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

Yes. Okay. And then we've done some work on the U.S. extended vehicle warranty market. I mean it's gone to some challenges through COVID that everything -- a lot of things much challenges through COVID. But the -- it's a high ROE business. It's a fragmented business. It's an area where you've got experience in Canada, in different areas in creditor in more in Canada. And the question is, what's holding you back from being more acquisitive in the U.S. extended vehicle warranty business?

Yes. I guess, first, we're really happy with the change with made over the last couple of years. Heading into the pandemic was quite turbulent period and timing was not great. But at least it allowed us the opportunity to make the right fix to the business model, bringing in new management with a different culture, adjusting the culture, adjusting the technology behind the scene. So we use that kind of crisis, let prices to reinforce the business model. And that's what we're starting to see the benefit of -- but we want to make sure that before we swing for a bigger acquisition, that we want to make sure that we have turned the corner and the adjustment we've made to the business model, repricing, cultural change and management that we have the right mix of -- and we're in a pretty good end right now. Sean made great hiring on that front with John Laudenslager, and John has made a few changes. So we're getting where we want with that business. But before swinging for the big one, we want, let's say, a couple of quarters a year to make sure that we're hope with the solutions. And then we'll be happy to go to go bigger, but it doesn't mean in the short term that we can do any small tuck-in. Small tuck-in Is less disturbing than bigger files. So that's how we see it.

As an outside observer, is there something that we should be looking at that would kind of give us kind of a signal that you're kind of hitting your mark on the U.S. extended vehicle business from a financial perspective?

Yes. I think the key point will be growth in the coming quarters.

Sales or?

Yes, sales. We've made adjustments in the pricing we lost a couple of clients because of that because, of course, when you bring in changes sometimes, it brings a bit of volatility. But we're really confident with the solutions that we've put in place and the way the business model is set up, when sales will pick up with the adjustments we've made will be a pretty good signal.

Okay. So it doesn't seem like from a capital deployment, you're kind of there yet on the U.S. extended vehicle warranties. The other one would be U.S. life insurance. Where you've been acquisitive and you went back -- we went back way back and you built this with American-Amicable and Golden State, you proved it out and then you've layered on top of it. Someone like me that's covered the life insurance space in a long time, U.S. life insurance expansion, can be in banking, too, but it can be a bit of a dirty word. So when -- I'm sure you get questions on this. And so why is this a good market? Why is it so attractive? Why is the U.S. life insurance market so attractive? And I know you're not in secondary guarantee UL or you're not in variable and UEs and all that stuff. But like what really attracts you to that marketplace?

Yes, that's an interesting question, and I'll start with an anecdote to give you a bit of context. At the time when we decided to go south of the border with a real footprint with the company in the U.S., I was in the acquisition team. So I worked there for a couple of years. I've mentioned it at the investor event. At that time, I was helping the that went into the U.S., our former leader, Mike Stickney, to scan the market and identify potential market and targets. And what draw our attention with American-Amicable was that it was an opportunity for us to build on our strengths, which is the know-how of managing life insurance. So first thing. Second thing was about our strength also on distribution management and American-Amicable business model is relying on important distribution relationship with IMOs. So we were quite excited. And I would say, finally, the other criteria we had in mind is that we didn't want to compete it with big names in the U.S. like Metropolitan and Prudential. We wanted a niche market that was reinforcing on our strength and deliver value. And guess what, we would that company was selling about $25 million a year in 2010, and it's now selling over $225 million a year. So very successful broad story out there, building on our -- the highest trend foundation.

Any sort of product extension in the U.S.?

Yes, that's always top of mind. With American-Amicable for example, this year with -- we've put in place a bit of saving products like the pulp product and index UL for the same target market, because we want to keep the same distribution relationship. But for those that have a little bit of savings and wanted to do a bit more estate planning. There was a need for that. So we've just launched those products in the U.S. over the last 12 months. So those are 2 very good and recent examples.

Okay. I'm going to pull us back higher level out of the U.S. market and go back to Canada because I don't think we don't talk enough about Canada, and it's still a big part of your overall business. But it feels like you've got some of your competitors that are looking and waking up to the opportunity in Canada and Great-West has talked about the site fund market and Manulife with their strategic refresh has talked more about the mass insurance market in Canada, which is where you compete. Thoughts on increased competition in Canada in those particular segments or just frankly, in general.

