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Press release from CNW Group

Industrial Alliance Reports its 2011 Financial Results - Robust Results Dampened by Low Interest Rates

Friday, February 17, 2012

Industrial Alliance Reports its 2011 Financial Results - Robust Results Dampened by Low Interest Rates09:53 EST Friday, February 17, 2012QUEBEC CITY, Feb. 17, 2012 /CNW Telbec/ - Industrial Alliance Insurance and Financial Services Inc. (TSX: IAG) announces its results for the fourth quarter and year ended December 31, 2011. All results are reported in accordance with International Financial Reporting Standards (IFRS). A detailed discussion of the fourth quarter and year-end results is available at www.inalco.com under Investor Relations / Financial Reports.2011 Highlights and Reserve StrengtheningNet income to common shareholders of $103.3 million ($1.18 per share, diluted)Reserves strengthened by $152.3 million after tax ($1.68 per share)Premiums and deposits of $7.0 billion (up 4% year over year)Assets under management and administration of $73.4 billion (up 6% year over year)Solvency ratio of 189%, including subordinated debt of $250 million issued in fourth quarter"Our year-end results reflect the extremely challenging environment in 2011, both for equity markets and especially long-term interest rates," commented Yvon Charest, President and Chief Executive Officer. "As we indicated to investors at the end of the third quarter and following our year-end review, we updated our actuarial assumptions to reflect interest rates at our valuation date on December 31, 2011.  We strengthened our reserves to recognize the drop in interest rates in 2011 and, as it has been our practice over the last six years, took an additional step to stay ahead of the curve for long-term rates.  Despite the impact of these changes on our earnings, we still finished the year with positive results which speaks to the strength of our operations.  In fact, excluding the reserve strengthening, our earnings compare favourably with those of last year, which was our best year on record." Highlights Fourth quarterYear endedDecember 31(In millions of dollars, unless otherwise indicated)2011IFRS2010 IFRSVariation2011IFRS2010 IFRSVariationNet income to common shareholders(81.2)74.1(155.3)103.3253.4(150.1)Earnings per common share (diluted and adjusted)1,2($0.90)$0.87($1.77)$1.19$3.01($1.82)Earnings per common share (diluted)2($0.90)$0.84($1.74)$1.18$2.93($1.75)Return on common shareholders' equity(annualized)(13.8%)13.1%--4.7%312.8%3--Premiums and deposits1,747.71,821.0(4%)7,008.56,751.24%Effective tax rate (%)41.7%14.8%--4.6%23.5%--Earnings adjusted for reserve strengthening2011NON-IFRS2010NON-IFRSVariation2011NON-IFRS2010NON-IFRSVariationNet income to common shareholders71.182.5(11.4)255.6261.8(6.2)Earnings per common share (diluted and adjusted)1,2$0.78$0.97($0.19)$2.95$3.11($0.16)Earnings per common share (diluted)2$0.78$0.94($0.16)$2.83$3.03($0.20)Return on common shareholders' equity (annualized)11.7%14.7%--11.3%313.2%3-- December 31, 2011IFRSSeptember 30, 2011IFRSDecember 31, 2010IFRSSolvency ratio189%197%202%Book value per share$25.54$26.74$24.75Assets under management and administration73,350.770,393.468,908.71 Adjusted for innovative Tier 1 debt instruments (IATS).2 Per-share results reflect issue of 6,000,000 common shares on September 15, 2011.3 Trailing 12 months."As for our topline, we are pleased to note year-over-year growth in virtually all our business lines including Individual Insurance, Employee Plans, Creditor Insurance, Group Savings and Retirement and our general insurance operations. Sales of Individual Wealth Management products slowed as a result of the pullback in equity markets during 2011 but continued to compare satisfactorily with our record year in 2010. As for our balance sheet, it continues to be solid. We added $250 million in subordinated debt to our capital structure in the fourth quarter and ended the year with a solvency ratio of 189% which is in line with our guidance. Our investment portfolio remains of the highest quality and our financial strength was confirmed by all our rating agencies in 2011."Fourth Quarter HighlightsYear-end review of assumptions - Following the completion of its year-end review, the Company changed certain valuation assumptions used in the calculation of its reserves and strengthened its reserves by $152.3 million after taxes ($1.68 per share), which resulted in a loss of $81.2 million in the fourth quarter.The Company reduced its initial re-investment rate (IRR) to reflect the drop in the long-term Québec bond during  2011.The Company dropped its ultimate re-investment rate (URR) by 30 basis points to 3.4%, which will be the maximum prescribed rate at the end of 2012 if long-term interest rates remain at 2011 year-end levels.As usual, the Company updated its mortality assumption to reflect improvement based on a moving average of mortality experience in its in-force over the last five years. In addition, for the first time this year and in accordance with actuarial standards, the Company elected to include some future mortality improvement in its assumptions for the Individual Insurance sector.The Company implemented investment initiatives totalling more than $1 billion in 2011 to alleviate the impact of low long-term interest rates.  