Industrial Alliance Starts the Year on a Strong Note: 31% Increase in Net
Income to Common Shareholders in the First Quarter of 2010

Premiums and deposits reach a record $1.8 billion, a 46% increase

QUEBEC CITY, May 5 /CNW Telbec/ - Industrial Alliance Insurance and Financial Services Inc. ("Industrial Alliance" or "the Company") ended the first quarter of 2010 with net income to common shareholders of $60.3 million, up 31% over the same period last year. This result translates into diluted earnings per common share of $0.73 ($0.58 in the first quarter of 2009) and a return on common shareholders' equity of 12.7% on an annualized basis (11.2% in the first quarter of 2009). This return is within the Company's 12% to 14% target range for 2010.

Profitability for the quarter was stimulated by the significant stock market upswing in the last year, exceptional auto and home insurance results, good experience results for several life and health insurance benefits and a gain resulting from the favourable evolution of the difference between the fair value of the debt instruments and that of the underlying assets. The Company did not post any credit losses during the quarter, which attests to the very good quality of the investment portfolio.

Top-line growth in the first quarter of 2010 was very strong, continuing the momentum created in the fourth quarter of 2009. Year over year, premiums and deposits grew by 46% to reach an all-time high of $1.8 billion. All sectors contributed to this increase, particularly Individual Wealth Management, thanks to the stock market recovery and record net investment fund sales.

On April 28, 2010, the Company announced the signing of an agreement to acquire US life insurance company American-Amicable Holding, Inc. This is Industrial Alliance's first major acquisition in the US. The addition of American-Amicable will significantly increase the Company's scale and presence in the US.

"Our results are continuing on the previous quarter's momentum and confirm that we came out of the financial crisis even stronger," said Yvon Charest, President and CEO. "Profit is significantly higher than last year. Financial strength improved after we issued $200 million in capital in February. We can absorb an even bigger stock market downturn than at the end of the last quarter. The quality of our investments remains very good. Business growth is very strong. And we took a big step in our US market growth strategy by signing an agreement to acquire a century-old life insurance company with the right fit and size for Industrial Alliance, our first real incursion into this market."

    
    -------------------------------------------------------------------------
    Highlights
    -------------------------------------------------------------------------
    (In millions of dollars, unless                     First quarter
     otherwise indicated)                        2010       2009  Variation
    -------------------------------------------------------------------------
    Net income to common shareholders            60.3       46.2         31%
    Earnings per common share (diluted)         $0.73      $0.58      $0.15
    Return on common shareholders' equity        12.7%      11,2%   150 bps
    Premiums and deposits                     1,806.6    1,238.5         46%
    -------------------------------------------------------------------------
                                                March   December      March
                                             31, 2010   31, 2009   31, 2009
    -------------------------------------------------------------------------
    Assets under management and under
     administration                          60,687.7   58,406.6   49,565.3
    Solvency ratio                                223%       208%       204%
    Net impaired investments                     13.3       13.0        8.4
    Net impaired investments as a % of
     total investments                           0.08%      0.08%      0.06%
    -------------------------------------------------------------------------
    

Highlights

Following are the highlights of the first quarter (all of the Company's results are explained in more detail in the Management's Discussion and Analysis that follows this news release).

Profitability - Profitability for the quarter was stimulated by the following factors:

    
    - A strong stock market upswing in the last year, which more than tripled
      the operating profit in the Individual Wealth Management sector
      compared to the previous year.

    - Exceptional results in auto and home insurance, thanks to an especially
      mild winter. Net earnings for the auto and home insurance subsidiary
      were $2.9 million for the first quarter of 2010, compared to a
      $0.8 million loss for the same period last year (the auto and home
      insurance operations usually generate a loss in the first quarter).

    - Good mortality, long-term disability and accidental death and
      dismemberment insurance results for the Group Insurance and Group
      Pensions sectors. These results were partially offset, however, by
      unfavourable mortality and lapse experience in the Individual Insurance
      sector. In total, the Company recorded $4.0 million (before taxes) in
      experience gains in the first quarter.

    - The absence of credit losses during the quarter, which demonstrates the
      very good quality of the Company's investment portfolio.
    

Profitability for the quarter was somewhat slowed by increased strain in the Individual Insurance sector, primarily due to strong sales in this sector (Individual Insurance sales grew 26% in the first quarter of 2010 compared to the same period last year). This strain will be recovered in the form of profits as the assumptions used for pricing materialize.

