Industrial Alliance Insurance and Financial Services Inc.

136 Pages·2017·2.54 MB·English

2016 Annual Report
STRONG HISTORY
BRIGHT FUTURE
iA Financial Group
is turning 125!
Table of Contents
1 — Financial Highlights
iA Financial Group’s history begins with two pioneering
2 — 2016 in Review
Canadian insurance companies. The first, Alliance Nationale,
was a mutual aid society created in Montreal in 1892. 4 — M essage from the
The second, the Industrial Life Insurance Company, was Chairman of the Board
founded in Quebec City in 1905. In 1987, the two merged
5 — P resident and Chief
to form the Industrial-Alliance Life Insurance Company.
Executive Officer’s Report
Since that time, Industrial Alliance has evolved from 7 — i A Financial Group
a mutual to a publicly-traded company listed on the Planning Committee
Toronto Stock Exchange, from a Quebec-based insurer
9 — 2 016 Management’s
to one operating across Canada and in the United States,
Discussion and Analysis
and from a life and health insurance company to an
integrated financial services firm. 51 — Ten-Year History
60 — C onsolidated Financial
In 2015, Industrial Alliance was re-branded as iA Financial
Statements and Notes
Group, proudly reflecting the Company’s position as a
major Canadian financial institution, dedicated to ensuring 127 — I ndustrial Alliance
the financial wellbeing of its clients for another 125 years Board of Directors
to come! 128 — M anagement of iA Financial Group
129 — Offices of iA Financial Group
132 — G eneral Information and
Shareholder Information
FINANCIAL HIGHLIGHTS
Financial Highlights (Consolidated Financial Data1)

Years ended December 31
(In millions of dollars, unless otherwise indicated) 2016 2015 Variation
Profitability
Net income attributed to common shareholders 537.2 364.4 47%
Earnings per common share (diluted) $5.19 $3.57 $1.62
Return on common shareholders' equity 13.2% 10.2% 300 bps
Business Growth
Net premiums, premium equivalents and deposits by line of business
Individual Insurance 1,686.1 1,578.5 7%
Individual Wealth Management 3,334.5 3,140.1 6%
Group Insurance 1,476.4 1,442.3 2%
Group Savings and Retirement 1,455.0 1,293.3 13%
General Insurance 250.5 218.1 15%
Total 8,202.5 7,672.3 7%
Sales by line of business
Individual Insurance 306.7 254.3 21%
Individual Wealth Management
General fund 300.6 130.4 131%
Segregated funds 1,559.6 1,581.2 (1%)
Mutual funds 1,474.3 1,428.5 3%
Total 3,334.5 3,140.1 6%
Group Insurance
Employee Plans 71.4 68.0 5%
Dealer Services – Creditor Insurance 363.0 363.0 0%
Dealer Services – P&C 196.9 197.7 0%
Special Markets Solutions 194.1 190.3 2%
Total 825.4 819.0 1%
Group Savings and Retirement 1,481.4 1,316.2 13%
Assets under management and administration
Assets under management 84,847.0 78,892.5 8%
Assets under administration 41,387.2 36,920.8 12%
Total 126,234.2 115,813.3 9%
Financial Position (as at December 31)
Book value per common share $40.97 $36.76 11%
Equity and debentures 5,759.9 5,030.1 15%
Solvency ratio 225% 213% 1,200 bps
Debt measures
Debentures/capital structure 17.3% 16.8% 50 bps
Debentures and preferred shares/capital structure 23.8% 24.3% (50 bps)
Quality of Investments (as at December 31)
Net impaired investments as a % of investment portfolio 0.08% 0.05% 3 bps
Bonds: BB and lower as a % of the portfolio 0.76% 0.66% 10 bps
Mortgages: delinquency rate 0.27% 0.29% (2 bps)
Investment properties: occupancy rate 90.2% 90.1% 10 bps
Share Information (as at December 31)
Number of common shares outstanding (in millions) 106.2 102.4 4%
Weighted average number of common shares – diluted (in millions) 103.4 102.0 1%
Share price $53.39 $44.13 21%
Market capitalization 5,670.3 4,520.5 25%
Human Resources
Number of employees 5,350 5,148 202

