All right. Sounds like we are ready to get started with our next presentation. It is my pleasure to host Denis Ricard, President and CEO of iA Financial. Denis, thank you for taking the time.
It is a great pleasure to be with you, Paul.
Joining us today. As I was preparing for this session, I was thinking back. I was like, "How long has Denis been CEO now?" I do not mean that in a bad way, because it felt like it has gone quickly, right? Then I look at the data, and I kind of understand why it has gone by fast, because they say time goes by quickly when you have a good time. These are some of the data I dug up. It is eight years now as CEO. Track record to 2025, core EPS CAGR, 13%, so above target. Book value per share, 8%, I think best out of the life cos. ROE has increased from 12% to 17.5%. So a lot of ROE expansion. Most important one to, I think, most of the people in the room, share price, 19% CAGR, not including dividends.
Excellent track record.
Well, I-
Sorry.
No, go ahead.
I was just going to. Yeah, because I got a joke at the end of that.
Oh, you have a joke? Okay.
That only leads to one question. How many more years are you going to be CEO?
Oh, okay. That is the question. But before I answer that, because I will not answer that. When I took over as the CEO, I took a picture of the stock price at the time. I still have it, CAD 49.75. Now it is CAD 210 +.
Yeah.
Great achievement from-
Good
all my team at iA Financial Group, so we are very pleased. Does that answer your question? Usually what I say is five years. Okay? It is same answer as last year-
Rolling five years
and the previous year.
Rolling five years. Okay. Anyways, with that, we'll get into some of the real questions. Your 17% ROE has been achieved earlier than expected, which again, is obviously a positive. As I think about that ROE being achieved now, I think about the trade-off between do you continue to push on higher ROE or have you reached a point where, okay, ROE is at a very good level and now maybe it's a little bit more about driving the EPS growth. How are you thinking about that?
Yeah. Well, the way I look at it right now is that we've got a lot of flexibility in our capital. We have excess capital to deploy of CAD 1.1 billion, and we're generating CAD 700 million a year. I see that we've already achieved a 17% +, so we are on the plus side right now. And we have plenty of flexibility to, I would say, to improve it going forward. Now, even on capital deployment, whether it's buyback or acquisition, there is a potential to improve it. Notwithstanding the fact that our operations are performing very well. U.S. is a bit under our expectation going forward in the long term, but I would say that our businesses in general are going very well. And we have a strategy that is really paying off right now. So very confident about that 17% + going forward.
Okay. If I was to ask you on the EPS growth, given your target, what gives you the most confidence or why should we have confidence that 10% + EPS growth can continue?
Yeah. When you look at the EPS growth, Okay, we are going to look forward obviously, but when you look over the past, we have achieved that. We have achieved that, and if I look at, let us say over the last five, six years, we have been above that 10%. So when you combine our current operations profitability, which are doing very well, plus the fact that we have excess capital to deploy, I feel even more confident today than ever before. Actually, the Canadian market in terms of the life co space has never been as disciplined in my whole career. I have seen a lot of things going on, but it has never been as, I would say, disciplined as it is right now. So all those element combined makes me very positive about the EPS growth going forward.
Good. Since we are on the topic of EPS, something that is really topical in the space is the quality of earnings, right? So people like, well, I do, I compare core EPS versus reported.
Yep.
It has been a little bit more of a persistent gap, I would say, between reported and core than I might have expected since IFRS 17 came into force. It is not just iA, but for the entire group. How are you thinking about earnings quality? How should we be looking at it? How are you looking at it?
This is a very important point for investors. Three things I would say. The first one is about the metric that is, to me, the most important one for an organization like a life co because we are a long-term business. We do contracts for the very long term, insurance contracts in particular. Book value growth, to me, is the most important indicator in the long term. iA has produced a book value growth, including dividends that we pay to shareholders, of more than 10%. It was 11% historically. This is the most important because it encompasses all the elements in between the core and the reported. Okay. It is clean. If you look at the core earnings versus reported, if you look at iA, since IFRS 17 implementation, cumulatively speaking, the core earning has been 85% of the reported earnings. Not that bad.
You should expect a bit lower because of the amortization of the intangibles. If I look at the most volatile elements, which are the mark-to-market assets, cumulatively speaking, since IFRS 17, we are at 99%. It means that we have had positive and negative because IFRS 17 has brought some volatility in the results. When you think about it means that over that period, still a short period since 2022, but it means that the underlying assumptions of the core earnings are credible. I invite you to compare with all the other organizations. None of them are at that level, 99%. That is the way I look at it. Those are the numbers you should look at.
