Marriott Vacations Worldwide Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2024

There are 12 speakers on the call.

Operator

This call is being recorded on Thursday, May 9, 2024. I would now like to turn the conference over to Marie Anneke Bonneau, Head of Investor Relations. Please go ahead.

Speaker 1

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 and 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.

Speaker 1

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 a detailed discussion of the company's risk provided in our 2023 MD and A available on SEDAR and on our website with an update in our Q1 MD and A released this morning. I will now turn the call over to Denis Ricard, President and CEO.

Speaker 2

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 IAE. First of all, Eric Jaubrin, Chief Financial Officer and Chief Actuary Alain Parjaron, Chief Investment Officer Stephane Bourbonet, responsible for our Wealth Management Operations Rene Laferm, in charge of individual insurance and annuities Pierre Miron, Chief Growth Officer of our Canadian operations and and responsible for Dealer Services Canada and IO, Tow 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.

Speaker 2

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.

Speaker 2

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 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.

Speaker 2

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 Mercione, 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 Poulliot will join the Executive Committee as he will be succeeding Sean as Executive VP of Group Benefits and Retirement Solutions. Now to the results.

Speaker 2

2024 got off to a strong start in terms of profitability and business growth, demonstrating the dynamism of our business units. Our 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 include Insurance Canada, Wealth Management and U. S.

Speaker 2

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 31 recorded a healthy increase of more than 8% when we exclude the impact of share buybacks.

Speaker 2

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 number of policies sold with sales of 89,000,000 dollars during the Q1. 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.

Speaker 2

In Group Insurance, sales increased by 21% year over year, leading premiums and deposits along with good retention to $506,000,000 which is 8% higher than a year ago. In the Dealer Services division, 1st quarter sales of $148,000,000 were up 3% year over year, a good result given the challenging environment that continues to impact vehicle affordability. Finally, ioto in home direct written premiums in the first quarter reached $114,000,000 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 $400,000,000 IE continued to rank 1st in both gross and net sec fund sales.

Speaker 2

Gross sales of sec funds reached nearly $1,300,000,000 up 24% year over year and net inflows of $557,000,000 were recorded during the Q1. Mutual fund sales of $486,000,000 were slightly higher than last year, but inflows were lower than outflows as the mutual fund industry continue 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 remained elevated reaching $581,000,000 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 $918,000,000 in the Q1, 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.

Speaker 2

S. In individual insurance, sales of $42,000,000 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 Q1. In dealer services, 1st quarter sales amounted to $248,000,000 which is a good 8% increase compared to the same quarter a year earlier.

Speaker 2

While this 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 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.

Speaker 2

Continued organic capital generation of $130,000,000 during the quarter is higher than during the same period last year and is in line with projections to exceed $600,000,000 in 20.24. 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.

Speaker 2

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 Q1 profitability and capital strength.

Speaker 2

Following Eric's comments, we will take questions. Eric?

Speaker 3

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 Q1 with 17% core EPS increase year over year driven by solid management results, lower claims at IO, Minuto and favorable mortality experience since all operating business segments. These favorable items are reflected in the year over year 21% increase in insurance results and in the higher result from non insurance activities. Lower core other expense also contributed to the strong core earnings growth.

Speaker 3

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% 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 $92,000,000 This strong result was mainly due to experience gains attributable to lower claims at RAI, Home and Auto and 2 favorable mortality experience in individual and group insurance.

Speaker 3

I. E. 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.

Speaker 3

In the Wealth Management segment, 1st quarter core earnings reached $95,000,000 well above the previous year result of $65,000,000 dollars 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. Our 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 expense in this segment were lower than a year ago. U.

Speaker 3

S. Operation 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 Investment segment.

Speaker 3

Core earnings of $86,000,000 for the first quarter as compared to $95,000,000 during the previous quarter. Most of the decrease come 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 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 the near in future volatility of our core earnings and I will provide you with more details shortly.

Speaker 3

Returning now to the investment results for the Q1, credit experience was near expectation with a slight $1,000,000 credit loss, mainly due to more downgrades and upgrades in the bond portfolio. In the corporate segment, core other expenses before taxes of $66,000,000 are in line with our 2024 quarterly expectation of $65,000,000 plus or minus 5,000,000 dollars 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. Q1 core earnings exceeded reported earnings by only 10,000,000 dollars 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.

Speaker 3

Our solvency ratio of 142 percent at March 31 is well above our operating target of 100 and 20%. The slight decline of 3 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 is essentially consisted of share buybacks. Organic capital generation continued to be strong reaching $130,000,000 in the Q1. This result is higher than last year for the same period.

