iA Financial Corporation Inc.

Good morning, ladies and gentlemen, and welcome to the Industrial Alliance Insurance and Financial Services, Inc. 2024 First Quarter Results Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we'll conduct a question and answer session. If at any time during this call you require immediate assistance, please press star 0 for the operator. This call is being recorded on Thursday, midnight, 2024. I will now like to turn the conference over to Marie-Annick Bonneau, Head of Investors Relations. Please go ahead.

Good morning and welcome to our 2024 First Quarter Conference Call. All our Q1 documents, including press release, slides for this conference call, supplementary information package, and quarterly MD&A are posted in the Investor Relations section of our website at ia.ca. This conference call is open to the financial community, the media, and the public. I remind you that the question period is reserved for financial analysts. A recording of this call will be available for one week starting this evening. The archived webcast will be available for 90 days, and a transcript will be available on our website in the next week. I draw your attention to the forward-looking statements information on slide 2, as well as the non-IFRS and additional financial measures information on slide three. Also, please note that a detailed discussion of the company's risk is provided in our 2023 MD&A available on CDAR and on our website, with an update in our Q1 MD&A released this morning. I will now turn the call over to Denis Ricard, President and CEO.

Good morning, everyone, and thank you for being with us on the call today. As usual, I will start by introducing everyone attending on behalf of IEA. First of all, Eric Jobin, Chief Financial Officer and Chief Actuary. Alain Bergeron, Chief Investment Officer. Stéphane Bourbonnet, responsible for our wealth management operations. René Lafemme, in charge of individual insurance and annuities. Pierre Miron, Chief Growth Officer of our Canadian operations and responsible for Dealer Services Canada and IOTO and Home. Sean O'Brien, in charge of our group businesses. and Mike Stickney, Chief Growth Officer of our U.S. Operation and Co-Head of Acquisitions. This morning, we announced that Mike Stickney will retire in the coming months. Over the years, Mike took on various responsibilities at IE, including as Chief Growth Officer. Most recently, he's been Chief Growth Officer for the U.S. Operations and Co-Head of Acquisitions since August 2023. This is Mike's last earnings call, and I want to congratulate him on his career and thank him for his contribution to IEA's growth over the past 25 years. With Mike's departure, we announced the three changes to the exec committee, which highlight the depth of our management team. First, Sean O'Brien will succeed Mike as Executive VP and Chief Growth Officer of our U.S. operations. And Sean is currently Executive VP of Group Benefits and Retirement Solutions. He's a seasoned executive well-prepared to take on this new role after leading, among other things, our dealer services, Canadian operations for a number of years, as well as our wealth management business. Denis Mercian, who was Co-Head of Acquisition with Mike since August 2023, will be the sole Head of Acquisitions as Executive VP, Strategy, Performance, Merger and Acquisitions. Finally, Louis-Philippe Pouliot will join the Executive Committee as he will be succeeding Sean as Executive VP of Group Benefits and Retirement Solutions. Now to the results. 2024 got off to a strong start in terms of profitability and business growth, demonstrating the dynamism of our business units. Core EPS recorded a strong increase, Sales were generally high, and our capital position continues to be robust. Starting with slide eight for an overview of Q1 results. All our three operating business segments include Insurance Canada, Wealth Management, and U.S. Operations had double-digit core earnings growth, leading to a core EPS of $2.44, up by 17% year-over-year. Our ROE of 14.6% is close to our midterm target of 15% plus. Our business growth also showed strong momentum in Q1, with significant sales growth in almost all business units. As a result, we concluded the quarter with assets under management and administration up 11% year-over-year and premiums and deposits up 8%. Our book value per share of $68.93 on March 31st recorded a healthy increase of more than 8% when we exclude the impact of share buybacks. And our capital position is robust with a solvency ratio of 142%, supported by continued strong organic capital generation and good risk management practices. Now to slide nine to look at Q1 business