Industrial Alliance Publishes its Results for the Second Quarter of 2008 and Announces a 9% Increase in its Dividend



    QUEBEC CITY, July 29 /CNW Telbec/ - Industrial Alliance Insurance and
Financial Services Inc. ("Industrial Alliance" or "the Company") ended the
second quarter of 2008 with net income available to common shareholders of
$63.4 million, a 2% increase compared to the corresponding income the previous
year. This income translates into diluted earnings per common share of
$0.78 ($0.77 in the second quarter of 2007) and a return on equity to common
shareholders of 14.4% (on an annualized basis). This rate is within the new
14% to 16% target range announced by the Company at the end of June (the old
range was 13% to 15%).
    The income for the quarter benefited from a $1.1 million after-tax gain
($0.01 per common share) resulting from the asymmetric evolution of the market
value of debt instruments and the underlying assets. On the other hand, the
income was affected by higher than expected death claims in the Individual
Insurance sector, abnormally high general insurance claims in the auto and
home insurance sector, due to poor weather conditions, and a $5.0 million
provision taken in the bond portfolio for a security that defaulted during the
quarter ($3.6 million after-tax loss, or $0.04 per common share).
    In terms of business growth, despite a rather difficult economic
environment, all sectors ended the second quarter with an increase in premiums
and deposits, except for Individual Wealth Management (savings and investment
products), whose sales declined due to investors unease about financial market
instability. The Company ended the quarter with $1.5 billion in premiums and
deposits, up 1% compared to the same period in 2007.
    "In spite of an uncertain economic and financial context, we are proud of
several achievements this quarter," stated Yvon Charest, President and Chief
Executive Officer. "Individual life insurance sales are up sharply in the
family market; our IA Clarington mutual fund subsidiary continues to perform
well, with higher net sales than the industry, given its size; we signed
several agreements with large groups in the group sectors; the claims ratio
returned to normal in the Group Insurance sector, after two consecutive
quarters of higher claims; strict management of profit margins in the
Individual Insurance sector continues to be one of the main profitability
drivers; the expected profit on in-force is up 13% for the quarter, which is
consistent with the low double-digit earnings growth guidance that we gave to
the markets for the mid-term; and the value of new business increased by 10%
in the second quarter."
    The Company's financial solidity and confidence in its ability to sustain
strong profitability in its core activities have enabled the board of
directors to announce a $0.02 increase per common share in the quarterly
dividend, up to $0.245 per common share. This is a 9% increase compared to the
dividend paid out in the previous quarter and 22.5% higher than the one paid
out a year ago. This dividend translates into a payout ratio of 31% of the
Company's adjusted basic net income for the quarter. This ratio is higher than
the medium-term target of 28% of the Company's sustainable net earnings, but
is within the new 25% to 35% target range announced by the Company at the end
of June (the previous range was 20% to 30%).

    
    -------------------------------------------------------------------------
    Highlights
    -------------------------------------------------------------------------
                         Second quarter          Year-to-date as at June 30
    -------------------------------------------------------------------------
    (Millions of
     dollars,
     unless
     otherwise                          Varia-                        Varia-
     indicated)      2008      2007      tion      2008      2007      tion
    -------------------------------------------------------------------------
    Net income
     to common
     shareholders    63.4      62.1         2%    125.1     120.0         4%
    Earnings per
     common share
     (diluted)      $0.78     $0.77     $0.01     $1.54     $1.48     $0.06
    Return on
     common
     shareholders'
     equity(1)
     (quarter
     annualized/
     trailing
     twelve months)  14.4%     15.8% (140 bps)     14.6%     15.4%  (80 bps)
    Premiums and
     deposits     1,528.6   1,512.8         1%  2,947.0   3,206.8        (8%)
    -------------------------------------------------------------------------
                             June 30,    March 31, December 31,     June 30,
                                2008         2008         2007         2007
    -------------------------------------------------------------------------
    Assets under
     management
     and under
     adminis-
     tration                51,401.8     50,326.5     50,411.6     50,601.6
    -------------------------------------------------------------------------


    Profitability

    Following are the main highlights of the second quarter in terms of
profitability.

    Main factors that affected the income - Income for the quarter was mainly
affected by the following items:

    - The Individual Insurance sector suffered a $2.5 million experience loss
      (before tax), primarily due to poor mortality results.

    - The auto and home insurance subsidiary ended the quarter with a
      $1.0 million loss (after tax), due to an increase in claims resulting
      from poor weather conditions. This is the second consecutive quarter in
      which the sector has suffered a loss due to poor weather conditions.

    - The Company took a $5.0 million provision in its bond portfolio for a
      security that defaulted during the quarter. This provision reduced the
      Company's net income by $3.6 million, or $0.04 per common share. The
      security that defaulted was fully matched to the Group Pensions sector.

    Impact of the new accounting standards on debt instruments - The net
variation in the fair value of debt instruments and the underlying assets
generated net income of $1.1 million ($0.01 per common share) during the
quarter. The Company considers the effect resulting from the posting of debt
instruments as being part of the "unusual" items. Debt instruments were
classified as "held-for-trading" when the new accounting standards took effect
on January 1, 2007. Any difference between the variation in the market value
of debt instruments and the corresponding assets will be recovered by the time
the debt instruments mature, which is in the next six years.
    By adjusting the results to take this item into account, the Company ended
the second quarter of 2008 with net income available to common shareholders of
$62.3 million, or $0.77 per common share, which is the same level as the
corresponding period last year. The adjusted rate of return on common
shareholders' equity was 14.1% (on an annualized basis).

    -------------------------------------------------------------------------
    Adjusted Profitability
    -------------------------------------------------------------------------
                         Second quarter         Year-to-date as at June 30
    -------------------------------------------------------------------------
    (Millions of
     dollars,
     unless
     otherwise                          Varia-                        Varia-
     indicated)      2008      2007      tion      2008      2007      tion
    -------------------------------------------------------------------------
    Net income
     to common
     shareholders    63.4      62.1         2%    125.1     120.0         4%
    Net effect
     of the
     variation in
     the fair value
     of the debt
     instruments and
     the underlying
     assets          (1.1)      0.1         -       0.5       0.4         -
    -------------------------------------------------------------------------
    Net income to
     common
     shareholders,
     adjusted        62.3      62.2         0%    125.6     120.4         4%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings per
     common share
     (diluted),
     adjusted       $0.77     $0.77     $0.00     $1.55     $1.48     $0.07
    -------------------------------------------------------------------------
    Return on
     common
     shareholders'
     equity(1),
     adjusted
     (quarter
     annualized/
     trailing
     twelve months)  14.1%     15.8% (170 bps)     15.0%     15.5%  (50 bps)
    -------------------------------------------------------------------------

    New business strain - Good strain management continued in the Individual
Insurance sector. Strain, expressed as a percentage of sales, totalled 55% in
the second quarter of 2008 compared to 61% in the second quarter of 2007 (and
56% in the first quarter of 2008). This rate is in line with the Company's
guidance of a 50% to 55% strain ratio over the medium term.

    Asset-backed commercial paper (ABCP) - The Company is closely following
developments surrounding asset-backed commercial paper (ABCP) and regularly
reviews its valuation model of the value of the ABCP it holds. Based on the
most recent information available, the Company believes that the 15% writedown
on the fair value posted in the third quarter of 2007 is still adequate.

    Effective tax rate - The effective tax rate was 27.7% in the second
quarter (29.0% in the second quarter of 2007). This rate is in line with the
Company's expectations that the effective tax rate should be around 28% in the
medium term.

    Contribution of Excellence - The contribution of Excellence Life Insurance
Company continues to be in line with the Company's expectations. When
Excellence was acquired, the Company had indicated that it believed Excellence
would contribute to improving its earnings per share by $0.04 in 2008. The
acquisition of Excellence was completed on January 31, 2008.

    Business Growth

    Following are the main highlights of the second quarter in terms of
business growth.

    Premiums and deposits - In terms of business growth, despite a rather
difficult economic environment, all sectors ended the second quarter with an
increase in premiums and deposits, except for Individual Wealth Management
(savings and investment products), whose sales declined due to investors
unease about financial market instability. More specifically, the strong
growth of premiums in the group sectors erased the decline in the Individual
Wealth Management sector, so that the second quarter ended with $1.5 billion
in premiums and deposits, up 1% compared to the same period in 2007.

    -------------------------------------------------------------------------
    Premiums and Deposits
    -------------------------------------------------------------------------
                         Second quarter         Year-to-date as at June 30
    -------------------------------------------------------------------------
    (Millions
     of dollars,
     unless
     otherwise                          Varia-                        Varia-
     indicated)      2008      2007      tion      2008      2007      tion
    -------------------------------------------------------------------------
    Individual
     Insurance      225.4     220.7         2%    451.4     435.4         4%
    Individual
     Wealth
     Management     660.0     789.3       (16%) 1,452.7   1,785.9       (19%)
    Group
     Insurance      244.0     218.9        11%    463.3     419.1        11%
    Group Pensions  367.7     254.9        44%    517.3     509.3         2%
    General
     Insurance       31.5      29.0         9%     62.3      57.1         9%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total         1,528.6   1,512.8         1%  2,947.0   3,206.8        (8%)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Sales - Following are the main highlights of sales by line of business.

    - Even though sales in the Individual Insurance sector were down 1%
      during the quarter compared to the same period last year, the results
      are still very satisfactory. In addition to sales, the Company follows
      two other variables to measure its growth, namely "minimum premiums"
      (which only take into account the "insurance" component of sales, and
      exclude the "savings" portion) and the number of policies sold. These
      two variables are up 10% and 6% respectively for the quarter and for
      the year to date, compared to the corresponding periods last year. This
      means that sales in the family and more traditional life insurance
      needs market are doing well, as proven by sales in the Career network,
      which primarily serves this market and whose sales are up 9% for the
      quarter and for the year to date.

    - After several consecutive quarters of strong growth, sales in the
      Individual Wealth Management sector declined for a second quarter (down
      16% for the second quarter compared to the same period last year) due
      to the instability of the markets. Nevertheless, the IA Clarington
      mutual fund subsidiary continues to perform well, with higher net sales
      than the industry, given its size. Segregated funds had a difficult
      quarter, even though net sales were positive. The Company's broad range
      of funds, their good performance in the last few quarters and the size
      of the Company's distribution networks should help to get sales back on
      track once the markets are more stable.

    - The Group Insurance Employee Plans sector obtained good sales results
      for a second consecutive quarter. Sales in the sector were up 45% for
      the second quarter compared to the same period last year. Sales were
      very strong in Western Canada, thanks to the close ties developed with
      new distributors in the last few years. Sales were also very
      satisfactory in Quebec, thanks to the signing of agreements with a few
      large groups in the Company's target market. More than half of the
      sector's sales continue to be made outside Quebec, in accordance with
      the Company's desire to expand throughout the country.

    - Lower car sales finally got the better of the Group Creditor Insurance
      sector. After several quarters of stronger growth than the automobile
      market, sales for the sector were down 1% for the quarter, a similar
      result to the automobile market. Sales for the sector rely on car
      sales, since the products are distributed primarily by car dealers. The
      Company has been a leader in Canada in the creditor insurance market
      among car dealers for several years, with a market share of over 40%.

    - Special Markets Group continues to grow steadily, with a 6% increase in
      sales compared to the same period the previous year. This sector
      specializes in certain insurance markets that are not well served by
      traditional group insurance carriers.

    - The signing of large contracts in the accumulation contracts sector
      completely erased the first quarter shortfall in the Group Pensions
      sector, despite weak insured annuity sales. Second quarter sales for
      the sector are up 44% compared to the same period last year. As with
      the Group Insurance Employee Plans sector, more than half of the
      sector's sales were made outside of Quebec in the first two quarters of
      the year, in accordance with the Company's desire to expand across
      Canada.

    -------------------------------------------------------------------------
    Sales(2)
    -------------------------------------------------------------------------
                         Second quarter          Year-to-date as at June 30
    -------------------------------------------------------------------------
    (Millions of
     dollars,
     unless
     otherwise                          Varia-                        Varia-
     indicated)      2008      2007      tion      2008      2007      tion
    -------------------------------------------------------------------------
    Individual
     Insurance       36.3      36.8        (1%)    70.2      68.9         2%
    Individual
     Wealth
     Management
      General fund   82.1      78.0         5%    183.5     177.9         3%
      Segregated
       funds        191.7     229.2       (16%)   483.2     609.3       (21%)
      Mutual funds  386.2     482.1       (20%)   786.0     998.7       (21%)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      Total         660.0     789.3       (16%) 1,452.7   1,785.9       (19%)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Group Insurance
      Employee
       Plans         18.7      12.9        45%     46.5      37.0        26%
      Creditor
       Insurance     56.3      56.8        (1%)    93.7      93.0         1%
      Special
       Markets
       Group (SMG)   24.8      23.4         6%     52.8      50.2         5%
    Group Pensions  367.7     254.9        44%    517.3     509.3         2%
    -------------------------------------------------------------------------

    Assets under management and under administration - Assets under management
grew by $870.3 million in the second quarter to reach a new high of $33.7
billion as at June 30, 2008, up 3% compared to March 31, 2008. This increase
was driven by premium growth in the Group Insurance and Pensions sectors, the
stock market upswing and positive net investment fund sales. The increase in
assets under management was, however, slowed by the decrease in the market
value of general fund bonds, a consequence of the increase in interest rates
in the second quarter.
    Assets under administration increased by $205.0 million during the
quarter, amounting to $17.7 billion, up 1% compared to March 31, 2008. This
increase is primarily explained by positive net sales and significant net
transfers of accounts from mutual fund and securities brokerage firms, as well
as the market upswing.
    Assets under management and under administration totalled $51.4 billion as
at June 30, 2008, a 2% increase compared to March 31, 2008 and compared to
December 31, 2007.

    -------------------------------------------------------------------------
    Assets Under Management and Under Administration
    -------------------------------------------------------------------------
    (Millions of dollars)    June 30,    March 31, December 31,     June 30,
                                2008         2008         2007         2007
    -------------------------------------------------------------------------
    Assets under
     management             33,660.6     32,790.3     32,792.7     32,097.4
    Assets under
     administration         17,741.2     17,536.2     17,618.9     18,504.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total                   51,401.8     50,326.5     50,411.6     50,601.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Value of new business - The value of new business increased by 10% (or
$3.1 million) in the second quarter compared to the same period last year,
amounting to $33.2 million ($0.41 per common share). The value of new business
increased due to improved profit margins for all sectors, and due to sales
growth for all sectors as well, except Individual Wealth Management. The drop
in sales in the Individual Wealth Management sector, however, erased all the
sales gains realized by the other sectors, so that in total, the increase in
the value of new business for the second quarter came entirely from improved
margins.

    Financial Solidity

    Following are the main highlights of the second quarter in terms of 
financial solidity.

    Capitalization - The Company's capital totalled $2.2 billion as at
June 30, 2008. This represents a $26.2 million (or 1%) increase compared to
March 31, 2008. This increase comes primarily from the increase in retained
earnings for the period.

    Financial leverage - The Company still has a great deal of flexibility in
terms of financial leverage, with the debt ratio amounting to 14.2% as at
June 30, 2008 (14.8% as at March 31, 2008), if the debentures alone are
included in the debt items, and 19.8% (20.4% as at March 31, 2008) if the
preferred shares are added.

    Solvency - The solvency ratio amounted to 185% as at June 30, 2008,
3 percentage points lower than March 31, 2008. This ratio is in the middle of
the Company's 175% to 200% target range. The decrease in the ratio is
primarily explained by the net effect of the increase in long-term interest
rates on fixed-income securities, the increase in the capital requirement
resulting from the increase in the market value of investments in stocks and
by the gradual recognition over two years of the impact of the new accounting
standards that took effect at the beginning of 2007. These three items were
partially offset by the usual contribution of the net income to the available
capital (net of the normal increase in the required capital related to
business growth).

    Excess capital - The excess capital decreased in the second quarter, from
$130 million as at March 31, 2008 to $100 million as at June 30, 2008. This
decrease is primarily attributable to the combined effect of the increase in
interest rates and the stock market upswing, and the impact of the new
accounting standards, which will continue to slow the normal growth of excess
capital until the fourth quarter of 2008.

    Quality of investments - The quality of investments remained excellent in
the second quarter, despite the posting of a $5.0 million provision in the
bond portfolio. In total, the main investment quality indices remained
substantially at the same level as the last quarter, and even improved
slightly in certain cases.

    Net impaired investments totalled $16.0 million as at June 30, 2008 ($17.1
million as at March 31, 2008), which represents just 0.11% of total
investments (0.12% as at March 31, 2008).
    The bond portfolio continues to be of very high quality. The proportion of
bonds rated BB and lower remains very low and even decreased during the second
quarter, from 0.11% as at March 31, 2008 to 0.08% as at June 30, 2008.
    The quality of the mortgage portfolio remained excellent, with no new
loans defaulting in the second quarter. The mortgage loans delinquency rate
remained unchanged, at 0.33% of the portfolio.
    The real estate occupancy rate improved slightly to 96.5% as at June 30,
2008, compared to 96.2% as at March 31, 2008. This is the highest occupancy
rate in eight quarters.
    Finally, there were very few changes in the quarter to securities that
make the headlines. Industrial Alliance does not have any investments in the
U.S. subprime mortgage loans market, and the Company's exposure to the
American firms Freddie Mac and Fannie Mae is limited to $0.7 million.

    Conclusion of the acquisition of AEGON Dealer Services and Money Concepts

    The Company concluded the acquisition of National Financial Corporation
("NFC") on July 1, 2008. NFC is the parent company of AEGON Dealer Services
Canada Inc. (a mutual fund brokerage firm), Money Concepts (Canada) Limited
(a financial services firm) and National Financial Insurance Agency Inc.
(an insurance brokerage firm).
    This acquisition will enable Industrial Alliance to further expand its
mutual fund brokerage operations. Through its Investia Financial Services Inc.
and FundEX Investments Inc. mutual fund brokerage subsidiaries, Industrial
Alliance will thus administer some $17 billion in assets and will rely on a
network of some 2,500 financial advisors, which will consolidate the Company's
position among the top five non-bank mutual fund brokerage firms in Canada.

    Non-GAAP Financial Measures

    The Company reports its financial results in accordance with generally
accepted accounting principles (GAAP). It also occasionally uses certain
non-GAAP financial measures - adjusted data - mainly concerning the profit,
earnings per share and return on equity. These non-GAAP financial measures are
always clearly indicated, and are always accompanied by and reconciled with
GAAP financial measures. The Company believes that these non-GAAP financial
measures provide investors and analysts with useful information so that they
can better understand the financial results and perform a better analysis of
the Company's growth and profitability potential. These non-GAAP financial
measures provide a different way of assessing various aspects of the Company's
operations and may facilitate the comparison of results from one period to
another. Since non-GAAP financial measures do not have a standardized
definition, they may differ from the non-GAAP 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. The data related to the solvency
ratio, embedded value and the value of new business, as well as adjusted data,
as indicated above, are not subject to GAAP.

    Forward-Looking Statements

    This news release may contain forward-looking statements about the
operations, objectives and strategies of Industrial Alliance, as well as its
financial situation and performance. The forward-looking nature of these
statements can generally, though not always, be identified by the use of words
such as "may," "expect," "anticipate," "intend," "believe," "estimate,"
"feel," "continue," or other similar expressions, in the affirmative, negative
or conditional. Unless otherwise indicated, any forward-looking information
that presents prospective results of operations, financial position or cash
flows was approved by management on the date of this news release.
    Forward-looking statements entail risks and uncertainties that may cause
the actual results, performance or achievements of Industrial Alliance to
differ materially from the future results, performance or achievements
expressed or implied by the forward-looking statements. Factors that could
cause the Company's actual results to differ from expected results include
changes in government regulations or tax laws, competition, technological
changes, global capital market activity, interest rates, changes in
demographic data, changes in consumer behaviour and demand for the Company's
products and services, catastrophic events, and general economic conditions in
Canada or elsewhere in the world. A description of significant factors that
could affect forward-looking statements is contained in the Management's
Discussion and Analysis section of the Company's most recent annual report.
    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. Where the forward-looking
statements are presented as guidance regarding the future financial results of
Industrial Alliance, they are provided to help investors understand the impact
on earnings of the Company's current plans and objectives. The Company may
also provide objectives from time to time. An objective should be taken as a
statement of management's goals in managing the Company, and not necessarily
as a forecast that the objective will be met.
    Industrial Alliance is not obligated to revise or update these
forward-looking statements to reflect events, circumstances or situations that
occur after the date of this news release, whether foreseeable or not, except
as required by applicable securities legislation.

    Conference Call

    Management will hold a conference call to present its results on Tuesday,
July 29, 2008, at 2:00 p.m. (ET). To listen in on the conference call, dial
1 800 951-1214 (toll-free). A replay of the conference call will also be
available for a one-week period, starting at 4:30 p.m. on Tuesday, July 29,
2008. To listen to the conference call replay, dial 1 800 558-5253 (toll-free)
and enter access code 21386039. A webcast of the conference call (in listen
only mode) will also be available on the Industrial Alliance website at
www.inalco.com, as well as on the CNW website at www.cnw.ca.

    About Industrial Alliance

    Founded in 1892, Industrial Alliance Insurance and Financial Services Inc.
is a life and health insurance company that 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. The fourth largest life and health
insurance company in Canada, Industrial Alliance is at the head of a large
financial group, which has operations across Canada as well as in the Western
United States. Industrial Alliance contributes to the financial wellbeing of
over 3 million Canadians, employs more than 3,300 people and manages and
administers over $51 billion in assets. Industrial Alliance stock is listed on
the Toronto Stock Exchange under the ticker symbol IAG. Industrial Alliance is
among the 100 largest public companies in Canada.

    Notes
    -----

    1) The calculation of the return on common shareholders' equity excludes
       accumulated other comprehensive income.
    2) Sales (new business) are defined as follows for each sector:
       Individual Insurance: first-year annualized premiums; Individual
       Wealth Management: premiums for the general fund and segregated funds
       and deposits for mutual funds; Group Insurance: first-year annualized
       premiums for Employee Plans, including premium equivalents
       (Administrative Services Only (ASO) contracts), gross premiums (before
       reinsurance) for Creditor Insurance and premiums for Special Markets
       Group (SMG); Group Pensions: premiums.



    CONSOLIDATED INCOME STATEMENTS

    -------------------------------------------------------------------------
    (in millions of
     dollars, unless               Quarters ended          Six months ended
     otherwise indicated)             June 30                   June 30
                                 2008         2007         2008         2007
                                    $            $            $            $
                                                  (unaudited)
    Revenues
    Premiums                    1,142        1,030        2,161        2,208
    Net investment income          73          (79)         250           91
    Fees and other revenues        99           92          192          178
    -------------------------------------------------------------------------
                                1,314        1,043        2,603        2,477

    Policy benefits
     and expenses
    Payments to policyholders
     and beneficiaries            547          439        1,037          877
    Net transfer to
     segregated funds             371          375          713          928
    Dividends, experience
     rating refunds and interest
     on amounts on deposit          9            6           29           15
    Change in provisions for
     future policy benefits        56          (88)         175           36
    -------------------------------------------------------------------------
                                  983          732        1,954        1,856

    Commissions                   135          127          264          251
    Premium and other taxes        15           15           30           29
    General expenses               94           83          174          167
    Financing expenses             (4)          (5)           7           (1)
    -------------------------------------------------------------------------
                                1,223          952        2,429        2,302

    Income before income taxes     91           91          174          175
    Less: income taxes             25           26           44           50
    -------------------------------------------------------------------------

    Net income                     66           65          130          125
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Less: net income attributed
     to participating
     policyholders                  1            1            2            2
    -------------------------------------------------------------------------

    Net income attributed to
     shareholders                  65           64          128          123

    Less: preferred
     share dividends                2            2            3            3
    -------------------------------------------------------------------------

    Net income available to
     common shareholders           63           62          125          120
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per common share
     (in dollars)
      basic                      0.79         0.78         1.56         1.50
      diluted                    0.78         0.77         1.54         1.48



    CONSOLIDATED BALANCE SHEETS

    -------------------------------------------------------------------------
                                             As at        As at        As at
                                           June 30  December 31      June 30
    (in millions of dollars)                  2008         2007         2007
                                                 $            $            $
                                        (unaudited)               (unaudited)

    Assets
    Invested assets
    Bonds                                    7,854        8,127        8,124
    Mortgages                                3,352        2,920        2,639
    Stocks                                   1,840        1,764        1,691
    Real estate                                498          482          477
    Policy loans                               297          267          258
    Cash and cash equivalents                  284          362          322
    Other invested assets                      325          292          174
    -------------------------------------------------------------------------
                                            14,450       14,214       13,685

    Intangible assets                          298          298          298
    Other assets                               599          524          515
    Goodwill                                   121           68           68
    -------------------------------------------------------------------------

    Total general fund assets               15,468       15,104       14,566
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Segregated funds net assets             10,651       10,211       10,052
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities
    Policy liabilities
    Provisions for future policy benefits   11,889       11,705       11,292
    Provisions for dividends to
     policyholders and experience
     rating refunds                             37           41           35
    Benefits payable and provision for
     unreported claims                         166          160          151
    Policyholders' amounts on deposit          198          182          178
    -------------------------------------------------------------------------
                                            12,290       12,088       11,656

    Other liabilities                          608          579          505
    Future income tax                          315          294          319
    Deferred net realized gains                 10           10            9
    Debentures                                 319          310          314
    Participating policyholders' account        26           24           25
    -------------------------------------------------------------------------
                                            13,568       13,305       12,828
    -------------------------------------------------------------------------

    Equity
    Share capital                              663          638          640
    Contributed surplus                         19           17           15
    Retained earnings and accumulated
     other comprehensive income              1,218        1,144        1,083
    -------------------------------------------------------------------------
                                             1,900        1,799        1,738
    -------------------------------------------------------------------------

    Total general fund liabilities
     and equity                             15,468       15,104       14,566
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Segregated funds liabilities            10,651       10,211       10,052
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    CONSOLIDATED PARTICIPATING POLICYHOLDERS' ACCOUNT

    -------------------------------------------------------------------------
                                                            Six months ended
    (in millions of dollars)                                    June 30
                                                           2008         2007
                                                              $            $
                                                               (unaudited)

    Balance at beginning                                     24           23
    Net income for the period                                 3            4
    Dividends                                                (1)          (2)
    -------------------------------------------------------------------------
    Net income attributed to participating policyholders      2            2

    Balance at end                                           26           25
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    CONSOLIDATED CONTRIBUTED SURPLUS

    -------------------------------------------------------------------------
                                                            Six months ended
    (in millions of dollars)                                    June 30
                                                           2008         2007
                                                              $            $
                                                               (unaudited)

    Balance at beginning                                     17           15
    Current period contribution for the stock option plan     2            1
    Stock options exercised                                   -           (1)
    -------------------------------------------------------------------------
    Balance at end                                           19           15
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    CONSOLIDATED SHAREHOLDERS' RETAINED EARNINGS AND
    CONSOLIDATED ACCUMULATED OTHER COMPREHENSIVE INCOME STATEMENTS

    -------------------------------------------------------------------------
                                                            Six months ended
    (in millions of dollars)                                     June 30
                                                           2008         2007
                                                              $            $
                                                               (unaudited)

    Consolidated shareholders' retained earnings

    Balance at beginning                                  1,148          971
    Impact of adopting new accounting standards               -           10
    Net income attributed to shareholders                   128          123
    Common share dividends                                  (36)         (29)
    Preferred share dividends                                (3)          (3)
    Purchase and cancellation of common shares               (7)           -
    -------------------------------------------------------------------------
    Balance at end                                        1,230        1,072
    -------------------------------------------------------------------------

    Consolidated accumulated other comprehensive income

    Balance at beginning                                      (4)          -
    Impact of adopting new accounting standards                -          21
    Total other comprehensive income                          (8)        (10)
    -------------------------------------------------------------------------
    Balance at end                                           (12)         11
    -------------------------------------------------------------------------
    Total                                                  1,218       1,083
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS

    -------------------------------------------------------------------------
                                   Quarters ended           Six months ended
    (in millions of dollars)          June 30                   June 30
                                 2008         2007         2008         2007
                                    $            $            $            $
                                                  (unaudited)

    Net income                     66           65          130          125

    Other comprehensive income
    Unrealized gains (losses)
     arising during the period
     on available-for-sale
     financial assets:
    Bonds (net of income tax
     of $1 ($5 in 2007))          (11)         (10)          (3)         (10)
    Stocks (net of income tax
     of $1 ($1 in 2007))            -            -           (3)           3
    Reclassification of (gains)
     losses on available-for-sale
     financial assets included
     in the net income:
    Bonds (net of income tax
     of $1 ($1 in 2007))            -            -           (1)          (2)
    Stocks (net of income tax
     of $1 ($1 in 2007))           (1)          (1)          (2)          (1)
    -------------------------------------------------------------------------
    Change in unrealized
     gains (losses) on
     available-for-sale
     financial assets             (12)         (11)          (9)         (10)

    Change in unrealized
     currency translation
     gains (losses) on
     self-sustaining foreign
     operations                     -            -            1            -
    -------------------------------------------------------------------------
    Total other comprehensive
     income                       (12)         (11)          (8)         (10)
    -------------------------------------------------------------------------
    Comprehensive income           54           54          122          115
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Comprehensive income
     attributed to shareholders    53           53          120          113
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Comprehensive income
     attributed to participating
     policyholders                  1            1            2            2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    CONSOLIDATED CASH FLOWS STATEMENTS

    -------------------------------------------------------------------------
                                   Quarters ended           Six months ended
    (in millions of dollars)          June 30                   June 30
                                 2008         2007         2008         2007
                                    $            $            $            $
                                                  (unaudited)
    Cash flows from
     operating activities
    Net income                     66           65          130          125
    Items not affecting
     cash and cash equivalents:
      Change in provisions
       for future policy
       benefits                    56          (88)         175           36
      Share of results of
       entity subject to
       significant influence        -           (1)          (1)          (2)
      Amortization of realized
       and unrealized (gains)
       losses                      (4)          (2)          (8)          (4)
      Amortization of premiums
       and discounts                -            -            -            1
      Variation of realized
       and unrealized (gains)
       losses                      36          181          (24)         131
      Realized (gains) losses
       on available-for-sale
       financial assets            (3)          (3)          (5)          (5)
      Future income taxes          13           17           23           20
      Stock option plan             1            1            2            1
      Amortization of deferred
       sales commissions and
       depreciation of
       fixed assets                12            9           24           17
      Other                        10           (7)         (26)           2
    -------------------------------------------------------------------------
                                  187          172          290          322
    Changes in other assets
     and liabilities               (7)           9          (63)         (59)
    -------------------------------------------------------------------------
    Cash flows from operating
     activities                   180          181          227          263
    -------------------------------------------------------------------------
    Cash flows from investing
     activities
    Sales, maturities and
     repayments of the
     following items:
      Bonds                       602          426        1,074          726
      Mortgages                   109           89          198          175
      Stocks                       99           82          186          149
      Real estate                   2            -            2            1
      Policy loans                 25           25           53           46
      Other invested assets         3            1            3            1
    -------------------------------------------------------------------------
                                  840          623        1,516        1 098

    Purchases of the
     following items:
      Bonds                      (376)        (380)        (750)        (717)
      Mortgages                  (441)        (213)        (629)        (355)
      Stocks                     (112)         (72)        (197)        (152)
      Real estate                   -          (20)          (7)         (21)
      Policy loans                (19)         (19)         (82)         (82)
      Other invested assets       (70)         (42)        (112)         (66)
      Acquisition of cash
       and cash equivalents         -            -            2            -
    -------------------------------------------------------------------------
                               (1,018)        (746)      (1,775)      (1,393)
    Cash flows from
     investing activities        (178)        (123)        (259)        (295)
    -------------------------------------------------------------------------
    Cash flows from
     financing activities
    Issue of common shares          2            2            2            6
    Redemption of common shares     -            -           (8)           -
    Preferred shareholders
     dividends                     (2)          (2)          (3)          (3)
    Common shareholders dividends (18)         (15)         (36)         (29)
    Increase (decrease)
     in mortgage debt               -            9           (1)           8
    -------------------------------------------------------------------------
    Cash flows from financing
     activities                   (18)          (6)         (46)         (18)
    -------------------------------------------------------------------------
    Increase (decrease) in
     cash and cash equivalents    (16)          52          (78)         (50)
    Cash and cash equivalents
     at beginning                 300          270          362          372
    -------------------------------------------------------------------------
    Cash and cash equivalents
     at end                       284          322          284          322
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Supplementary information:
      Cash                                                   17           (4)
      Cash equivalents                                      267          326
    Total cash and cash
     equivalents                                            284          322
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Interest paid                  10            5           11           10
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Income taxes paid,
     net of refunds                20           11           46           30
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    CONSOLIDATED FINANCIAL STATEMENTS OF SEGREGATED FUNDS
    -------------------------------------------------------------------------
    Consolidated
     statements of net
     assets                                  As at        As at        As at
    (in millions                           June 30  December 31      June 30
     of dollars)                              2008         2007         2007
                                                 $            $            $
                                        (unaudited)               (unaudited)
    Assets
    Bonds                                    2,873        2,800        2,770
    Mortgages and mortgage-backed
     securities                                  8            7           20
    Stocks                                   3,007        2,750        2,653
    Fund units                               4,183        4,224        4,128
    Cash, short-term investments
     and other invested assets                 546          411          491
    Other assets                               101           55           33
    -------------------------------------------------------------------------
                                            10,718       10,247       10,095
    Liabilities
    Accounts payable and accrued expenses       67           36           43
    -------------------------------------------------------------------------
    Net assets                              10,651       10,211       10,052
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


     Consolidated statements of                          Twelve
     changes in net assets              Six months       months   Six months
     (in millions of dollars)                ended        ended        ended
                                           June 30  December 31      June 30
                                              2008         2007         2007
                                                 $            $            $
                                        (unaudited)               (unaudited)

    Balance at beginning                    10,211        9,204        9,204
    Impact of adopting new
     accounting standards                        -           (2)          (2)
    Additions:
      Amounts received from
       policyholders                         1,011        1,816        1,048
      Interest and dividends                    98          280          138
      Net realized gains                       129          444          151
      Net increase (decrease) in
       fair value                              (66)        (386)          35
    -------------------------------------------------------------------------
                                            11,383       11,356       10,574
    -------------------------------------------------------------------------
    Deductions:
      Amounts withdrawn by policyholders       637          959          430
      Operating expenses                        95          186           92
    -------------------------------------------------------------------------
                                               732        1,145          522
    -------------------------------------------------------------------------
    Balance at end                          10,651       10,211       10,052
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                         Six months ended June 30, 2008 and 2007 (unaudited)
                        (in millions of dollars, unless otherwise indicated)


    SEGMENTED INFORMATION

    The Company operates principally in one dominant industry segment, the
life and health insurance industry, and offers individual and group life and
health insurance products, savings and retirement plans, and segregated funds.
The Company also operates mutual fund, securities brokerage and trust
businesses. These businesses are principally related to the Individual Wealth
Management segment and are included in that segment with the Individual
Annuities. The Company operates mainly in Canada and the operations outside
Canada are not significant.

    Segmented Income Statements

                                Quarter ended June 30, 2008 (unaudited)
    -------------------------------------------------------------------------
                        Individual           Group
    -------------------------------------------------------------------------
                      Life    Wealth      Life               Other
                       and    Manage-      and              activi-
                    Health      ment    Health  Pensions    ties(*)    Total
                         $         $         $         $         $         $
    Revenues
    Premiums           226       274       244       367        31     1,142
    Net investment
     income             30        14         8        21         -        73
    Fees and other
     revenues            1        86         3         8         1        99
    -------------------------------------------------------------------------
                       257       374       255       396        32     1,314
    -------------------------------------------------------------------------

    Operating
     expenses
    Cost of
     commitments to
     policyholders     130        50       165       242        25       612
    Net transfer
     to segregated
     funds               -       227         -       144         -       371
    Commissions,
     general and
     other expenses     85        68        70         8         9       240
    -------------------------------------------------------------------------
                       215       345       235       394         34    1,223
    -------------------------------------------------------------------------
    Income before
     income taxes       42        29        20         2         (2)      91
    Less: income taxes  10         9         6         1         (1)      25
    -------------------------------------------------------------------------
    Net income before
     allocation of
     other activities   32        20        14         1         (1)      66
    Allocation of
     other activities   (1)        -         -         -          1        -
    -------------------------------------------------------------------------
    Net income          31        20        14         1          -       66
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Attributed to
     shareholders       30        20        14         1          -       65
    Attributed to
     participating
     policyholders       1         -         -         -          -        1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                Quarter ended June 30, 2007 (unaudited)
    -------------------------------------------------------------------------
                        Individual           Group
    -------------------------------------------------------------------------
                      Life    Wealth      Life               Other
                       and    Manage-      and              activi-
                    Health      ment    Health  Pensions    ties(*)    Total
                         $         $         $         $         $         $

    Revenues
    Premiums           221       307       219       254        29     1,030
    Net investment
     income            (89)        8         2        (1)        1       (79)
    Fees and other
     revenues            1        82         2         6         1        92
    -------------------------------------------------------------------------
                       133       397       223       259        31     1,043
    -------------------------------------------------------------------------

    Operating
     expenses
    Cost of
     commitments to
     policyholders      19        21       142       155        20       357
    Net transfer to
     segregated funds    -       283         -        92         -       375
    Commissions,
     general and
     other expenses     78        63        64         6         9       220
    -------------------------------------------------------------------------
                        97       367       206       253        29       952
    -------------------------------------------------------------------------
    Income before
     income taxes       36        30        17         6         2        91
    Less: income taxes  10        10         4         1         1        26
    -------------------------------------------------------------------------
    Net income before
     allocation of
     other activities   26        20        13         5         1        65
    Allocation of
     other activities    1         -         -         -        (1)        -
    -------------------------------------------------------------------------

    Net income          27        20        13         5         -        65
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Attributed to
     shareholders       26        20        13         5         -        64
    Attributed to
     participating
     policyholders       1         -         -         -         -         1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (*) Includes other segments and intercompany eliminations.


                           Six months ended June 30, 2008 (unaudited)
    -------------------------------------------------------------------------
                        Individual           Group
    -------------------------------------------------------------------------
                      Life    Wealth      Life               Other
                       and    Manage-      and              activi-
                    Health      ment    Health  Pensions    ties(*)    Total
                         $         $         $         $         $         $

    Revenues
    Premiums           452       667       463       517        62     2,161
    Net investment
     income             98        44        36        71         1       250
    Fees and other
     revenues            4       166         5        15         2       192
    -------------------------------------------------------------------------
                       554       877       504       603        65     2,603
    -------------------------------------------------------------------------

    Operating
     expenses
    Cost of
     commitments to
     policyholders     299       121       340       430        51     1,241
    Net transfer to
     segregated funds    -       563         -       150         -       713
    Commissions,
     general and
     other expenses    170       140       133        15        17       475
    -------------------------------------------------------------------------
                       469       824       473       595        68     2,429
    -------------------------------------------------------------------------
    Income before
     income taxes       85        53        31         8        (3)      174
    Less: income taxes  21        15         7         2        (1)       44
    -------------------------------------------------------------------------
    Net income before
     allocation of
     other activities   64        38        24         6        (2)      130
    Allocation of
     other activities   (2)        -         -         -         2         -
    -------------------------------------------------------------------------
    Net income          62        38        24         6         -       130
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Attributed to
     shareholders       60        38        24         6         -       128
    Attributed to
     participating
     policyholders       2         -         -         -         -         2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                Six months June 30, 2007 (unaudited)
    -------------------------------------------------------------------------
                        Individual           Group
    -------------------------------------------------------------------------
                      Life    Wealth      Life               Other
                       and    Manage-      and              activi-
                    Health      ment    Health  Pensions    ties(*)    Total
                         $         $         $         $         $         $

    Revenues
    Premiums           436       787       419       509        57     2,208
    Net investment
     income              2        32        20        37         -        91
    Fees and other
     revenues            1       159         4        12         2       178
    -------------------------------------------------------------------------
                       439       978       443       558        59     2,477
    -------------------------------------------------------------------------

    Operating
     expenses
    Cost of
     commitments to
     policyholders     209        62       288       328        41       928
    Net transfer to
     segregated funds    -       722         -       206         -       928
    Commissions,
     general and
     other expenses    154       139       125        12        16       446
    -------------------------------------------------------------------------
                       363       923       413       546        57     2,302
    -------------------------------------------------------------------------
    Income before
     income taxes       76        55        30        12         2       175
    Less: income taxes  21        17         8         3         1        50
    -------------------------------------------------------------------------
    Net income before
     allocation of
     other activities   55        38        22         9         1       125
    Allocation of
     other activities    1         -         -         -        (1)        -
    -------------------------------------------------------------------------
    Net income          56        38        22         9         -       125
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Attributed to
     shareholders       55        38        22         8         -       123
    Attributed to
     participating
     policyholders       1         -         -         1         -         2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (*) Includes other segments and intercompany eliminations.


    Segmented General Fund Assets

                                 As at June 30, 2008 (unaudited)
    -------------------------------------------------------------------------
                        Individual           Group
    -------------------------------------------------------------------------
                      Life    Wealth      Life               Other
                       and    Manage-      and              activi-
                    Health      ment    Health  Pensions    ties(*)    Total
                         $         $         $         $         $         $

    Assets
    Invested assets  8,187     1,808     1,402     2,876       177    14,450
    Intangible
     assets              -       298         -         -         -       298
    Other assets       189       168        84        60        98       599
    Goodwill            84        17        20         -         -       121
    -------------------------------------------------------------------------
    Total            8,460     2,291     1,506     2,936       275    15,468
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                   As at December 31, 2007
    -------------------------------------------------------------------------
                        Individual           Group
    -------------------------------------------------------------------------
                      Life    Wealth      Life               Other
                       and    Manage-      and              activi-
                    Health      ment    Health  Pensions    ties(*)    Total
                         $         $         $         $         $         $
    -------------------------------------------------------------------------

    Assets
    Invested assets  7,804     1,836     1,420     2,924       230    14,214
    Intangible
     assets              -       298         -         -         -       298
    Other assets       145       157        81        55        86       524
    Goodwill            31        17        20         -         -        68
    -------------------------------------------------------------------------
    Total            7,980     2,308     1,521     2,979       316    15,104
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                              As at June 30, 2007 (unaudited)
    -------------------------------------------------------------------------
                        Individual           Group
    -------------------------------------------------------------------------
                      Life    Wealth      Life               Other
                       and    Manage-      and              activi-
                    Health      ment    Health  Pensions    ties(*)    Total
                         $         $         $         $         $         $
    -------------------------------------------------------------------------

    Assets
    Invested assets  7,412     1,867     1,351     2,860       195    13,685
    Intangible
     assets              -       298         -         -         -       298
    Other assets       143       146        82        55        89       515
    Goodwill            31        17        20         -         -        68
    -------------------------------------------------------------------------
    Total            7,586     2,328     1,453     2,915       284    14,566
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (*) Includes other segments and intercompany eliminations.
    




For further information:

For further information: Jacques Carrière, Vice-President, Investor
Relations Office, (418) 684-5275, cell: (418) 576-3624,
jacques.carriere@inalco.com; Website: www.inalco.com


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