Industrial Alliance Announces a 5% Increase in its Earnings for the Third Quarter of 2001 and a 12% Increase since the Beginning of the Year
In spite of the pronounced downturn in the stock markets, Industrial-Alliance Life Insurance Company (Toronto Stock Exchange: IAG) ended the third quarter with net income attributable to the shareholders of $25.1 million ($0.66 per common share), a 5% increase compared to the third quarter of 2000. For the first three quarters of the year, net income totalled $75.3 million ($1.99 per common share), an increase of 12% over the same period last year. The return on common shareholders´ equity reached 13.90% for the twelve months ended September 30, 2001, an increase over the 13.69% return obtained as at September 30, 2000. This rate of return is within the Company´s 13% to 15% target range.
"We are very pleased to have succeeded in maintaining our momentum even as the economic climate was deteriorating and the stock markets were falling," declared Yvon Charest, President and Chief Executive Officer. "The strength of our performance is attributable to the healthy diversification of our operations by sector of activity, by geographic region in Canada and by distribution network. This is an added indication of the depth and stability of our organization, which is always able to count on the commitment of its representatives and employees."
Mr. Charest pointed out that the quality of investments was such that no new provisions were required in the last three months. Individual insurance and group insurance sales actually grew by 10% or more in the third quarter. The Company is still ranked first in Canada in terms of individual life insurance sales. The Company´s good investment fund performance allowed it to achieve positive net cash flows on the segregated fund sales in the Individual Annuities sector, placing it fourth in Canada in this regard. Industrial Alliance has also succeeded in growing its assets since the beginning of the year – by $785 million – in spite of the stock market drop.
The improvement in net income in the third quarter is mainly attributable to the Individual Insurance sector, which had a solid quarter – mainly due to excellent mortality experience and lower strain on new business – and to the continued good profitability of the Group Insurance sector and strict control of general expenses.
The gains resulting from these different items offset the impact of the stock market downturn on the Company’s income. It is estimated that this downturn caused a $6.3 million decrease in net income for the third quarter and a $10.6 million decrease for the year to date. By line of business, Individual Annuities was hardest hit, due mainly to the reduction in segregated fund management fees and the increase in reserves covering the guarantee granted to segregated fund holders.
Industrial Alliance does not expect to suffer any direct losses from the tragedy of September 11. The Company operates almost exclusively in Canada and does not have any operations in the fields of reinsurance, retrocession, civil liability insurance or business interruption insurance. Moreover, it does not have any clients outside of Canada in the general insurance sector.
Premium – On an accounting basis, insurance and annuity premiums, including contributions to segregated funds, reached $469.1 million for the third quarter, compared to $542.5 million for the same period last year. Premiums have totalled $1,634.4 million since the beginning of the year, compared to $1,664.4 million in 2000. The segregated funds held for the Canadian Medical Association (CMA) were transferred to MD Life on July 1, 2001, so the premiums collected under this contract are no longer entered in the Company´s books – even though they appear in last year´s books. If we exclude the amounts collected with regard to the CMA contract, premiums are 4% higher than last year. Premiums are down only in the Individual Annuities sector, which is explained by the extreme cautiousness of investors, who are hesitant to reinvest in the stock markets given the current economic uncertainty.
Sales – In spite of the general stagnation of the economy, sales continued to grow in the third quarter in most market segments.
- Individual Insurance– Sales in the Individual Insurance sector reached $35.5 million in the third quarter, 10% higher than the same period last year, and have totalled $111.5 million since the beginning of the year, a 22% increase over last year. The continued growth of sales is 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 half, the Industrial Alliance Group was ranked first in Canada in terms of sales, with 14.5% of the market.
- Group Insurance: Employee Plans– Employee plan sales reached $12.3 million in the third quarter, 35% higher than the same period last year, and have totalled $47.8 million since the beginning of the year, 49% more than last year. Sales have grown in all regions of the country since the beginning of the year. The process of consolidating the operations of the Industrial Alliance Group companies is progressing well. All Group contracts will soon be administered using the same technological platform.