1 Refer to the Ten-Year History for further detailed financial information and definitions.

2016 ANNUAL REPORT | iA Financial Group 1
2016 IN REVIEW

2016 in Review

Profitability Above
Diluted Earnings per Common Share
Expectations ($)
2012 3.22
Earnings per common share
amounted to $5.19 in 2016. 2013 3.57
2014 3.97
This was well above guidance
given at the beginning of the year 2015 3.57
($4.20 to $4.60). Return on equity 2016 5.19
was 13.2%, which was also above
target (11.0% to 12.5%).
These excellent profitability results
come mainly from experience gains
in multiple business units, favourable
Return on Common Shareholders’ Equity
markets and the positive impact
(%)
of the year-end review of provisions
for future policy benefits.
2012 12.8
Shareholder value has therefore
continued to grow, as reflected in 2013 12.6
the 7% increase in the quarterly 2014 12.4
dividend to common shareholders
2015 10.2
and the 11% increase in book value
2016 13.2
per common share.
Book Value per Common Share
($, at December 31)
2006 18.61
10-Year Compound
2007 20.98 Annual Growth
2008 20.35 Rate: 8%
2009 22.77
2010 24.75
2011 26.19
2012 27.45
2013 30.67
2014 33.83
2015 36.76
2016 40.97
2 iA Financial Group | 2016 ANNUAL REPORT
2016 IN REVIEW
Strong Business
Net Premiums, Premium Equivalents and Deposits
Growth in 2016
($Billion, at December 31)

Both premiums and deposits and 2006 5.0
assets under management and 10-Year Compound
2007 5.8 Annual Growth
administration reached record
2008 5.5 Rate: 5%
highs in 2016.
2009 5.2
Premiums and deposits were up 7%
2010 6.8
in 2016. Their sustained growth is
driven by good business persistency 2011 7.0
as well as new sales. 2016 was marked
2012 6.9
by solid sales growth in Individual
2013 7.4
Insurance, strong segregated fund
deposits, and good improvement in 2014 7.5
mutual fund sales. 2015 7.7
Assets under management and 2016 8.2
administration were up 9% in 2016.
In addition, the Company announced
five acquisitions during the year, the Assets Under Management and Administration
largest being an agreement to acquire ($Billion, at December 31)
HollisWealth, expected to close in the
third quarter of 2017. This acquisition
2006 46.9
should increase assets under 10-Year Compound
administration by approximately 2007 50.4 Annual Growth
$34 billion, making iA Financial Group 2008 49.5 Rate: 10%
one of Canada’s largest non-bank
2009 58.4
wealth management advisory firms.
2010 69.3
2011 73.6
2012 83.5
2013 98.8
2014 109.5
2015 115.8
2016 126.2
A Solid and Flexible Target range:
Solvency Ratio (%) 175% to 200%
Balance Sheet
2012 217
2013 217
The solvency ratio was 225% at
December 31, 2016. 2014 209
2015 213
This ratio was above the Company’s
target range of 175% to 200%. The debt 2016 225
ratio ended the year in a comfortable
position, below the 25% mark.
Debt Ratio (Debt and Preferred Shares/Capital Structure) (%)
These two ratios indicate a level of financial
strength and flexibility that will benefit
the Company should additional capital 2012 35.9
be needed for a significant acquisition. 2013 25.8
2014 23.7
2015 24.3
2016 23.8
2016 ANNUAL REPORT | iA Financial Group 3
MMEESSSSAAGGEE FROM THE CHAIRMAN OF THE BOARD
Message from the

Chairman of the Board

John LeBoutillier
Chairman of the Board
Without a doubt, 2016 was an excellent year for iA Financial Louis Têtu is the president and CEO and a member of the
Group, with profitability well above expectations and very board of directors of Coveo Solutions, an intelligent search
good business growth in all business lines and subsidiaries. applications company. He co-founded Taleo Corporation, which
was acquired by Oracle in 2012, and held the position of
The macroeconomic environment was favourable for the first
chief executive officer and chairman of the board of directors
time in recent years. Despite dropping for a good part of the
from the company’s inception in 1999 through 2007.
year, long-term interest rates rebounded in the last two months
Emma Griffin joined the Board of Directors on November 30, 2016.
to end the year higher than where they began. Stock markets
Ms. Griffin has extensive experience in the field of
were up as well, boasting very good growth in 2016.
investment banking services. She was the co-founder of
Oriel Securities, a mid-market brokerage firm and investment
A profitable year bank headquartered in London, England.
In terms of business growth, the Company’s assets Since they joined us, Ms. Côté, Ms. Griffin and Mr. Têtu
under management and administration ended the year have made a valuable contribution to the Board’s activities.
at $126.2 billion, a new record.
Pierre Brodeur announced his decision some time ago not
The Board is also pleased to report that iA Financial Group to seek a new term in 2017. Mr. Brodeur became a director
is well positioned in terms of financial strength, enabling it to in 1999, chaired the Human Resources and Governance
make five acquisitions in 2016. The HollisWealth acquisition, Committee from 2005 to 2015, and has been a member of
the largest in the Company’s history, was announced in the Investment Committee as well. On behalf of the Board,
December with a closing date planned for the third quarter I’d like to thank him for his considerable contribution to the
of 2017. This acquisition will make iA Financial Group one Company’s success.
of the largest non-bank wealth management advisory firms
At December 31, 2016, 40% of the Board’s fifteen positions
in Canada.
were held by women.
The Company also increased its quarterly dividend
from $0.30 to $0.32 per common share (+7%) in 2016. Passing the torch
On June 14, 2016, the Company held its seventh Investor In closing, the time has come for me to relinquish my duties.
Day in Toronto. This event, which has been held every two It has been an immense honour to be a member of the
years since 2004, was well attended by financial analysts, Company’s Board of Directors since 1997, and its chairman
finance professionals and institutional investors. since 2005.
Participants were pleased with the quality of information I’ve had the opportunity to work with some incredible people
provided, particularly with regard to the Company’s growth who truly care about the Company’s success and who work
objectives, the strength of its balance sheet and greater hard, day in and day out, to ensure its growth and development
transparency regarding the actions taken by management for the benefit of everyone involved.
to help the Company adapt to the macroeconomic I’ve also seen the Company’s remarkable transformation
environment. over the years. Less than two decades ago, Industrial Alliance
was an insurance company with operations mainly in
About the Board
Quebec. It was just starting to expand outside the province
The Board of Directors met eight times in 2016, and the with offices in Toronto and Vancouver. Today, iA Financial
Board’s various committees held a total of 15 meetings. Group is a full-fledged financial services company with
The participation rate was 98.4% in Board meetings, offices Canada-wide and in the United States, and is a key
and 97.1% in Board committee meetings. player in Canada in both insurance and wealth management.
On May 5, 2016, two new directors were elected to I want to take this opportunity to highlight the exceptional
the Board: Agathe Côté and Louis Têtu. work of the management team and all iA Financial Group
Ms. Côté was deputy governor of the Bank of Canada from employees throughout the year. Their commitment, hard
July 2010 until her retirement in January 2016. As a member work and dedication have contributed to the success of the
of the Governing Council, she had shared responsibility for entire organization and the satisfaction of its shareholders.
decisions with respect to monetary policy and financial Thank you as well to all policyholders and shareholders for
system stability. their continued confidence in us.
4 iA Financial Group | 2016 ANNUAL REPORT
PPRREESSIIDDEENNTT AANNDD CHIEF EXECUTIVE OFFICER’S REPORT
President and Chief

Executive Officer’s Report

Yvon Charest

President and Chief Executive Officer
2016 was undeniably a very good year for
iA Financial Group, highlighted by good business
growth and profitability well above expectations.
We successfully met two major challenges in 2016. Solid profitability
The first was with regard to profitability in the Employee Profitability for iA Financial Group was above guidance
Plans division. After a few challenging years, 2016 was a real in 2016, ending the year on an excellent note.
turning point. Not only did the division exceed its objectives
In terms of creating value for our shareholders,
for the year, it also posted additional gains. These are very
I’m pleased to announce that the book value per share
encouraging results, and we’re working hard to keep the
was up 11% in 2016 and that we increased our quarterly
momentum going.
dividend on common shares by 7% in May 2016. We also
The second major challenge pertained to mutual funds. announced an additional dividend increase of 9% in
2016 marked a big improvement in fund flows, resulting February 2017, in keeping with the trend of an increase
in positive net sales in the fourth quarter. every three quarters.
The Company’s success in 2016 is reflected in a 21%
Strong business growth
increase in its stock price.
As a whole, business growth was very good in all lines
of business in 2016, with exceptional results for Individual Distribution and technology
Insurance in both Canada and the United States.
We firmly believe that distribution will remain a dominant
iA Financial Group is still ranked first in Canada for net force for iA Financial Group. As a result, we will continue
segregated fund sales. We’re extremely proud to be to develop our distribution networks through targeted
the Canadian leader in this area. acquisitions in the Canadian insurance and wealth
management sectors. We’re also seeking acquisitions
Business growth was also good in Group Insurance and
that will help us expand our operations in the United States.
Group Savings and Retirement.
We also believe that technology will change the way financial
The Company’s premiums and deposits were up in all
products and services are sold in the future. With this in mind,
business lines for a total increase of 7% in 2016, reaching
our actions are twofold: we’re adapting our traditional model
a new high of over $8.2 billion.
to make it easier for clients and distributors to do business
Assets under management and administration ended the with us, and we’re remaining open to forces unknown that
year at over $126 billion, a 9% increase over 2015. could cause disruption in the industry.
We announced five acquisitions in 2016, the largest being In the first case, we have digital initiatives in place in all lines
HollisWealth, which was made public in early December. of business to simplify both products and sales.
This acquisition will make iA Financial Group one of the
In the second case, we have set up a team that is testing
leading non-bank financial advisory firms in Canada in terms
new ways to market and distribute our products and
of geographic presence and assets under administration.
services to clients who use new technologies.
Our auto and home insurance subsidiary also had an excellent
year in terms of business growth. Direct written premiums
were up 13%, making this subsidiary a leader in its market.
This positive result is primarily explained by the contribution
of new strategic partnerships.
2016 ANNUAL REPORT | iA Financial Group 5
PRESIDENT AND CHIEF EXECUTIVE OFFICER’S REPORT

