual side, you mentioned it's sort of a niche business for iA. What do you do differently? How do you sort of win in that game? I would imagine in pretty much every aspect, the U.S. market is generally a very competitive one. How do you get those solid returns in the individual side?
We focus mainly on the final expense business. There are not that many players in the U.S. that play in that space. To make profit in that business and to grow, it's all about managing distribution. It's easy to say, but it's a lot of work. In fact, the hiccup that we just had a couple of quarters ago, it was because of the distribution. There was something that we needed to fix in terms of managing distribution, and we have done it. But it's a constant obsession of managing distribution, the behavior of distribution, and having the quality of the business. It takes time, and some companies just exited that business over time because that's not easy to do.
Yeah, fair enough. On the seg fund business, I know you are a clear leader in the Canadian market. Can you talk about how you win market share? I know you will definitely tell us how great the distribution capacity growth has been, and that is probably a big part of it, but what else does iA do that is differentiated?
Yeah
Whether it is product diversification. There has got to be more to it than just the distribution side.
Yeah, it is more than distribution. I invite you, if you have not already done it in the past, to look at our investor event that we did last year, where we go in details of explaining what we call The iA Way, and The iA Way is made of a few components. Distribution is one of them. I would like to talk about distribution just a moment. It is not only about getting relationship, it is most importantly providing, and the word is important here, consistency. Consistency of service, consistency of product, consistency of great technological tools. If you can do that over time, you build trust with the distribution. It takes time to do. You can lose it quickly if you do not. That is why the word consistency is important. I have seen it in my career, organization that did not provide consistent, and they did suffer.
Distribution is very important. Technology. We have built in The iA Way that I was talking about, technology that supports the mass market. So very easy-to-do type of technological tools. We invested to serve the mass market in particular, where we are very, very active. Obviously, the products is also something that is important.
When you think about your Wealth distribution platform, the advice to customers, to consumers, some people view AI as a bit of a risk in terms of disruption potential. Where do you see that risk, and how do you offset that potential risk
Well-
in your platform?
I must admit that my people, I talk to them frequently. They see much more opportunities than risk. There is always risk
Maybe talk about both components if you could.
Yeah. Okay.
Yeah.
Well, in terms of the opportunities, first, I would say that we have built already some tools that really ease the work of our distribution. Again, it's investing at the right place. We cannot afford to spend billions of dollars in technology, but we can afford to spend hundreds of millions, and we target tools that make it very, very easy for the advisor. As an example, something that would take an hour for making an order in terms of having an investment in a fund, would take few minutes now, with the compliance being done automatically using the AI tools. An advisor can very easily see an order, and it will be done very quickly using an AI tools. We've already started implementing it with great success, I must admit.
In terms of the risk, to me, as far as I'm concerned, there's always risk in new technological tools. Always, all the time. You might think that there's going to be disruption in the industry, but we are in a heavy regulated industry, and we have to make sure that we do things in the right pace, and making sure that we respect the regulatory constraint that we have in our industry. To some extent, it leaves some time for us to adjust, and I see that as an advantage versus other industries.
Great. Thanks for that color. Just in terms of AI more broadly for the organization, where is it helping you the most right now? I'm sure you'll probably point to productivity gains, but any specific examples you can give us on how you're utilizing it to make your company more efficient?
I see every day employees being more productive. I see it every day. You are right. Some processes, we have implemented some AI components to it. We do it. It is interesting also because you have to be smart in the way you do it. 12 months ago, we never heard about token cost. Now there is a lot about token cost. You have to do it the right way and at the right place as well. To me, we are moving also from just productivity to some revenue generating, like the example I gave. It is something that I do not think it is going to be a revolution. I think it is an evolution. I have seen in my career a lot of technology changes, and this one might be a bit bigger than the others, but, I think we are doing the right thing right now.
Does your smaller size versus some of your larger peers in Canada inhibit you on AI potential, whether it is on the cost side or?