growth for the Insurance Canada segment. This segment started the year strongly, with all business units posting good sales results. For individual insurance, we continue to be in a leading position in number of policies sold, with sales of $89 million during the first quarter. The strength and diversification of our distribution networks, our close relationship with distributors, as well as the high performance and simplicity of our digital tools, among other things, remain key to our growth strategy. In group insurance, sales increased by 21% year-over-year, leading premiums and deposits along with good retention to $506 million, which is 8% higher than a year ago. In the dealer services division, first quarter sales of $148 million were up 3% year-over-year, a good result given the challenging environment that continues to impact vehicle affordability. Finally, IOTO and HOME direct written premiums in the first quarter reached $114 million, a robust increase of 16% over the same period last year. This result was supported by strong sales and higher premiums. Turning to slide 10 to comment on wealth management sales results, where we reported very solid results. most notably with net fund inflows of more than $400 million. IE continued to rank first in both gross and net SEC fund sales. Gross sales of SEC funds reached nearly $1.3 billion, up 24% year-over-year, and net inflows of $557 million were recorded during the first quarter. Richer fund sales of $486 million were slightly higher than last year, but inflows were lower than outflows as the mutual fund industry continued to be challenged. In addition, while improved financial market performance prompted investors to shift away from guaranteed investments, sales of insured annuities and other savings products remained elevated, reaching $581 million, a very good result, even if lower than last year, which had been a record quarter. Finally, in group savings and retirement, solid sales of $918 million in the first quarter, up by 18% year-over-year, were driven by strong sales of accumulation products. Now looking at slide 11 regarding our business growth results in the U.S. In individual insurance, sales of $42 million were up 2% from a year earlier. Supported by our distribution networks and our product range, The activity remains strong in this business unit as we continue to strengthen our presence and grow organically. However, a temporary timing issue related to the recognition of new sales tempered slightly the growth pace in the first quarter. In dealer services, first quarter sales amounted to $248 million, which is a good 8% increase compared to the same quarter a year earlier. While these results reflect the positive impact of improved inventories and lower vehicle prices, we continue to take actions to ensure that we are well positioned for a full recovery, such as expanding our distribution channels. Turning to slide 12, where our key financial KPIs for the quarter compare favorably with our mid-term targets. Indeed, Core EPS, which is 17% higher than Q1 2023, is well above the targeted 10% plus annual average growth. Core ROE of 14.6% is progressing toward our midterm target of 15% and above. Our solvency ratio is well above our operating target while we continue to invest in growing all our business. Continued organic capital generation of $130 million during the quarter is higher than during the same period last year and is in line with projections to exceed $600 million in 2024. And lastly, the dividend payout ratio for Q1 is near the top end of our guidance, mainly due to the significant dividend increase that was announced in February. As we continue to invest in growing all our businesses, our robust capital position will and strong ongoing organic capital generation allow us to increase from 5% to 8% the maximum number of repurchases authorized under our share buyback program. This gives us the flexibility to create and return value to our shareholders while pursuing acquisition opportunities. We continue to be very active but disciplined in seeking acquisitions to grow our current operating business segments. There are greater opportunities for certain business units, such as our U.S. operations. To conclude, I want to highlight that we have reduced the sensitivity of our core earnings to the interest rate variations, and therefore, in addition to being a better representation of underlying recurring earning power, core earnings should be less volatile going forward. I will now hand it over to Eric, Who will comment on this initiative following his remarks on first quarter profitability and capital strength? Following Eric's comment, we will take questions.

