Industrial Alliance Announces a 13% Increase in its Earnings for the Second Quarter of 2001 and an Increase in its Target Return
Industrial-Alliance Life Insurance Company (Toronto Stock Exchange: IAG) ended the second quarter with net income attributable to the shareholders of $26.0 million ($0.69 per common share), a 13% increase ($0.09 per common share) compared to the second quarter of 2000. This increase can be explained in part by the sustained growth of individual insurance sales, as well as by the success of the rate adjustment policy on group insurance contract renewals to reflect rising health care costs and the realization of a $1.2 million gain from the sale of an information technology subsidiary. The return on common shareholders´ equity reached 14.19% as at June 30, 2001, a similar rate to the one obtained at the end of the first quarter and substantially higher than the 13.37% rate obtained as at June 30, 2000.
"The second quarter was characterized by sustained profitability for the regular operations – in spite of the slow recovery by the financial markets – and by continued improvement of the earnings in the Group Insurance sector, a rise in the profits of the Individual Annuities sector compared to the first quarter and even stronger sales growth than in the first quarter," declared Yvon Charest, President and Chief Executive Officer.
"With a return of over 14% for the third consecutive quarter, we have enough confidence in our achievements to raise the target return on equity, which we have now set at between 13% and 15%. Our solid and consistent earnings over the last few quarters and the strength and profitability of our sales in all sectors, as shown by the strong embedded value of our new sales, allows us to be optimistic about the future."
Income and return
Net income – The net income attributable to the shareholders reached $26.0 million for the second quarter, up by 13% compared to the same period last year, and $50.2 million since the beginning of the year, 16% higher than last year. These results were achieved in spite of the weak performance of the financial markets.
Earnings per share – Net earnings per share reached $0.69 for the second quarter, $0.09 higher than the same period last year and $0.05 higher than the first quarter of 2001.
ROE – The return on common shareholders´ equity reached 14.19% for the twelve months ending June 30, 2001, an increase over the 13.37% return recorded at the end of June 2000. Since its conversion to a stock company, Industrial Alliance has been targeting a return in the upper end of the 12% to 14% range. All lines of business have obtained a return of over 14%, except Group Pensions, where the return was 12.93%.
Premiums – Insurance and annuity premium income reached $507.7 million for the second quarter, 2% more than the same period last year, and have totalled $1.2 billion since the beginning of the year, 4% higher than last year. Premiums have increased by over 10% in three out of four sectors since the beginning of the year: Individual Insurance (+11%), Group Insurance (+15%) and Group Pensions (+18%). Individual Annuities is the only sector to record a premium decrease (of 17%) since the beginning of the year. This sector is affected by the uncertainty of investors, who are still hesitant to reinvest in the stock market since the downturn at the beginning of the year.
Sales – Sales rose in the second quarter in most market segments, and in some cases, this increase was substantial. In general, sales were stronger in the second quarter than in the first.
Individual Insurance – One of the highlights of the quarter was once again the growth of sales in the Individual Insurance sector. After increasing by 22% in the first quarter, sales grew 33% in the second, for a combined total increase of 28% for the first half – on total sales of $76.0 million. Sales were up in all distribution networks and all product categories. The strong push in sales can be explained by the popularity of our new universal policy, which has not waned since its launch one year ago, and by the success of the new term insurance products launched at the beginning of the year. In the first quarter, according to industry data, the Industrial Alliance Group was ranked first in Canada in terms of sales, with 13.8% of the market.
Group Insurance: Employee Plans – Employee plan sales reached $19.8 million in the second quarter, 64% higher than the same period last year, and have totalled $35.5 million since the beginning of the year, 55% more than last year. This increase comes primarily from the conclusion of a sale to a large group in Quebec. This means the new strategy implemented in Group Insurance, which consists of pooling the expertise of the Industrial Alliance Group´s companies, is working. This strategy relies on the strength of the Industrial Alliance Group as a national insurer, but one that recognizes the regional-based needs of its clientele.
