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Press release from CNW Group

Industrial Alliance Reports 28% Increase in Net Income in the Second Quarter

Friday, July 29, 2011

Industrial Alliance Reports 28% Increase in Net Income in the Second Quarter09:42 EDT Friday, July 29, 2011Annualized return on common shareholder's equity reaches 13.5%QUEBEC CITY, July 29, 2011 /CNW Telbec/ - Industrial Alliance Insurance and Financial Services Inc. (TSX:IAG) announces its results for the second quarter ended June 30, 2011. All financial results are based on International Financial Reporting Standards ("IFRS") unless otherwise noted. A detailed discussion of the second quarter results is available at under Investor Relations / Financial Reports.OverviewNet income to common shareholders of $72.7 million, up 28%Diluted and adjusted EPS of $0.85, up $0.17Annualized ROE of 13.5% versus 11.8% a year agoPremiums and deposits of $1.7 billion, up 5%Value of new business (VNB) of $42.7 million, up 19%Solvency ratio of 194% versus 196% at previous quarter-endDividend payout of 29%, within guidance range Highlights  Secondquarter Year-to-date as at June 30(In millions of dollars, unless otherwise indicated) 2011IFRS 2010IFRS Var. 2010CGAAP  2011IFRS 2010IFRS Var. 2010CGAAPNet income to common shareholders 72.7 56.6 28% 57.7  138.8 115.8 20% 118.0Earnings per common share (diluted and adjusted1) $0.85 $0.68 $0.17 --  $1.63 $1.41 $0.22 --Earnings per common share (diluted) $0.83 $0.66 $0.17 $0.68  $1.59 $1.37 $0.22 $1.44Return on common shareholders' equity (adjusted and annualized) 13.5% 11.8% -- 11.5%  13.0% -- -- 13.1%Premiums and deposits 1,698.4 1,615.3 5% 1,622.7  3,680.9 3,454.9 7% 3,465.2Effective tax rate (%) 22.8% 26.9% -- 25.8%  22.9% 26.5% -- 25.9%  June 30,2011March 31,2011  December 31,2010June30,2010  IFRSIFRS  IFRS CGAAPCGAAPSolvency ratio 194%196%  202% 205%224%Book value per share $25.84$25.24  $24.77 $25.49$24.20Assets under management and administration 71,516.171,231.6  68,811.4 68,474.061,392.3Net impaired investments 15.019.8  21.5 22.89.8Net impaired investments as a % of total investments 0.08%0.10%  0.12% 0.12%0.06%1 Adjusted for innovative Tier 1 debt instruments (IATS) in 2011."Our diversified portfolio of businesses continued to deliver top-line growth in the second quarter," stated Yvon Charest, President and Chief Executive Officer. "In addition to our core retail insurance operations and our Individual Wealth Management sector with its strong momentum, I want to highlight the additional contribution this quarter from our Group Insurance sector. In our Creditor Insurance operations, the recent VAG acquisition has expanded our distribution network with car dealers, which is allowing us to increase our penetration of that market. In the area of Employee Plans, two large groups signed earlier in the year had a significant impact this quarter and should continue to do so for the rest of 2011.""This strong performance carried through to the bottom line, with all sectors having a positive impact on our results," added Mr. Charest. "Based on our performance in the second quarter, I am pleased to say that in addition to a strong balance sheet, our underlying earnings power remains solid and we continue to build market share in both our traditional and niche markets."Second Quarter HighlightsProfitability - Net income to common shareholders increased 28% to an all-time high of $72.7 million and diluted earnings per share were $0.85, adjusted for the potential conversion of the Company's innovative Tier 1 debt instruments (IATS) into common shares as required under IFRS. Unadjusted diluted earnings per share were $0.83 compared with $0.66 a year earlier.The adjusted return on common shareholders' equity was 13.5% on an annualized basis, which is 170 basis points higher than the previous year and at the upper end of the Company's target range of 12-14%.The key elements that contributed to second quarter profitability are the following:Individual Insurance  Strain on new sales dropped to 51% from 65% in the first quarter of 2011. This improvement reflects higher pricing on a greater proportion of sales in the second quarter, as well as a more favourable product mix.Weak equity markets during the second quarter resulted in a pre-tax experience loss of $5.1 million ($3.9 million after tax or $0.05 per share) primarily in the Individual Insurance sector. The S&P/TSX Index closed at 13,301 points which was 7.4% lower than expected. The Individual Insurance sector generated an additional pre-tax loss of $6.1 million ($4.7 million after tax or $0.05 per share), related primarily