The Company recorded a $1.1 million gain after taxes ($0.01 per common share) in the first quarter resulting from the favourable evolution of the difference between the fair value of the debt instruments and that of the underlying assets ($7.5 million gain in the first quarter of 2009, or $0.10 per common share). This gain results from the favourable evolution of risk premiums during the quarter. This gain is, by definition, temporary and does not affect the Company's earning power. If this gain is excluded, net income to common shareholders amounts to $59.2 million for the first quarter, a 53% increase compared to the same period last year. This result translates into diluted earnings per common share of $0.72 ($0.48 in the first quarter of 2009) and a 12.5% return on common shareholders' equity on an annualized basis (9.4% in the first quarter of 2009).

Business growth - Top-line growth in the first quarter of 2010 was very strong, continuing the momentum created in the fourth quarter of 2009. Premiums and deposits reached a record high of $1.8 billion (a 46% increase compared to the first quarter of 2009), as did the value of new business ($38.7 million, a 36% increase) and assets under management and under administration ($60.7 billion, a 4% increase from December 31, 2009).

This second consecutive quarter of strong growth was primarily driven by sustained recovery in the stock market, which carried gross sales in the Individual Wealth Management sector beyond the billion dollar mark for the first time ($1,082.6 million, an 84% increase) and net sales to a new high ($527.6 million, more than triple the equivalent period in 2009). Industrial Alliance was ranked first in Canada in terms of net segregated fund sales in the first quarter, with a 31.1% market share, a high for the Company.

Sales in the Individual Insurance sector were also very good, reaching $39.8 million, a 26% increase compared to the same period in 2009. Sales were up in all markets, all product categories, all distribution networks and all regions.

Solvency - The Company ended the first quarter with a solvency ratio of 223%, which is higher than the ratio of 208% recorded as at December 31, 2009 and above the Company's 175% to 200% target range. During the quarter, the solvency ratio benefited from the $100 million common share and $100 million preferred share issues concluded in February. The acquisition of American-Amicable Holding, Inc. will decrease the solvency ratio by 9 percentage points.

Quality of investments - The overall quality of the investment portfolio remained very good in the first quarter, benefiting from the prevailing economic environment, which continued to improve in the last few months. Net impaired investments remained fairly stable during the period ($13.3 million as at March 31, 2010 compared to $13.0 million as at December 31, 2009) and the proportion of net impaired investments represents just 0.08% of total investments as at March 31, 2010, unchanged from the end of the previous quarter.

With respect to events that made headlines during the quarter, the Company has very little direct exposure to securities issued by certain European countries involved in a debt crisis since the beginning of 2010. Industrial Alliance also has very little direct exposure to securities that have received the most media attention in the last two years.

Dividend - The Company's financial strength has enabled the Board of Directors to announce the payment of a quarterly dividend of $0.2450 per common share. This dividend is the same as the one announced in the last quarter. It corresponds to a payout ratio of 33% of earnings, which is in the upper part of the Company's 25% to 35% target range. The Company expects the dividend payout ratio to remain in the upper part of the target range in 2010.

Share issues - On February 26, 2010, Industrial Alliance announced the closing of two share issues: 2,950,000 common shares at $34.00 per common share, representing aggregate gross proceeds of $100 million, and 4,000,000 class A series F preferred shares, with a non-cumulative dividend of 5.90%, at $25.00 per series F preferred share, representing aggregate gross proceeds of $100 million. The purpose of these issues is to increase the Company's financial flexibility, further improve its balance sheet and provide it with the necessary capital to finance potential acquisitions. The net proceeds of the issues were added to Industrial Alliance's capital.

Acquisition of American-Amicable Holding, Inc. - On April 28, 2010, after the quarter ended, Industrial Alliance announced the signing of an agreement to acquire all the outstanding shares of American-Amicable Holding, Inc. ("American-Amicable") for a cash consideration of approximately $145 million including estimated excess capital of $45 million (all amounts in Canadian dollars). The transaction will be carried out through the Company's wholly-owned US subsidiary IA American Life Insurance Company ("IA American"), and financed from available cash. The acquisition is expected to be immediately accretive to earnings by $0.05 per share on an annual basis. Post-transaction the Company's solvency ratio will be approximately 214% compared with 223% as at March 31, 2010. The agreement with American-Amicable is subject to the usual regulatory approvals and expected to close in the summer of 2010.

The addition of American-Amicable will significantly increase the Company's scale and presence in the US. Founded in 1910, American-Amicable is based in Waco, Texas and employs about 115 persons. American-Amicable currently has $7.1 billion of life insurance in force covering a policy base of more than 211,500. For the year ended December 31, 2009, total premiums amounted to $86 million and total assets were $687 million. American-Amicable's balance sheet is debt-free and, in anticipation of the transaction, its portfolio has been repositioned and is now invested in primarily low-risk, fixed income securities. On March 2, 2010, its financial strength ratings were upgraded to A- (Excellent) by A.M. Best.

Sensitivity analysis - The Company took advantage of the publication of its first quarter results to update its sensitivity analyses. The results of these analyses show that the leeway that the Company has to absorb significant potential market downturns remains very high and even improved during the quarter. Hence, the provisions for future policy benefits will not have to be strengthened for the stocks matched to the long-term liabilities as long as the S&P/TSX Index remains above 9,100 points. The solvency ratio will remain above 175% as long as the S&P/TSX Index remains above 7,050 points (7,450 if the acquisition of American-Amicable is taken into account) and will remain above 150% as long as the index remains above 5,600 points (5,950 if the acquisition of American-Amicable is taken into account).

MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FIRST QUARTER OF 2010 and for the three-month period ended March 31, 2010

ECONOMIC AND FINANCIAL ENVIRONMENT IN THE FIRST QUARTER OF 2010

The results for Industrial Alliance Insurance and Financial Services Inc. ("Industrial Alliance" or "the Company") are partially attributable to the prevailing economic and financial environment. In this respect, after going through one of the worst financial crises in its history, the Canadian economy continued to show signs of a recovery in the first quarter. The economic recovery appears to be well under way, stock markets continue to rise (2.5% increase in the S&P/TSX Index in the first quarter and 38% in the last year), credit conditions continue to improve (although the situation is still unstable in certain activity sectors), long-term interest rates are still low, and were down slightly in the first quarter, spreads continue to narrow and consumer and corporate confidence appears to be gradually coming back.

Industrial Alliance benefited from the improvement in the economic and financial environment in the first quarter, especially the stock market upswing and overall improvement in economic conditions. This is what allowed the Company to report the strongest results since the beginning of the financial crisis for the second consecutive quarter.

"Our results are continuing on the previous quarter's momentum and confirm that we came out of the financial crisis even stronger," said Yvon Charest, President and CEO. "Profit is significantly higher than last year. Financial strength improved after we issued $200 million in capital in February. We can absorb an even bigger stock market downturn than at the end of the last quarter. The quality of our investments remains very good. Business growth is very strong. And we took a big step in our US market growth strategy by signing an agreement to acquire a century-old life insurance company with the right fit and size for Industrial Alliance, our first real incursion into this market."

PROFITABILITY

Industrial Alliance ended the first quarter of 2010 with net income to common shareholders of $60.3 million, up 31% over the same period last year. This result translates into diluted earnings per common share of $0.73 ($0.58 in the first quarter of 2009) and a return on common shareholders' equity of 12.7% on an annualized basis (11.2% in the first quarter of 2009). This return is within the Company's 12% to 14% target range for 2010.

    
    -------------------------------------------------------------------------
    Profitability
    -------------------------------------------------------------------------
    (In millions of dollars, unless                     First quarter
     otherwise indicated)                        2010       2009  Variation
    -------------------------------------------------------------------------
    Net income to common shareholders            60.3       46.2         31%
    Earnings per common share (diluted)         $0.73      $0.58      $0.15
    Return on common shareholders' equity        12.7%      11.2%   150 bps
    -------------------------------------------------------------------------
    

Profitability for the quarter was stimulated by the following factors:

    
    - A strong stock market upswing in the last year, which more than tripled
      the operating profit in the Individual Wealth Management sector
      compared to the previous year. Since this growth was expected, the
      Company didn't record any market-related experience gains or losses in
      the quarter.

