Industrial Alliance Reports its First Quarter Financial Results
Buoyant top-line continues and earnings well within guidance
QUEBEC CITY, May 10, 2012 /CNW Telbec/ - Industrial Alliance Insurance and Financial Services Inc. (TSX: IAG) announces its results for the first quarter ended March 31, 2012. All financial results are based on International Financial Reporting Standards ("IFRS") unless otherwise noted. A full discussion of the first quarter results is available at www.inalco.com under Investor Relations / Financial Reports.
|Q-1 Overview||2012 Guidance|
|Diluted and adjusted EPS of $0.71||$2.50 to $3.10 full year ($0.625 to $0.775/quarter)|
|Annualized ROE of 11.1%||9% to 11%|
|Solvency ratio of 186%||175% to 200%|
|Dividend payout ratio of 35%||25% to 35%|
|Effective tax rate of 13.7%||
22% to 24%
"We continued to reap the benefits of our strong franchise in the first quarter of 2012 with all our lines of business reporting growth in sales or fee-earning assets," commented Yvon Charest, President and Chief Executive Officer. "In terms of operating results, our traditional insurance and wealth management activities are still the key contributors, but we are excited to see that a growing proportion of our operating income - above 30% this quarter - is being generated by our mutual fund business, creditor insurance and complementary warranties, special markets group, our general insurance subsidiary, our broker dealer affiliates and other niche markets."
"Our results also benefited from stronger equity markets in the first quarter as well as a tax recovery," added Mr. Charest. "Policyholder experience for mortality was favourable in both the individual and group sectors, however, the level of claims for long-term disability benefits was higher than expected. We have therefore taken steps to reverse this situation by implementing an action plan that includes revised pricing together with proactive claims management."
|(In millions of dollars, unless otherwise indicated)||2012||2011||Variation|
|Net income attributed to shareholders||70.4||72.1||(2%)|
|Less: preferred share dividends||6.0||6.0||-|
|Net income available to common shareholders||64.4||66.1||(3%)|
|Earnings per common share (diluted and adjusted1)||$0.71||$0.78||($0.07)|
|Earnings per common share (diluted)||$0.67||$0.76||($0.09)|
|Return on common shareholders' equity (annualized)||11.1%||12,6%||(150 bps)|
|Premiums and deposits||1,864.9||1,982.5||(6%)|
|Effective tax rate (%)||13.7%||23.1%||-|
|March 31, 2012||December 31, 2011||March 31, 2011|
|Book value per share||$25.85||$25.54||$25.24|
|Assets under management and administration||76,252.1||72,350.7||71,252.7|
|Net impaired investments||9.3||13.1||19.8|
|Net impaired investments as a % of total investments||0.04%||0.06%||0.10%|
|1 Excluding the dilutive impact of the innovative Tier 1 debt instruments (IATS).|
First Quarter Highlights
Profitability - Industrial Alliance ended the first quarter of 2012 with diluted earnings per share of $0.71, excluding the dilutive impact of the Company's innovative Tier 1 debt instruments. Net income to common shareholders amounted to $64.4 million and diluted earnings per share were $0.67, both in line with guidance provided for 2012. The return on common shareholders' equity was 11.1% on an annualized basis, also in line with the Company's target range of 9-11% for the current year.
The following elements had an impact on first quarter earnings. All figures are after taxes unless otherwise indicated.
Market-related experience - Stock market growth in the first quarter resulted in a gain of $9.1 million or $0.10 per share. Of this amount, $0.07 per share is attributed to Individual Wealth Management, including $0.05 per share for the Company's dynamic hedging program. The remaining $0.03 per share relates to the Individual Insurance sector.
Policyholder experience - Mortality experience in the first quarter was favourable in individual insurance, reversing the negative trend in the last two quarters. Longevity experience was also favourable for both individual and group annuities. In the Group Insurance sector, an increase in claims, particularly for long-term disability benefits, resulted in an experience loss of $11.1 million or $0.12 per share. As part of the corrective measures put in place, revised pricing should have a positive impact during the rest of 2012.