to unfavourable mortality, morbidity and lapse experience in the quarter.Group Sectors  Group Insurance (Employee Plans) realized a pre-tax experience gain of $3.7 million ($2.9 million after tax or $0.03 per share) resulting principally from lower long-term disability claims. Group Savings and Retirement had a pre-tax experience loss of $1.3 million ($1.0 million after-tax or $0.01 per share) related primarily to lower mortality among annuitants.Other Items Income on capital amounted to $31.9 million compared with $26.9 million a year ago. Investment income reflects a lower contribution (primarily due to claims for flooding) from IA Auto and Home, which had pre-tax operating income of $2.2 million in the second quarter of 2011 versus $4.3 million a year ago. The gain on assets available for sale amounted to $13.3 million pre-tax in the second quarter of 2011.The effective tax rate in the second quarter was 22.8% compared with 26.9% in the same quarter of 2010. The difference is principally related to the larger proportion of high-dividend stocks in the Company's investment portfolio following management initiatives put in place in the last quarter of 2010. These dividends are non-taxable.Business growth - Business growth maintained its positive trend in the second quarter of 2011 despite the drop in equity markets.Premiums and deposits rose 5% to almost $1.7 billion, reflecting a double-digit increase from virtually all lines of business, including Group Savings and Retirement (+30%), Individual Insurance (+16%) and Group Insurance (+10%).In Individual Insurance, total sales increased  3% to $44.2 million, led by growth in minimum premiums (basic insurance coverage).In Group Insurance, Employee Plans delivered an excellent performance. Sales increased more than sixfold to $90.5 million in the second quarter reflecting the addition of two large clients. Creditor Insurance also turned in a strong top line for the fifth consecutive quarter with sales of $67.4 million, up 33% year over year. The latter reflects a first-time contribution from VAG acquired in the first quarter of 2011.In Group Savings and Retirement, sales totalled $176.3 million, up 34% over the same quarter last year.In Individual Wealth Management, net sales of segregated and mutual funds amounted to $358.2 million compared with $414.5 million a year ago, a difference of 14%. The second-quarter results of 2010 included a closed end mutual fund that added $103.0 million to net inflows. At June 30, 2011, Industrial Alliance continued to rank number one for sales of segregated funds in Canada and 11th for mutual fund sales.At June 30, 2011, assets under management and administration of $71.5 billion were comparable to the end of the first quarter. The decrease in equity markets during the quarter was offset by the growth in premiums and net fund entries in most sectors.In the second quarter, the value of new business (VNB) was $42.7 million ($0.48 per share on a diluted basis and $0.50 per on a diluted, adjusted basis), a year over year increase of 19%. The key factors explaining this growth were the additional sales from Group Insurance and the margin improvement in Individual Insurance following the introduction of higher pricing in January 2011.Solvency - At June 30, 2011, the solvency ratio was 194% compared with 196% at March 31, 2011. The decrease is explained by the new capital requirements for segregated fund contracts issued after December 31, 2010. The negative equity market performance also contributed to the increase in capital requirements for segregated funds in the second quarter. The solvency ratio remains at the upper limit of the Company's target range of 175-200%.Quality of investments- The overall quality of our investment portfolio remains very high and even improved further in the last quarter. At June 30, 2011:impaired loans decreased to 0.08% of total investments from 0.10% at March 31, 2011, following the settlement of two impaired mortgage loans;the delinquency rate of the mortgage loan portfolio decreased to 0.32% at June 30, 2011 from 0.46% at March 31, 2011, as a result of the settlement of the two mortgage loans mentioned previously;the proportion of bonds rated BB and lower in our bond portfolio decreased to 0.09% from 0.11% as at March 31, 2011, as a result of the early buyback of a bond by an issuer.Dividend- The Board of Directors declared a quarterly dividend of $0.2450 per common share. This corresponds to a payout ratio of 29% of net earnings, which falls within the Company's 25% to 35% target range for the medium term.Sensitivity Analysis - The Company's ability to absorb potential