I have been asked that question for, and my predecessor as well, for years, and it did not prevented us to outperform our peers.
Okay. Maybe switching over to the core ROE target. 17+% this year. On a trailing four-quarter basis, you are just shy of 16%. Just wondering, obviously there are nuances every quarter. You could have some positive experience that sort of boosts that number to well above 17%. We have seen that in recent quarters. How do you sort of see the upside when you think about 2027? I know you have been clear in the past, it is don't just look at the 17%, it is 17%+ .
There is a plus, right?
But I'd love to ask about the plus, because I think investors are starting to ask more and more about as you sort of gravitate to a higher sustainable ROE, can you sort of push that? How big is that plus, I guess, is what I'm asking.
That's an interesting point. I listened to Dave McKay answer once at, I think it was in a conference call, and he was saying something like, "You know what? We could do a 25% ROE business if we don't reinvest in technology, if we don't acquire organization," et cetera. And I feel the same. If we only buy back stocks, we could easily increase ROE. But we are a growth company. We want to reinvest in the business. We want to look at opportunities to grow. And there are some acquisitions that are at first dilutive on the ROE to some extent. You won't get necessarily an ROE of 17% the first year you buy an organization, like a growth organization.
So I would rather have an organization that has a 17%+ ROE, let's say 18%, 19%, whatever ish number like that grows significantly than a 25% ROE business that is just stagnating. So that's the way we look at it. So that's why we are prudent not to increase the target ROE too much too quick. But obviously, I am confident that we can deliver on that plus.
And then as you move toward that plus, when you think about which business lines would drive it more than others, what are you most excited about in terms of that upside?
All our businesses, marginally speaking, when we grow, they are improving the plus. The market is, I've never seen that in my career to some extent, but very disciplined in many, many areas, so that when I look at the profitability of new business, it makes me very confident on the plus.
Anything specific that you're more excited about than others? You sound confident on everything, but there's got to be something that you're-
I would say that-
maybe more
I'm confident for all of our business, maybe with the exception in the short term for the U.S. Dealer business, where there are some fixings to be done. We're working on the right thing. We're doing the right move right now. But I still want to wait until we go, let's say, more aggressive on building, let's say, inorganically that business. So we're concentrating on growing organically the U.S. Dealer business up to a point where I'll be satisfied of the profitability. The other businesses, I tell the leader of my sectors, "There's no limit, right, guys? Okay? We've got the capital. We are generating a lot of excess capital." I don't want just to buy back stocks.
Yeah. I know you're very proud of the book value per share growth, the performance over time, iA versus others has been pretty positive outcome. Maybe dovetailing into buybacks, but you are active on the buyback and you've got a pretty sizable one. How do you sort of counterbalance between book value growth and.
There are many parameters that determine the level of buyback that we do. The stock price is one of them, obviously. But as I said, that's not our first choice. I don't really like buying back stocks in a sense that we want to grow, and we have opportunities to grow. But at the end of the day, we've been more active, as you said, recently, and it's a balancing act. I don't know exactly how much buyback we're going to do over the next year. It depends on a lot of things. It depends on the potential of acquisition. It depends on what we see coming in terms of growth, organic growth, inorganic growth. It depends on the stock price. Geopolitical environment, the level of capital that we want to have as a buffer. So there's a lot of component that play into that. But we have the flexibility.
That's the key issue.
Okay. Got it. So the 8% is just to be flexible. You've got the capacity, and you can kind of tether that to what you see as-
It's not a promise. We don't promise a level of buyback.
Okay. Fair enough. Maybe on the U.S. business or just maybe geographically, when you think about Canada, U.S. focus, U.S. being secondary obviously, what about beyond North America. Does that-
I wish I could-
Will that make sense at some point, or?
