Year 2000 Results
Industrial Alliance Announces Record Earnings of Nearly $100 Million, a 31% Increase
Industrial-Alliance Life Insurance Company (Industrial Alliance) ended the year 2000 with net income attributable to the shareholders of $98.1 million, a 31% increase over the 1999 pro forma net income. This figure represents record earnings for Industrial Alliance, and takes into account an unusual gain of $6.0 million related to the non-recurrent effect of decreases in the tax rates announced in 2000. The return on common shareholders’ equity and the net earnings per common share for the year 2000, before this unusual gain, were 14.03% (12.08% on a comparable basis in 1999) and $2.43 ($1.84 on a comparable basis in 1999) respectively. In terms of business growth, insurance and annuity premiums also reached a new high of $2.2 billion, up 11% over 1999.
"We are ending our first year as a capital stock company with record earnings and a strong increase in sales," reported Yvon Charest, President and Chief Executive Officer. "The financial markets rewarded the Company´s solid performance throughout the year. The value of our shares increased 158% in 2000, the second best stock market performance of all newly listed companies on the Toronto Stock Exchange. I am very pleased with these results, which show that Industrial Alliance is well served by its commitment to be a “high performing organization.”
Highlights of the year 2000
Other than the completion of the demutualization process and the Company´s official listing on the Toronto Stock Exchange on February 10, 2000, several important events occurred in the year 2000:
- inclusion of the Company´s shares on the TSE 300, TSE 200 and S&P/TSE Canadian MidCap indices. With a market capitalization of some $1.4 billion, Industrial Alliance is currently among the 100 largest companies that make up the TSE 300;
- acquisition of Mecagroup, one of the primary credit insurance managers among automobile dealers in Quebec;
- purchase of Mutuelles du Mans´ share in Unindal, making Industrial Alliance the sole owner of this company. Unindal is a holding company that owns Industrial Alliance Auto and Home Insurance;
- adoption of a new name for the Industrial Alliance subsidiary North West Life of Canada, which became IA Pacific Life to make it more easily identifiable with the parent company;
- adoption of a new commercial name by the parent company—Industrial Alliance Insurance and Financial Services—which highlights the Company’s two major spheres of activity; and
- disclosure of the Company´s embedded value, a first in Canada for a life insurance company.
There was also a major change in the Company´s management in 2000. Raymond Garneau retired as Chief Executive Officer on May 2, 2000, after over ten years at the Company´s helm. The board of directors appointed Yvon Charest to replace him as President and Chief Executive Officer. Mr. Garneau remains Chairman of the Board of Directors.
Following are detailed comments on the Company´s results for the fourth quarter of 2000, as well as for the twelve months ending December 31, 2000.
Income and return
Net income – The net income attributable to the common shareholders amounted to $31.0 million for the fourth quarter of 2000, a 56% increase over the comparable income for the same period last year (on a pro forma basis). The overall net income attributable to the common shareholders for the year totalled $98.1 million, 31% more than in 1999. This result takes into account unusual income of $6.0 million posted entirely in the fourth quarter. This unusual income represents the net non-recurrent effect of the decreases in the tax rates announced in 2000 by the federal and Ontario governments. These rate reductions were posted in this year´s financial statements in accordance with the guidelines of the Canadian Institute of Chartered Accountants.
Net income before unusual items – If we exclude this unusual gain, the net income attributable to the common shareholders for the fourth quarter of 2000 was $25.0 million, up 26% over the comparable net income for 1999, and totalled $92.1 million for the entire year, an increase of 32% over the 1999 net income, excluding a $5.3 million unusual gain (resulting from the sale of subsidiaries) and estimated net share ownership management expenses of $1.4 million. This increase in income is due to the combined effect of regular growth in sales, a revision of the pricing parameters in group insurance, favourable claims experience, and control of the growth of operating expenses.
Net income per share – The net income per common share was $0.66 for the fourth quarter of 2000 and totalled $2.43 for the twelve months of the year, excluding the unusual income. The comparable data for 1999 were $0.52 for the fourth quarter and $1.84 for the year. The net income per common share was $0.54, $0.60 and $0.63 respectively for the first, second and third quarters of 2000.
Return on common shareholders´ equity – The return on common shareholders’ equity for the twelve months ending December 31, 2000, before unusual items, was 14.03%. This result compares to a pro forma rate of 12.08% for the twelve months ending December 31, 1999, which also excludes the unusual items. The return was on the rise throughout 2000 and slightly exceeds the 12% to 14% range targeted by the Company.
Premiums – Total insurance and annuity premiums, including contributions to segregated funds, amounted to $574.7 million for the fourth quarter of 2000, a 37% increase over the same period last year, and totalled $2,239.0 million for the entire year, up 11% over 1999. The increase in premiums since the beginning of the year is attributable to the growth of sales in most sectors and the good in-force business persistency rate. Premiums from savings and retirement products, which are often associated with wealth management, represent 53% of the total premiums, not counting the savings components of universal life insurance policies.
Individual insurance – One of the highlights of the year was the strong growth of sales in the Individual Insurance sector. For the fourth quarter of 2000, sales (expressed in terms of first-year annualized premiums) amounted to $42.4 million, 39% higher than the same period in 1999. Sales for the entire year totalled $134.1 million, up 17% over 1999. The new products launched during the year, including a new universal policy (universal policies now account for over 70% of sales) and a critical illness policy, were very well received. The Industrial Alliance Group is still ranked second in Canada with respect to sales, with 12.4% of the market, according to data for the first three quarters of 2000.