These included further development of its intersegment note program and the execution of other strategies focused on the purchase of longer-duration assets so as to improve overall returns and improve asset-liability matching.Income taxes - The year-end review of income taxes resulted in a tax reduction of $8.5 million or $0.09 per share attributed mostly to the decrease in the future tax liability and a number of tax recoveries.Market-relatedexperience- During the fourth quarter, the TSX average finished 16% below budget at 11,944 points, resulting in a negative impact of $0.09 per share mainly in Individual Wealth Management. Of this amount, $0.05 per share is related to lower than expected management fees on assets under management. The remaining $0.04 per share is attributed to the residual inefficiency of the dynamic hedging program for the Company's guaranteed annuity product.  Given the volatility in the fourth quarter, the hedging program achieved an extremely satisfactory result comparable to that of the third quarter.   The negative impact of the equity markets was offset by a gain of $0.06 per share related to the termination of the distribution agreement with the Laurentian Bank in the third quarter of 2011.Policyholder experience- The Individual Insurance sector generated a gain of $0.03 per share mainly as a result of better than expected mortality experience during the fourth quarter.  Group Insurance (Employee Plans) realized a loss of $0.04 per share resulting principally from a higher number of long-term disability claims.Other items-Income on capital amounted to $27.2 million pre-tax versus $25.8 million in the third quarter. Investment income reflects a higher contribution from IA Auto and Home, which had an after-tax gain of $4.5 million in the fourth quarter compared with a loss of $0.5 million in the third quarter. The gain on assets available for sale (AFS) amounted to $8.5 million pre-tax in the fourth quarter.Net income to common shareholders - The Company recorded a net loss to common shareholders of $81.2 million in the fourth quarter of 2011 representing a diluted loss per share of $0.90. This compares with net income of $74.1 million in the fourth quarter of 2010, or diluted earnings per share of $0.84. The per-share results for 2011 reflect the issue of 6,000,000 shares completed on September 15, 2011.Business growth - Virtually all lines of business contributed a solid performance in the fourth quarter of 2011. While total premiums and deposits decreased in the fourth quarter to $1.7 billion as a result of lower fund entries in Individual Wealth Management, strong results were reported in Individual Insurance (+9%), Group Insurance (+15%), Group Savings and Retirement (+41%) and IA Auto and Home (+17%). For the full year, premiums and deposits increased by 4% to $7.0 billion. At December 31, 2011, assets under management and administration reached a new high of $73.4 billion, up 4% for the quarter and 6% for the year.In Individual Insurance,total sales increased 11% to $64.2 million in the fourth quarter, reflecting growth in minimum and excess premiums. Growth by American-Amicable was in line with expectations. Full-year sales were up by 12%.In Group Insurance, Employee Plan sales increased 58% to $20.9 million in the fourth quarter as a result of higher sales in all regions of Canada. Full-year sales increased by 83% to $131.9 million. Creditor Insurance sales grew by 44% to $64.4 million, reflecting the added contribution from VAG acquired in February 2011 as well as strong organic growth in Alberta, Western Canada and the Atlantic provinces. Full-year sales were up by 45% to $265.9 million. Special Markets Group sales of $39.6 million for the fourth quarter and $133.0 million for the full year were comparable to the previous year.In Group Savings and Retirement, sales increased 39% to $245.2 million in the fourth quarter. Full-year sales of $728.7 million were comparable to the previous year.In Individual Wealth Management, Industrial Alliance continued to rank number one for net sales of segregated funds in Canada and 11th for mutual fund sales. In spite of the market decline