On the strength
125th anniversary
of our 125 years Founded in 1892, iA Financial Group is celebrating
its 125th anniversary in 2017. Our history begins
of growth and with two pioneering Canadian insurance companies:
Alliance Nationale and Industrial Life.
success, we’re
Alliance Nationale was created in Montreal in 1892 with
looking to the assets of little more than $10,000. The Industrial Life
Insurance Company was founded in Quebec City in 1905.
future with great
In 1987, Industrial Life and Alliance Nationale merged to form
the Industrial-Alliance Life Insurance Company, which would
confidence and
become better known simply as Industrial Alliance.
enthusiasm. The Company’s development then continued, progressing
notably in three specific areas: from a mutual to a stock
company in 2000; from a Quebec company to one operating
across Canada and in the United States; and from an
insurance company to a financial institution.
Introduced in 2015, our new name, iA Financial Group,
represents the culmination of these major transformations.
It reflects the growing scope of iA Financial Group
and the vast diversity of our products and services.
Sustainable development
iA Financial Group has a solid sustainable development
strategy that rests on the following five components:
— Ensuring the wellbeing of our clients
— Actively contributing to communities
— Creating a rewarding work environment
— Effectively managing risks
— Following high standards of governance
We have key projects in place that play a positive role
economically, socially and environmentally.
On the strength of our 125 years of growth and success,
we’re looking to the future with great confidence and
enthusiasm. We will continue to focus on operational
excellence and the growth of our various business lines
and subsidiaries.
We can truly say that iA Financial Group has a strong history
and a bright future.
On behalf of the management team and staff of iA Financial
Group, I respectfully sign this report.
6 iA Financial Group | 2016 ANNUAL REPORT
iA FINANCIAL GROUP PLANNING COMMITTEE
iA Financial Group Planning Committee

Yvon Charest René Chabot
FSA, FCIA FSA, FCIA
President and Executive Vice-President,
Chief Executive Officer CFO and Chief Actuary
Renée Laflamme Carl Mustos
FCPA, FCA, CFA MBA
Executive Vice-President Executive Vice-President
Group Benefits and Wealth Management
Retirement Solutions
Normand Pépin Denis Ricard
FSA, FCIA FSA, FCIA
Executive Vice-President and Executive Vice-President
Assistant to the President Individual Insurance
and Annuities
Michael L. Stickney Michel Tremblay
FSA, FCIA, MBA FSA, FCIA, CFA
Executive Vice-President Executive Vice-President
U.S. Development and Chief Investment Officer
2016 ANNUAL REPORT | iA Financial Group 7
NOTICE
Notice