Speaker 3

It is also in line with our projection to exceed the minimum target of €600,000,000 in 2024 as due to seasonality, organic generation is generally stronger from the Q2 onwards. With such a solid capital position, we ended the quarter with approximately €1,500,000,000 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. IA has always been known as a cost conscious company, investing wisely to support sustainable growth.

Speaker 3

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 then a year ago. Also, core other expenses for the corporate segment were $66,000,000 in Q1 2024, which is in line with the expected quarterly run rate of about 65,000,000 dollars Now going to Slide 19 to comment on the actions taken to reduce sensitivity of our core earnings to interest rate variations.

Speaker 3

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 asset 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 robust underlying and recurring earning power. With this sensitivity reduction and our recent operational efficiency initiatives, we are well positioned for the quarters ahead.

Speaker 3

This concludes my remarks. Operator, we will now take questions.

Operator

Thank you. Your first question comes from Meny Grauman from Scotiabank. Please go ahead.

Speaker 4

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?

Speaker 4

I wanted to clarify that first.

Speaker 3

Yes, perfect. A good question. In fact, it's costless, 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.

Speaker 3

And we have made no economic hedging or any other thing that changed the economic underwriting.

Speaker 4

And so just to understand why you 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?

Speaker 3

Yes, 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 happened, lots of things happen 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.

Speaker 4

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?

Speaker 3

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.

Speaker 4

Great. I'll requeue. Thank you.

Operator

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

Speaker 5

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 related to. And it looked like the capital required for organic growth doubled versus last year.

Speaker 5

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 of 1.5 point impact as

Speaker 3

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.

Speaker 3

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 the 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.

Speaker 3

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 Q1 for this reason.

Speaker 5

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

Speaker 3

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

Speaker 5

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 Corning sensitivity to the movements in interest rates? Or is this something in an effort to pick up yield? Maybe dig into that.

Speaker 3

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.

Speaker 6

Okay. I might come back to that after. And then just

Speaker 5

maybe related to the U. S. Division, just a few questions. 1, you talked about owner's contract or strain increasing related to more owner's contract sales, if you can kind of dig into that. And then on the U.

Speaker 5

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?

Speaker 5

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

Speaker 3

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 action to improve the pricing and make sure that we get the desired profitability.

Speaker 3

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 loss 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.

Speaker 2

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. The fact that we've eliminated some positions, also some repricing for some businesses.

Speaker 2

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.

Speaker 5

And just follow-up, like in terms of the cost saves, have you quantified what that is?

Speaker 3

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

Speaker 2

Okay. 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 business.

Speaker 5

Perfect. I appreciate the color and Mike all the best in retirement.

Operator

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

Speaker 7

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 and mortality?

Speaker 3

Yes. Good afternoon, Gabriel. It's about 2 third higher on Manauto and 1 third for mortality.

Speaker 7

Got it. Thanks. Then a little curveball maybe for Alain. I'd like 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?

Speaker 2

Well, I mean, Gabriel, it's Denis. So you want to know what is the impact on earnings, right, among the increase in capital gains?

Speaker 7

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

Speaker 2

No, I mean, 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 a calculation. In terms of recurring impact of that change, it's immaterial, okay? Immaterial.

Speaker 2

It's immaterial. Okay.

Speaker 3

Immaterial.

Speaker 7

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

Speaker 2

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

Speaker 7

Got it. Great. I was hoping for something juicier, but that's fine. It's better. Lastly, on the U.

Speaker 7

S, so this is a stupid question because there's a lot of changes taking place. You're adjusting the cost base. You're I

Speaker 2

just want to know

Speaker 7

where to look for, 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 your this is the drivers of earnings in your U. S. Operations. So expected earnings on PAA insurance business, probably some experience gains, but I don't know if I model those.

Speaker 7

And then core non insurance activities, what's the best place to look for?

Speaker 3

Short answer, Gabriel, is both because the PAA line represent the business that we're taking some underwriting risk, so it's a P and C. And the other one, the non insurance operation represent the admin issues that we have.

Speaker 7

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 guess that okay. All right.

Speaker 7

That's it for me. Thanks.

Operator

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

Speaker 8

Yes. 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 Q4, this number was much more negative than everybody thought.

Speaker 8

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 Q4. Yet your group business both in premiums and deposits is kind of flat quarter over quarter, your sales are better. So why So 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 Q4, came back down to more reasonable level in the Q1? Thanks.

Speaker 3

Yes, Tom. On this one, we always mentioned that for the group, it comes from the employee benefit sector, group insurance in particular. And we always mentioned that this is a 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.

Speaker 3

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 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 1 and then the Q1 year,

Speaker 5

which

Speaker 8

year, which seems to be inconsistent with your comments about when I thought that people will be moving the cases more exceptionally in

Speaker 9

the Q1, but also in the Q4, but

Speaker 3

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 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 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.