during the year, net sales of investment funds totalled $1.5 billion in 2011 compared with $1.7 billion in 2010 that was a record year.The value of new business (VNB) was $36.0 million compared with $53.8 million a year ago. The principal factor underlying the change in VNB was the increased cost of the guarantee for the minimum withdrawal benefit product (GMWB) as a result of the drop in long-term interest rates during the fourth quarter.Solvency - At December 31, 2011, the solvency ratio was 189% compared with 197% at September 30, 2011. During the fourth quarter, the Company completed an issue of $250 million in subordinated debentures that added 17 percentage points to the solvency ratio. This was offset by the decrease in net earnings during the quarter (10 points), higher capital requirements related to the increase in market value of equities and bonds as well as the increase in actuarial reserves (13 points), increased capital requirements for segregated funds (1 point) and the transition to IFRS accounting standards to be completed by December 31, 2012 (1 point).Quality of investments - At December 31, 2011, our investment portfolio continues to be of the highest quality:impaired loans remained unchanged at 0.06% of total investments versus the previous quarter-end;the delinquency rate of the mortgage loan portfolio decreased to 0.25% from 0.27% at September 30, 2011;the occupancy rate on the real estate portfolio increased to 94.6% from 93.2% at September 30, 2011;the proportion of bonds rated BB and lower in our bond portfolio dropped to 0.12% from 0.14% at September 30, 2011.Embedded Value- As at December 31, 2011, Industrial Alliance's embedded value was $3.6 billion or $40.23 per common share, a year-over-year increase of 6.7% before the payment of dividends to common shareholders and 4.3% after the payment of these dividends. The embedded value/book value ratio was 1.57x compared with 1.63x as at December 31, 2010.Recurring items, that is normal growth of the in-force business block and the value of new business, accounted for 10.9% of the increase in embedded value in 2011.  This was offset by a decrease in non-recurring items, including the year-end assumption changes, together with the lower discount rate and the decrease in return on shareholders' equity. (Refer to "Embedded Value" in the Management's Discussion and Analysis for full discussion.)Dividend- The Board of Directors declared a quarterly dividend of $0.2450 per common share for the quarter ended December 31, 2011.Updated Sensitivity Analysis - As at December 31, 2011, the Company can absorb a decrease of about 12% in the S&P/TSX index before having to strengthen stocks matching long-term liabilities. This means that the index would have to drop to 10,500 points from its level of 11,955 at the end of the fourth quarter.  (Refer to "Sensitivity Analysis" in the Management's Discussion and Analysis for full disclosure.)Market Guidance for 2012- Updated guidance for 2012 is as follows:Return on common shareholders' equity (ROE):  new target range of 9% to 11%.Earnings per common share: new target range of $2.50 to $3.10.Solvency ratio: maintain the 175% to 200% target rangeDividend payout ratio: maintain the 25% to 35% medium-term payout range.Effective tax rate: new target range of 22% to 24%.Guidance for ROE and and earnings per common share exclude any potential reserve strengthening in 2012.GENERAL INFORMATIONSubordinated Debt IssueOn December 14, 2011, the Company announced the closing of an offering of $250 million principal amount of 4.75% fixed/floating subordinated debentures due December 14, 2021. The Debentures were rated "A" with a stable trend by DBRS and "A" by Standard and Poor's. The proceeds were added to the Company's capital to be used for general corporate purposes, including the funding of potential future acquisitions.Credit RatingsOn February 3, 2012, A.M. Best confirmed the A (Excellent) rating with a stable outlook that it grants to Industrial Alliance for its financial strength. The Standard & Poor's (S&P) credit rating of A+ (Strong) with a stable outlook and the DBRS credit rating of IC-2  with a stable outlook were both unchanged during the quarter.