Group Insurance: Creditor Insurance – Creditor Insurance sales reached $28.9 million in the second quarter, a 9% increase over last year. Total sales for the first half reached $49.7 million, up by 8% over the same period in 2000. The closing of the purchase of Aegis Insurance Corporation at the end of July should contribute to an increase in sales in the next few quarters. Aegis is a leader in the credit insurance market among automobile dealers in Saskatchewan.
Individual Annuities – Individual Annuities premiums, which include the amounts invested by clients in investment funds, reached $115.6 million for the second quarter, 9% lower than last year. Premiums reached $324.3 million for the first six months of the year, 17% less than last year´s result. A good part of this result can be explained by the stock market downturn, which has led to investor uncertainty. However, had it not been for $18 million in unexpected fund inflows last year following the Company´s demutualization, the decrease would have amounted to 13%, which is equal to the rate reported for the first half by the Investment Funds Institute of Canada.
Group Pensions – Group Pensions sales maintained the first quarter´s momentum and reached $137.1 million in the second quarter, an increase of 9% compared to the same period last year. Sales have totalled $355.7 million since the beginning of the year, 42% higher than the same period in 2000. Insured Annuities stole the spotlight for the second straight quarter, having almost quadrupled compared to last year.
Assets under management
After having stagnated in the first quarter, assets under management grew by $149 million in the second quarter to reach $14.2 billion as at June 30, 2001. The growth of funds under management was favoured by the strength of fund inflows in several sectors, but was stalled by the market downturn in the first half.
Quality of investments
The quality of investments is still excellent and has remained more or less unchanged in the second quarter, after having deteriorated slightly in the first quarter. The mortgage loans portfolio was the most affected, with the delinquency rate increasing from 0.23% at the end of December 2000 to 0.57% at the end of March 2001. This rate decreased to 0.55% as at June 30, 2001. The proportion of impaired investments reached 0.34% of investments as at June 30, 2001, slightly higher than at the end of the first quarter (0.30%) and at the end of 2000 (0.26%). As a precautionary measure, additional provisions of $2.3 million have been set up since the beginning of the year ($1.3 million in the first quarter and $1.0 million in the second).
Solvency and capitalization
Solvency – The solvency ratio was 181% at the end of the second quarter, up by 2 percentage points since March 31. The strong drop in the stock markets in the first quarter, combined with the new capital requirements for segregated funds, caused the solvency ratio to decrease by 8 percentage points in the first quarter as compared to December 31, 2000 (187%). The stock markets having stabilized in the last few months, the market value of the funds has started to rise somewhat modestly again, thus allowing for the absorption of a portion of the growth of the capital requirement for segregated funds, according to the regulatory authorities´ formula. The ratio is within the Company´s target range of 175% to 200%.
Capitalization – No changes were made to the Company´s capital during the quarter. However, part of the Aegis and Sascar acquisition, which was completed at the end of July, was financed by the issuance of 67,445 common shares of Industrial Alliance, less than 0.2% of the outstanding common shares.
Acquisition and disposition of companies
The Company has announced two acquisitions and the sale of one subsidiary since the end of the first quarter:
Groupe Financier Concorde – On June 4, 2001, Industrial Alliance announced that its mutual fund dealer subsidiary, Investia Financial Services Inc., had acquired the assets of another mutual fund dealer, Groupe Financier Concorde. At the time of the transaction, Groupe Financier Concorde had 45 mutual fund representatives and administered just over $200 million in assets. This acquisition will allow Investia to offer a more comprehensive line of financial products, including self-directed RRSPs, an area in which Groupe Financier Concorde had a great deal of expertise. As at June 30, 2001, Investia had $296 million in assets.