Yes. In fact, let's be specific. We're in the -- our target market is mass marketing. Manu is talking about this now, but the Canadians in general are underinsured in Canada. We have LIMRA studies that talk about this. 50% of the Canadians are underinsured. Underinsured. So plenty of room to grow, okay? That being said -- and there could be growth opportunities for peers as well. But the key thing with the mass market is really to meet a number of critical characteristics to be successful in that market. And those require years of buildup, which means infrastructure to be efficient, it requires technology as well. These days, we say that we -- one out of 2 policies that iA shows is issued automatically. We have, over the years, transform traditional underwriting with algorithm underwriting that has made by those algorithm. It will take years to build those and what's even more important is building distribution relationship. And that's the key piece, a masterpiece that requires a lot of time to build up as well. So those 3 things make it. Finally, it requires time and money to invest and experience. So with all of that, iA has been building that story for years and in Canada. So for our peers that want to enter that market, they need to be as performance as we are right now in that market segment as it makes all the difference in the world.

Yes. And I assume you're not seeing any pressure at this point.

Not at this point. Even we heard about Canada and tension on the funds, but we don't really see it.

So going to the RF transaction, and you're going to be graded here because he is taking out. But the -- this isn't your first acquisition in the distribution, you have a history of doing acquisitions and distribution, you have experience doing it. Like what is -- and it's in different areas like dealers and stuff like that, but what is the history of your acquisitions in the distribution space? How has that helped you kind of formalize your -- the acquisition of RF and you're thinking about the opportunity with RF?

Yes. We've always been looking at distribution. It's part of our DNA to build. I just talked about the importance that the distribution place us within iA DNA. So it's not any different for wealth. So this is something we care a lot about, and we have a lot of interest, and we see that we can build something profitable. And we can scale technology costs and compliant cost are really, really increasing. And when you scale up those businesses, it allows us to be more competitive year after year with scaling benefits. So that's quite important. And it's all about when we did something to acquire, but you need to be perfect at execution. You need to look at the missing -- the gap that the potential target as Stephan identified with a number of gaps that we were seeing. They had, and we had number of gaps and RN. And so when we look at this and the combined portions of our model with their model was really delivering more than 1 plus 1. So it was really positive for them, and it was positive for us as well. So we look at all of these things when we look at acquisition, what does it bring to us? And what do we bring to them as well?

Five years from now, what will define the success of the RF acquisition?

Yes. First, I'll see meeting the execution and the CFO. So maintaining the financial target is quite important. So -- but I know that Stephan, we're in good hands. Stephan has been since the day after the announcement of the acquisition, Stephan hit the road and he met everybody and did great retention. So we think the financial target is quite important. And then building on and leveraging capabilities with the revenues and other parts of iA like insurance sales and so on in that market will be a key success criteria.

Will you provide revenue synergy targets at some point in time?

No, we did not think about that, but maybe that's something I will talk with Caroline. But keep in mind that when we talked about the acquisition and the accretiveness, we said that the improved EBITDA synergies will come about 50-50 between revenue and cost synergies. And on the revenue side, Stephan has a number of things that he wants to target -- to tackle for revenue synergies, like you know, it allowed us to improve the geographical footprint in Canada because we were not exactly in the same cities. And also another example is that it provides us the RF acquisition, provides us an opportunity to recruit true bank adviser, that's really the key. With Stephan, what the model and the wealth model we had in place with financial advisory and the independent model we work hard with that independent dealer model or adviser model to be able to recruit these advisers from them. We needed a step in between that was a software lending space for bank advisers. And for us, that will be a good opportunity to even scale further the business model of RF.

So we've got just over a minute left, and I'm going to have to be kept on time here. So what I'll do is I'll pass it over to you just for some key messages and maybe there's something you want to address that maybe we haven't addressed or talked about in her discussion.

Yes, sure. For us, the next year, I would say, Doug, what will be top of mind for the next year is really deploying our capital. That's really -- that's really the key. We want to deploy capital through acquisitions through NCIB. I just said that we have just announced the increase of the NCIB. We want to optimize capital as well. We've done great in the last couple of years, tweaking and optimizing our capital structure. So that will be a key aspect as well. And most importantly, deliver the benefits on the acquisitions that we've made and on the important investments. So those are the key things. All of this with maintaining our great story about organic growth internally and building those distribution relation.

We got through a whole discussion without talking about anything actuarial.

Yes. Great.

Thankful to everybody. So well, thank you very much. We really appreciate your participation in our inaugural conference here, and thank you very much and have a great rest of the day.

Thank you. Thank you, Doug.