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 audited condensed financial statements for the year ended December 31, 2011.Internal Control over Financial ReportingNo changes were made in the Company's internal control over financial reporting during the period ended December 31, 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, February 17, 2012 at 2:00 p.m. (ET). To listen in on the conference call, dial 1 888 754-4437 (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, February 17, 2012. To listen to the conference call replay, dial 1 800 558-5253 (toll-free) and enter access code 21558777. A webcast of the conference call (in listen only mode) will also be available on the Industrial Alliance website at www.inalco.com.Documents Related to the Financial ResultsFor a detailed discussion of the Company's fourth 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 www.inalco.com under Investor Relations / Financial Reports and on SEDAR at www.sedar.com.Forward-looking StatementsThis press release 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; accuracy of information received from counterparties and the ability of counterparties to meet their obligations; accuracy of accounting policies and actuarial methods used by Industrial Alliance; 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 the material factors that could cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward-looking statements may be found in the "Risk Management" section of the Management's Discussion and Analysis and in the "Management of Risks Associated with Financial Instruments" note to Industrial Alliance's consolidated financial statements, and elsewhere in Industrial Alliance's filings with Canadian securities regulators, which are available for review at www.sedar.com.The forward-looking statements in this news release reflect the Company's expectations as of the date of this document. Industrial 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 document or to reflect the occurrence of unanticipated events, except as required by law.About Industrial AllianceFounded 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 4,100 people and manages and administers more than $73 billion in assets. Industrial Alliance stock is listed on the Toronto Stock Exchange under the ticker symbol IAG.CONSOLIDATED INCOME STATEMENTS (in millions of dollars, unless otherwise indicated)Quarters endedDecember 31Twelve months endedDecember 31 2011201020112010 $$$$Revenues    Gross premiums1,4291,4315,3095,165Premiums ceded(81)(92)(317)(383)Net premiums1,3481,3394,9924,782Investment income7751862,2511,519Fees and other revenues193188794704 2,3161,7138,0377,005     Policy benefits and expenses    Benefits to policyholders and beneficiaries6175762,3602,195Ceded benefits(43)(43)(180)(177)Net benefits to policyholders and beneficiaries5745332,1802,018Net transfer to segregated funds4105431,6261,795Dividends, experience rating refunds and interest on amounts on deposit16109578Change in provisions for future policy benefits8602712,1691,474Change in reinsurance assets145(166)107(252) 2,0051,1916,1775,113Commissions240248947825Premium and other taxes25168471General expenses168167663612Interest expenses973230 2,4471,6297,9036,651     Income before income taxes(131)84134354Less: income taxes(68)5(7)77     Net income(63)79141277     Net income attributed to shareholders(75)79127276     Net income attributed to participating policyholders120141     Earnings per common share (in Canadian dollars)     Basic(0.90)0.881.203.04 Diluted(0.90)0.841.182.93Weighted average number of shares outstanding (in units)     Basic   90,240,059   83,726,114  85,885,831  83,126,815 Diluted90,542,82988,883,79792,533,10188,339,639Dividends per common share (in Canadian dollars)0.2450.2450.2450.245CONSOLIDATED STATEMENTS OF FINANCIAL POSITION  (in millions of dollars)As at December 31As at December 31As at January 1 201120102010 $$$Assets   Invested assets   Bonds13,67711,1229,411Mortgages3,2513,3343,405Stocks2,3962,1861,775Real estate held for investment789716666Policy loans521469381Short-term investments28812288Cash and cash equivalents308452369Other invested assets264292325 21,49418,69316,420    Other assets955602555Reinsurance assets465561288Own-use properties828274Deferred income tax assets843515Intangible assets463422377Goodwill163141116Segregated fund assets13,73513,57211,450Total assets37,44134,10829,295    Liabilities   Insurance contract liabilities   Provisions for future policy benefits17,55415,34713,300Provisions for dividends to policyholders and experience rating refunds353736Benefits payable and provision for unreported claims184160146Policyholders' amounts on deposit251229201 18,02415,77313,683    Other liabilities1,254968854Investment contract liabilities577535488Deferred income tax liabilities340364315Debentures748499499Segregated fund liabilities13,72313,44111,332 34,66631,58027,171    Equity   Participating policyholders' account412726Share capital1,2861,078871Contributed surplus - Stock option plan242322Retained earnings and accumulated other comprehensive income1,4241,4001,205 2,7752,5282,124    Total liabilities and equity37,44134,10829,295SEGMENTED INCOME STATEMENTS  The following tables provide a summary of the Income Statements by segment:  As at December 31, 2011 