Group insurance: creditor insurance – Creditor insurance sales amounted to $25.1 million for the fourth quarter of 2000, up 21% over the same period in 1999. Total sales reached $100.3 million, 11% higher than in 1999. Most sales come from the insurance offered through automobile dealers, a market sector where the Company leads the industry in Canada. In May 2000 , the Company announced that its IA Pacific Life subsidiary was acquiring Mecagroup, one of the primary managers of credit insurance among automobile dealers in Quebec.
Group insurance: employee plans – Sales for employee plans, in Group Insurance, remained fairly stable for both the fourth quarter ($7.6 million in 2000 compared to $7.4 million in 1999) and the entire year ($39.6 million in 2000 compared to $39.8 million in 1999). The three companies of the Industrial Alliance Group are now coordinating their marketing efforts across Canada and are working together to achieve operational synergies.
Individual annuities – The Individual Annuities sector ended the year with very strong growth, in spite of a slowdown in the last few months of 2000. Premiums for the fourth quarter of 2000 reached $97.4 million, which is $8.0 million lower than the same period last year. For the twelve months of the year, premiums totalled $613.8 million, 29% more than in 1999. This success is partially due to the RRSP campaign, which achieved exceptional results. Segregated funds represented 62% of the assets under management in this sector.
Group pensions – Gross premiums collected in the Group Pensions sector, including deposits, totalled $231.2 million for the fourth quarter, 151% more than the same period in 1999. For the entire year, gross premiums and deposits totalled $671.2 million, up 5% compared to 1999, in spite of the interruption of government programs for older worker adjustment, a market where Industrial Alliance was leading the industry in Canada. In order to optimize its profit margins, the Company signed a reinsurance agreement for insured annuities, so that total premiums, net of reinsurance, totalled $616.5 million for the year 2000, 3% lower than in 1999. Also, National Life and MD Management jointly created a new life insurance company, MD Life. National Life will be in charge of the administration of the new company.
Assets under management
Assets under management totalled $14.0 billion as at December 31, 2000, an increase of 7% in the last twelve months. As stated in the previous quarters´ reports, the distribution of assets between general funds and segregated funds has changed considerably this year, mainly due to the transfer of $1.4 billion between National Life´s general funds and segregated funds on March 31, 2000.
Quality of investments
The quality of investments remains excellent. The proportion of non-performing assets, representing 0.26% of all investments as at December 31, 2000, is stable in relation to December 31, 1999. The delinquency rate of the bond portfolio is nil, as it was at the end of 1999, and that of the mortgage loans portfolio is 0.23% as at December 31, 2000, which is lower than the December 31, 1999 rate (0.28%). The occupancy rate of the real estate investments is still high, representing 96.7% as at December 31, 2000 (95.1% as at December 31, 1999). Finally, the market value of the stock and market indices portfolio, which totalled $707.9 million, surpassed the book value as at December 31, 2000 by 2.1%, as compared to 7.4% as at December 31, 1999.
The majority of the stock and market indices portfolio (63.3%) is made up of investments in market indices and segregated funds. Any difference between the market value and book value of these investments is absorbed by the insureds, since these investments are matched to the savings components of universal policies. Also, the portfolio contained only 5.1% of common shares.
Equity amounted to $778.5 million as at December 31, 2000, compared to $671.9 million at the end of 1999, on a pro forma basis. The capitalization ratio, as estimated according to the regulatory authorities´ guidelines, was 185% for Industrial Alliance as at December 31, 2000 (184% as at September 30, 2000). This ratio far exceeds the regulatory authorities´ requirements. It takes into account the effect of the regulatory authorities´ new capital requirements concerning segregated funds guarantees. These new rules caused the capital ratio for 2000 to drop by 4 percentage points. This decrease was offset by other factors, including the previously indicated transfers between general funds and segregated funds. Following the introduction of these new requirements, no significant changes were made to the amount of reserves already held for these guarantees and the management fees for segregated funds. Segregated fund contract guarantees were designed to maximize the protection offered to contract holders and avoid any concentration of risk for the Company.
Pro forma data
Due to the conversion of Industrial Alliance to 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 period’s income that would have been attributable to the shareholders, as well as the equity, if Industrial Alliance had demutualized on January 1, 1999. They also give effect to the estimated cost of managing the share ownership, and the adjustment of participating contract accounts.
About Industrial Alliance The Industrial Alliance Group is among the most solid financial institutions in Canada, where it is clearly an industry leader in insurance and financial services. The Group has operations across Canada through the parent company, Industrial Alliance (Quebec City), and its subsidiaries, including IAPacific Life (Vancouver) and National Life of Canada (Toronto). As the seventh largest life insurance company in Canada, the Group has more than $14 billion in assets and managed funds. The Internet address of the parent company is: www.inalco.com.
You can also find Industrial Alliance´s complete financial results for the fourth quarter of 2000 and the twelve-month period ending December 31, 2000, on the Company´s Internet site at www.inalco.com (click on Investor Relations/Financial Reports/Financial Results for the fourth quarter of 2000).
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Sources and information
(418) 684-5286 (office)
Investors and financial analysts:
(418) 684-5275 (office)