iA Financial Corporation Inc

TSX:IAG

Earnings Call Transcript 2024-Q1

[Operator]

Good morning, ladies and gentlemen, and welcome to the Industrial Alliance Insurance and Financial Services, Inc. 2024 First Quarter Results Conference Call. [Operator Instructions] This call is being recorded on Thursday, May 9, 2024.

I would now like to turn the conference over to Marie-Annick Bonneau, Head of Investor Relations. Please go ahead.

[Marie-Annick Bonneau, executive]

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 1 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 3. Also, please note that the detailed discussion of the company's risks is provided in our 2023 MD&A available on SEDAR 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.

[Denis Ricard, executive]

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 iA. First of all, Eric Jobin, Chief Financial Officer and Chief Actuary; Alain Bergeron, Chief Investment Officer; Stephan Bourbonnais, responsible for our wealth management operations; Renee Laflamme, in charge of Individual Insurance and Annuities; Pierre Miron, Chief Growth Officer of our Canadian operations and responsible for Dealer Services, Canada and iA Auto 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 iA, 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 iA's growth over the past 25 years.

With Mike's departure, we announced the 3 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. Sean is currently Executive VP of Group Benefits and Retirement Solutions. He is 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 Berthiaume, 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 8 for an overview of Q1 results.

All our 3 operating business segments: 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. Core 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 31 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 9 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 a 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, iA Auto 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. iA continued to rank first in both growth and net seg funds sales. Gross sales of seg funds reached nearly $1.3 billion, up 24% year-over-year and net inflows of $557 million were recorded during the first quarter. Mutual fund sales of $486 million were slightly higher than last year, but inflows were lower than outflows as the mutual fund industry continues 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 product remain 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 this result reflects 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 midterm 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 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. However, 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?

[Eric Jobin, executive]

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 EPS increase year-over-year, driven by solid management results, lower claims at iA Home and Auto and favorable mortality experience in all operating business segment. These favorable items are reflected in the year-over-year 21% increase in insurance results and in the higher result from noninsurance activities. Lower core other expense also contributed to the strong core earnings growth.

Trailing 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 3 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 iA Home and Auto, and 2 favorable mortality experience in individual and group insurance. iA Auto and Home positive experience was mainly the result of this year mild winter, together with a 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. Seg funds and annuities made a significant contribution to this solid result with a year-over-year growth of 32% in the core insurance service results.

This increase is due to a higher CSM recognized for services provided and the impact of strong net sales. Core noninsurance 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 expense 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 onerous contracts. In Dealer Services, the favorable impact of sales during Q1 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 Investments segment. Core earnings of $86 million for the first quarter compared to $95 million during the previous quarter. 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 result to be more stable following recent actions 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 and 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 noncore adjustments. Q1 core earnings exceeded reported earnings by only $10 million as favorable market-related impacts and assumption changes were more than offset 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 31 is well above our operating target of 120%. The slight decline of 3 percentage points during the quarter was mainly due to an unfavorable impact of macroeconomic variation and other nonorganic 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 and CIB program from 5% to 8%. Continuing on Slide 18 to discuss some recent operational efficiency initiatives.

iA 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 a 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 assets and liabilities has always been a key focus, and it is even more important under IFRS 9 and 17 given the accounting treatment of assets and liabilities under these new standards. After 1 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 remarks.

Operator, we will now take questions.

[Operator]

[Operator Instructions] Your first question comes from Meny Grauman from Scotiabank.

[Meny Grauman, analyst]

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.

[Eric Jobin, executive]

Yes. Perfect. Good question. In fact, it's costlessly, okay? And the reason is that we have just we -- 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 liability is more in sync with the assets backing them. And we have made no economic hedging or any other thing that changed the economic underwriting.

[Meny Grauman, analyst]

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?

[Eric Jobin, executive]

It's another good question. In fact, when we started IFRS 17, we made all the good choices that we thought were the right things to do. And as 2023, realized and happen, 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 the result of further analysis of the sources of this volatility that was just creating distortions in accounting earnings.

[Meny Grauman, analyst]

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

[Eric Jobin, executive]

The answer is, yes, we continue to work on this. And realistically, it's not possible to think that this will be 0. But we continue to work towards improving the core sensitivity.

[Operator]

Your next question comes from Doug Young from Desjardins Capital Markets.

[Doug Young, analyst]

Just going to Slide 17, just I wanted to clarify a few things. There's a 1 point impact from other nonorganic variations. And I'm just hoping to understand what that related to. And it looked like the capital required for organic growth doubled versus last year, and Canadian Individual Insurance sales are flat. Group and Wealth, I don't think that's fairly capital intensive. So just trying to understand the capital required for organic growth, the 1.5 point impact as well.

