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Industrial-Alliance's 1999 Results

An $83.4 Million Profit , an Increase of 20%

Quebec City,

News Release

The Industrial-Alliance Life Insurance Company ended 1999 with a net profit of $83.4 million, a 20% increase over 1998. Insurance and annuity premiums surpassed the $2 billion mark, reaching $2,009.2 million for 1999, a 12% increase over 1998.

In terms of achievements, the highlight of the year was the conversion of Industrial-Alliance into a capital stock company. This project began last spring and was finalized on February 10 with the official listing of Industrial-Alliance on the Toronto Stock Exchange, under the ticker symbol "IAG". As part of its initial public offering, a few weeks ago the Company issued 21.6 million shares for a total of $340 million. This amount will be distributed to the policyholders who chose to receive - or who are entitled to receive - a cash amount under the conversion proposal.

"1999 was not like any other year, but what a great year it was," commented Raymond Garneau, Chairman of the Board and Chief Executive Officer. "We were able to complete the demutualization project in record time, without neglecting our current operations and financial performances. I believe we have shown that we are ready for the new challenges of a capital stock company: growth, profitability and increase of shareholders´ equity."

Profit – The net profit is $83.4 million, which is 20% or $13.7 million higher than in 1998. The higher profit is explained by the profitability of the subsidiaries, including Seaboard Life (acquired in January 1999), the excellent quality of investments and an unusual after-tax profit of $5.3 million ($7.3 million before taxes) primarily attributed to the sale of affiliated companies.

Return – The net profit for the year corresponds to a rate of return of 13.57% on policyowners’ equity, up from 13.02% reached in 1998. This rate is in the upper portion of the range targeted by the Company (between 12% and 14%). All lines of business were profitable, except Group Insurance, which experienced a substantial increase in life insurance, disability income insurance and supplemental health insurance claims.

Pro forma results – According to the pro forma financial statements, based on the assumption that Industrial-Alliance was a capital stock company, the return on shareholders´ equity would have been 13.20% in 1999, for a net profit per common share of $2.12 ($1.98 if the underwriters exercise their 2.5 million share over-allotment option under the initial public offering).

Premiums – With respect to business growth, for the first time in the Company´s history total premiums surpassed the $2 billion mark, at $2,009.2 million in 1999, a 12% increase over 1998. This increase is mainly attributable to the acquisition of Seaboard Life.

Insurance product sales – Insurance sales, which measure the growth of new business excluding renewal premiums, were up sharply (+42%) in 1999 in the individual sector. In this sector, the Industrial-Alliance Group, which relies on a network of over 15,000 financial security advisors, was ranked second in Canada for the first three quarters of 1999 (most recent data). In group insurance, sales went down by 9.7% in 1999, excluding creditor insurance, whose premiums went up sharply over the last year, from $9.3 million in 1998 to $75.7 million in 1999. This growth is mainly explained by Seaboard Life´s creditor insurance business for automobile dealers. Seaboard Life is an industry leader in this sector.

Savings and retirement product sales – Sales of savings and retirement products, measured by premiums, grew 4% in the group sector, but dropped 5% in the individual sector, which suffered from a difficult investment funds market (in 1999, the Investment Funds Institute of Canada recorded a decrease of 3% in gross mutual fund sales in Canada compared to 1998).

Assets under management – In 1999, assets under management surpassed the $13 billion mark, with $13,050.8 million as at December 31, 1999, an increase of 23% compared to December 31, 1998. Even though most of this increase is attributable to the addition of Seaboard Life to the Industrial-Alliance Group at the beginning of 1999, assets under management continued to grow after the purchase of Seaboard, having risen $1,034.0 million since the beginning of the year.

Capitalization – The 1999 profit, combined with the issue of a subordinated debenture and preferred shares, increased the capital basis to $912.9 million at the end of 1999, up 32% compared to the end of 1998. The capital basis includes $652.9 million in surplus, $75 million in preferred shares and $185 million in subordinated debentures. The capitalization ratio was 10.88% as at December 31, 1999, which is higher than at the end of 1998 (9.78%). The minimum continuing capital and surplus requirements, the MCCSR ratio, was at 181.1% as at December 31, 1999, a significantly higher rate than the regulatory requirements. The Company´s long-term target is between 175% and 200%.