Eric. Thank you, Denis, and good morning, everyone. Starting with slide 14 for an overview of Q1 profitability and financial strength. Profitability, as mentioned by Denis, was really good. in the first quarter, with 17% core APS increase year-over-year, driven by solid management results, lower claims at IEO Minotauk, and favorable mortality experience in all operating business segments. These favorable items are reflected in the year-over-year 21% increase in insurance results and in the higher results from non-insurance activities. Lower core other expense also contributed to the strong core earnings growth. Trading 12-month ROE at 14.6% is near to our midterm ROE target of 15% plus. Our solvency ratio continues to be robust and comfortably above our operating target with strong ongoing organic capital generation. As for the book value, which is a key metric for measuring value creation, it has increased by more than 8% over the past 12 months, excluding the impact of share buybacks. Now moving to slide 15 to take a closer look at the results by segment. All three of our operating business segments recorded year-over-year double-digit core earnings growth. In Insurance Canada, core earnings increased significantly by 24% over 12 months to 92 million. This strong result was mainly due to experience gains attributable to lower claims at IE home and auto and to favorable mortality experience in individual and group insurance. IE auto and home positive experience was mainly the result of this year mild winter. Together with the favorable impact of premium increases implemented in 2023, As for the main experience results, they were all near expectations. In the wealth management segment, first quarter core earnings reached $95 million, well above the previous year result of $65 million. Tech funds and annuities made a significant contribution to this solid result with a year-over-year growth of 32% in the core insurance service result. This increase is due to a higher CSM recognized for the services provided and the impact of strong net sales. Core non-insurance activities also increased by 32% year over year, with another very good performance from our distribution affiliates, mainly due to higher net commissions and better margins. Lastly, core other expenses in this segment were lower than a year ago. U.S. operations also recorded a good result with a 12% year-over-year increase in core earnings, supported by lower core other expenses and taxes. In individual insurance, the impact of good business growth and favorable mortality experience was partially offset by the impact of more on EOS contracts. In dealer services, the favorable impact of sales during Q1 increased 2024 was offset by a slightly less profitable business mix and to a lesser extent by the impact of lower sales in 2023. Now turning to slide 16, looking first at the investment segment, core earnings of $86 million for the first quarters compared to $95 million during the previous quarters. Most of the decrease comes from core net investment result and is due to the decline in interest rate in Q4 and is in line with the sensitivities that we provided in February 2024. As a reminder, the core net investment result for a given quarter is dependent on the yield curve at the beginning of the quarter since we assume for core earnings purposes that interest rate remains constant throughout the quarter. Looking forward, we expect core net investment results to be more stable following recent action that have reduced the sensitivity of our core earnings to interest rate variation by more than 40%. We are very pleased with this reduction in future volatility of our core earnings, and I will provide you with more details shortly. Returning now to the investment results for the first quarter, Credit experience was near expectation with a slight $1 million credit loss, mainly due to more downgrades than upgrades in the bond portfolio. In the corporate segment, core other expenses before taxes of $66 million are in line with our 2024 quarterly expectation of $65 million plus or minus $5 million. This good result is mainly due to our discipline and focus on operational efficiency initiatives. Now looking at the right side of the slide for non-core adjustments, two one-core earnings exceeded reported earnings by only 10 million. As for market-related impacts and assumption changes were more than upset by other items mostly related to acquisitions. Please go to slide 17 to look at the company robust capital position. Our solvency ratio of 142% at March 31st is well above our operating target of 120%. The slight decline of three percentage points during the quarter was mainly due to an unfavorable impact of macroeconomic variation and other non-organic items. As for the positive contribution of organic capital generation, it was more than sufficient to cover Q1 capital deployment, which essentially consisted of share buybacks. Organic capital generation continued to be strong, reaching 130 million in the first quarter. This result is higher than last year for the same period. It is also in line with our projection to exceed the minimum target of 600 million in 2024, as due to seasonality, organic generation is generally stronger from the second quarter onwards. With such a solid capital position, we ended the quarter with approximately $1.5 billion in capital available for deployment for organic growth and acquisition, as well as dividends and share buybacks. On this topic, we announced earlier today that we raised the maximum number of shares that can be repurchased under the current NCIB program from 5% to 8%. Continuing on slide 18 to discuss some recent operational efficiency initiatives. IE has always been known as a cost-conscious company, investing wisely to support sustainable growth. In recent years, we have prioritized the deployment of capital in organic growth, most notably in our digital transformation. This has been done following rigorous process to prioritize and ensure that expected benefits will materialize. As the number of these projects gradually come to an end, our disciplined approach is showing results. Indeed, total core other expenses in Q1 are lower than during the previous quarter and than a year ago. Also, core other expenses for the corporate segment were $66 million in Q1 2024, which is in line with the expected quarterly run rate of about 65 million. Now going to slide 19 to comment on the actions taken to reduce sensitivity of our core earnings to interest rate variations. Optimizing the management of our asset and liabilities has always been a key focus and it is even more important under IFRS 917, given the accounting treatment of assets and liabilities under these new standards. After one year under these new standards, we wanted to further reduce the sensitivity of our results to interest rate variation, which we have succeeded in doing so. It has been reduced by more than 40%, thereby also minimizing the future volatility of our core earnings. This has been achieved through certain initiatives, such as making the accounting approach for certain liabilities more consistent with the approach used for assets. Looking forward, the core net investment results should be more stable and core earnings will better reflect the company's robust underlying and recurring earning power. With this sensitivity reduction and our recent operational efficiency initiatives, We are well positioned for the quarters ahead. This concludes my remark. Operator, we will now take questions.

