iA Financial Corporation Inc. (IAG) Q4 2025 Earnings Call Transcript

Thank you for standing by. This is the conference operator. Welcome to the IA Financial Group fourth quarter 2025 earnings results conference call. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star, then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then zero. 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. Welcome to IA's fourth quarter 2025 earnings call. This conference call is open to the financial community, the media and the public and I remind you that the question period is reserved for financial analysts. So before we start I draw your attention to the forward-looking statements information on slide 2, as well as the non-IFRS and additional financial measures information on slide 3. Also, please note that a detailed discussion of the company's risks is provided in our 2025 MD&A, available on CIDAR and on our website. And I will start by introducing everyone attending on behalf of IAE. Denis Ricard, President and CEO. Eric Jebin, Chief Financial Officer and Chief Actuary, Alain Bergeron, Chief Financial Officer, Stéphane Bourbonnet, responsible for our wealth management operations, René Laflamme, responsible for individual insurance, savings and retirement, Pierre Miron, Chief Growth Officer for our Canadian operations and responsible for IA Auto and Home, Sean O'Brien, Chief Growth officer for our U.S. operations and now responsible for all of our dealer services operations. And finally, Louis-Philippe Pouliot in charge of group benefits and retirement solutions. So with that, I will now turn the call over to Denis Ricard.

Good morning, everyone. Thank you for joining us. We're very pleased to be here to review our forequarter and also the full-year results. I would qualify the results as a good quarter and closing an excellent year. And before getting into our fourth quarter performance, I'd like to take a moment to reflect on 2025, a remarkable year for IE, marked by strong execution across the organization. We met or exceeded all our key financial targets, delivering a core ROE of 17.1% and 16% growth in core EPS, fully aligned with our mid-term objectives. Our businesses in both Canada and in the U.S. continue to build strong momentum with solid sales across every segment and disciplined progress on our strategic priorities. This growth was supported by a robust capital position fueled by $665 million of organic capital generation in 2025. Throughout the year, we deployed capital with discipline, balancing strong return to shareholders with investments that support future growth. This included the acquisition of RF capital, which is already accretive and strengthening our wealth platform. Thanks to the dedication of our teams and the consistency of our performance across the organization, we closed 2025 with excellent momentum and a solid foundation as we enter 2026. With that, let's turn to slide 9 for an overview of the results. Our fourth quarter results reflect strong and profitable growth across all business segments, including record individual insurance sales and very strong individual net fund inflows. This momentum underscores our continued success in the mass market and the power of our distribution networks, which we continue to invest in to drive sustained growth. We delivered a solid finish to the year with core EPS of $3.10 and a trailing 12-month core ROE of 17.1%, which already meets our mid-term target. These results underline the strength and resilience of our diversified business model and the momentum we carry throughout 2025. Business growth remains strong across the company. Net premiums and deposits reached $5.9 billion, up 4%, and total assets under management and administration exceeded $341 billion, a substantial 31% increase. This was driven by strong SEC fund inflows, favorable market conditions, and the addition of assets from RF Capital. This performance highlights the continued expansion of our distribution network, the breadth of our product offering, and the sustained demand across our target markets. Our capital position remained robust at year-end, with