stock market downturns remains very high. As at June 30, 2011, the Company can absorb a decrease of about 20% (24% at March 31 quarter-end) in the S&P/TSX index before having to strengthen stocks matching long-term liabilities. This means that the index would have to decrease to 10,600 points from its level of 13,301 points at June 30, 2011.Market Guidance - Following is the Company's main guidance for 2011:Return on common shareholders' equity: 12-14% target rangeEarnings per common share (adjusted for IATS): $3.05 to $3.60 target rangeSolvency ratio: 175% to 200% target rangeDividend payout ratio: 25% to 35% in the medium term; mid-range expected in 2011Effective tax rate: expected range of 24% to 26%TRANSITION TO IFRSThe Company adopted Internationational Financial Reporting Standards (IFRS) in the first quarter of 2011. A detailed description of the impact of the transition to IFRS is provided in Note 4 Transition to International Financial Reporting Standards (IFRS) accompanying the unaudited condensed financial statements for the period ended June 30, 2011.GENERAL INFORMATIONInternal Control over Financial ReportingNo changes were made in the Company's internal control over financial reporting during the interim period ended June 30, 2011 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.Non-IFRS Financial InformationThe Company 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, value of new business, embedded value and solvency ratio, 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 always 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.Conference CallManagement will hold a conference call to present the Company's results on Friday, July 29, 2011 at 2:00 p.m. (ET). To listen in on the conference call, dial 1 888 391-0101 (toll-free). A replay of the conference call will also be available for a one-week period, starting at 4:30 p.m. on Friday, July 29, 2011. To listen to the conference call replay, dial 1 800 558-5253 (toll-free) and enter access code 21527072. A webcast of the conference call (in listen only mode) will also be available on the Industrial Alliance website at Related to the Financial ResultsFor a detailed discussion of the Company's second quarter results, investors are invited to consult the MD&A, financial statements and accompanying notes as well as our supplemental information package, all of which are available on the Industrial Alliance website at under Investor Relations / Financial Reports and on SEDAR at StatementsThis Management's Discussion and Analysis may contain statements relating to strategies used by Industrial Alliance or statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as "may", "will", "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 Industrial Alliance 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 Industrial Alliance including the availability of financing to meet existing financial commitments on their expected maturity dates when required; and insurance risks including mortality, morbidity, longevity and policyholder behaviour including the occurrence of natural or man-made disasters, pandemic diseases and acts of terrorism. Additional information about 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 Industrial Alliance's most recent annual report under the "Risk Management" section of the Management's Discussion and Analysis and in the "Management of Risks Associated with Financial Instruments" note to Industrial Alliance's consolidated financial statements, available for review at Alliance does not undertake to update or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Management's Discussion and Analysis or to reflect the occurrence of unanticipated events, except as required by law.About Industrial Alliance Founded in 1892, Industrial Alliance Insurance and Financial Services Inc. is a life and health insurance company with operations in all regions of Canada as well as in the United States.  The Company offers a wide range of life and health insurance products, savings and retirement plans, RRSPs, mutual and segregated funds, securities, auto and home insurance, mortgage loans and other financial products and services for both individuals and groups.  The fourth largest life and health insurance company in Canada, Industrial Alliance contributes to the financial security of over three million Canadians, employs more than 3,900 people and manages and administers more than $70 billion in assets. Industrial Alliance stock is listed on the Toronto Stock Exchange under the ticker symbol IAG. For further information: Grace Pollock Investor Relations Office: 418 780-5945 Email: Website: