iA Financial Corporation Inc. (IAG) Earnings Call Transcript & Summary

Thank you for standing by. This is the conference operator. Welcome to the iA Financial Group Second Quarter 2026 Earnings Results Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Caroline Drouin, Head of Investor Relations with iA Financial Group. Please go ahead.

Thank you, and good morning, everyone. [Foreign Language]. Welcome to iA's Second Quarter 2026 Conference Call. 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. And before we start, I draw your attention to the forward-looking statements information on Slide 2. Forward-looking statements made today are subject to risks and uncertainties that could cause actual results to differ materially. These statements are based on certain material factors and assumptions. I also draw your attention to the non-IFRS and additional financial measures on Slide 3. Today's commentary will also include adjusted financial measures, which should be considered as a supplement to IFRS measures. For further details, including those factors and assumptions, please refer to our press release and MD&A. I will start by introducing everyone attending on behalf of iA. Denis Ricard, President and CEO; Eric Jobin, Chief Financial Officer and Chief Actuary; Alain Bergeron, Chief Investment Officer; Denis Berthiaume, Chief Growth Officer of our Canadian Operations and responsible for iA Auto and Home; Stephan Bourbonnais, responsible for our Wealth Management operations; Renee Laflamme, responsible for Individual Insurance, Savings and Retirement; Sean O'Brien, Chief Growth Officer for our U.S. operations and responsible for Dealer Services; Louis-Philippe Pouliot, in charge of Group Benefits and Retirement Solutions. And with that, I will now turn the call over to Denis Ricard.