I wish we could conquer the world, you know? It's interesting because like I said before, we started in the U.S. in 2010, be serious, by acquiring an organization. But in fact, you don't know that five years prior to that we made the decision to look at the U.S. So it took five years from the moment we decided to look at the U.S. to be serious and invest in the U.S. So I think the answer to your question is yes. We will, and there's no hurry here, but we will start looking at maybe another geography. Maybe it could be South America, could be Europe, whatever. But there is some research to be done.
I might not be there when we start because it's going to take, I don't know, five, seven years for us to be serious and invest in a different continent or different geographic space. But I'm starting to think about that right now.
Okay. That's interesting. I think that's a bit of a new angle, which I don't recall has been discussed before publicly. I'm curious, when you think about the Dealer Services business, I think you mentioned earlier that the timing wasn't as positive as it could have been. How does that sort of guide you on looking at new markets? You're coming into a new market, you're sort of a new entrant. You have to find maybe a niche business where you could do things a bit differently. It doesn't seem like it's the easiest thing to do. How does the U.S. experience guide you on that?
No, it's a great point because when we decided to go into the U.S., there's always a level of risk that you want to take or you don't want to take. Because when you go in a new geography, there's the legal risk, different tax risk. There's many, many different risks. You don't want to get into a new country with a business you don't know because you add to the already existing risks. So when we went into the U.S. at the time, it was in the life insurance business. We knew that business. So Dealer business, we knew that business, and so we didn't have too much risk in the whole scheme of iA. So if we go to a third geography at some point, we probably will try to take advantage of some of the strength of this organization.
For example, the mass market, individual insurance in the mass market. We have the technology, we have the processes to be able to handle hundreds of thousands of insurance policies issued per year. We did 250,000 last year in Canada, 300,000 last year in the U.S. We have all the processes and the systems to be able to do that. So it might be one area. I'm not saying this is what we're going to do, but to your point, I think you're totally right. We would go in a different geography, but with an already existing strength.
Okay. Fair enough. Thanks for that color. Just wanted to go back to the Wealth business. I know last quarter there was a lot of commentary on the business is structurally stronger. It wasn't just equity markets being strong. The business is structurally better, stronger. Outside of the disclosed sensitivities, I'm trying to get a sense of when you say structurally stronger, does that make it more resilient? Is it more resilient when the markets maybe turn? Because I get the sensitivity dynamic, but that's just sort of theoretical. But are you now sitting on a stronger Wealth business structurally, which means that it's maybe a bit more resilient to the downside if markets do turn?
We have a very strategic position in the industry that will make us more resilient going forward. Now with that said, if the stock market for any reason tanked, we are affected. We have the sensitivity to
Yeah
as you said. But over the long term, we know that the market should be positive over the long term. So we have a long-term view of that. Because we are number one on the seg fund business and we have a strong distribution network that supports that, because we are number one in the non-bank, independent wealth space, we believe that it helps us going through difficult times. We see it, for example, on the Wealth Management distribution side, where our recruiting efforts are very, very good. Adding RF Capital has just been very helpful in recruiting even more advisors. So if for any reason the market is not going the right direction, at least we have a lot of net positive coming in the book that will obviously offset some of these, let's say, unfavorable market conditions.
Okay. I am glad you mentioned RF Capital. I think initially the expectation was very modest EPS accretion in year one. Maybe just update investors. Is there a pathway to getting something a lot more meaningful
Yeah
longer term?
So far? It's
Well, I mean so far and then sort of are you more confident now versus when you first purchased it? I know the attrition has been very low. You've had a lot of good retention there. Are you more confident that maybe there's a pathway to more accretion?
Yeah. I was going to say so far it's been fantastic.
Oh, yes. Okay.
Fantastic.
Yeah.
Okay. Much better. We had said when we bought RF Capital that we will be accretive in the second year by CAD 0.15 a share.
Yeah.