The quality of the actual assumptions matters a lot for sure.
Yeah.
Good.
Absolutely.
Let us talk about the wealth management business.
Yeah.
Because that's been an area of excellence, I would say, for iA. Great growth story. It now contributes close to half of total earnings for iA. I would say there's pros and cons to that, right? It's a capital light business, it's high ROE, but then also it's a little bit more market dependent, so it can fluctuate a bit. How are you thinking about the right balance there? Obviously, it's something you want to continue to execute on because you're doing well. How do you think about the right balance in terms of the earnings mix?
Well, I don't mind growing that business even more. We are leaders in two areas in that space when we look at the wealth management business profitability. Both in the seg funds space, we are number one. We've been number one since 2015, in various KPIs, gross sales, net sales, now assets under management. So we don't mind in the markets we serve to be number one and continuing increasing it significantly. CAD 2.5 billion net sales over the first six months of this year. Amazing results. Very pleased with that. And then the distribution. The other segment is the distribution of either mutual fund, full service broker, where we are number one in the non-bank space. With the RF Capital acquisition, now we are covering a space where we can attract even more, recruit even more brokers. So, I don't mind. Over the long term, that business will grow.
The market will help that business grow. We've been very successful in recruiting advisors and also building the business up. So to me, I've never said to my people, we should limit ourselves here. In fact, I'm saying to the other line of business, "Oh, look at these guys, how fast they grow. Why don't you grow that fast?
Talking about one of the growth levers, and you mentioned it was the seg funds sales.
Yeah.
Been very strong for quite a number of years now and only getting stronger. What is driving that is the first part of the question. The second part, I know I hear it, is people get worried about increasing competition because I think some of your competitors have made noise about getting more active and more competitive in seg funds again.
Yeah. I would say that there is more noise than actual consequences, I would say. We haven't seen any impact of those noise. The one thing that is important to understand in the Canadian market is that it is an expandable market. We know that half of the Canadians are underprotected or under-prepared for their retirement.
So, if anyone wants to get into the business of offering seg fund to the population, that is fine. There are areas for them, there are room for them. So that is the first thing. The second thing is about the recipe of success of iA. If you have not done that, I invite you to look at our investor event of last year. It was in February 2025, where we explain our business model, which is what we call The iA Way, made of five components.
It very well explained how these five components reinforce each other. Being in the right target market. We are in the mass market. Okay, I am simplifying here, but we are the most mass market players in the industry. Our average account is quite small. So we like to sell a lot of contracts, but even if they are small, it complements the life insurance space.
Those are the same life insurance licensed people that sell both life insurance and seg funds. So target markets, technology, very simple because when you sell tons of contracts, you need to have processes and technology that is really, really easy. The products is great also as well. We have designed the product, I would say, over the years to be probably on average, less risky than the industry.
I am very pleased of all these elements that reinforce each other and that help grow the business. The last one I would mention is distribution. Because if there is one strength of this organization, it is all the relationship that we have built over the years from the most dedicated type of distribution, like career system, to the most independent one. By the way, we own one of them, which is PPI. So we have been very good at building those relationship, which takes time. I will finish with this. The key to success in distribution is the consistency. Consistency of delivering good product, service, technology.
I want to ask you a question on the RF acquisition as well. It's been coming in ahead of expectations, good earnings growth for the first three quarters, I think you've owned it now, give or take, or two and a bit. What's driving the success there, and what's the path forward to drive even higher earnings growth out of that franchise?
Everything was perfect in this acquisition. I think it's going to be an example of the top three best acquisition we've made ever. The execution of the plan that we had when we bought the organization has been fantastic. Retention was the biggest risk, and we've basically had much better retention than we expected. Because when you price an acquisition, you have some assumptions about retention. The actual result's been much better. That's one. Second, the market has been very favorable. That was a good thing, that was a tailwind. Those two together made us mention to the market that we will be accretive in the first year as opposed to the second year. Since then, obviously, our efforts have started on the recruiting side, because you're talking about looking forward. The key for us is to grow with recruiting.
When we bought the organization, we were at about CAD 40 billion of asset. We're at around CAD 47-ish billion these days. We aim for CAD 50 billion next year. We already have had some success in recruiting brokers. We will continue on that path.
Okay. How do we think about, more broadly, the wealth franchise and strategic priorities, including potential capital deployment? Is there more to do there in terms of potential acquisitions?
You mean on the wealth management space?
Yes.
Yes, absolutely. Obviously, we have our list of targets. Like I said, we would be prepared to grow at reasonable price, obviously. We have a reputation of being disciplined in the market in terms of price we pay. So, absolutely. I would like to grow organically first, but by acquisition, certainly.