a pro-forma solvency ratio of 137%. This trend was underpinned by $170 million of organic capital generation in the quarter, a testament to our consistent value creation. As of December 31st, our capital available for deployment was $1.4 billion on a pro forma basis. We deployed significant capital again this quarter, including the RF capital acquisition and continued investments. At the same time, we continued returning capital to shareholders through regular dividends in our NCIB. This balanced approach to capital deployments remain a cornerstone of our strategy, enabling us to support strategic growth, return capital to shareholders, and continue investing in digital and AI-enabled capabilities that enhance efficiency and our overall product and service offering. Finally, our book value per share increased to $79.24, up 8% year over year, or more than 10% when excluding the impact of NCIB. In a year where book value growth across the industry was generally modest, our performance reflects the consistency of our results in our disciplined approach to capital deployment. Turning to slide 10, our Insurance Canada segment delivered another strong quarter, with broad-based growth across all units. Starting with individual insurance business, sales reached a record high of $111 million this quarter, supported by the strength of our distribution networks, the effectiveness of our digital tools, and high advisor engagement. We continue to rank number one in Canada for the number of policies issued, a leadership position we're proud of. In group insurance, premiums and deposits rose by 2% year-over-year, supported by premium increases on renewals and goods sales throughout the year. In the fourth quarter alone, sales were up 15% from last year. In dealer services, sales grew 4% to $183 million. Finally, IOTO and Home delivered another good quarters, with sales rising 9% to $146 million. This reflects both an increase in number of policies in force and the positive impact of recent pricing adjustments. Overall, our results in Insurance Canada demonstrate solid execution and ongoing momentum across the board. Turning to slide 11 to comment on sales on wealth management, business activity was very strong in this quarter in Q4 as evidenced by record individual gross sales of $3.1 billion. In SEC funds, we continue to build on our leading market position. Gross sales reached nearly $2 billion, up 27% year-over-year, and net sales grew to almost $1.2 billion. This reflects the sustained appeal of our product lineup and the effectiveness of our distribution networks. In mutual funds, gross sales increased by 16% year-over-year to $694 million, and net sales reached $13 million. This reflects favorable market conditions and improving industry-wide sales. Sales of other individual savings products total $429 million, essentially in line with last year. And in group savings and retirement, total sales reach $851 million. While this is lower than last year, it is important to note that prior year sales included a nearly $1 billion insured annuities transaction. Assets under management and group savings were 11% higher than a year ago. Turning to slide 12, our U.S. operations performed very well again this quarter. In individual insurance, sales increased 18% year-over-year to $80 million. This strong result reflects ongoing momentum in both final expense and middle market segments, with Veracity again contributing meaningfully this quarter. Taken together, this business is an important driver of our long-term growth ambitions in the U.S. market. Dealer Services delivered another strong quarter, with sales rising 8% year-over-year to $295 million. Our strong distribution relationships and diversified offering continue to support growth. We're seeing good traction from our management actions, particularly our focus on service quality and disciplined pricing. This positions the business well to continue generating sustainable growth and to further expand our presence in the U.S. market. With that, I will now hand it over to Eric, who will take you through our fourth quarter profitability and capital position.

