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Third Quarter 2000 Results of Industrial-Alliance Life Insurance Company

23% Increase in the Profit for the Third Quarter and 35% Increase Since the Beginning of the Year

Quebec City,

News Release

For a third consecutive quarter, there is a sharp increase in the net income attributable to the shareholders of Industrial-Alliance Life Insurance Company (Industrial Alliance).

You can also consult the Financial Results for the Third Quarter of 2000 section.

The increase is 23% for the third quarter and a total of 35% since the beginning of the year, compared to the corresponding periods in 1999 (before unusual gains). The net income attributable to the shareholders is $23.8 million for the third quarter, which is $0.63 per common share, for a total net income of $67.1 million since the beginning of the year, equal to $1.77 per common share. The return on common shareholders´ equity is 13.69% for the twelve months ending September 30, 2000. There was also a strong increase in sales, particularly in the Individual Insurance sector, where they grew 17% in the quarter and 9% since the beginning of the year, compared to the same periods in 1999.

"We had a strong performance once again," commented Yvon Charest, President and Chief Executive Officer. "The good results for the year are not due to luck, but are the fruit of a strategy built on Industrial Alliance´s strengths, such as our multiple distribution networks, which make us a leader in Canada in individual life insurance, our regional brand names, which have solid foundations in all regions of the country, and the excellent quality of our investments."

Income and return
The net income attributable to the common shareholders (the "net income") is $23.8 million for the third quarter of 2000, 23% more than the same period last year (on a pro forma basis), and totals $67.1 million since the beginning of the year. This latter figure is 35% higher than last year´s adjusted net income, i.e., excluding the net unusual gain of $5.3 million in the second quarter of 1999. But, even taking into account the unusual gain, the total net income for the year exceeds that of last year by 22%.

The increase in the net income for the year is the result of the combined effect of several factors, including the growth of sales, an increase in the rate bases in group insurance, the favourable claims experience in all lines of business, and the control of the level of operating costs. The net income for the year also takes into account the effect of the income tax reductions announced in the February federal budget and the Ontario budget. The measures announced in these budgets will result in a $2.0 million increase in the net income for the year, of which a portion – just under $1.5 million – has been entered so far. These reductions do not take into account the announcement made in the federal government´s Economic Statement and 2000 budget update on October 18. 

Our four life and health insurance lines of business are profitable – and have earned a higher net profit than that of last year since the beginning of the year –, including Group Insurance, where the turnaround that began in the second quarter gained momentum in the third. This sector now shows a positive return on shareholders´ equity when calculated on the basis of the last twelve months (3.00% as at September 30, 2000). The rate adjustments made on contract renewals, which are still continuing, are bearing fruit and have no impact on the business persistency rate. 

With these results, it is no surprise that there is a net increase in the Company´s principal measures of return. The $0.54 and $0.60 net earnings per share (EPS) obtained in the first and second quarters, reached $0.63 in the third quarter, for a total of $1.77 as at September 30, 2000. The corresponding figures for 1999 are $0.29, $0.52 and $0.51, for the first, second and third quarters of the year, for a total of $1.32.

The return on shareholders´ equity reached 13.69% for the twelve-month period ending September 30, 2000. This rate of return compares to a 12.76% return on a pro forma basis for the twelve-month period ending September 30, 1999, excluding the net unusual gain of $5.3 million obtained last year. The return has been on the rise throughout the year: 13.29% at the end of the first quarter, 13.37% at the end of the second and, now, 13.69%. The return since the beginning of the year is in the upper end of the 12% to 14% range targeted by the Company.

Business growth
With respect to business growth, insurance and annuities premiums in the third quarter, including contributions to segregated funds, reached $542.5 million, an increase of 4% compared to last year, and total $1.7 billion since the beginning of the year, which is 5% more than in 1999, for the comparable periods. Premiums for all lines of business are up, except for Group Pensions, the result of the inherent fluctuation in the contract of a large professional association, and the interruption, this year, by the federal and provincial governments, of the Program for Older Worker Adjustment. The increase in premiums since the beginning of the year is attributable to the increase in sales in several sectors and the good in-force business persistency rate. The premiums of savings and retirement products, which are often associated with wealth management products, represent 56% of total premiums, not including the amounts saved by insureds in universal life insurance policies.