    - Exceptional results in auto and home insurance, thanks to an especially
      mild winter. Net earnings for the auto and home insurance subsidiary
      were $2.9 million for the first quarter of 2010, compared to a
      $0.8 million loss for the same period last year (the auto and home
      insurance operations usually generate a loss in the first quarter).

    - Good mortality, long-term disability and accidental death and
      dismemberment insurance results for the Group Insurance and Group
      Pensions sectors. These results were partially offset, however, by
      unfavourable mortality and lapse experience in the Individual Insurance
      sector. In total, the Company recorded $4.0 million (before taxes) in
      experience gains in the first quarter.

    - The absence of credit losses during the quarter, which demonstrates the
      very good quality of the Company's investment portfolio.
    

Profitability for the quarter was somewhat slowed by increased strain in the Individual Insurance sector, primarily due to strong sales in this sector (Individual Insurance sales grew 26% in the first quarter of 2010 compared to the same period last year). This strain will be recovered in the form of profits as the assumptions used for pricing materialize.

The Company recorded a $1.1 million gain after taxes ($0.01 per common share) in the first quarter resulting from the favourable evolution of the difference between the fair value of the debt instruments and that of the underlying assets ($7.5 million gain in the first quarter of 2009, or $0.10 per common share). This gain results from the favourable evolution of risk premiums during the quarter. This gain is, by definition, temporary and does not affect the Company's earning power. Refer to the "Other item" paragraph in the "Sources of Earnings" section below for more information about the impact of this factor.

If this gain is excluded, net income to common shareholders amounts to $59.2 million for the first quarter, a 53% increase over the same period the previous year. This result translates into diluted earnings per common share of $0.72 ($0.48 in the first quarter of 2009) and a 12.5% return on common shareholders' equity on an annualized basis (9.4% in the first quarter of 2009).

    
    -------------------------------------------------------------------------
    Profitability on Regular Operations
    -------------------------------------------------------------------------
    (In millions of dollars, unless                     First quarter
     otherwise indicated)                        2010       2009  Variation
    -------------------------------------------------------------------------
    Net income to common shareholders            60.3       46.2         31%
    Less: gain (loss) resulting from the
     variation in the fair value of the debt
     instruments and underlying assets
     (after taxes)                                1.1        7.5          -
    -------------------------------------------------------------------------
    Net income to common shareholders on
     regular operations                          59.2       38.7         53%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings per common share (diluted) on
     regular operations                         $0.72      $0.48      $0.24
    Return on common shareholders' equity
     on regular operations                       12.5%       9.4%   310 bps
    -------------------------------------------------------------------------
    

Operating profit was up in all sectors in the first quarter compared to the same period last year. Profitability of the Individual Wealth Management sector continued to grow, in keeping with the stock market upswing. The Group Insurance and Group Pensions sectors obtained excellent experience results in the first quarter, as mentioned above. Operating profit is defined as earnings before income taxes and income on capital. It also excludes the impact of the asymmetric evolution of the fair value of the debt instruments and that of the underlying assets.

    
    -------------------------------------------------------------------------
    Operating Profit by Line of Business
    -------------------------------------------------------------------------
    (In millions of dollars, unless                     First quarter
     otherwise indicated)                        2010       2009  Variation
    -------------------------------------------------------------------------
    Individual Insurance                         27.2       25.8          5%
    Individual Wealth Management                 22.3        6.2        260%
    Group Insurance                              10.7        5.6         91%
    Group Pensions                                5.0        3.6         39%
    -------------------------------------------------------------------------
    Total                                        65.2       41.2         58%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

SOURCES OF EARNINGS

Following is an analysis of the Company's profitability for the first quarter of 2010 according to the sources of earnings.