Because the market has been favorable and because the retention has been much better than what we had put in the purchase model, we can see that we have pulled forward a year in advance the CAD 0.15 accretion on that deal. The team is doing a fantastic job. It is doing very well. We already are starting to see the benefit of being able to attract advisors from a different market that was not available to us in the past. For example, it was difficult for an advisor coming from, let us say, a big bank in Canada to move from their model to the iA model, where there is a huge difference. Huge. With the RF Capital, without going into the details, it is kind of halfway between the bank model and the iA traditional model.
Now some of the most independent of the advisors within the bank system that do not want to have constraints like proprietary products, they want a full flexibility of the open architecture, they can come to us, and the step is not as huge as it used to be. We already see some benefit because we have been able to recruit, and we announced it, that we recruited some of the significant advisors.
That is an interesting point you mentioned, just on that difference between bank model versus the iA model. Anything else you can elaborate on other than the flexibility? What else makes it, in your mind, for a lot of advisors, a more preferable destination?
Well, I will talk about the traditional model of iA and the banking, and then you can think about the halfway after that. In the banking model, you have a certain payout, but if you go to the most independent one, you have a much higher payout, first of all. So you are an advisor, you get more money out of your activities. But you have to pay for everything. You pay for if you need any research, for where your office. Everything. You pay for everything. The Richardson model is kind of halfway in between that. The step from moving from one to the other is not as big. So that is your point.
Okay. Do you see the industry trending toward the iA? What is the preference of the advisor?
It depends on the preference of the advisor, as you say. Some advisors at some point might want to have something that has more freedom, more entrepreneur to some extent. So we can house them in our platform. I say platform because the Richardson advisors, when they saw our platform, it is one of the reason why they decided to stay. We have a very small attrition. One of the reason is that they were quite impressed by our platform.
Okay. Keeping that attrition low, has that come with sizable, maybe retention payouts, or is it really just the platform, or have you had to entice these advisors?
It's a whole idea. Obviously, when you buy an organization like that, there is a kind of retention bonus that needs to be part of this whole equation. It's all taken care of when we price the acquisition. The idea is that you want to make sure that you have time to basically prove your value to the distribution. So far, so good.
Okay. Thanks for that. Then just on your excess capital, obviously you sit at a lower leverage than your peers. I know there's the Quebec regulator dynamic that the others maybe don't face. Can you talk about that a little bit, just in terms of your ability to lever, to the extent that you can? Anything on the leverage aspect, then I'm trying to sort of tie this into your appetite for potentially larger M&A, because you've got a lot of capital generation-
Yeah
that's coming in, and investors are asking, "What do you do with it?" It's not just buybacks, but there's potentially more to do.
Yeah. Our leverage ratio is lower because of some of the regulatory constraint that is consistent with the type of business we have. I don't want to go into too many details there, but it's a constant, I would say, not concern, but in my team, optimization of capital is very important. So we have, sorry, we have objectives of optimizing even more our capital, so that our leverage ratio could go higher than the current 17%-ish that we have. So you can imagine that in the future, we should be able to increase it to a level that will be more consistent with our peers. That's our goal long-term.
Okay, so you are moving in that direction. Okay, perfect. That was my last question. I would love to turn it back to you, Denis, to tell us about The iA Way and what investors should take away from your-
Yeah. When I meet an investor, what I like to say is that, as much as we compete against other players in the industry, we try to differentiate ourselves in the market that we play and give you something. We try to also be the leaders in the market we play. Just one example because we don't have that much time, but Individual Insurance in Canada, one out of four Individual Insurance policy is being sold to iA. We are number one by far in number of policies sold, and the reason is that we concentrate on a market where we believe that we can make more out of it in terms of profitability, in terms of penetration in the market. So that's a great example. Seg fund is the same.
We try not to compete head-on against the big guys, because for us it's a recipe for success in terms of profitability. The product mix, the business mix, the way that we are diversified geographically is also testimony of that.
Awesome. Well, thank you very much for your time, Denis. Thank you for your insights. Pleasure to have you here, and thanks for joining us today.
Great. Thank you.
Thanks. Thank you. That was good.