Legal Constitution and General Information
iA Financial Group is a Quebec-chartered life and health insurance company and is regulated by the Autorité des marchés financiers. iA Financial Group and its
subsidiaries are authorized by the appropriate regulatory authorities to operate in all provinces and territories of Canada, and most of the United States. iA Financial
Group is also an issuer subject to the various securities laws in effect in the provinces of Canada.
In February 2000, iA Financial Group became a public company incorporated under a private law, the Act respecting Industrial Alliance Life Insurance Company. The
law was enacted by the Quebec National Assembly on November 26, 1999, and stipulates that no shareholder can acquire, either directly or indirectly, 10% or more of
the Company’s voting shares. In the event the allowable limit is surpassed, the Act provides that the voting rights attached to all of the acquired shares cannot be
exercised.
The Company’s legal name is “Industrial Alliance Insurance and Financial Services Inc.” To simplify the reading of this report, the Company’s name is often
presented in its abbreviated form (“Industrial Alliance”), a generic form (“the Company”), or its business form (“iA Financial Group”).
Note that iA Financial Group acts as both the operating company and as the parent company of a group of subsidiaries. iA Financial Group and its subsidiaries are not
controlled by a holding company. Please refer to the Description of iA Financial Group section for a description and overview of the Company.
Please note that regardless of how iA Financial Group is referred to in this report (generic form, legal name, abbreviated name or business name), unless otherwise
indicated, all results and operations of iA Financial Group presented in this report refer to the consolidated results and operations, i.e. those of iA Financial Group, as
an operating company, and its subsidiaries.
Unless otherwise indicated, all information presented in the Management’s Discussion and Analysis is established as at December 31, 2016, or for the period ended on
that date.
Unless otherwise indicated, all amounts that appear in the Management’s Discussion and Analysis are denominated in Canadian dollars. The financial information is
presented in accordance with International Financial Reporting Standards (IFRS), as they apply to life insurance companies in Canada, and with the accounting
requirements prescribed by the regulatory authorities.
The Management’s Discussion and Analysis is dated February 16, 2017.
Non-IFRS Financial Measures
iA Financial Group reports its financial results in accordance with International Financial Reporting Standards (IFRS). It also publishes certain non-IFRS financial
measures that do not have an IFRS equivalent, including sales, solvency ratio and loan originations or which have an IFRS equivalent such as data on operating profit
and income taxes on earnings presented in the sources of earnings table. The Company also uses non-IFRS adjusted data in relation to net income, earnings per share
and return on equity. These non-IFRS financial measures are often accompanied by and reconciled with IFRS financial measures.
The Company believes that these non-IFRS financial measures provide investors and analysts with additional information to better understand the Company’s
financial results as well as assess its growth and earnings potential. Since non-IFRS financial measures do not have a standardized definition, they may differ from the
non-IFRS financial measures used by other institutions. The Company strongly encourages investors to review its financial statements and other publicly-filed reports
in their entirety and not to rely on any single financial measure.
Forward-Looking Statements
This Management’s Discussion and Analysis may contain statements relating to strategies used by iA Financial Group or statements that are predictive in nature, that
depend upon or refer to future events or conditions, or that include words such as “may,” “could,” “should,” “would,” “suspect,” “expect,” “anticipate,” “intend,”
“plan,” “believe,” “estimate,” and “continue” (or the negative thereof), as well as words such as “objective” or “goal” or other similar words or expressions. Such
statements constitute forward-looking statements within the meaning of securities laws. Forward-looking statements include, but are not limited to, information
concerning the Company’s possible or assumed future operating results. These statements are not historical facts; they represent only the Company’s expectations,
estimates and projections regarding future events.
Although iA Financial Group believes that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and
uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making forward-looking statements,
and actual results may differ materially from those expressed or implied in such statements. Factors that could cause actual results to differ materially from
expectations include, but are not limited to: general business and economic conditions; level of competition and consolidation; changes in laws and regulations
including tax laws; liquidity of iA Financial Group including the availability of financing to meet existing financial commitments on their expected maturity dates
when required; accuracy of information received from counterparties and the ability of counterparties to meet their obligations; accuracy of accounting policies and
actuarial methods used by iA Financial Group; insurance risks including mortality, morbidity, longevity and policyholder behaviour including the occurrence of
natural or manmade disasters, pandemic diseases and acts of terrorism.
Additional information about the material factors that could cause actual results to differ materially from expectations and about material factors or assumptions
applied in making forward-looking statements may be found in the Risk Management section of this Management’s Discussion and Analysis and in the Management
of Risks Associated with Financial Instruments note to iA Financial Group’s consolidated financial statements, and elsewhere in iA Financial Group’s filings with
Canadian securities regulators, which are available for review at sedar.com.
The forward-looking statements in this Management’s Discussion and Analysis reflect the Company’s expectations as of the date of this document. iA Financial
Group does not undertake to update or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this document or to
reflect the occurrence of unanticipated events, except as required by law.
Documents Related to the Financial Results
All documents related to the financial results of iA Financial Group are available on the Company’s website at ia.ca, under About iA, in the Investor
Relations/Financial Reports section. More information about the Company can be found on the SEDAR website at sedar.com, as well as in the Company’s Annual
Information Form, which can be found on the Company website or the SEDAR website.

8 iA Financial Group | 2016 ANNUAL REPORT