IndividualGroup  Life and HealthWealth ManagementLife and HealthSavings and RetirementOther activitiesTotal $$$$$$Revenues      Net Premiums324436299237521 348Investment income588632799-2775Fees and other revenues10170712-6193 922669333348442 316       Operating expenses      Cost of commitments to policyholders896125241310231 595Net transfer to segregated funds---390---20---410Commissions, general and other expenses163147971412433Interest expenses81---------9 1 067663338344352 447Income before income taxes(145)6(5)49(131)Less: income taxes(64)(4)(4)(1)5(68)Net income before allocation of other activities(81)10(1)54(63)Allocation of other activities4---------(4)---       Net income(77)10(1)5---(63)       Attributed to shareholders(89)10(1)5---(75)Attributed to participating policyholders12------------12        As at December 31, 2010 IndividualGroup  Life and HealthWealth ManagementLife andHealthLife andHealthOther activitiesTotal $$$$$$Revenues      Net Premiums316576242160451 339Investment income148-611321186Fees and other revenues5169410---188 469739257202461 713       Operating expenses      Cost of commitments to policyholders2552417716626648Net transfer to segregated funds---526---17---543Commissions, general and other expenses173163691214431Interest expenses31(1)137 431714245196431 629       Income before income taxes3825126384Less: income taxes---41---05Net income before allocation of other activities3821116379Allocation of other activities201---(3)0       Net income4021126---79       Attributed to shareholders4021126---79Attributed to participating policyholders------------------        2011 IndividualGroup  Life andHealthWealthManagementLife andHealthSavings andRetirementOtheractivitiesTotal $$$$$$       Revenues      Net premiums1,2471,7661,1396372034,992Investment income1,53927210832572,251Fees and other revenues246972548---794 2,8102,7351,2721,0102108,037       Operating expenses      Cost of commitments to policyholders2,2184898718601134,551Net transfer to segregated funds---1,550---76---1,626Commissions, general and other expenses58260737050851,694Interest expenses26221132 2,8262,6481,2439871997,903       Income before income taxes(16)87292311134Less: income taxes(38)16546(7)Net income before allocation of other activities227124195141Allocation of other activities5---------(5)---       Net income27712419---141       Attributed to shareholders14712418---127Attributed to participating policyholders13------1---14        2010 IndividualGroup  Life andHealthWealthManagementLife andHealthSavings andRetirementOtheractivitiesTotal $$$$$$       Revenues      Net premiums1,1301,9269696021554,782Investment income1,068969025691,519Fees and other revenues306151841---704 2,2282,6371,0778991647,005       Operating expenses      Cost of commitments to policyholders1,505318731670943,318Net transfer to segregated funds---1,633---162---1,795Commissions, general and other expenses54458728941471,508Interest expenses16322730 2,0652,5411,0228751486,651       Income before income taxes16396552416354Less: income taxes3223125577Net income before allocation of other activities13173431911277Allocation of other activities9---11(11)---       Net income140734420---277       Attributed to shareholders139734420---276Attributed to participating policyholders1------------1        December 31, 2011 IndividualGroup  Life andHealthWealthManagementLife andHealthSaving andRetirementOtheractivitiesTotal $$$$$$Assets      Invested assets and segregated fund assets13,18711,2041,6757,9701,19335,229Reinsurance assets148---194123---465Intangible assets963243244469Goodwill733820---26157Other------------1,1211,121Total assets13,50411,5661,8928,0952,38437,441Liabilities      Insurance contract liabilities,investment contract liabilities andsegregated fund liabilities11,55511,0951,7027,972---32,324Debentures517425533101748Other18---------1,5761,594Equity1,917451228138412,775Total liabilities and equity14,00711,5881,9858,1431,71837,441        December 31, 2010 IndividualGroup  Life andHealthWealthManagementLife andHealthSaving andRetirementOtheractivitiesTotal $$$$$$       Assets      Invested assets and segregated fund assets10,74011,0611,5647,8041,09632,265Reinsurance assets251---181129---561Intangible assets893212214428Goodwill713920---5135Other------------719719Total assets11,15111,4211,7677,9351,83434,108       Liabilities      Insurance contract liabilities,investment contract liabilities andsegregated fund liabilities9,97610,4681,5247,781---29,749Debentures290543322100499Other18---------1,3141,332Equity1,757399198145292,528       Total liabilities and equity12,04110,9211,7557,9481,44334,108    For further information: Investor Relations Grace Pollock Office: 418 780-5945 Email: grace.pollock@inalco.com Website: www.inalco.com