Good morning, and thank you for joining us today. We delivered another strong quarter, demonstrating once again the value of our diversified business model. Our ability to generate consistent profitability is supported by multiple source of earnings and solid growth for the overall organization. At the same time, Wealth Management continues to strengthen its contribution to our results and is becoming an increasingly important driver of growth. Across the organization, our focus remains on disciplined execution and profitable growth. We continue to make deliberate decisions that prioritize long-term value creation, business quality and sustainable returns. These priorities are clearly reflected in our second quarter results. Turning to Slide 8. Third quarter was strong across several dimensions: earnings, ROE, business growth, capital and shareholder value. Importantly, the growth was not concentrated in one area. It reflected the strong activity in our distribution platforms, continued wealth management momentum and disciplined execution across the organization. Let me highlight a few key metrics. Core EPS was $3.68, up 5% year-over-year, and EPS was $4.28, up 25% year-over-year. Our trailing 12 months core ROE reached 17.5%, in line with our 2026 target of 17% or more. Business growth was also strong, premiums, premium equivalents and deposits were $6.3 billion, up 25% year-over-year. Assets under management and administration grew 37% over the last 12 months. This growth reflects solid organic growth from fund inflows, favorable markets and the addition of our RF Capital. Our financial position remains a clear strength. The solvency ratio stood at 137% at quarter end, and we had $1.1 billion of capital available for deployment. We also generated $188 million of organic capital during the quarter. At the same time, we continued to return capital to shareholders during the quarter, in addition to our regular dividend, we deployed $347 million through our share buyback program. Finally, book value per common share reached $80.55, up 6% over the last 12 months. Overall, these results reinforce our confidence in the trajectory of our business. We are growing, delivering strong profitability and maintaining the balance sheet strength needed to create long-term value. Turning now to Slide 9. Our Insurance Canada segment quarter, supported by the strength of our distribution platform, the diversity of our businesses and our continued focus on profitable growth. In individual insurance, sales totaled $102 million, a result comparable to last year's strong performance. We remain very pleased with the momentum across the business and the strength of our market position. We continue to benefit from our growing distribution network, the effectiveness of our digital tools and our comprehensive product offering. We also maintained our leading position in Canada for the number of policies issued. The stability of our results reflects our disciplined approach to underwriting and business selection, which supports sustainable profitable growth over time. In Group Insurance, premium and deposits remained close to the strong level recorded a year ago. Employee plans implemented sales reached $30 million significantly above the $8 million recorded in the second quarter of 2025. In Special Markets, sales were affected by lower volumes of international student medical insurance following federal government measures limiting the number of international students entering Canada. We have also taken deliberate actions to optimize the business mix and focus on opportunities that meet our return objectives. This disciplined approach strengthens the quality of future earnings, and we expect the impact of lower international student volumes on sales to remain visible in the second half of the year. Dealer Services sales remained good at $218 million, close to the results for the same period last year, benefiting from our extensive distribution network of Dealer Services products. Finally, at iA Auto and Home, direct written premium increased 5% over a year to $216 million. This growth was driven by higher policy volumes and the favorable impact of price adjustments implemented over the last 12 months. Overall, our Insurance Canada businesses continue to demonstrate the benefits of scale, the distribution strength and disciplined execution while maintaining a strong focus on profitable growth. Turning to Slide 10. Wealth Management delivered another solid quarter and continues to be an increasingly important contributor to our growth and earnings profile. Momentum remains strong across the platform with gross sales reaching $4.3 billion in combined net inflows of seg fund and mutual fund of $934 million. We further strengthened our leadership position in the Canadian sector market, maintaining the #1 position for both growth and net sales. Individual seg fund gross sales increased 52% year-over-year to more than $2 billion, while net sales exceeded $1 billion. This performance reflects the strength of our growing distribution networks, strong advisory engagement and the attractiveness of our product offering. In mutual funds, gross sales increased 46% year-over-year to $644 million, while net outflows of $73 million were recorded. Sales of other individual savings product reached $449 million, up [ 25% ] from last year. And finally, in Group Savings and Retirement, total sales exceeded $1.1 billion, up 35% year-over-year supported by strong momentum in accumulation products. Total assets under management increased 15% year-over-year. As we continue to build one of the Canada's leading independent wealth franchise, we remain well positioned to benefit from long-term wealth accumulation trends and generate sustainable growth in assets, earnings and shareholder value. Turning now to Slide 11. Our U.S. operations remain an important growth platform and a valuable contributor to the diversification of our business and earnings profile. The quarter once again demonstrated the benefits of our diversified U.S. presence across both individual insurance and dealer services. In Individual Insurance, sales reached a quarterly record of USD 86 million, up 10% from a year ago. This strong performance was driven by continued growth in the final expense and middle market segments, supported by disciplined sales practices, key digital capabilities and strong engagement across our distribution network. In Dealer Services, sales totaled USD 292 million, broadly in line with the same quarter last year despite less favorable U.S. auto market conditions. The business continues to benefit from the effectiveness and diversity of its distribution channels as well as the quality of our products and service. Our focus remains on strengthening distribution relationship and continuing to enhance business quality and long-term profitability. Turning to Slide 12. Our results continue to demonstrate solid progress towards our financial targets and reinforce our confidence in the outlook for the remainder of the year. Core EPS increased 8% year-over-year in the first 6 months of 2026, reflecting continued profitable growth across the organization. Our trailing 12-month core ROE stood at 17.5% at June 30, already meeting our 2026 target. This performance reflects disciplined execution, strong fundamentals and our continued focus on sustainable growth and capital efficiency. Organic capital generation remains a key strength of the organization. Year-to-date, we have generated $335 million of organic capital, keeping us well on track towards our objective of generating more than $700 million in 2026. Consistent with historical trends, capital generation is typically stronger in the second half of the year, reinforcing our confidence in achieving this objective. Finally, our core dividend payout ratio remained within our target range at approximately 30%. With that, I will now hand it over to Eric, who will review our second quarter profitability and capital position in more detail. Eric?

Thank you, Denis, and good morning, everyone. I'm pleased to walk you through our second quarter results which once again demonstrate the strength of our diversified business model, sustained business momentum and robust capital position. Let me begin with Slide 14, where I'd like to highlight 3 key takeaways before reviewing the segment results. First, we delivered strong profitability. Core earnings reached $330 million, and core ROE was 18.5% on a quarterly annualized basis and 17.5% last 12 months. Net income was $384 million, which is higher than core earnings, supported by favorable market-related impacts during the quarter. Second, our earnings mix continues to evolve positively. Wealth Management delivered another strong quarter, driven by strong organic momentum, the increasing scale of our well platform, favorable markets and the contribution of RF capital. Third, with a solvency ratio of 137% and $1.1 billion of capital available for deployment, our capital position is robust, and we have substantial capacity to invest for growth. Let's now take a look at the second quarter core earnings results by segments. By turning to Slide 15 with Insurance Canada. This sector delivered another strong quarter with core earnings of $128 million, demonstrating the stability and profitability of the business. Experience remains favorable, contributing $19 million pretax to earnings through favorable mortality and morbidity experience. While this was below the exceptionally strong experience gain of $31 million recorded a year ago, it reflects continued solid risk management across the portfolio. Core earnings also benefited from higher combined risk adjustment release and CSM recognized for service provided, particularly in Individual Insurance and employee plans as well as lower core income taxes during the quarter. These positive factors were partially offset by lower earnings from core noninsurance activities primarily year-over-year and earlier in Dealer Services. Let's now turn to Wealth Management on Slide 16. Wealth Management delivered another strong quarter with core earnings increasing 37% year-over-year to $155 million. This performance was driven by higher combined risk adjustment release and CSM recognized for services providers, benefiting from strong segregated fund inflows and favorable financial markets. In addition, insurance experience gains of $2 million were recorded during the quarter. Core noninsurance activities also contributed meaningfully to earnings growth supported by higher net revenue on assets adviser recruitment and the strong contribution from RF Capital grew of $13 million, which continues to perform well and better than expected at time of acquisitions. These positive drivers were partially offset by higher expenses and cured to support business growth and expansion. Overall, Wealth Management continues to enhance the quality and diversity of our earnings base while delivering attractive profitability and strong earnings growth. Turning to Slide 17 for U.S. operations. Second quarter core earnings in our U.S. operations were $24 million compared to $36 million a year ago. In individual insurance, the strong earnings growth achieved over recent years continues to be reflected by high levels of risk adjustment release and CSM recognized for services provider. This quarter, however, growth was moderated by experience loss of 8 million, mainly due to unfavorable mortality at Fidelity Life arising from a small number of large claims which we view as statistical fluctuation. Before these experience losses which are expected to be nonrecurring, the combined contribution from Fidelity Life and Financial was neutral to core earnings. As a result, we continue to expect the acquisition to be accretive to core earnings in the second half of 2026. In Dealer Services, core earnings continued to reflect the sales mix weighted toward insurance product. While the pace of earnings improvement has been slower than originally anticipated, we continue to implement a series of management actions designed to improve long-term profitability and overall business quality. As these initiatives are implemented, some earnings variability may occur. We remain confident that the actions we are taking position the business to deliver stronger, more profitable and sustainable growth over time. Now turning to Slide 18 for the result of the Investment segment. Core earnings for the quarter were $79 million compared to $102 million a year ago and to $93 million in the first quarter. The year-over-year decrease was mainly driven by higher financing charge on debentures, semiannual dividends on pref shares and higher core income taxes. Core earnings were driven by a core net investment result of $129 million, which is $2 million higher than for the same period last year. This result consists of expected investment earnings of $119 million and favorable credit experience of $10 million, which is attributable to both the fixed income and car loan portfolios. Quarter-over-quarter expected investment earnings benefited from the positive contributions of auto finance and the capital issued in May. These benefits were offset by a reduction in invested assets, mainly due to the share buyback program. Core earnings adjustment generated a positive impact of $104 million during the quarter, driven by favorable macroeconomic variation in the non-fixed income asset, particularly the strong performance of public equities. Moving to Slide 19 for the results of the Corporate segment. We continue to demonstrate disciplined expense management during the quarter with core corporate expenses totaling $74 million before taxes compared to $75 million a year ago. This result included core other expenses of $65 million before taxes, which is at the low end of the quarterly target range of $70 million, plus or minus $5 million as well as $9 million higher-than-expected provision for variable compensation, reflecting both the company's strong operating performance and share price appreciation during the quarter. While maintaining a strong focus on expense management and operational efficiency, we continue to invest in strategic priorities, including AI, capabilities and future growth initiatives. As a result, we expect core other expenses in the third and fourth quarter to trend toward the midpoint of our target range. Lastly, the consolidated core effective tax rate was 21.2% in the second quarter, benefiting from favorable nonrecurring items. We continue to expect the core effective tax rate for the third quarter and fourth quarter to be positioned towards the upper end of our target range of 21% to 23%. Please turn to Slide 20 to review our robust capital position and financial strength. As at June 30, 2026, our solvency ratio stood at 137%, and our capital available for deployment was $1.1 billion. The solvency ratio increased by 3 percentage points during the quarter driven by the favorable impact of the capital issuance completed in May, solid organic capital generation and positive macroeconomic impacts. These favorable items were partly offset by the $347 million deployed through the share buyback program, investment in organic growth initiatives and dividend payments to common shareholders. Overall, our capital position is robust and our deployment capacity provides flexibility to invest in growth opportunities pursue capital allocation priorities and continue creating value for shareholders. To conclude, in Insurance, Canada, favorable insurance experience once again demonstrate the strength of our risk management culture and underwriting discipline. In wealth management, we are proud of the success we have achieved and of the sustainable strength of our segregated fund products. In the U.S., we continue to take deliberate management actions to enhance the profitability of Dealer Services, while these actions may affect short-term results, they support long-term profitable growth. Our Q2 results highlight the strength of our diversified business model, and we are entering the second half of 2026 from a position of strength. Finally, core ROE is well incurred over 17%. With that, I will turn the call back to Denis.

Thank you, Eric. Please turn to Slide 22. As we look back on the second quarter, we are pleased with the strong execution across the organization. While Wealth Management continues to increase its contribution to earnings and growth, the strength of our company remains rooted in our unique diversified business model and the multiple drivers of growth across the organization. The breadth of our platform enables us to generate consistent profitability and create value through a variety of business and market environments. The 25% increase in premiums and deposits, together with the 37% growth in assets over the past year reflects the strength of our distribution capabilities, our ability to attract and support high-quality advisers and the disciplined execution of our growth strategy. We continue to see strong momentum in wealth management, supported by elevated activity across our distribution platforms, strong net inflows and growing assets. At the same time, we remain focused across all of our businesses on generating profitable growth and making deliberate decisions to strengthen the quality and sustainability of future earnings. Returning value to shareholders remain a key priority. During the quarter, we continued to do so through both dividends and share repurchases under our NCIB programs. And with a solvency ratio of 137% and $1.1 billion of capital available for deployment, we remain well positioned to support future growth opportunities while maintaining our disciplined approach to capital allocation. As we move into the second half of the year, we remain focused on executing our strategy, supporting our distribution networks, delivering profitable growth and creating long-term value for shareholders. Thank you. Operator, we're now ready to take questions.

[Operator Instructions] The first question is from Doug Young from Desjardins Capital Markets.

Just wanted to maybe dig a little bit deeper onto the U.S. extended vehicle warranty business. It looks like the U.S. and the U.S. the PA line was down the noninsurance core earnings was down quarter-over-quarter. And I think -- correct me if I'm wrong, there was reference to the loss of dealers on the admin side. I don't know if that was dealers move into the insurance side, but just trying to get a little bit more into the depth of what you're seeing there and what your expectations are from that business over the coming year.

Yes, it's Denis here. I'll start, and then Eric will follow up on this. Maybe a high-level comment on that business and that you've seen in terms of the sales, sales are soft in the quarter. There are things that we do control and things that we do not. And there's been some headwind on the car sales that you'll hear from us for sure. But to me, as a CEO, what is important is that from what we control. And there are initiatives that we are -- we have been doing for some time already that are obviously taking a bit of time to have some impact. But we are doing the right thing. That is, I think, what is the important message that you have to keep in mind so that we believe that we're going to get the improvement in our profitability over time in the sales growth as well. But it's not linear. I mean it's not something that is linear, and it's just going one way. So sometimes you've got some pause. But Eric, do you want to comment more on this?

Yes. I just want to add, Doug, to your question, with respect to the PA earnings, being slightly down quarter-over-quarter. Keep in mind that this is a business on the insurance side that has a bit of seasonality. Remember that I talked about this very often, that some of our businesses have seasonality patterns. And for dealer services in the U.S. The insurance business has a higher frequency of claims in the second and third quarter. So it's a little bit like [indiscernible] in Insurance Canada that tend to have lower expected earnings in the first quarter. For Dealer Services, it's -- in the U.S., it's second and third quarter.