Thank you, Denis, and good morning, everyone. I'm pleased to walk you through our fourth quarter results, which we are very satisfied with, especially considering the normal seasonality and higher than expected expenses linked to the company's strong performance in 2025. Overall, our fourth quarter results continue to reflect the underlying strength of our business fundamentals. Turning to slide 14 for a closer look at the performance by segment. In Insurance Canada, core earnings for the fourth quarter were $105 million compared to $116 million in the same period last year. As a reminder, last year's results included elevated core insurance experience gain of $15 million, while Q4 2025 reflected core insurance experience loss of $4 million. This year-over-year variation is due to the normalization of the P&C insurance experience at IA Auto and Home, as well as unfavorable morbidity experience in special market this quarter. Excluding this experience variance, underlying performance remains solid. Higher core insurance service results were recorded, driven by individual insurance employee plans and IE auto-annual. Core non-insurance activities, which typically show slightly lower results due to seasonality in the first and fourth quarters, were nevertheless higher year-over-year, supported by the good performance of dealer services. Car other expenses were slightly higher year-over-year as a result of normal business groups. Let's now move from Insurance Canada to Wealth Management. On slide 15, core earnings in the wealth management segment were $127 million in the fourth quarter, up 13% year-over-year. This growth was primarily driven by higher combined risk adjustment release and CSM recognized for services provided, reflecting strong net segregated fund sales and positive financial market performance over the last 12 months. Core insurance experience gains of $2 million were also recorded due to favorable longevity experience. These positive factors were partly offset by higher impact of new insurance business and group savings and retirement. Core non-insurance activities were similar to the same quarter in 2024. The higher net revenue on assets and the strong contribution from RF capital, which is already accretive and performing ahead of expectation, were offset by lower net interest income and non-recurring expenses in other distribution and advisory affiliates. Turning to slide 60, fourth quarter core earnings in our U.S. operations were $30 million, an increase of 15% compared to the same period last year. This result reflects higher combined risk adjustment release and CSM recognized for service provided, supported by good business growth over the past 12 months. The segment also benefited from lower core other expenses, although slightly tempered by core insurance experience losses from unfavorable insurance lapses. Core non-insurance activities, which typically post lower results in the first and fourth quarters due to seasonality, totals $15 million, essentially in line with last year. This includes results from dealer services and from eFinancial, the digital distribution entity of Vericity. In dealer services, the sales mix was more weighted toward insurance products for which earnings emerged gradually over time, while e-financial performed as expected. Now turning to slide 17 for the results of the investment segment. Core earnings for the quarter were $91 million. Before taxes, financial charges on debentures and dividends, core earnings were driven by core net investment results of $127 million compared to $120 million in Q4 2024 and $132 million in the third quarter. This result was driven by strong expected investment earnings of $124 million and favorable credit experience of $3 million in the car loan portfolio at AIE Auto Finance. The $5 million quarter-over-quarter decrease in expected investment earnings reflects the impact of the reduction in assets following the acquisition of RF capital. The $3 million year-over-year decrease reflect the same impact partially offset by favorable impact of the interest rate variation, including the steepening of the yield curve. Moving to slide 18 for the result of the corporate segment, car other expenses total $87 million pre-tax in the fourth quarter. This includes $74 million of core other expenses, which is near the upper end of the quarterly target range of $68 million, plus or minus $5 million. It also includes a provision for variable compensation that was higher than expected by $13 million, highlighting the company's strong performance in 2025. For the full year 2025, core other expenses were in line with target, showing our disciplined approach to expense management and our continued focus on operational efficiency. Looking ahead, our quarterly target range for core other expenses has been updated from $68 million plus or minus $5 million in 2025 to $70 million plus or minus $5 million for 2026, reflecting normal inflation while maintaining our strong commitment to operational efficiency. Please turn to slide 19 to review our robust capital position and financial strength. As of December 31, 2025, our solvency ratio stood at 133% and 137% on a pro-pharma basis when taking into account the impact of the 2026 AMF revised CAR-LEE guideline that came into effect on January 1, 2026. The quarter-over-quarter variation reflects the impact of our strategic capital deployment activities, including the RF capital acquisition, share buybacks, and dividend payments to common shareholders. These were partly offset by strong organic capital generation, favorable macroeconomic variation, and the positive impact of the updated capital requirements related to domestic infrastructure. In the fourth quarter alone, we generated $170 million in organic capital, bringing the total for the full year to $665 million, surpassing our 2025 target of at least $650 million. We close 2025 with a high-quality and flexible balance sheet, $1.4 billion in capital available for deployment on a pro forma basis, and a sustainability to generate capital organically. This strong financial position gives us the capacity to deploy capital strategically while preserving a prudent and resilient balance sheet. Please now turn to slide 20, which summarizes the year-end assumption review and management actions. The net economic impact was a positive $10 million. The review was positive across nearly all categories. These updates and management actions ensure we maintain an accurate representation of our underlying economics and appropriately position the company as we enter 2026. The total impact, which includes an immediate impact on earnings, as well as an increase in both CSM and risk adjustment, reflects a shift in the timing of profit recognition, which is positive for future periods. These conclude my remarks. Denis, I'll turn it back to you for the closing comments.