Are there any capability product gaps that currently you think about where maybe an acquisition might be required to fill that gap?
I would say that we have covered one of the gap that we had with the RF acquisition. Because 90% of the market is being controlled by the banks. There is a model for full service brokers on the banking side, and our model is the most independent advisors in the market. There was a huge gap in between the bank advisory model and our model. We have been very successful where we were. This is our value proposition, okay?
Okay.
The gap was that it is a huge step when you want to attract an advisor that, let's say, is on the banking side coming to our system or our model. There was a huge gap. With the RF Capital deal, that gap is kind of in between. So it is easier to attract the full spectrum of advisors in other organization now.
Okay. Because that was kind of my next question I was going to ask, sorry, is to what extent do you use that wealth channel or channels, not just RF, but all your channels to sell iA product?
Other products?
Whether it is your seg funds products, your life insurance products, to what extent can you lean into that distribution that you own?
Not enough. I must admit, not enough. We should do a better job of, I would say, cross-selling. We are starting to, I would say, to put in place processes that would help us going there. But so far, the results are not up to my expectation. But this is something that we have on our plan.
Okay. Let us switch gears, talk about the Canadian insurance business, specifically the individual insurance business. You have had great sales success over time. I think more recently, sales growth has slowed somewhat in particular products. What is kind of driving the slowdown, and where can iA regain momentum?
Okay. On the individual insurance space, last year when our investor event, we said that over the, let us say, midterm, long term, we should expect a growth of between 5% and 8% in that business. It does not mean that it is going to be like that every year. There are some circumstances like this year. Sorry. There were some, I would say, some concept that we decided to be less present in the market because we thought they would be more risky in terms of the behavior of some advisors. So that may be why in those quarters there has been a bit of a slowdown. But I see that as nothing secular, let us call it that way. We still are confident that we can grow that business by between 5% and 8% going forward.
Okay. Part of the Investor Day presentation, you emphasized moving from strength in the mass market towards leadership and mid-market. How is that strategy progressing, and are there capabilities that still need to be built there?
Yeah. We are in the mass market, as you know, and the best proof of that is that in the individual insurance space, one out of four insurance policies is being sold by iA in Canada. So that's around 25% market share. Second is at 10%. This is in the number of policies. We realize that for us, it would be not too difficult to move up to the mid-market, higher face amount, higher premium per policy. So for us, it's to make sure that we have the right products in that space, the right presence in the right distribution channel. We are adding efforts, for example, in national accounts to have more presence and using our PAR product because we have a PAR product that is competitive with the others. It's just that we were not present.
We didn't have any salespeople in that space because you have to realize that years ago, in the national account space, before the PAR product came in, it was very difficult to make a good ROE in that space. It was very, I would say, competitive. It was like long-term guarantee product. It was all based on price. Whereas for PAR product, there is a kind of a good, I would say, balance between sharing the risk between the clients and the company. So it's less risky for the organization to do that.
Okay. We talked a little bit earlier about the importance of actuarial assumptions, and if I look at the last three quarters, more volatility than we've become accustomed to with iA in terms of insurance experience. It hasn't been the same reasons from quarter to quarter. It feels like there've been some different reasons. But is there anything that's changed in the business that's resulting in this additional volatility in insurance experience? Is it just, I don't know, bad luck as we sometimes like to say? What has been driving it, and what should we be expecting going forward?
What is important to me in the long term is really the, over a year by year, is there an experience gains or not? If you have a positive experience gain, it means that your balance sheet, like your liabilities, it is a sign that it is well reserved for. That is the way it works. If you always have negative experience, it means that you might not have enough cushion in your reserve.
When I look at, let us say, the last two years, we had a very significant experience gains for various reasons. We have had very great experience in mortality, great experience from the iA Auto and Home business. For the last two quarters, when I look at it all in, we are about even. I think we have CAD 1 million of experience gain. It is just different reasons. I do not see that as a trend at all, okay?
I am still confident that we aim for a reasonable experience gain over the years. Probably the last two years have been quite good, okay? I think you should expect over the long term to have an experience gain year after year because we have been prudent over the years in terms of reserving. We are that kind of company that reserve prudently so that you should expect some kind of experience gain over time.
Okay. I am going to pause, see if there is any questions from the audience. Give the audience a chance. No? Okay. We have not talked about the U.S. at all. I think we have enough time to talk about the U.S. U.S. earnings have declined, and insurance experience there has been negative, I think it is for three consecutive quarters. What is cyclical there? Is there anything that is execution-related, and is there anything that requires structural change?