Thank you, ladies and gentlemen. Should you have a question, please press star 1. To withdraw a question, press star 2. One moment, please, for your first question. Your first question comes from Manny Groman from Scotiabank. Please go ahead.

Hi, good morning. First off, happy retirement, Mike. I wanted to just start by asking about the interest rate sensitivity reduction. First off, were you able to reduce this sensitivity costlessly, or is there some cost associated with that? I wanted to clarify that first.

Yeah, perfect. A good question. In fact, it's costlessly, okay? And the reason is that we have just – It's costless, sorry. And the reason is that the thing that we've made is applying hedge accounting on our liabilities so that the liabilities move more in sync with the assets backing them. And we have made no economic hedging or any other thing that changed the economic underwriting.

And so just to understand why you decided to do this now and not with the introduction of IFRS 17, is there something that changed or how do we understand the timing of this right now?

Yeah, it's another good question. In fact, you know, when we started IFRS 17, we made all the good choices that we thought were the right things to do. And as 2023 realized, You know, lots of things happened in 2023, and the volatility of our core earnings was exceeding what we were expecting. So we constantly, throughout 2023, looked at ways to optimize and improve the situation. And this item is just a result of further analysis of the sources of this volatility that was just creating distortions in accounting earnings.

Okay, got it. And then just a final question on the topic. You reduced the sensitivity by 40%. Is there room to go further? Is that something realistic or we shouldn't expect that?

The answer is yes. We continue to work on this. And realistically, you know, it's not possible to think that this will be zero. But we continue to work towards improving the core sensitivity.

Great.

I'll recue. Thank you.

Your next question comes from Doug Young from Desjardins Capital Markets. Please go ahead.

Hi. Good morning. Just going to slide 17, just I wanted to clarify a few things. There's a one-point impact from other non-organic variations, and I'm just hoping to understand what that's related to. And it looks like the capital required for organic growth doubled versus last year. And, you know, Canadian individual insurance sales are flat. Group and wealth, I don't think that's fairly capital intensive. So just trying to understand, you know, the capital required for organic growth, the one-and-a-half point impact as well.

Yes, sure, Doug. First, I'll start with the non-organic variation. This is related to asset rebalancing and optimization of our portfolio. So really, it's the investment team taking proactive action on our portfolio. So that's the first answer to your question. And for the other one on the capital required for organic growth, you might notice that we have added a line for the risk adjustment release. This line last year was bundled with the capital required for organic growth. So that's one of the reasons why you have the impression that it's higher. So that's one reason. And the other one, why on a quarterly basis the number is higher. is that we have some seasonality that happens, especially for the group businesses and employee plan. So that business profile is tilted more toward the first half of the year, so it's normal to have more required capital in the first quarter for this reason.

Okay, so the second response, just the Canadian group, This is in the employee benefit side and this is just related to the additional sales, is that?

Yeah, no, it's related to the in-force and new business. It's all inclusive.