Thank you, Eric. Now please turn to slide 22. We are very pleased with our four-quarter results, particularly considering normal seasonality and higher expenses tied to the company's strong performance in 2025. The quarter allowed us to close out a remarkable year, one in which we achieved all our key financial objectives. As we look ahead to 2026, we are in a very strong position to sustain our profitable growth trajectory. Our earnings momentum is well established and we continue to see strong sales across all business segments. We also have a robust and flexible balance sheet and significant capital available for deployment, key ingredients to support growth, acquisition and expansion. With these trends, we are moving forward with confidence and discipline. Our strategic investments in digital capabilities are enhancing efficiency and supporting business growth. And the recent acquisition of RF Capital, which is performing ahead of our initial expectations, further strengthens our wealth management platform. Our confidence in our earning power is reflected in our new core ROE target, as we now expect to achieve a core ROE of at least 17% again in 2026, along with more than $700 million in organic capital generation. In short, everything is in place. We have the means, the strategy, and the momentum to achieve our ambitions and meet our financial targets. Thank you. Operator, we are now ready to take questions.

Thank you. We will now begin the question and answer session. To join the question queue, you may press star, then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then 2. We will pause for a moment as callers join the queue. The first question is from Gabrielle Deschenes from National Bank Financial. Please go ahead.

Hey, good morning. Sorry, I wasn't prepared for being first here. Quick question on lapse. We saw it in your actuarial adjustments, and then we saw it was tied to one specific product. Can you tell us which product that was and if it's related to the small amount of lapse, negative lapse experience we saw in the U.S. this quarter?

Yes, Gabriel, it's Eric. The product that is at play here is a term product in Insurance Canada, and this product has been sold for, I'd say, about 10 years now, and just before we started to sell it, just before the pandemic. and the pandemic created a bit of noise in the results and we wanted to take the time to appropriately understand what was going on before triggering reserve strengthening. So now we're confident with a couple of years out of the pandemic, we're now confident in the experience and we had to increase the labs. Just to be clear here, it's not a lab-supported product. It's really a term product. So we had to increase the lapses at almost alteration, including the renewal. So that's what took place here. It's not connected with the U.S.

Okay, so you've had this issue for a while now, and you've observed it for, I don't know what period of time, but sufficiently enough to have a firm handle on that particular problem. Is that what you're saying?

Exactly. We had set up in the past a temporary provision to face what we thought was temporary do-ins. And now that we see the fact that it's permanent and it's a different behavior than expected, we fixed it and put it behind us.

Got it. Your buyback program, can you tell me how that works? Is it on a program or do you have discretion? Because we saw some acceleration over the course of, well, after this quarter, heading into results, and it seems to maybe have been, could have been better timed, I guess, is one way of putting it. Like, what are your plans going forward, Denny?

Yeah, yeah. Thank you. Thanks for the question. We've accelerated it recently, starting in November. I think you can see the number on a monthly basis. We are running at the pace of around 4% a year right now. and, you know, we might accelerate it. It's obviously dependent. There's a formula that we have and it depends on the price and, you know, a couple of criteria. But you might expect that it might increase a bit if the price as it is this morning continues.

Got it. And then last one on these expenses in corporate. So for the full year, these, what do they call, non, whatever they're called, So the one that qualifies for that $68 plus or minus $5 million, you hit that this year. But then we have Q2 and Q1, you have these variable compensation costs that created some deviations, more noticeable this quarter. But why shouldn't we consider those as part of the corporate expenses and take away a different conclusion?

Yeah, thanks for the question, Gabrielle. In reality, what took place here is one part of the variable compensation. You know, as we do the financial statement every quarter, we want the provision to be at the right level at quarter end, reflective of all variable compensation necessary. And in Q4, what took place is that one part of that variable compensation with the stock performance from September 30th to December 31st justified a significant increase on top of some other multiplicative effect that came at play. So, it's just a normal provisioning given what happened in Q4.

And can I go in the other direction? Yes. Okay. All right. I'll leave it there.

The next question is from Paul Holden from CIBC. Please go ahead.

Thank you. First question, I guess, will be on RF Capital. Since we could see the results as a publicly traded company, we saw it was operating around breakeven. We managed to squeeze out $8 million of net income this quarter. So just want to understand that source of accretion. And then maybe also you can remind us, what can we expect from RF Capital through the course of 2026, both in terms of sort of integration, targets and accretion? Thank you.

Well, I think, Eric, you will cover the first part and then, you know, Stéphane can go on the second part.