    
    -------------------------------------------------------------------------
    Sources of Earnings
    -------------------------------------------------------------------------
                                                             First quarter
    (In millions of dollars)                                2010       2009
    -------------------------------------------------------------------------
    Operating profit
      Expected profit on in-force                           86.3       74.0
      Experience gains (losses)                              4.0      (11.1)
      Gain (strain) on sales                               (25.1)     (21.7)
      Changes in assumptions                                 0.0        0.0
    -------------------------------------------------------------------------
      Subtotal                                              65.2       41.2
    Income on capital
      Investment income                                     20.0       16.6
      Gains (losses) on assets available for sale            1.6        0.5
    -------------------------------------------------------------------------
      Subtotal                                              21.6       17.1
    Income taxes                                           (22.6)     (16.0)
    -------------------------------------------------------------------------
    Net income to shareholders on regular operations        64.2       42.3
    Less: dividends on preferred shares                      5.0        3.6
    -------------------------------------------------------------------------
    Net income to common shareholders on regular
     operations                                             59.2       38.7
    Plus: gain (loss) resulting from the variation in
     the fair value of the debt instruments and
     underlying assets (after taxes)                         1.1        7.5
    -------------------------------------------------------------------------
    Net income to common shareholders                       60.3       46.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Expected profit on in-force - The expected profit on in-force amounted to $86.3 million for the first quarter of 2010, a 17% increase compared to the first quarter of 2009. The increase mainly affected the Individual Wealth Management sector and is primarily explained by the stock market upswing in the last year (the S&P/TSX Index grew 38% between March 31, 2009 and March 31, 2010). This improvement increased the management fee income from segregated funds and mutual funds. The expected profit on in-force is down for the Group Insurance and Group Pensions sectors. The Company expects profitability in the Group Insurance sector to continue to suffer the effects of the economic slowdown, at least this year, and profitability in the Group Pensions sector to be affected by the improvement in the longevity of annuitants. The increase in the expected profit on in-force is consistent with the guidance that the Company gave to the financial markets when it published its fourth quarter 2009 results.

Experience gains (losses) - The Company recorded $4.0 million in experience gains in the first quarter of 2010, compared to $11.1 million in experience losses in the first quarter of last year. This is the third consecutive quarter where the Company has posted experience gains since the economic and financial conditions started to improve in the country. The experience gains primarily come from the Group Insurance and Group Pensions sectors and are explained by improved mortality, long-term disability and accidental death and dismemberment insurance results. These gains were partially reduced, however, by unfavourable mortality and lapse experience in the Individual Insurance sector.

Gain (strain) on sales - New business strain was $25.1 million in the first quarter of 2010, which is 16% higher than the same period last year. The strain comes almost entirely from the Individual Insurance sector and is primarily explained by the strong growth of sales in this sector in the first quarter (Individual Insurance sales are 26% higher than the same period in 2009).

If the Individual Insurance sector alone is taken into account, strain, expressed as a percentage of sales (measured in terms of first-year annualized premiums), amounted to 59% in the first quarter, which is lower than the first quarter of 2009 (66%). This rate is closer to, but still surpasses the Company's 50% to 55% mid-term target range.

Income on capital - Income on capital amounted to $21.6 million in the first quarter of 2010, which is 26% (or $4.5 million) higher than in the first quarter of 2009. Income on capital primarily benefited from the very good profitability of the auto and home insurance sector and gains resulting from the sale of financial securities matched to equity.

Income taxes - Income taxes totalled $22.6 million for the first quarter of 2010, which is $6.6 million higher than the first quarter of 2009. This increase essentially results from an increase in profit for the period. The effective tax rate amounted to 26.0% in the first quarter of 2010 (27.4% for the corresponding quarter of 2009), which is in line with the Company's expectations of approximately 26% to 27% in the medium term.

Other item - Income for the quarter was stimulated by an unusual and temporary gain of $1.1 million after taxes ($0.01 per common share) resulting from the favourable evolution of the difference between the fair value of the debt instruments and that of the underlying assets ($7.5 million gain in the first quarter of 2009). This gain, which doesn't affect the Company's earning power, results from the reduction in risk premiums during the quarter, which increased the value of the assets matched to the debt instruments by a little more than the value of these same instruments.

The debt instruments that were part of the Company's balance sheet when the new accounting standards on financial instruments took effect on January 1, 2007 were classified as "held for trading." For these debt instruments, any difference between the variation in the fair value of the debt instruments and the corresponding assets must be recognized immediately on the income statement. The differences thus created will be reversed as the debt instruments approach maturity, which is in the next four years. Overall, since the new accounting standards took effect, the asymmetric evolution of the fair value of the debt instruments and that of the underlying assets resulted in a $0.5 million gain after taxes (as at March 31, 2010).