[Eric Jobin, executive]

Yes, sure, Doug. First, I'll start with the nonorganic 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 reason 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 towards the first half of the year. So it's normal to have more required capital in the first quarter for this reason.

[Doug Young, analyst]

Okay. So the second response, just that Canadian group, this is in the employee benefits side, and this is just related to the additional sales, is that?

[Eric Jobin, executive]

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

[Doug Young, analyst]

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

[Eric Jobin, executive]

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 to -- that would result in a decrease of value of assets or anything. It's purely unrelated.

[Doug Young, analyst]

Okay. I may come back to that after. And then just maybe related to the U.S. division, just a few questions. One, you talked about onerous contract or strain increasing related to more onerous contract sales, if you can kind of dig into that. And then on the U.S. employed or on the U.S. Dealer Service or extended vehicle warranty side, it looks like you're cutting employees, you're taking rate actions. 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?

[Eric Jobin, executive]

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. We're taking management actions 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 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.

[Denis Ricard, executive]

Yes. 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 -- positive early signs in terms of increase in sales and 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.

[Doug Young, analyst]

And just a follow up, like on the terms of the cost saves have you quantified what that is.

[Eric Jobin, executive]

Yes. We are not ready to disclose that information at this point, Doug. But yes, we have quantified it.

[Denis Ricard, executive]

And Doug, I would -- it's Denis here. 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 position that have been eliminated. It's also the way that we manage the expenses overall that is important in that business. So -- and I think what you should keep in mind is that we are working towards improving profitability overall for that business.

[Doug Young, analyst]

Mike, all the best in retirement.

[Operator]

Your next question comes from Gabriel Dechaine from National Bank.

[Gabriel Dechaine, analyst]

I have to ask you a few straightforward questions, I think. Firstly, the experience gains in Canada, a pretty high number. Can you give me the split between P&C and mortality?

[Eric Jobin, executive]

Yes. Gabriel, it's about 2/3 iA Home and Auto and 1/3 for mortality.

[Gabriel Dechaine, analyst]

Got it. Then a curve ball maybe for Alain. I'm not going to hear if there -- 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?

[Denis Ricard, executive]

Well, I mean -- Gabriel, it's Denis. So you want to know what is the impact on earnings, right? And not the increase in capital gains?

[Gabriel Dechaine, analyst]

Yes. On earnings or how you manage the portfolio really.

[Denis Ricard, executive]

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

[Gabriel Dechaine, analyst]

Immaterial. Okay. So it doesn't sound like any change to how you're running the portfolio then?

[Denis Ricard, executive]

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

[Gabriel Dechaine, analyst]

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. So there's expected earnings on PAA insurance and the drivers of earnings in your U.S. operations. So expected earnings on PAA insurance business, probably some experience gains, but I don't if I model those. And then core noninsurance activities, what's the best place to look for?

[Eric Jobin, executive]

Short answer, Gabriel, is both. Because the PAA line represents the business that we're taking some underwriting risks. So it's P&C, and the other one, the noninsurance operation represent the admin business that we have. Yes.

[Gabriel Dechaine, analyst]

Got it. And then I suppose other expenses would be in there as well, right? So it's a bit of a mismatch. But I guess that...

[Eric Jobin, executive]

Exactly.

[Operator]

Your next question comes from Tom MacKinnon from BMO Capital.

[Tom MacKinnon, analyst]

Mike, congratulations on a long successful and rewarding career. A 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 kind of flat quarter-over-quarter, your sales are better. So why -- 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.

[Eric Jobin, executive]

Yes, Tom, on this one, we always mention that for the group, it comes from the employee benefit sector, group insurance, in particular. And we always mention that this is a lumpy and -- lumpy business. 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 at some other extent, on the in-force business. And depending on the combination of the 2, it may create a bit of volatility on that line.

But 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 towards the first half of the year than towards the second half. Employers tend to put their group in force more toward the beginning of the year and January 1 and then the first quarter than later in the year. So that's why you see a bit more volatility on that line.

[Tom MacKinnon, analyst]

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

[Eric Jobin, executive]

Yes, that's a very good question, Tom. And what you need to realize is that when we get an agreement with an employer, we signed the group. Sometimes it goes up to 12 months before that group is put into our books because the implementation is quite cumbersome and lengthy process. So what happened last quarter is that we had sales confirmation. And accountingly speaking, we need to recognize the agreement that we 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.

[Tom MacKinnon, analyst]

Okay. And in the wealth management, the noninsurance 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 Q1 '24?

[Eric Jobin, executive]

Well, in fact, for this, if Stephan keeps growing the business, yes, we can expect this to continue to grow. And the reality for that, as 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 macroeconomic stands where it is right now, stock market interest rate, we could expect this sector to perform.