Okay. And then just going back to proactive on the portfolio. So basically, is this has anything to do with the actions you took to reduce your sensitivity or your coordinating sensitivity? to the movements in interest rates, or is this something in an effort to pick up yield? Maybe dig into that.

No. As I mentioned earlier, Doug, the action we've taken to reduce the sensitivity are purely accounting actions. So we did not take any actions that would result in – in a decrease of value of assets of anything. It's purely unrelated.

Okay. I'm going to come back to that after. And then just, you know, maybe related to the U.S. division, just a few questions. One, you talked about onerous contracts or a strain increasing related to more onerous contract sales. If if you can kind of dig into that. And then on the U.S. employee or on the U.S. dealer service or extended vehicle warranty side, it looks like, you know, you're cutting employees, you're taking rate actions, you know, results are expected to improve. And do we start seeing this improvement next quarter?

Can you talk a bit about the cost saves that comes from this employee reduction? Yes, Doug.

First, on the strain for the U.S. Life Division, What we see there is slightly higher not taken policies that have increased the strain. You know, we're taking management action to improve the pricing and make sure that we get the desired profitability. But Q1 was a quarter where we had a bit more of those untaken policies. And by the IFRS 17 definition, The acquisition cost that comes with a policy that the client does not proceed forward with needs to be recognized. So that's why it's showing up in the last component. And as for the dealer businesses' profitability, the cost savings will – and, you know, we said last year that the situation would gradually improve in terms of profitability in 2024. And this is one action that will – help us improve the situation on top of growth of the business?

Yeah, Doug, it's Denis here. I mean, you might ask, I mean, if we turn the corner here, I think we need a couple of more quarters. There are some early signs that, you know, positive early signs in terms of increase in sales, the fact that we've eliminated some positions, also some repricing for some businesses. So, I believe that we are improving, as we said, gradually the situation, but we still need a couple of quarters to show it, I guess.

Just to follow up, like in terms of the cost saves, have you quantified what that is?

Yeah, we are not ready to disclose that information at this point, Doug, but yes, we have quantified it.

Okay. And Doug, I would add that not only have we eliminated some positions, but we are very, very rigorous in terms of adding new people in this organization. So it's not only the positions that have been eliminated. It's also the way that we manage the expenses overall that is important in that business. And I think what you should keep in mind is that we are working towards improving profitability overall for that business. Perfect.

I appreciate the color. And, Mike, all the best in retirement.

Your next question comes from Gabriel Deschain from National Bank. Please go ahead.

Hi. Good morning – or afternoon, 1201. I have to ask you a few – Straightforward questions, I think. Firstly, the experience gains in Canada, pretty high number. Can you give me the split between P and C in mortality?

Yes. Good afternoon, Gabriel. It's about two-thirds higher on Monaco and one-third for mortality.

Got it. Thanks. Then a little curveball maybe for Alain. I'd like to hear if you have any thoughts on how the higher capital gains inclusion rate might be affecting your job. Not your job, but you know what I mean.

Well, I mean, so you want to know what is the impact on earnings, right, on the increase in capital gains?

Yeah, on earnings or how you manage the portfolio, really.

No, I mean, it would impact capital gains for, let's say, business, not business, but investments like real estate, you know, whenever we decide to dispose of those. But we've made the calculation. In terms of recurring impact of that change, it's immaterial. Okay, it's immaterial.

Okay, so it doesn't sound like any change to how you're, you know, running the portfolio then.

it's not going to change the way we're going to manage our portfolio.

Got it. Great. I was hoping for something juicier, but that's fine. It's better. Lastly, on the U.S., so this is a stupid question because there's a lot of changes taking place. You're adjusting the cost base. You're increasing your pricing. You're expanding your distribution network and all that stuff. How do I – I just want to – know where to look for that business and how to track its performance. There's expected earnings on PAA insurance. This is the drivers of earnings in your U.S. operation. Expected earnings on PAA insurance business, probably some experience gains, but I don't know if I model those. Core non-insurance activities, what's the best place to look for?