Yeah, sure. Absolutely. In fact, Paul, what is at play here is, and remember in Q3, I said that we were moving ahead or moving forward the accritiveness expected on RF Capital for one year for two specific reasons. The good work around the retention of the advisors and the market performance as well. So those were the two explanations for moving ahead of schedule with that. And I said at the same time that don't expect it to be accretive in Q4, but the reality is that the stock market performance and retention effort even showed benefit right from the start in Q4. So, those are still the same reason as for last quarter. And for the business, I would leave it to Stéphane.

Yes, thank you, Eric. I'd say, you know, when you look at it, the integrations in your plan is progressing really, really well. I think what was kind of unexpected for us is that we were able to close sooner than expected on October 31st, right? So that's what gave us a real head start to our plan. We were able to create those roadmaps really, really early from the get-go and be able to deliver that in Q4 in November and December. So as you know, we're no longer operating as a public company, which helped us to save on board, committee audit, and external costs that we needed to deal with. In the same week of the announcement, we were able to move quickly to realign the leadership team structure at RS to make sure we'd be aligned on our growth strategy and our roadmap. We started harmonizing corporate function as well when you're thinking about HR, legal, and IT. And again, benefited from the synergies there. And we even started reviewing some of the contracts with vendors. I mean, we are sharing the same vendors across multiple platforms and we're now able to benefit from the scale there. So this is what I think you're seeing in the result and this is what you're seeing in us being comfortable to say we move this to be a credit of year one instead of year two. And I would say on the forward-looking and what you could expect, Eric mentioned very strong retention. So we're in a better spot than we thought. We're creating good momentum with the team in terms of bringing them solutions for their clients in terms of products, investment solution, the assistance of capital markets. This has been very well received by the team. And what's been interesting to see is kind of the noise that we've created in the industry. So our story about being the number one non-bank in Canada with over $200 billion is catching on, and people are interested in learning about it. So we've seen Investia and IA Private Well benefit from that. Advisors' retention has been stronger than we've seen in those channels as well, because I think our advisors understand that we're committed to the business. But we're also seeing an increase in the recruiting pipeline for both dealers. I think we're going to be able to announce some significant advisor movement towards our organization in the next coming week. So overall, things are going very well, and we feel very good about the progress that we've seen so far.

That's good. So I think the point on the advisor retention is a really important one. I don't know if you're able to provide any data or statistics in terms of where retention is versus what your expectation was?

On this? Yeah, go ahead, Eric.

Yeah, I was going to say, Paul, just a reminder, we did not disclose, because those are kind of sensitive parameters in our acquisition models and so on, So, we did not disclose the expected assumption, neither the actual outcome, but I will tell you that it's really, really good in terms of actual outcome compared to expectation, which was high, but it showed up very, very well. I understand. Okay.

I'll leave that there. And then, second question I want to ask is on the ROE target. So, the positive for me is you achieved the ROE target actually this year, so two years ahead of plan, which is obviously very positive. My question really then is like, why not increase the ROE target? I get you pulled it from 27 to 26, but you're already there. So, why not increase the ROE target? Is it related to capital deployment and that you can't buy a business that's generating 17% ROE? I get that. So, maybe that's a factor. Or is it new businesses coming on at roughly 17% ROE? I guess, or maybe you're just being conservative because I would just want to understand a little bit better, like why can't it expand from the 2025 result?

Yeah, the question is good. I mean, why don't we increase it? I mean, the question could be asked, why would we increase it in the sense that 17% is already where we had made the guidance at the beginning of last year. we were able to deliver on it and i mean quicker and now we're changing it we're seeing this is like the run the run rate of our or we it but don't forget the plus okay so we're working on the plus and so for us it's really a matter of being um what's a conservative prudent in our approach we um we would rather uh under promise over deliver we already already always work to obviously improve the ROE. And you hit one important point also because we are a growth company. We want to grow the organization and we're looking at acquisitions and sometimes when you buy an acquisition in the first years, you might not get the ROE that is your target. So you also have to take that into consideration and your guidance. So I would say it's really about being prudent going forward here. Okay, that's fair.