Quality of investments – The quality of investments, which was already solid, improved even more in 1999. Non-performing assets as a percentage of investments were 0.26% as at December 31, 1999, a rate much lower than the one as at December 31, 1998 (0.79%). The delinquency rate of the bond portfolio was nil as at December 31, 1999, following the settlement of the only bond that was in default. The delinquency rate of the mortgage loans portfolio also improved, dropping from 0.54% as at December 31, 1998 to 0.28% as at December 31, 1999, a rate that is much lower than the industry average. Finally, the occupancy rate of our buildings increased substantially, reaching 95.1% as at December 31, 1999 (91.0% as at December 31, 1998).

Important achievements in 1999 – Other than the parent company’s conversion into a capital stock company, some of the other highlights of 1999 included:

  • the purchase of Seaboard Life and its merger with North West Life of Canada, another subsidiary of Industrial-Alliance. These two companies mainly operate in the Western Canadian market and the new company´s head office is in Vancouver;
  • the sale of the Canadian Union (a general insurance subsidiary of the Unindal Group) to the Co-operators Group of Guelph, Ontario. The sale was finalized on September 1, 1999. However, this sale does not affect Unindal’s other subsidiary, Industrial-Alliance General Insurance Company, which continues to operate as usual;
  • the smooth transition to the year 2000. The investments made to see to this transition were not in vain, since not only did it go off without a hitch, but the computer equipment was updated and improvements were made to software and technological equipment.

The Industrial-Alliance Group is the seventh largest life and health insurance company in Canada. With the strength of over 100 years of experience, the Group has operations throughout Canada and offers a vast range of life and health insurance products, savings and retirement plans, RRSPs, investment funds, mortgage loans and other financial products.

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Information:
Jacques Carrière
Senior Director, Public Affairs
418) 684-5275
(418) 576-3624 (cell.)

 HIGHLIGHTS
(Consolidated operations)
Years ending December 31 dans as December 31 1999 1998 Variation
  (In millions of dollars, unless otherwise indicated) (%)
Profitability
Profit      
- Income before unusual items and taxes 113.4 101.5 11.7%
- Unusual items 7.3 - -
- Taxes (37.3) (31.8) 17.3%
Rate of return      
- On equity 13.57% 13.02% -
- Per $100 of assets $0.88 $0.89 -
Return on equity by line of business      
- Individual Insurance 12.59% 10.01% -
- Group Insurance (6.34%) 12.46% -
- Individual Annuities 18.77% 19.31% -
- Group Pensions 16.66% 14.34% -
- Total 13.57% 13.02% -
Capitalization
Capital basis      
- Surplus 652.9 583.2 -
- Preferred shares 75.0 - -
- Subordinated debentures 185.0 110.0 -
- Total 912.9 693.2 31.7%
Capitalization rate      
- Capital basis as percentage of liabilities 10.88% 9.78% -
- MCCSR 181.1% 182.3% -
Growth of business
Insurance and annuities premiums 2,009.2 1,788.2 12.4%
Total income 2,801.3 2,434.3 15.4%
Individual insurance      
- Sales (first-year annualized premiums) 106.1 74.7 42.0%
- Premiums 534.6 416.3 28.4%
Group insurance      
- Sales (first-year annualized premiums) 41.1 45.5 (9.7%)
- Premiums : creditor insurance 75.7 9.3 814.0%
- Total premiums (including ASO) 356.5 233.5 52.7%
Individual annuities (savings and retirement)      
- Premiums 477.3 502.6 (5.0%)
- Funds under management 4,561.6 3,513.7 29.8%
Group pensions (savings and retirement)      
- Premiums 636.3 609.6 4.4%
- Funds under management 3,903.3 3,465.7 12.6%
Assets under management      
- General funds 9,662.5 8,085.3 19.5%
- Segregated funds 3,388.3 2,540.6 33.4%
 - Total 13,050.8 10,625.9 22.8%
Distribution of investements by region      
- Atlantic Provinces 4.1% 4.4% -
- Quebec 45.4% 51.8% -
- Ontario 23.0% 19.6% -
- Western Provinces 22.7% 17.7% -
- Outside Canada 4.8% 6.5% -
- Total 100.0% 100.0% -
Quality of investments
Non-performing assets      
- As a percentage of investments 0.26% 0.79% -
Bonds      
- Delinquency rate 0.0% 0.23% -
- Proportion rated BB and lower 0.1% 0.3% -
Mortgage loans      
- Delinquency rate 0.28% 0.54% -
- Proportion of arrears that are insured 74.2% 65.9% -
Real estate      
- Occupancy rate 95.1% 91.0% -
Common stocks and market indices      
- Market to book value ratio 113.0% 103.5% -
Selected financial information
Fees and other 68.0 49.1 38.5%
General expenses 189.9 145.6 30.4%
Benefits and claims incurred 1,199.6 1,047.7 14.5%