Short answer, Gabriel, is both. Because the PAA line represents the business that we're taking some underwriting risk, so it's the PNC. And the other one, the non-insurance operation, represents the admin business that we have.

Got it. And then I suppose other expenses would be in there as well, right? So it's a bit of a mishmash. But I get that. Okay. All right, that's it for me. Thanks.

Your next question comes from Tom MacKinnon from BMO Capital. Please go ahead.

Yeah, thanks very much, and good afternoon. And Mike, congratulations on a long, successful, and rewarding career. Question on Canada, impact of new business. I remember in the fourth quarter, this number was much more negative than everybody thought. and it would seem to be related to some of the group business. Then if I look at this number now, it's less than half of the figure that it was in the fourth quarter, yet your group business both in premiums and deposits is flat quarter, your sales are better. Help us think about how to look at that. impact of new business in Canada going forward, just given the fact that it jumped a lot in the fourth quarter, came back down to a more reasonable level in the first quarter. Thanks.

Yes, Tom, on this one, we always mention that for the group, it comes from the employee benefit sector and group insurance in particular. And we always mention that this is a lumpy business situation. And so sometimes you get those big sales that flow in and that you need to recognize the investment at the point of sale. And there are renewals also happening to some other extent on the enforced business. And depending on the combination of the two, it may create a bit of volatility on sales. on that line, but you know, for me, as I mentioned in Q4, we're being very disciplined at pricing and renewing those groups to make sure that we get to our target profitability, but this volatility is normal, and maybe another clue I can give you is that when I look at the business model for group employee plan, it's tilted more toward the first half of the year than toward the second half employers tend to put their group in force more toward the beginning of the year and January 1st and then the first quarter, then later in the year. So that's why you see a bit more volatility on that line.

I mean, it was as large as negative in the fourth quarter of last year, which seems to be inconsistent with your comments about when people – I thought that people would be moving the cases more, exceptionally in the first quarter, but also in the fourth quarter.

That's a very good question, Tom. And what you need to realize is that when we get an agreement with an employer, we sign the group. Sometimes it goes up to 12 months before that group is put into our books because the implementation is a quite cumbersome and lengthy process. So what happened last quarter is that we had sales confirmations And accountingly speaking, we need to recognize the agreement that we've booked, and those premiums will come into our books in the quarters to come. So that's why there is a bit of lagging effect between the loss component and the increase in premium because of that implementation process that takes a while.

Okay, thanks. In the wealth management, the non-insurance activities, I guess that seems to be some of your share of earnings from some of the affiliates up nicely year over year, continues to climb, and I think you mentioned commission increases. Is that a trend? Should we expect the run rate just to continue from the 50 that you booked for that line in Q124?

Well, in fact, for this, if Stefan keeps growing the business, yes, we can expect this to continue to grow. And the reality for that is you mentioned one good explanation about the reason why it's going up. The other one also is improved margins. That is good. So this sector tends to be correlated with macroeconomic environment. And I would say that as long as macroeconomics It stands where it is right now, stock market, interest rate. We could expect this sector to perform.

Okay, thanks very much. Tom Denis here. Recruiting is very important in that sector, and I would invite maybe Stéphane to comment on the recruiting activities, the trend that he's seeing in the market right now.

I think what we've seen, obviously the focus has been on retaining our advisors. I think we've done a great job there because a lot of the growth is coming from organic growth. The recruiting has picked up since last year in a really strong Q4, carried over the Q1. Momentum is there as well. So we do see an appetite in the industry for that independent model, and that's been driving our assets as well with the market. And as you saw, we're also looking for acquisition opportunity in tuck-ins, and this is where also the Laurentian deal came into play. So we are very much focusing on growing that distribution part of our business.

Great. Appreciate the cover. Thanks.

Your next question comes from Paul Holden from CIBC.

Please go ahead.

Thank you. Afternoon. Going back to the discussion on the interest rate volatility, I think it's easy to agree that lower volatility with no cost is a good outcome. I guess what I'm curious about is also the level of net investment income. Obviously, it was down. quite a bit in Q1. Now with the change in accounting, how quickly or not might that recover to prior levels?