Yes. Okay. And then can you maybe just flesh out why are the dealers choosing to go with the insurance versus the admin side? Like is there a structural reason that that's -- like when you look into it, like what do you get back from the dealers whether choosing to go in that direction?

So I will ask Sean just to talk a bit more about our strategy there and the push that we made on the DAC side, last year and the success we've got so far and then the initiatives that we're doing on the other side.

Yes. Thanks, Denis. Yes, just to jump back, our 3 main actions that we've taken with that business. We started focusing on profitable growth as we've actively repriced all of our products. Good news is now all the sales have an ROE above our expectation. The industry has been fairly price disciplined in the U.S., which is helpful in Canada. Then we focused on operations. The last part has been the sales structure. And last year, we started with DAC. We saw it as a quick opportunity and DAC was really where we're driving these insurance sales. And you can see those numbers coming forward. So really, it's a separate channel where we're selling that business. And then in the first half of this year, we've restructured the sales team. And now we have the sales leaders in place focused on the agent and dealer channel, and there's a nice pipeline building. And I'm confident we'll definitely see some nice growth ahead later this year and then into next. But as we said, the business is not perfectly linear. The gradual recovery is underway. There is some natural attrition as dealers come and go. And usually, it's related to acquisitions. The dealer gets bought by another group, and they have another provider and sometimes you lose those stores, not the most common reason you can see it. But that's not the primary driver. There really is just what you're seeing is the focus on DAC that started last year, and you'll start to see the dealer and agent channel building in the quarters ahead.

Okay. And then -- so I appreciate that. And then just, Eric, maybe moving to Slide 20 and just -- maybe I'm just slow this morning, but it's -- can you help me think through your solvency ratio is up sequentially, but the capital available for deployment is down. And I can see the different kind of points in there and it looks like financing activities, [indiscernible] included. Can you just how think through why that would be? And then what is the binding constraint that helps you define what is available for deployment?

That's a very good question, Doug, because you know that the regulatory regime has many, many constraints in it. One is the solvency ratio, and there are other ones and one has to do with the core ratio as well. And this is where, right now, that is constrained. When we calculate the amount of capital available for deployment were constrained by the core ratio, and the biggest driver of the core ratio constraint is negative reserves. So right now, with the growth that we're experiencing in Insurance Canada and the segregated funds, this is what is creating a bit of a challenge in the short term because the gains coming from those sales cannot be fully reflected in capital available for deployment. So -- but it will flow out in the future. But in the short term, this is the constraint that we're binded by.

And for the first part of the question, the capital for deployment already incorporate the potential financing. So when we do go out in the in the market, and we raised capital. It does not change the capability on it.

Yes, absolutely. The way to look at capital available for deployment the way we talk about it is to talk about the current excess capital that we have in the books and potential remaining financial flexibility. So what Denis mentioning, for example, in the first quarter, we said that capital available for deployment was $1.2 billion. So it was a combination of both elements. As you know, we issued the sub debt in the second quarter, and it did not change the number. So really, what drove the decrease of about $100 million quarter-over-quarter is the share buyback program. the financial flexibility was already in there.

The next question is from Tom MacKinnon from BMO.

Question just with respect to Canadian individual insurance sales. 2025 was up nicely 6% over 2024. But you're starting off 2026 here, down in the first quarter year-over-year, down in the second quarter year-over-year in terms of new sales. And I think in the first or you might have been up a bit in policies -- number of policies issued, but it looks like now you're down year-over-year in terms of number of policies issued. So what's happening here? What can you do to improve this trend going forward?

Thank you, Tom, it's Denis here. Thank you for the question. Renee will answer that question. But first, I just want to make a high-level comment. When you look at the overall growth in the organization for the quarter, we're very pleased, like I said before, 25% grew in terms of net premiums and the AUA AUM grew by 37%. So we're very, very pleased, obviously, the wealth management businesses has done a fantastic growth trajectory. But then when you look at some other sectors like individual insurance and special markets and you see the -- some kind of pause in terms of growth, but it's really a reflection of some of the initiatives that we made because we want to stay disciplined in underwriting pricing, risk management and everything. So Renee will go into more details, but you have to keep in mind that sometimes there are pockets of industries that we don't want to play in, and it may have some impact.