Individual Insurance – One of the highlights of the third quarter is the strong growth of sales in the Individual Insurance sector. For the third quarter of 2000, sales (expressed in terms of first-year annualized premiums), reached $32.2 million, up 17% compared to the same quarter of 1999. Total sales have reached $91.7 million since the beginning of the year, 9% more than the same period in 1999. The various distribution networks were very enthusiastic about the introduction (in June) of Meridia, a new universal life policy at Industrial Alliance and IA Pacific Life, which contributed to the increase in sales, as did the President´s Contest, which is now a tradition at the parent company. The Industrial Alliance Group is still ranked second in Canada in terms of sales, with 12.8% of the market, according to data for the first two quarters of 2000.

To conform to industry practices, the method for calculating sales was reviewed in the last quarter to more accurately and more uniformly correspond to the notion of "target premium" used by LIMRA. Therefore, when needed, the figures have been adjusted to respect this new calculation method, which better reflects the actual distribution capacity of the Company´s networks. Universal life policies account for almost 75% of individual life insurance sales.

Group Insurance: creditor insurance – Creditor insurance sales reached $31.5 million in the third quarter of 2000, up 10% over the same period last year. Total sales reached $81.6 million, which is 7% more than in the first nine months of 1999. Most sales come from the insurance offered through automobile dealers, a sector where the Company is a leader in Canada, with about one third of the Canadian market. 

Group Insurance: employee plans – Sales were also on the rise for Group Insurance employee plans in the third quarter. They reached $9.1 million, a 25% increase over the same period in 1999. Since the beginning of the year, total sales have almost made up for the accumulated shortfall in the first quarter and, at $32.0 million, are only 1% lower than the first three quarters of 1999. 

The group insurance employee plans operations of the three companies in the Industrial Alliance Group were merged in the last few months. The goal is to develop an integrated national strategy in the small and medium size business market. The parent company will underwrite all new groups in Quebec and the Atlantic provinces, National Life will handle new groups in Ontario, and the marketing of products for the market in Western Canada, along with the administration of the related contracts, will be taken care of by National Life, under the name IA Pacific Life. These operations will be overseen by David Kent, Vice-President at National Life. 

Individual Annuities – The Individual Annuities sector continues to show strong sales results. For the third quarter of 2000, premiums reached $123.8 million, 31% higher than the same period last year. For the first nine months, total premiums reached $516.4 million, up 39% over the corresponding period in 1999. Segregated funds represent more than 60% of the assets under management.

Group pensions – Gross premiums underwritten in insured annuities for the first nine months of the year reached $75.7 million, a 36% increase in sales activities compared to last year. The Company recently began to cede a large portion of its insured annuities business to a reinsurer, in an effort to optimize the profit margins. On a net basis, an amount of $46.8 million has been kept in the books, which led to a 16% decrease compared to the same period last year. The expected level of profitability on this business, an area in which the Company´s expertise is renowned, is in the upper end of the 12% to 14% targeted by the Company.

Group Pensions: accumulation products – In the accumulation products segment, new deposits reached $49.3 million for the third quarter of 2000, an increase of 175% compared to the same period last year, for a total of $103.9 million since the beginning of the year, 34% more than the same period in 1999. The parent company was favoured by some $20 million in fund entries resulting from the amounts reinvested by insureds following the demutualization of the Company. All insureds who held an individual or group contract qualified as a policyowner of Industrial Alliance and were able to enjoy the benefits of the conversion into a capital stock company. Some policyowners, who chose to receive the benefits in cash, decided to reinvest these amounts with the Company.

Group Pensions: Contract with a professional association – Finally, for the contract with a professional association, a client with which the company has been associated for over 40 years, new deposits in the third quarter reached $99.8 million, down 27% compared to the same period in 1999, and a total of $260.0 million since the beginning of the year, 26% less than the first three quarters of 1999. The amounts that used to be invested in the Company´s general funds were transferred to segregated funds in the first quarter; these amounts will be transferred to a new co-owned company in the next few months. This new insurance company is being developed.

Assets under management
Assets under management reached $13.8 billion as at September 30, 2000, a 9% increase in the last twelve months. As was mentioned in the preceding quarters, the distribution of assets, between general funds and segregated funds, has changed considerably this year, mainly due to the transfer of $1.4 billion, on March 31, 2000, between the general funds and segregated funds of our National Life subsidiary. 