Yes. Hi, Paul. It's Eric again. On this sensitivity, you see the level we are right now with Q1, nearly 110%. So that's a good starting point. Using our sensitivity and the interest rate move between the end of December and the end of March, you can use the sensitivity to guess where our next quarter core net investment results should be.

Okay. I understand. Second question is a bit of a bigger picture one. and want to talk about core ROE. So it was pretty good this quarter, 14.6, closing in on the 15% plus target, but not quite there. Just wondering what gets you over the 15% target or really back to the 15% plus? Is it as simple as deployment of that excess capital you're holding, which is significant, or are there other levers you're looking at pulling?

Paul, it's Denis here. I would say two things. The first one is improving our current operations. And you have seen some improvements, obviously, in this quarter, and we're working to improve even more, in particular the U.S. dealer business. That's the first thing. The second would be deploying capital, as you mentioned. You've seen, for example, that we've increased the NCIB because, I mean, at the end of the day, The 5% maximum we had, we would have hit it, you know, very quick. So we needed to improve it, to increase it. It's one way for us to deploy capital. It's not our, let's say, preferred choice, I would say. If we could find areas for growth with acquisitions would be our first choice. But now we have all the options available for us. So to your point, yes, deployment of capital would be a great tool. And we've made all the tests, you know, with it. we know how much the ROE could go up, you know, depending on which kind of scenario we have. So we can, if we did public cap at all, the 15% plus is reachable. Got it.

Okay. And last one for me, another big picture one, is I've kind of observed the results through 2023 when interest rates are higher. I start thinking about maybe for IAEA, a lower interest rate environment might actually be better for sales, maybe even for earnings, and now particularly with the additional reduction in volatility on that investment income line. Wondering how you're thinking about sort of, I don't know, if you call it optimal interest rate environment, but is lower better, is higher better, stable better? How should we be thinking about that?

All in all, higher is better. I mean, that's the short answer. Because when you think about most of our businesses, like the individual insurance business, the wealth management business, I mean, there are some ripple effects on macroeconomic factors. It's better. It might be a challenge on the dealer business for affordability, especially if it's combined with higher prices, which we've seen. Usually that's not the case, but that's what we've seen. but it's pretty obvious to me that the higher the better.

Okay, got it. Thanks for your time.

Your next question comes from Mario Mendonca from TD Securities. Please go ahead.

Good afternoon. Eric, first, going back to Tom's question about the strain in domestic or in Canadian businesses, Sales and employee benefits were up 21%, and of course, as you've shown us, the strain is mostly flat year over year. What I'm trying to understand was, was that a mix of business issue, or did the company do something different with these sales that led to the lower strain numbers?

No, absolutely nothing, Mario. No change. It's purely the impact of new business and renewal combined.

But, sorry, sales were up 21% and strain didn't really move much. Can you help me understand that?

Yeah. In fact, when you look at the sales up 21%, as I mentioned to Tom, those sales are confirmed, but they will be implemented, let's say, for beginning of next year or maybe later this year. So that's why you don't see the premium increase yet because it takes a while to implement those groups into our books. So that's why there is a lag effect between the strain and the growth.

So does that mean that those sales that you're referring to this quarter, the up 21%, will result in strain, say, 12 months from now? Is that the message?

No, no. The strain is really when we sign those groups, and the premium income will increase in the coming quarters.

So is it fair then to say that the strain we saw last quarter was the reflection of the higher sales we're seeing this quarter? I'm just trying to understand how this ties in.

Yeah, in fact, you cannot tie it to exactly the sales number. The sales, when we report the sales, those are the confirmed sales, okay? And the strain is connected with those confirmed sales, and then the the premium income of that sector is really reflective of when those premiums start to flow into our balance sheet and income statement.

Let me just try this one more time then. So the 21% increase in sales we saw this quarter, was there any quarter in the past or any quarter in the future that will reflect that? the higher strain from those sales.