Strain - In the Individual Insurance sector, strain was 56% of sales compared with 49% in the fourth quarter of 2011. This increase was due to a lag between the introduction of higher pricing on new sales in December 2011 and market uptake - 52% of first-quarter sales reflected the new rate. The higher sales volume in the quarter also generated more strain, reducing earnings by at least $3.6 million or $0.04 per share according to management estimates.
Income taxes - A gain of $0.06 per share is attributed to a tax recovery for the American-Amicable operations in the U.S. The effective tax rate in the first quarter was 13.7%.
Other items - Assets available for sale generated income of $9.7 million, which is in line with the recent trend. IA Auto and Home contributed a pre-tax gain of $1.8 million reflecting milder winter conditions in the first quarter of 2012, compared with a loss of $1.1 million for the same period a year ago.
Business growth - Premiums and deposits surpassed $1.8 billion in the first quarter, which compares favourably with year-ago results. Assets under management and administration (AUM/AUA) reached a new high of $76.3 billion, with fee-earning assets (AUM) growing 10% year-over-year.
All our lines of business, led by Creditor Insurance, reported an increase in sales or assets.
In Individual Insurance, sales increased by 17% to $53.4 million, with both the Canadian and the U.S. operations contributing to the growth.
In Individual Wealth Management, we continue to rank number one for sales of segregated funds and 11th for mutual fund sales in Canada. Net fund sales of $363.7 million reflect soft demand in the first two months of the quarter.
In Group Insurance, creditor insurance sales increased by 51% to $58.5 million, reflecting organic growth and the acquisition of VAG and Accès in February 2011. Sales of complementary warranties increased by 91% to $27.3 million attributable to the same acquisitions.
Also in Group Insurance, sales of Employee Plans grew by 25% to $19.6 million while the Special Markets Group reported sales growth of 20% to $39.4 million.
In Group Savings and Retirement, total accumulation contract sales increased by 8% to $163.9 million.
Solvency - At March 31, 2012, the solvency ratio was 186% compared with 189% at December 31, 2011. The change is attributed to an increase in the proportion of stocks in the Company's asset mix (-4%), improvement in the macroeconomic environment (+4%), increased capital requirements for segregated funds (-2%) and the transition to IFRS standards to be completed by December 31st, 2012 (-1%). The solvency ratio at March 31, 2012 is in line with IA's target range of 175-200%.
Quality of investments -The overall quality of our investment portfolio continues to be very high. At March 31, 2012,
impaired loans decreased to 0.04% of total investments from 0.06% at
December 31, 2011 resulting from an improvement in the mortgage
the proportion of bonds rated BB and lower decreased to 0.10% from 0.12%
as at December 31, 2011;
- the real estate occupancy rate increased to 94.8% from 94.6% at 2011 year-end.
Dividend - The Board of Directors declared a quarterly dividend of $0.2450 per common share. This corresponds to a payout ratio of 35% of net earnings, which falls within the Company's 25% to 35% target range for the medium term.
Sensitivity Analysis - Market sensitivities as at March 31, 2012 have been updated as follows:
the Company can absorb a decrease of about 14% (12% at December 31,
2011) in the S&P/TSX index before having to strengthen policy
liabilities. This means that the index would have to decrease to 10,600
points from its level at March 31, 2012.
The solvency ratio will remain above 175% as long as the S&P/TSX index
stays above 10,500 points (9,900 points at December 31, 2011) and above
150% as long as the S&P/TSX remains above 8,700 points (8,100 points at
December 31, 2011).
The full-year impact on net income of a sudden 10% decrease in the stock
markets is $25 million ($22 million at December 31, 2011).
- The impact on net income of a 10 basis point decrease in the initial re-investment rate (IRR) is $28 million ($33 million at December 31, 2011) and the comparable impact for the ultimate re-investment rate (URR) is $61 million ($62 million at December 31, 2011).
