President and Chief Executive Officer's Report
This year, our executive team and board of directors have given particular attention to two particular strategic goals: developing markets outside québec and using the internet, both as a tool for communicating with consumers and financial advisors and for product distribution.
Deploying these strategies is a long-term endeavour that has been in the works for several years now. Let us recall that the Company underwent legal restructuring to improve access to capital, change the Company's name, and carry out a number of technological projects. While there is still much to be done to fully achieve our objectives, it is worth noting that 16% of individual insurance sales in 2014 occurred online, in cooperation with our network of independent financial advisors. In addition, 30% individual insurance sales made by Humania Assurance and its subsidiary, LS Travel, took place outside the province of Québec. These promising results lay the groundwork for the Company's next strategic initiatives.
In terms of finances, 2014 was also a great year for Humania Assurance. We experienced solid income premium growth while keeping a rein on our general expenses. Still, loss experience tied to our disability products was greater than expected, which appears to have been an industry-wide phenomenon. The combination of fallen interest rates and the use of new life tables for pension plan valuation reduced the Company's equity by $2.6 million after taxes. In addition, the sudden and unforeseeable increase in provincial taxes announced at the end of the year slashed a part of our earnings.
Despite this turmoil, the Company still boasted excellent earnings before taxes of $6.8 million. Its net earnings of $4.9 million translate to a 9.5% return on equity. Compared to last year, net earnings grew more than 23%.
O 86,6 % Bonds
O 65,9 % Governments
O 34,1 % Corporations
O 11,0 % Stocks
O 2,2 % Money market and Policy loans
Our gross revenue climbed more than 14% this year to a total of $136.8 million. This figure does not include investment income generated by the change in fair value of our investments, totaling $31.7 million.
A very large majority of our revenue came from insurance premiums, which brought in $120.4 million, an 11.4% increase over last year. These outstanding results can be explained by our solid sales performance in 2014 and a high contract retention rate.
Investment revenue reached $15.7 million after expenses, compared to $10.8 million in 2013. As a result, if we exclude the change in fair value of investments matched to actuarial liabilities, Humania Assurance's 2014 net revenue totaled $110.3 million, up 15.7% from last year.
Company expenses in 2014 totaled $135.2 million. This includes the $56.8 million rise in actuarial liabilities, a large part of which is tied to the change in fair value of investments matched to the Company's liabilities. Actuarial liabilities can generate large revenue and expense variations year over year. In 2013, they fell $18 million, bringing the company's total expenses to $69.8 million. This strong volatility, however, has little impact on net earnings, as it is correlated with revenue.
Our general expenses amounted to $28 million, up 7%. This can be easily explained by our strong advances in sales tied to business development.
Benefits paid to our insureds totaled $64.3 million, up sharply from 2013. Benefit payouts net of reinsurance thus increased by 12.8%. Our sales volume growth and loss experience tied to disability insurance contracts can explain a large portion of this increase.
Variation in assets
(in million of dollars)
The Company's assets as at December 31, 2014 totalled $477.2, up 16.3% from 2013. Its liabilities grew to $424.7 million, 87.6% of which were attributed to actuarial liabilities.
Humania Assurance equity grew by 2%, for a total of $52.5 million. This amount fell short of expectations after the 17% growth enjoyed in 2013. It can be explained by non-recurring factors, such as the impact of changes made to the life table used for actuarial valuation of the Company's pension plan liabilities.
Among our more noteworthy accomplishments this year has been the success of our first product available only online, which is drawing a fair amount of attention.
Solid sales growth
17% growth in individual insurance sales.
Our individual insurance sales grew 17% in 2014, compared to 2013 figures. New distribution agreements with partners outside Québec and the success of our new online product, “Humania Assurance – Insurance Without Medical Exam” account for a large portion of these results.
85 % of our individual insurance premiums come from health insurance products.
Our other niche products also performed well and hit the sales targets we had set for them. Also, in 2014, 85% of our total individual insurance premiums came from health insurance products, a fact that confirms our positioning as a specialized insurer within that field. This is further demonstrated by our willingness to offer niche products to financial advisors who wish to offer a complete package to clients with specific needs.
Another important highlight of the year was that, in addition to the traditional in-class training we offer, we have also provided more than 35 training webinars to over 1,680 financial advisors, 1,119 of whom practise outside Québec. The initiatives of our sales and marketing teams help us stay close to our distribution network and is responsible for a large part of our success.
Our teams also performed well in terms of group insurance, as our offering increasingly targets groups seeking products specially tailored to their needs. With this strategy, we have been able to maintain 8% growth in this sector, slightly surpassing our objectives.
We have also continued to see progress in travel insurance sales. Despite big market changes, our subsidiary, LS Travel, has very successfully adapted its products to new consumer behaviours and maintained the high-quality, reliable service for which it is known. I would also like to highlight the remarkable work of our partners at Tour+Med Assistance in this department.
Challenges for 2015
Our willingness to carefully expand our presence throughout Canada will remain an important challenge for 2015. We will also closely monitor the changing behaviours of consumers seeking financial products. We will, thus, confidently pursue our efforts to adapt to these new behaviours, particularly by focusing on tools preferred by these consumers.
In terms of distribution, financial advisors and distribution firms, as industry partners, will also have to face the adaptation challenges ushered in by the social and technological changes to which we are all subject. We believe that, just like us, they need to work with reliable partners. I would like to reassure them that Humania Assurance will continue to prioritize strong, quality relationships with our distribution networks.
If companies are to continue overcoming challenges, now more than ever, they must demonstrate agility and audacity measured with prudence. This delicate balance of skills is dependent on the actors within a company effectively playing their role, adhering to their mandates, and having a common desire to grow the business.
I wish to sincerely thank all the employees, the executive team and the Board of Directors for being part of this quality team that has enabled Humania Assurance to plan its future with confidence and spirit.
President and Chief Executive Officer