Okay. I will leave it there as all my questions. Thank you.

Once again, if you have a question, please press star, then one. The next question is from Tom McKinnon from BMO. Please go ahead.

Yeah, thanks for morning. I wonder if you could talk a little bit about your group experience in the quarter. I think it may have been hurt by some outsized claims. what your strategy is with respect to renewal of that group and how we should be looking at group experience going forward.

Again, in this case, I guess, Eric, you go first and then we, Philippe.

Yes, absolutely, Denis. In fact, what happened in the quarter, Tom, is that the federal government took some measures in the past to limit the number of permits for foreign students coming to Canada. This is a group we have in terms of covering medical foreign students coming to Canada in the special market division. And since the government limited the number of permits, we kind of got it on both sides I refer to. The premium income did go lower than expected, and we were hit on the claim side as well. So unfortunately, it resulted in a bad experience in Q4. But at the same time, this group is expected to renew during the course of 2026. I will leave Louis-Philippe to talk about his strategy going forward. But note that in the change of assumptions for this group, we took a reserve increase or reserve strengthening to put this phenomenon behind us in 2026 up to the point of renewal. So, it's part of, you know, we saw the impact in 2025. You have it in the experience loss. We fixed the reserve to have it at the appropriate level at the end. And now, strategically speaking, Philippe will talk about what he's doing on the business side.

Well, so I think the main takeaway here is we're looking at that business. And for a group of that size, there's a number of tools at our disposal. Eric touched on a few of them. It includes also working with our distribution partners, repricing those groups. So we have a number of those tools. And we've taken some of those actions already. and we have the ability to make the choices of not renewing the business even if we figure out that we can't get to where we want. So we're still pretty good. We don't have a headwind ahead of us in 2026 on that front.

Is the coverage that you're strengthening the reserves for, is that like supplementary medical? What is it specific? It's not disability, is it? But maybe you can just describe where you're seeing these elevated claims.

Yeah, you're right, Tom. It has nothing to do with disability. It's really supplemental coverage. So it covers medical drugs and therapist coverage. So it's all of those side benefits and group insurance.

And when does this group renew?

September.

Okay. Okay. So you're still going to have them for a few more quarters, but you're comfortable that you've bumped up the reserves enough to cover additional incidents. Is it more of an incidents issue? Is that what it is? Just more going on claim here?

Well, I said two things. It's an incident and severity, but at the same time, we had less new students that came to Canada to keep the volume of premium at the appropriate level. So it's a combination of the two. And you are absolutely right. The move we did on the reserve was really to strengthen the balance sheet so that we don't have expected loss ahead of us up to the point of renewal.

Right. And would you be able to share with us that reserve billed, what the dollar amount was after tax or pre-tax?

Yeah, we did not disclose it, Tom, but it's part, if you look at the change of assumption page on page 20, it's part of the other segment on the P&L side. So you see that we have a $70 million charge on this P&L side, and it's part of that. But it's significant. You saw the magnitude of the loss in Q4, so it's significant.

And is it a significant part of the $4 million insurance experience loss that you had in Canada in the quarter?

Yes, absolutely. Because when you think about it, you know, we refer to the fact that Ayo Minoto had a normalization of experience in the fourth quarter, but it didn't mean that Ayo Minoto had an experience loss. They were still positive, but it was reflective of a normal winter. So if you take that into account, the fact that we have favorable mortality and you see that we end at minus $4 million, it means that the loss was significant. Okay, thanks for that.

This concludes the question and answer session. I would like to turn the conference back over to Caroline Gruen for any closing remarks.

Thank you, everyone, for joining us today. Today, all of our fourth quarter earnings release and slides for today's conference call are posted in the Investor Relations section of our website at ia.ca. A recording of this call will be available for one week starting this evening, and the archive webcast will be available for 90 days, and a transcript will be available on our website in the next week. Our 2026 first quarter results are scheduled to be released after market close on Tuesday, May 5, 2026. Thank you again, and this does conclude our call.

This brings a close to today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.