Thank you, Denis. Thank you, Tom, for your question. First of all, when you look at the number of policies sold, Keep in mind that we're the leader in number of policies sold in Canada with 25% of the market share. Thus, it may happen that we have a softer quarter. But again, we see the activity and we are confident in our ability to continue to grow the number of policies sold. Looking at it from a dollar perspective sales, we did this quarter $102 million, similar or very slightly lower than the same quarter last year. We're looking at the market with increased vigilance, especially relative to certain sales concept in the high mid large case range. And we're staying disciplined and making sure that we are not taking undue risk. So that would cover. And I think, Eric, if you want to reinforce on some of our risk management.

Yes. I just want to take this opportunity to reinforce Renee's message and connect -- make a connection with what we mentioned at the investor event to our risk management practices and control. What Renee's mentioning is that we don't want to take undue risk in the books. And face lapse issues with aggressive sales concept and from 8 to 10 years from now. So we're careful with that and making sure that the business we bring in the books is creating value for the company as well for the client and the adviser. Not only for the latest 2.

Is there any product set that you're taking the increased vigilance in? Is it par, non-par, term, I don't know any -- if you can elaborate on that.

Well, as you know, 50% or more of the products sold in the industry is the power products. So obviously, the increased vigilance is mostly on the power product, those products that accumulates value early on. So those are the ones.

The next question is from Gabe Dechaine from National Bank of Canada.

Quick one on the experience gains in the non-prime model. What were those? Did you release allowances or were impairments just below expectation? Can you delve into that a little bit?

Remember, Gabriel, that a couple of years ago, we strengthened the underwriting on our credit portfolio for auto loans. And it's just collecting the benefits of that strengthening that happened a little while ago. The experience has just been better than expected in this case, nothing special to mention about any allow one release or anything. It's just an experience based.

No, I understand the repositioning you did a couple of years ago. I'm just from an accounting standpoint, it could come from a variety of -- if we non-insurance accounting, rather. I just want to get a sense -- you have an assumption for a certain amount of impairments and it was a lower number than that. Is that essentially it?

Yes, that's exactly what I referred to when I say it's an experience, a positive experience gain. No. I just wanted to add, it's actual minus expected, Gabriel.

Yes, yes. Okay. Now a bigger picture question for Denis. And I'm starting to -- not starting, I'm getting this more frequently, I should say, from investors about all the companies I cover is there stocks are at all-time highs, nearly every day, valuations are getting -- are very unusually high compared to any historical record. If I tie that into your M&A appetite, which you've been very transparent over the course of the time I've covered the company, you're an acquisitive company. You got in your slides, 30-plus since 2015. Like how does the stock valuation influence your willingness to do maybe a more transformational transaction than the ones you've done in the past? Like what sort of conditions would you need for industrial alliance to issue equity to finance the transaction, let's say?

Well, first of all, the higher the price as we all know. The cheaper would be to buy an organization if we need to raise capital, that would be an obvious one. Now with that said, we have plenty of capital right now, $1.1 billion, we're generating $700 million a year. So -- and our buyback strategy, obviously, depends on various criteria, one of it is the -- any potential acquisition that we would do in the near future. So that would be one of the elements that we would take into consideration. So -- and I would say -- I would add to this. I mean being a $18 billion plus market cap company, we might target something that is bigger than what we have done in the past. I mean we've done the biggest one would be like $1 billion some years ago. So we might go a bit higher than that. But I mean, it has to be really strategic for us to go with a huge acquisition that would be transformational for the organization. We don't bet the [indiscernible]. And it's not part of our DNA. So it is possible that at some point, we might go bigger, but it would have to be a really, really good fit for the organization.

Got it. And then I guess this is a question I can ask that any other companies I cover, but I'd start with you.

The next question is from Mario Mendonca from TD Securities.