- Group Insurance: Creditor Insurance– Creditor insurance sales reached $31.6 million in the third quarter, a 9% increase over last year. Total sales for the first three quarters reached $81.3 million, up by 8% over the same period in 2000. The purchase of Aegis, a Saskatchewan-based life insurance company that offers creditor insurance through automobile dealers, was completed on July 24, 2001. Aegis´s contribution to sales was already evident in the third quarter.
- Individual Annuities– Individual Annuities premiums, which include the amounts invested by clients in guaranteed deposits and variable funds, reached $102.0 million for the third quarter, 18% lower than last year. Premiums reached $426.3 million for the first nine months of the year, 17% less than last year´s results. A good part of this performance can be explained by the stock market downturn, which has made investors more cautious this year. However, net sales (gross premiums less surrenders) remain positive. The favourable performance of investment funds, whose one-year returns were higher than the median for 82% of the assets, likely played a role in this success. For the nine-month period ending September 30, 2001, Industrial Alliance was ranked fourth in Canada in terms of net sales for the entire segregated funds industry.
- Group Pensions– If we exclude the transfer of the Canadian Medical Association contract to MD Life – a contract whose premiums were accounted for in the Group Pensions sector –, sales in this sector reached $111.5 million for the third quarter, 75% higher than the same period last year. Sales have totalled $296.9 million since the beginning of the year, 65% higher than the same period in 2000. Insured Annuities stole the spotlight for the third straight quarter, with sales almost six times higher than last year.
Assets under management and under administration
In spite of a general decline in stock market securities, the Company´s assets have continued to grow in the last year. Assets under management and under administration reached $14.7 billion as at September 30, 2001, an increase of $785 million (6%) in the last twelve months. Since the Canadian Medical Association contract was transferred to MD Life, Industrial Alliance no longer classifies the assets of this contract as funds under management, but as funds under administration. This is a new way of doing things for the Company. We have also included, under funds under administration, all funds of our mutual funds broker, Investia – as well as those of Groupe Financier Concorde, which Investia acquired earlier this year – along with those of Industrial Alliance´s trust subsidiary. The increase in total assets over the last few months is mainly the result of these new initiatives, most of which really got started this year.
Quality of investments
In spite of a general deterioration in the economic climate, the quality of investments is still excellent and has remained virtually unchanged in the third quarter. Thus, no new provisions were required in the last three months. Impaired investments accounted for 0.33% of total investments as at September 30, 2001, slightly lower than June 30, 2001 (0.34%). The delinquency rate of the bond portfolio is just 0.03%, the same rate as at the end of the previous quarter. The delinquency rate of the mortgage loans portfolio also remained more or less unchanged, going from 0.55% at the end of June 2001 to 0.58% at the end of September 2001. The real estate occupancy rate remained extremely high, at 96.3%. This rate has remained stable for several years.
Solvency and capitalization
Solvency The solvency ratio (MCCSR) was 178% at the end of the third quarter, down by 3 percentage points since June 30, 2001. The drop in the stock markets was the determining factor in this decrease. The stock market decline led to an increase in the capital requirement with respect to the segregated funds guarantee. The solvency ratio is within the Company´s 175% to 200% target range.
Capitalization As we announced in the previous quarter´s financial press release, the Company issued 67,445 common shares on July 24, 2001, representing $2.8 million. These shares were issued to help finance the acquisition of Aegis Insurance Corporation and its affiliated company, Sascar Management Ltd. The number of shares issued represents less than 0.2% of the number of outstanding common shares.
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 $14.7 billion in assets under management and under administration. 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.
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Vice-President, Investor Relations
Cellular: (418) 576-3624
A telephone conference on Industrial Alliance´s third quarter financial results will be held today, November 6, 2001, at 2:00 p.m. (ET). You can participate in this conference by dialling toll free, in North America, 1-888-793-1716. 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 4:00 p.m. (ET) today until Tuesday, November 13, 2001. To access the recording, dial 1-800-558-5253, toll free and enter access code 19752665.
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.newswire.ca), starting at 2:00 p.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 the Company’s operating results 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 third quarter of 2001.