Internal Control over Financial Reporting
No changes were made in the Company's internal control over financial reporting during the interim period ended March 31, 2012 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Non-IFRS Financial Information
The Company reports its financial results in accordance with International Financial Reporting Standards(IFRS). It also publishes certain non-IFRS financial measures that do not have an IFRS equivalent, including sales, value of new business, embedded value and solvency ratio, or which have an IFRS equivalent such as data on operating profit and income taxes on earnings presented in the sources of earnings table. The Company also uses non-IFRS adjusted data in relation to net income, earnings per share and return on equity. These non-IFRS financial measures are always accompanied by and reconciled with IFRS financial measures. The Company believes that these non-IFRS financial measures provide investors and analysts with additional information to better understand the Company's financial results as well as assess its growth and earnings potential. Since non-IFRS financial measures do not have a standardized definition, they may differ from the non-IFRS financial measures used by other institutions. The Company strongly encourages investors to review its financial statements and other publicly-filed reports in their entirety and not to rely on any single financial measure.
Management will hold a conference call to present the Company's results on Thursday, May 10, 2012 at 11:30 a.m. (ET). To listen in on the conference call, dial 1 800 732-5617 (toll-free). A replay of the conference call will also be available for a one-week period, starting at 2:00 p.m. on Thursday, May 10, 2012. To listen to the conference call replay, dial 1 800 558-5253 (toll-free) and enter access code 21582892. A webcast of the conference call (in listen only mode) will also be available on the Industrial Alliance website at www.inalco.com.
Documents Related to the Financial Results
For a detailed discussion of the Company's first quarter results, investors are invited to consult the MD&A, financial statements and accompanying notes as well as our supplemental information package, all of which are available on the Industrial Alliance website at www.inalco.com under Investor Relations / Financial Reports and on SEDAR at www.sedar.com.
Annual General Meeting of Shareholders
Industrial Alliance is holding its Annual General Meeting of Shareholders this afternoon at 2:00 p.m. at the Quebec City Convention Centre located at 1000 René-Lévesque Boulevard East in Québec City. Media will have the opportunity to meet with Chairman of the Board John LeBoutillier as well as President and Chief Executive Officer Yvon Charest immediately after the AGM at approximately 3 p.m.
Industrial Alliance will hold an investor day on Tuesday, June 12, 2012, in Toronto, from 8:30 a.m. to 1:30 p.m. (ET). Details of the conference will be available on our website.
This press release may contain statements relating to strategies used by Industrial Alliance or statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as "may", "will", "could", "should", "would", "suspect", "expect", "anticipate", "intend", "plan", "believe", "estimate", and "continue" (or the negative thereof), as well as words such as "objective" or "goal" or other similar words or expressions. Such statements constitute forward-looking statements within the meaning of securities laws. Forward-looking statements include, but are not limited to, information concerning the Company's possible or assumed future operating results. These statements are not historical facts; they represent only the Company's expectations, estimates and projections regarding future events.
Although Industrial Alliance believes that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements. Factors that could cause actual results to differ materially from expectations include, but are not limited to: general business and economic conditions; level of competition and consolidation; changes in laws and regulations including tax laws; liquidity of Industrial Alliance including the availability of financing to meet existing financial commitments on their expected maturity dates when required; accuracy of information received from counterparties and the ability of counterparties to meet their obligations; accuracy of accounting policies and actuarial methods used by Industrial Alliance; insurance risks including mortality, morbidity, longevity and policyholder behaviour including the occurrence of natural or man-made disasters, pandemic diseases and acts of terrorism.
Additional information about the material factors that could cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward-looking statements may be found in the "Risk Management" section of the Management's Discussion and Analysis and in the "Management of Risks Associated with Financial Instruments" note to Industrial Alliance's consolidated financial statements, and elsewhere in Industrial Alliance's filings with Canadian securities regulators, which are available for review at www.sedar.com.
The forward-looking statements in this news release reflect the Company's expectations as of the date of this document. Industrial Alliance does not undertake to update or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events, except as required by law.
About Industrial Alliance
Founded in 1892, Industrial Alliance Insurance and Financial Services Inc. is a life and health insurance company with operations in all regions of Canada as well as in the United States. The Company offers a wide range of life and health insurance products, savings and retirement plans, RRSPs, mutual and segregated funds, securities, auto and home insurance, mortgage loans and other financial products and services for both individuals and groups. The fourth largest life and health insurance company in Canada, Industrial Alliance contributes to the financial wellbeing of over three million Canadians, employs 4,200 people and manages and administers more than $75 billion in assets. Industrial Alliance stock is listed on the Toronto Stock Exchange under the ticker symbol IAG.