Aegis and Sascar – On July 24, 2001, Industrial Alliance concluded the purchase of Aegis Insurance Corporation and its affiliated company, Sascar Management Ltd., two Saskatchewan-based companies offering creditor insurance through automobile dealers. The total amount of the transaction reached $9 million. In accordance with shareholders´ wishes, the transaction was settled through the payment of a cash amount ($6.2 million) and the issuance of Industrial Alliance shares (equal to $2.8 million). The acquisition of Aegis consolidates IA Pacific Life´s position as a leader in Canada in the creditor insurance market. IA Pacific Life is Industrial Alliance´s Vancouver subsidiary that now holds more than one-third of the Canadian market in this sector.
Dynabec – Dynabec, Informatique Municipale was sold to Cognicase Inc. The net gain from the transaction was $1.2 million after taxes and provisions.
Industrial Alliance recently disclosed its embedded value as at December 31, 2000. The embedded value reached $1,393 million or $37.08 per common share as at December 31, 2000, a 19.1% increase compared to December 31, 1999. Of all the Canadian insurance companies that have disclosed their embedded value so far, Industrial Alliance is the one whose embedded value is the highest according to two key measures: the embedded value/book value ratio and the value of new sales. The embedded value/book value ratio is 2.00, which means that the embedded value is exactly twice the Company´s book value. New sales added $1.73 per common share in 2000, compared to $1.43 in 1999.
This press release may contain forward-looking statements about the operations, objectives and strategies of Industrial Alliance, as well as its financial situation and performance. These statements are subject to risks and uncertainties. Actual results may differ materially due to a variety of factors, including legislative or regulatory developments, competition, technological changes, global capital market activity, interest rates, changes in demographic data, and general economic conditions in Canada or elsewhere in the world. This list is not exhaustive of the factors that may affect any of Industrial Alliance´s forward-looking statements. These and other factors must be examined carefully and readers should not place undue reliance on Industrial Alliance´s forward-looking statements.
About Industrial Alliance
The Industrial Alliance Group is among the most solid financial institutions in the country, where it is an industry leader in insurance and financial services. The Group has operations across Canada through Industrial Alliance (Quebec City) and its subsidiaries, including IA Pacific Life (Vancouver) and National Life (Toronto). The seventh largest life and health insurer in Canada, the Group insures over 1.5 million Canadians and has more than 2,000 employees. It has over $14.2 billion in assets and funds under management. Industrial Alliance´s stock is listed on the Toronto Stock Exchange, under the ticker symbol IAG. It is part of the TSE 300 and TSE 100, making Industrial Alliance one of the 100 largest public companies in Canada.
A telephone conference on Industrial Alliance´s second quarter financial results will be held today, August 14, 2001, at 11:30 a.m. (ET). You can participate in this conference by dialling toll free, in North America, 1-888 -674-1998, or by dialling (416) 641-6710 for calls from the Toronto region or international calls. Please phone 10 minutes before the conference begins. The question period following the conference will be reserved for institutional investors and financial analysts. Journalists who would like an interview with the President and CEO of Industrial Alliance are invited to contact Jacques Carrière, Vice-President, Investor Relations, at one of the numbers listed at the end of this communiqué.
You can also listen to a replay of the conference call starting at 1:00 p.m. (ET) today until midnight on Tuesday, August 21, 2001 (ET). To access the recording, dial 1-800-558-5253, toll free and enter access code 19045752, in North America, or (416) 626-4100 and enter access code 19065311 for calls from the Toronto region or international calls.
A Webcast of the conference call will be available on-line (in listen only mode) on Industrial Alliance´s Web site (www.inalco.com), as well as from CNW´s Web site (www.cnw.ca), starting at 11:30 a.m. (ET). This Webcast will be available for 60 days.
This press release, as well as the slides presented during the Webcast, the consolidated financial statements, the selected consolidated financial information and management´s discussion and analysis of results of operations and financial position are also available on Industrial Alliance´s Web site at www.inalco.com, Investor Relations section, under Financial Reports, Financial results for the second quarter of 2001.
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Vice-President, Investor Relations
Cellular: (418) 576-3624