Quality of investments
The quality of investments remains excellent. The proportion of non-performing assets, at 0.23% of investments as at September 30, 2000, is stable as compared to June 30, 2000 and is lower than as at December 31, 1999 (0.26%). The delinquency rate of the bond portfolio was nil at the end of September, the same as at the end of June, and that of the mortgage loans portfolio was 0.27% as at September 30, 2000, a rate that has remained virtually unchanged for several months (0.28% as at June 30, 2000 and December 31, 1999). The occupancy rate of the real estate portfolio remains high, at 96.2% as at September 30, 2000 (95.1% as at December 31, 1999). Finally, the market value of the stocks and market indices portfolio corresponds to 105.4% of the book value, compared to 101.7% as at September 30, 1999. 

Capitalization
Equity reached $755.4 million as at September 30, 2000, compared to $670.7 million as at September 30, 1999, on a pro forma basis. The capitalization ratio, as measured by the regulatory authorities´ guidelines, reached 184%, as at September 30, 2000 for Industrial Alliance, slightly higher than as at December 31, 1999 (181%). This ratio takes into account our best estimate, for this year, of the regulatory authorities´ new capital requirements for segregated funds guarantees. Taken alone, it is estimated that these new requirements will translate into a 4% decrease in the capitalization ratio this year. However, this decrease is offset by other items placing upward pressure on the solvency ratio, including the increase in capital resulting from the net income. The amount of reserves already held for these guarantees, as well as the management fees for segregated funds, should not be affected by these new requirements. The product guarantees were designed to maximize the protection offered to contractholders and avoid any concentration of risk for the Company.

Other events to underline for the third quarter

  • As was announced on October 17, 2000, Industrial-Alliance Life Insurance Company and Les Mutuelles du Mans of France have concluded an agreement in principle under which Industrial Alliance will acquire all of Mutuelles du Mans´ shares in Unindal, making Industrial Alliance the sole owner of Unindal. Unindal is a portfolio company that today owns Industrial Alliance Auto and Home Insurance. Once the transaction is completed, Industrial Alliance´s investment in its general insurance company will reach $8.2 million, which more or less corresponds to the book value of the company. 
  • Since the end of the second quarter, the Group Pensions sector has added 14 new investment funds, managed by five renowned institutional firms, operating mainly in the retirement funds market, and four multi-management funds (fund funds). The asset allocation of the these funds is handled by Industrial Alliance and the funds that make up the multi-management funds are managed by various internal and external managers. 
  • Group Pensions clients, who already had access to their account through Internet, can now carry out two types of transactions on the Company´s web site: provide new investment instructions for their future contributions and change the composition of their existing investments. 
  • In the last few months Industrial-Alliance Life Insurance Company has adopted a new commercial name – Industrial Alliance Insurance and Financial Services – and modernized its corporate image by developing a new visual identity, in which it integrates the stylized silhouette of an elephant, a symbol associated with the Company for a number of years. Recognized for its expertise in life and health insurance, Industrial Alliance has also been offering savings and retirement products for a number of years. The new name is designed to better reflect what the Company has become over the years: an insurance and financial services company. 
  • Industrial Alliance´s share was included on the TSE 300, TSE 200 and S&P/TSE Canadian MidCap indices at the closing of the Toronto Stock Exchange on September 19, 2000. With a market capitalization of some $1.3 billion, the Company is ranked about 110th among the companies that make up the TSE 300.

Pro forma data
Due to the conversion of Industrial Alliance into a capital stock company, on February 10, 2000, the comparative data for 1999 are presented on a pro forma basis when deemed appropriate. These data present the income for the period that would have been attributable to the shareholders, as well as the equity, if Industrial Alliance had demutualized on January 1, 1999. They give effect to the estimated cost of managing the share ownership, and the adjustment of participating contracts accounts.

About Industrial Alliance
With over a century of experience, Industrial Alliance is a life and health insurance company that offers a wide range of insurance and financial services products. Industrial Alliance has operations across Canada, either directly or through its subsidiaries, including IA Pacific Life (Vancouver), and National Life of Canada (Toronto). Industrial Alliance also owns a general insurance company, Industrial Alliance Auto and Home Insurance. The seventh largest life and health insurance company in Canada, Industrial Alliance has $13.8 billion in assets and funds under management.

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Following this press release you will find selected consolidated financial data of Industrial-Alliance for the period ending September 30, 2000.

You will also find Industrial Alliance´s financial results for the third quarter, including complete financial statements, on the Company´s Internet site at www.inalco.com.

See attached tables

Sources and information

Media:
Jacques Carrière
(418) 684-5275 (office)
(418) 576-3624 (cellular)

Investors and financial analysts:
Yvon Sauvageau
(418) 684-5058 (office)