Industrial Alliance Ends 2001 on a Strong Note: 20% Increase in Premium Income and 14.5% Annualized Return on Equity for the Fourth Quarter
Industrial-Alliance Life Insurance Company finished the year with a strong fourth quarter and ended 2001 with shareholder net income of $103.9 million. This income, a record for the Company, is 13% higher than the previous year ( $92.1 million, excluding an unusual gain of $6.0 million in the fourth quarter). Shareholder net income was $28.6 million for the fourth quarter, 14% higher than the fourth quarter of 2000 ($25.0 million, excluding the unusual gain) and the third quarter of 2001 ($25.1 million).
Earnings per share were $0.76 in the fourth quarter, up $0.10 over the same period in 2000 (excluding the unusual gain) and earnings per share for the year were $2.75, $0.32 higher than in 2000. Industrial Alliance´s earnings per share have invariably increased in each quarter when compared to the corresponding quarter of the previous year. The return on common shareholders equity was 14.0% for the year, the same rate as in 2000, excluding the unusual gain. This rate is right in the middle of the Company´s 13% to 15% target range.
"We are very happy to end the year with record earnings and a strong increase in sales," declared Yvon Charest, President and CEO. "Our primary objectives are to obtain continued growth of earnings per share, as well as a high and consistent rate of return and regular growth of our market shares. We achieved these objectives once again last year. The recipe for our success has not changed: the strength and reputation of our agents, grouped together in multiple distribution networks, an entrepreneurial spirit in all of the Group companies, a well-defined and well-executed growth strategy in each line of business, a healthy geographic diversification of our operations, a good balance among our profit sources, high-quality investments and well-controlled operating expenses."
Although there were many highlights during the year, Mr. Charest singled out the 66% increase in group insurance sales, a much higher rate than that of the industry. Investment funds also performed well, allowing the Company to benefit from net segregated fund entries in the Individual Annuities sector, ranking it fourth in Canada in this respect, with 9.0% of the market. Insured annuity sales in the Group Pensions sector doubled during the year, confirming Industrial Alliance´s position as an industry leader in Canada in this market segment. Finally, in the strategic Individual Insurance sector, the Company moved from second to first in terms of sales in Canada during the year, making Industrial Alliance the leader in the universal life policy market.
Earnings by line of business
Industrial Alliance is innovating this quarter by presenting the earnings per share for each line of business. Here are the highlights of the growth of earnings in each line of business in 2001.
- The Individual Insurance sector had another good year, with earnings per share of $1.48, up by $0.26 compared to the previous year. The excellent results are attributable to a lower strain on new business, increased sales and a favourable mortality rate. Growth in this sector remained strong during the fourth quarter and continued to display healthy earnings following the momentum seen in the first three quarters. Earnings in this sector generated 54% of the Company´s earnings in 2001.
- The recovery in the Group Insurance sector that began at the beginning of the year continued into the fourth quarter. The premium increases on contract renewals, which began in 2000, have found their way through to the bottom line. The disability insurance and life insurance experience was also good. The results are in line with expectations in health and dental care insurance, in spite of constant price hikes, which reflect current trends in medical expenses. The sector ended the year with earnings per share of $0.31, more than double the previous year´s results, contributing 11% to the Company´s 2001 earnings.
- The stock market recovery at the end of the year resulted in a substantial rebound in earnings in the Individual Annuities sector in the fourth quarter. However, this rebound was not strong enough to make up for the shortfall in the first and third quarters and this sector ended the year with earnings per share of $0.55, down by $0.16 compared to the previous year. This decrease is essentially explained by the strong downturn in the stock markets in 2001, which reduced the management fees collected on investment funds and forced the Company to increase the reserves covering the guarantee granted to holders of segregated funds. However, this sector did contribute 20% of the Company´s earnings in 2001.
- Growth in the Group Pensions sector was affected by an unfavourable mortality rate. The sector ended the year with earnings per share of $0.41, $0.01 higher than the previous year, contributing 15% to the Company´s earnings in 2001.
Finally, other than the above-mentioned factors, the strict control of general expenses also contributed to the Company´s improved earnings.
Business growth by line of business
Premiums – On an accounting basis, insurance and annuity premiums, including contributions to segregated funds, reached $442.6 million for the fourth quarter, compared to $574.7 million for the same period in 2000. Premiums for all of 2001 totalled $2,077.0 million, compared with $2,239.0 million in 2000. The segregated funds held on behalf of the Canadian Medical Association (CMA) were transferred to MD Life on July 1, 2000, so that the amounts collected under this contract are no longer entered in the Company´s books, even though they appear in the previous year´s numbers. MD Life is a life insurance company created by MD Management and National Life, a subsidiary of Industrial Alliance. Excluding the amounts collected under this contract, premiums for 2001 were 4% higher than the previous year. Individual Annuities was the only sector to obtain lower premiums, a result of the stock market downturn.
Sales – In spite of a sluggish economy, sales continued to grow in most market segments in the fourth quarter.
- Individual Insurance – Fourth quarter sales reached $33.5 million in the Individual Insurance sector, down by $2.0 million compared to the previous quarter, and totalled $145.0 million for the year, $10.9 million higher than the previous year. Sales were much stronger at the beginning of the year than at the end. Three factors explain the lower sales seen in the fourth quarter: the holding of a sales convention, which was attended by top agents at Industrial Alliance and IA Pacific Life; the economic slowdown, which reduced the "savings" portion of universal life policies; and the fact that sales to physicians under the agreement with MD Management are now entered in the books of MD Life. Note that sales had been exceptional in the fourth quarter of 2000, reaching a still unparalleled high of $42.4 million. Placed in this context, the $33.5 million in sales obtained in the fourth quarter of 2001 is a very respectable performance. The Industrial Alliance Group was ranked first in Canada with respect to sales for the first three quarters of 2001, with 14.3% of the market.
- Group Insurance: Employee Plans – Employee plan sales reached $17.9 million in the fourth quarter, 136% higher than the same period one year earlier, and totalled $65.6 million for 2001, 66% higher than the previous year. Sales were up in all regions of the country in 2001. The Industrial Alliance Group´s three companies are benefitting from the merging of operations in this sector. For our target market, which is groups of 50 to 1,000 employees, the Industrial Alliance Group was ranked fifth in Canada in 2001, with a market share of 7.9%.
- Group Insurance: Creditor Insurance – Creditor insurance sales reached $26.7 million in the fourth quarter, a 6% increase over the same period in 2000. Sales for 2001 reached $108.0 million, up by 8% compared to 2000. Industrial Alliance is the only company to have a national distribution network in this market segment, ranking the Company first in Canada in the creditor insurance sector for automobile dealers, with one third of the Canadian market.
- Individual Annuities – Premiums for the Individual Annuities sector reached $102.8 million for the fourth quarter, 6% higher than the same period in 2000. Premiums for the entire year totalled $529.1 million, 14% lower than the year 2000 results. The stock market downturn made investors cautious this year, which explains a good part of the performance for the year. However, net premiums (premiums less surrenders) remained positive. For 2001, Industrial Alliance was ranked fourth in Canada with respect to net premiums for the segregated funds industry, with a 9.0% market share. The good performance of investment funds, of which 76% of the assets obtained a return above the median, certainly contributed to this success.
- Group Pensions – Excluding the transfer to MD Life of the Canadian Medical Association contract, whose premiums were entered in the Group Pensions sector, sales in the fourth quarter reached $47.2 million, 39% lower than the same period in 2000. Total sales for 2001 reached $344.1 million, up by 34% compared to the same period in 2000. At just over double last year´s amount, insured annuity sales took the spotlight. Industrial Alliance signed a major agreement with National Bank Trust at the end of 2001. Under this agreement, Industrial Alliance will develop and administer National Bank Trust´s group retirement plans. This agreement involves some 1,400 plans covering about 33,000 participants, and representing over $430 million in assets.
Assets under management and under administration
In spite of a general decline in stock market values in 2001, the Company´s assets continued to grow throughout the year. Assets under management and under administration reached $15.1 billion as at December 31, 2001, an increase of $1,039 million (7%) in the last twelve months. Since the Canadian Medical Association contract was transferred to MD Life, the assets of this contract are no longer classified as segregated fund assets, but as other assets under management and under administration. We have also combined, under the other assets under management and under administration, all funds of our mutual funds broker, Investia, along with those of Industrial Alliance´s trust subsidiary. The increase in total assets over the last year is mainly the result of these new initiatives, most of which really got started in 2001.
Quality of investments
In spite of an uncertain economic environment, the quality of investments, which was already excellent, improved in the fourth quarter in almost all asset categories. Impaired investments decreased in the fourth quarter, from 0.33% of total investments as at September 30, 2001, to 0.28% as at December 31, 2001. Provisions for impaired investments also decreased during the quarter, from $16.2 million at the end of September 2001 to $15.4 million at the end of December 2001. 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 decreased slightly, from 0.58% at the end of September 2001 to 0.48% at the end of December 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 187% at the end of the fourth quarter, up by 9 percentage points since September 30,2001. The increase in the solvency ratio in the fourth quarter is primarily due to the stock market recovery in the last few months of the year. This recovery translated into a reduction in the new capital requirements for the segregated funds guarantee and an increase in the market value of assets matching the Company´s surplus. The solvency ratio is within the Company´s 175% to 200% target range.
Capitalization – No common shares were issued in the fourth quarter. The Company´s earnings and the absence of new debt further reduced the debt ratio. This ratio, which is calculated by dividing the subordinated debentures by the total capital structure, reached 16.8% as at December 31, 2001, which is lower than the 18.2% rate recorded at the end of 2000.
Main achievements in 2001
Here are a few of Industrial Alliance´s main achievements in 2001.
In terms of acquisitions, Industrial Alliance acquired, either directly or through its subsidiaries, the assets of Groupe Financier Concorde, a mutual funds broker-dealer; Aegis Insurance Corporation, a Saskatchewan life insurance company operating in the creditor insurance market among automobile dealers; and ISL-Lafferty Securities and certain assets of BNP (Canada) Securities, two full service stock brokerage firms. These latter two acquisitions were made at the beginning of 2002. With these acquisitions, Industrial Alliance now owns subsidiaries in several key financial sectors: life and health insurance, mutual and segregated funds, trust, securities brokerage and general insurance.
In terms of administration, distribution or partnership agreements, Industrial Alliance concluded, either directly or through its subsidiaries, four agreements in 2001 or at the beginning of 2002:
- an agreement with MD Management to create MD Life, a life insurance company. This company is responsible for the distribution and administration of the individual insurance and group annuity products for the members of the Canadian Medical Association;
- an agreement with National Bank Trust, a subsidiary of the National Bank of Canada. Under this agreement, Industrial Alliance will develop and administer National Bank Trust´s group retirement plans;
- an agreement with BMO Life, a subsidiary of the Bank of Montreal. Under this agreement, Industrial Alliance will provide administrative and information processing services to BMO Life and assist them with the development of their term and universal life insurance products;
- an agreement with La Capitale Services Conseils, the distribution network for a Quebec life insurance company. Under this agreement, La Capitale agents will distribute Industrial Alliance´s segregated funds and registered education savings plans. La Capitale´s agents began distributing Industrial Alliance´s universal life policy about a year ago.
Declaration of dividends
The board of directors declared the payment of a $0.15 dividend for the fourth quarter of 2001. This dividend will be payable in cash on March 15, 2002 to the shareholders of record on February 21, 2002.
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 in Quebec City and its subsidiaries, including IA Pacific Life in Vancouver and National Life in 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 $15.1 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 fourth quarter financial results will be held today, February 12, 2002, at 2:00 p.m. (ET). You can participate in this conference by dialling toll free, in North America, 1-888-209-3793. 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, February 19, 2002. To access the recording, dial 1-800-558-5253, toll free and enter access code 20118096.
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 fourth quarter of 2001.