Speaker 3

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

Speaker 8

while. Okay. Thanks. And in the Wealth Management, the non insurance activities, I guess that seems to be some of the your share of earnings from some of the affiliates up nicely year over year continues to climb. And I think you mentioned commission increases.

Speaker 8

Is that a trend? Should we expect the run rate just to continue from the $50,000,000 that you booked for that line in Q1 'twenty four?

Speaker 3

Well, in fact for this, if Stephane keeps growing the business, yes, we can expect this 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.

Speaker 3

And I would say that as long as macroeconomic stands where it is right now, stock market and the rest rate, we could expect this sector to perform.

Speaker 8

And recruiting Thank you very much.

Speaker 2

It's Tom, Denis here. Recruiting is very important in that sector. And I would invite maybe Stephane to comment on the recruiting activities, the trend that you're seeing in the market right now.

Speaker 6

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 and 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.

Speaker 6

So we are very much focusing on growing that distribution part of our business.

Speaker 8

Great. Appreciate the color. Thanks.

Operator

Your next question comes from Paul Holden from CIBC. Please go ahead.

Speaker 10

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.

Speaker 10

Now with the change in accounting, how quickly or not might that recover to prior levels?

Speaker 3

Yes. Hi, Paul. It's Erik again. On this sensitivity, you see the level we are right now at with Q1 nearly EUR 110,000,000. So that's a good starting point.

Speaker 3

Using our sensitivity and the interest rate move between the end of December the end of March, you can use the sensitivity to guess where our next quarter and the core net investment results should be.

Speaker 10

Okay. Understand. Second question is a bit of a bigger picture one. And I want to talk about core ROE. So it's pretty good this quarter, 14.6 percent closing in on the 15% plus target, but not quite there.

Speaker 10

Just wondering what gets you over the 15% target or really back to the 15 percent 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?

Speaker 2

It's Denis here. I would say 2 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.

Speaker 2

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 very quick. So we needed to improve it, to increase it.

Speaker 2

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, it 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.

Speaker 2

And then we've made all the tests. We know how much the ROE could go up depending on which kind of scenario we have. So we can if we did product capital, the 15% plus is reachable.

Speaker 10

Got it. Okay. And last one for me, another big picture one, as I've kind of observed the results through 2023 when interest rates are higher. 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 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?

Speaker 10

How should we be thinking about that?

Speaker 3

All in all, higher is better.

Speaker 2

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, on this, there are some ripple effect on macroeconomic factors. It's better. 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.

Speaker 2

But it's pretty obvious to me that the higher, the better.

Speaker 10

Okay. Got it. Thanks for your time.

Operator

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

Speaker 11

Good afternoon. 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 can 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 something the company do something different with these sales that led to the lower strain numbers?

Speaker 3

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

Speaker 11

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

Speaker 3

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 does that mean that So does that mean that

Speaker 11

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?

Speaker 3

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

Speaker 11

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.

Speaker 3

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.

Speaker 11

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.

Speaker 3

Yes, the answer is no.

Speaker 5

The strain

Speaker 3

that we have this quarter is the agreements that we signed during the quarter.

Speaker 2

And those sales will appear in our reports when, Eric? In the coming quarters. 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.

Speaker 3

Okay, okay. I see.

Speaker 2

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

Speaker 3

Okay. Sorry. So these sales that

Speaker 2

were So these sales

Speaker 9

that were Different.

Speaker 11

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

Speaker 5

Okay. Well, then

Speaker 11

I clearly don't understand this then. I'll take it offline. Maybe another question for Dennis, 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.

Speaker 11

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?

Speaker 2

Mario, obviously, I don't want to over promise under deliver. 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.

Speaker 2

And so now we 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 say that we turned the corner yet.

Speaker 9

Okay. Thank

Operator

Your next question comes from Darko Mihelic from RBC Capital Markets. Please go ahead.

Speaker 9

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.

Speaker 9

Is that maybe the way we can make this connection to help me understand the situation of strain, please?

Speaker 3

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 groups that has been on boarded 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.

Speaker 5

Okay. But okay, maybe I'll just

Speaker 9

take it offline. I'm not sure if you're better. 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.

Speaker 9

So is it fair for us to assume that even after Veracy 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?

Speaker 2

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 months, I would say definitely yes.

Speaker 2

But if the price of the stock moves up significantly, it might be that there's 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.

Speaker 5

Great. Thank

Speaker 2

you very much.

Operator

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

Speaker 2

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 three units have increased by more than 10%. And we have a, I would say, broadened the options of 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.

Speaker 2

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.

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Earnings Conference Call
Marriott Vacations Worldwide Q1 2024
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