We have two businesses in the U.S. First of all, I should say that, I am not satisfied of the last two quarters in the U.S. We have two businesses, and I will tell you the reason why I am not satisfied. We have two businesses. We have the life business, which when I look at the history of that business, I am very pleased. Really, really pleased. Business we started in 2010, CAGR of 16% over the years, ROE above our target range. The last two quarters for one quarter was just luck because we had a number of significant claim for mortality. It is just like volatility. We should not expect that in the long term. The other quarter was more on the lapse rate.
On the lapse rate, what we realized, and it is just managing distribution, is that one of our distributor, for some reason, recruited much more advisors. The experience in terms of lapse for new advisors in the industry in the first years is not as favorable. So the managing distribution has been unfavorable in this quarter. This is not a secular trend. It is just that quarter was pretty bad. So two quarters in a row have been disappointing on the insurance side. But when I look at the previous 15 years, it has been fantastic. So to me, individual insurance in the U.S. is not a concern to me. The U.S. dealer business is a bit more difficult. I would say that there are some headwind in the market. The sales of cars, inflation.
Also we have renewed our sales team recently, and we have repriced some of the- Because of the inflation, we repriced some of the Extended Warranty products. So it takes a time before this has impact. That is why I have been saying for many quarters that the improvement will be gradual. So on that space, I am satisfied of the actions we took. I am not satisfied of the results we have, but I know that it is going to improve, so I am satisfied that the trend is positive.
Okay. Vericity was acquired partly for its distribution capabilities. Digital distribution capabilities.
Yes.
What can you talk about there in terms of what is working? What is the evidence in terms of that distribution channel is working already? What more is to come?
It's working well. We are on plan with Vericity, basically. On that specific front, what I'm really pleased is that the business we had before Vericity, which was from Waco, American-Amicable, and the business from the Chicago business of Vericity, now they're working together as one. We are in a situation where the distribution from Vericity, the eFinancial, which is the distributor. Because in Vericity, you've got eFinancial, the distributor, and you have Fidelity Life, which is a manufacturer. On the distribution side, eFinancial now, sales are great. Now they're selling the final expense product from the Waco business and vice versa. Fidelity is selling the business. We are in a position right now where we do have synergies in between the businesses, and things are going well. We have a center of excellence now.
There are synergies that we can get from the business on top of the ones that we knew that we would make, like reinsurance, recapture, and things like that. It's going to plan right now with Vericity.
Okay. You sound quite confident in the outlook for the U.S. life business in particular.
Yes.
We know you have a lot of excess capital, and I think you've talked about U.S. as a potential destination for acquisition. Tell us a little bit more about what you're thinking there in terms of capital deployment into the U.S.
Yeah. Well, two years ago, if you'd asked me the question, where do you think the next acquisition would be? I would probably answer something like, "Well, most likely in the U.S.," because there are more opportunities now. What happened last year is that we bought a company in Canada, a significant one, which is RF Capital. My message is really that, I'd be interested to buy in Canada, for sure. In the wealth management side, certainly, and even individual insurance, but there are not that many in individual insurance. We have to look at other areas where we think that we can make acquisition. There are more opportunities. U.S. is one. In the U.S., not in the U.S. dealer for the moment.
I would say that we took a pause on the acquisition side for that business until we have, I would say, a significant improvement in the business. On the life side, I'm so pleased with where we are that we're looking at different opportunities. We are a niche business in the U.S. Okay. We are in the final expense business. We do have some, like you said, some distribution capabilities on the digital side. We're trying to see where is it that we can be in a niche business in the U.S., improve our positioning in the niche business. In the final expense, we are in the top three. Okay? That's another component of our, let's say, business model, iA, being leaders where we play.
When we look in the U.S., we don't want to be in a situation where we compete head-on against the big guys. We try to be under the radar, niche business, things that we used to do in Canada.
Yeah. Makes sense. We're almost out of time, but Denis, I do want to give you a chance to leave us sort of some closing thoughts, particularly what actions and metrics should we be paying most attention to over the next year?
It is really about the capital deployment and the growth of our business. We are very confident that we can grow our wealth management significantly, our life insurance, also, even though the last two quarters, like we mentioned, there has been some kind of a leveling. It is not a trend. Look at our growth, look at our capital position, over the next quarters, and the deployment we are going to do. That makes me very confident about the ROE direction, the plus, and the EPS direction, the plus.
Excellent. Thanks, Denis. Appreciate it.
Thank you.