[Denis Ricard, executive]

Yes, and recruiting is -- Tom, Denis here. Like recruiting is very important in that sector. And I would invite maybe Stephan to comment on the recruiting activities, the trend that he is seeing in the market right now.

[Stephan Bourbonnais, executive]

I think what we've seen, obviously, the focus has been on retaining our advisory. 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 and 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 place. So we are very much focusing on growing that distribution part of our business.

[Operator]

Your next question comes from Paul Holden from CIBC.

[Paul Holden, analyst]

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?

[Eric Jobin, executive]

Yes. Paul, it's Eric again. On this sensitivity, you see the level we are right now at -- 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 and core net investment results should be.

[Paul Holden, analyst]

Okay. I understand. Second question is a bit of a bigger picture one. And I 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?

[Denis Ricard, executive]

Paul, it's Denis here. I would say two things. The first one is improving our current operations. And you've 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 the 5% maximum we had, we would have hit it 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 too. And then we've made all the tests. We know how much the ROE could go up depending on which kind of scenario where we have. So we can -- if we deploy capital, the 15% plus is reachable.

[Paul Holden, analyst]

Got it. Okay. And last one for me, another big picture one. Has it kind of observed the results through 2023 when interest rates are higher. If we start thinking about maybe for iA, a lower interest rate environment might actually be better for sales, maybe even for earnings and now particularly with the additional or a 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, is stable better? How should we be thinking about that?

[Denis Ricard, executive]

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. Most -- I mean, unless there are some ripple effect 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.

[Operator]

Your next question comes from Mario Mendonca from TD Securities.

[Mario Mendonca, analyst]

Eric, first, going back to Tom's question about the strain in domestic or in Canadian business. 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 is there -- was that a mix of business issue? Or did some -- did the company do something different with these sales that led to the lower strain numbers?

[Eric Jobin, executive]

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

[Mario Mendonca, analyst]

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

[Eric Jobin, executive]

Yes. 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.

[Mario Mendonca, analyst]

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?

[Eric Jobin, executive]

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

[Mario Mendonca, analyst]

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.

[Eric Jobin, executive]

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

[Mario Mendonca, analyst]

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 the higher strain from those sales? I think that's what I'm trying to understand.

[Eric Jobin, executive]

Yes, the answer is no. The strain that we have this quarter is the agreements that we signed during the quarter.

[Denis Ricard, executive]

And those sales will appear in our reports when Eric?

[Eric Jobin, executive]

In the coming quarters.

[Denis Ricard, executive]

In the coming quarters. 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.

[Eric Jobin, executive]

Okay. Okay. I see.

[Denis Ricard, executive]

That's what he is trying to -- that's what Mario is trying to get at.

[Eric Jobin, executive]

Sorry. I was referring to different.

[Mario Mendonca, analyst]

Now, so these sales that were recorded this quarter, when were those contracts have been signed because that's when the strain goes through, right? That's what I think what you just said.

[Eric Jobin, executive]

During this quarter, Mario.

[Mario Mendonca, analyst]

Okay. Well, then I clearly don't understand it then. I'll take it offline. Maybe another question for Denis. 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 this year shortly after. Your response to an earlier question where you sound sort of guarded on how U.S. Dealer Services 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?

[Denis Ricard, executive]

Mario, obviously, I don't want to overpromise 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 -- the business was -- the acquisition was closed at the worst time, I would say. So the result never been what we expected. And so now we see some gradual improvement, but I would prefer personally to see 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 say that we turned the corner yet.

[Operator]

[Operator Instructions] Your next question comes from Darko Mihelic from RBC Capital Markets.

[Darko Mihelic, analyst]

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?

[Eric Jobin, executive]

Yes. In fact, if you look at Slide 9, I'll bring you there, okay? Just to try to clarify the situation. When we talk about premiums, those premiums reflect the ongoing premium that for group that has been onboarded with us. Okay? So after implementation. So the strain that we have shown in Q4, depending on where the sales will be implemented, we'll start to increase those premium income when this happens -- when they are being implemented.

[Darko Mihelic, analyst]

Okay. But -- okay. Maybe I'll just take it offline. [indiscernible]. And then just my final question is I want to go back to Denis, 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?

[Denis Ricard, executive]

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 prices -- I mean if prices -- stock price was to stay as it was during the last 3 quarter -- 3 months, I would say definitely yes. But if the price of the stock moves up significantly, it might be that there is a slowing of buybacks. So -- but right now, I mean, we are on our way to use it all. But again, it depends on the stock price.

[Operator]

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

[Denis Ricard, executive]

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 17%. Obviously, the 10% is an average over time. But we're pleased that of our 17% and pleased to the fact that all our 3 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 for the time being. So with that said, thank you very much for attending this call.

[Operator]

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