I think that's what I'm trying to understand.

Yeah, the answer is no. Those sales have nothing. The strain that we have this quarter is the agreements that we signed during the quarter. And those sales will appear in our reports when, Eric? In the coming quarters.

The coming quarter. So there's a disconnect between whenever we sign a deal and where you have to incur the strain. and the moment that in our report we see the sales number. Okay, okay, I see. That's what he's trying to, that's what Mario is trying to get at. Okay, sorry.

So these sales that were, no, so these sales that were recorded, when were those contracts, when would those contracts have been signed? Because that's when the strain goes through, right? That's what you, I think what you just said.

During this quarter, during this quarter, Matthew.

Okay, well then I clearly don't, I clearly don't understand that then. I'll take it offline. Maybe another question for Dennis. Denise, when the acquisition of IAS was announced a while back, there was a lot of enthusiasm around that, and certainly that was the case in the year shortly after. Your response to an earlier question where you sound sort of guarded on how U.S. dealer services could – could play out in the near term. Can you talk about what's changed for you? What's made you, let's say, less enthusiastic about this business, or is this very much just a near-term statement, and you're still very optimistic about dealer services over the long run?

Mario, obviously, I don't want to over-promise under-delivered. I would say that would be my first comment. The pandemic has been quite detrimental to that business. I mean, it was closed at The acquisition was closed at the worst time, I would say. So the result has never been what we expected. So now we see some gradual improvement, but I would prefer personally to see a couple of quarters of good results before I start feeling enthusiastic about the business. Now, there are good signs this quarter, which is good, but I don't want to see that we turn the corner yet.

Okay, thank you.

Ladies and gentlemen, as a reminder, should you have a question, please press star one. Your next question comes from Darko Mielek from RBC Capital Market. Please go ahead.

Hi, thank you. Good afternoon. I'm kind of in Mario's camp where I'm not quite sure that I understand why strain wasn't higher in the quarter. Is there a way you can maybe connect it? Like, for example, last quarter, strain per dollar of sale or something like that. Is that maybe the way we can make this connection to help me understand the situation of strain, please?

Yes, in fact, you know, if you look at slide nine, I'll bring you there, okay, just to try to clarify the situation. You know, when we talk about premiums, those premiums reflect the ongoing premium for groups that have been onboarded with us. So after implementation. So the strain that we have shown in Q4, depending on where the sales will be implemented, will start to increase those premium income when this happens. when they are being implemented.

Okay. But, okay.

Maybe I'll just take it offline. Yeah. And then just my final question is I want to go back to Denny, your earlier comments. So, when I think about the significant amount of capital you have, you've upped the NCIB. Clearly, there's an intention. to use it in case there is no other outlet for capital. So is it fair for us to assume that even after VeriCity closes, you'll have a drop in the LICAT?

If there's nothing else, is it fair to assume that you would simply exhaust the NCIB? I guess –

I wish I could say yes to your question, but it also depends on the price of the stock. The price of the stock was pretty depressed recently. I was not pleased with that, and we decided to be more aggressive on the buyback. So if stock price was to stay as it was during the last three months, I would say definitely yes. But if the price of the stock moves up significantly, it might be that there's a slowing of buyback. But right now, I mean, we are on our way to use it all. But again, it depends on the stock price.

Great. Thank you very much.

And there are no further questions at this time. I will turn the call back over to Denis Ricard for closing remarks.

Okay. Well, thank you for all your questions. We're very pleased today because we've said several times that we aim for a 10% plus EPS growth, and we've delivered a 17%. Obviously, the 10% is an average over time, but we're pleased of our 17% and pleased to the fact that all our three units have increased by more than 10%. And we have, I would say, broadened the options of capital deployment with the NCIB moving from 5% to 8% this quarter. So I'm so pleased with the fact that we have this option, you know, for the time being. So with that said, thank you very much for attending this call.

Ladies and gentlemen, this concludes your conference call for today. You may now disconnect. Thank you.