SENSITIVITY ANALYSIS

The Company took advantage of the publication of its first quarter results to update its sensitivity analyses. The results of these analyses vary from one quarter to another according to numerous factors, including changes in the economic and financial environment and the normal evolution of the Company's business. The results of the most recent analyses take into account the common and preferred share issues concluded on February 26, 2010. The Company carried out additional sensitivity analyses to take into account the acquisition of American-Amicable announced on April 28, 2010. The results of these analyses show that the leeway the Company has to absorb significant potential market downturns remains very high and even improved during the quarter.

    
    - Stocks matched to long-term liabilities - The Company believes that it
      will not have to strengthen its provisions for future policy benefits
      for stocks matched to long-term liabilities as long as the S&P/TSX
      Index remains above 9,100 points.

    - Solvency ratio - The Company believes that the solvency ratio will stay
      above 175% as long as the S&P/TSX Index remains above 7,050 points
      (7,450 taking into account the acquisition of American-Amicable) and
      will remain above 150% as long as the index remains above 5,600 points
      (5,950 taking into account the acquisition of American-Amicable).
    

All other sensitivity analyses remain unchanged for all intents and purposes compared to the fourth quarter 2009 update (refer to the table below).

    
    -------------------------------------------------------------------------
    Sensitivity Analysis
    -------------------------------------------------------------------------
                                                                      Inclu-
                                                                   ding the
                                                                    acquisi-
                                                  As at     As at   tion of
                                               December     March  American-
                                               31, 2009   31,2010  Amicable
    -------------------------------------------------------------------------
    Stocks matched   Level of S&P/TSX Index       9,050     9,100     9,100
    to long-term     requiring a strengthening   points    points    points
    liabilities      of the provisions for
                     future policy benefits
                     for stocks matched to
                     long-term liabilities
    -------------------------------------------------------------------------
    Solvency ratio   Level of S&P/TSX Index       7,700     7,050     7,450
                     for the solvency ratio to   points    points    points
                     be at 175%
                     Level of S&P/TSX Index       6,300     5,600     5,950
                     for the solvency ratio to   points    points    points
                     be at 150%
    -------------------------------------------------------------------------
    Net income       Impact on the net income      ($18      ($18      ($18
                     of a sudden 10% decrease   million)  million)  million)
                     in the stock markets
                     (impact for a complete
                     year)
    -------------------------------------------------------------------------
    Ultimate         Impact on the net income      ($41      ($42      ($44
    reinvestment     of a 10 basis point        million)  million)  million)
    rate (URR)       decrease in the URR
    -------------------------------------------------------------------------
    Initial          Impact on the net income      ($24      ($24      ($25
    reinvestment     of a 10 basis point        million)  million)  million)
    rate (IRR)       decrease in the IRR
    -------------------------------------------------------------------------
    

BUSINESS GROWTH

Top-line growth in the first quarter of 2010 was very strong, continuing the momentum created in the fourth quarter of 2009. Year over year, premiums and deposits grew by 46% and the value of new business by 36% both reaching all-time highs. This second consecutive quarter of strong growth was driven primarily by sustained recovery in the stock market. Following are the highlights of the first quarter.

Premiums and Deposits

Premiums and deposits reached an all-time high of $1.8 billion in the first quarter of 2010, up 46% over the same period in 2009. All sectors contributed to the increase, particularly Individual Wealth Management with growth of 84%, which is directly attributable to the stock market recovery and the strongest net sales ever. Driven by investors' renewed appetite for RRSPs, sales of segregated funds grew by 99% and mutual funds by 115%.

The Individual Insurance sector delivered an exceptional performance in the first quarter with growth in premiums of 19%, one of the highest increases ever. Together with higher sales of both minimum and excess premiums, first-quarter results also reflected the addition of the MD Life block of business acquired on December 31, 2009.

    
    -------------------------------------------------------------------------
    Premiums and Deposits
    -------------------------------------------------------------------------
    (In millions of dollars, unless                     First quarter
     otherwise indicated)                        2010       2009  Variation
    -------------------------------------------------------------------------
    Individual Insurance                        268.7      226.6         19%
    Individual Wealth Management              1,082.6      589.0         84%
    Group Insurance                             234.2      232.6          1%
    Group Pensions                              183.7      157.6         17%
    General Insurance                            37.4       32.7         14%
    -------------------------------------------------------------------------
    Total                                     1,806.6    1,238.5         46%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Sales by Line of Business

Following are the highlights of the first quarter sales by line of business. Sales are defined as fund entries on new business written during the period. This excludes fund entries from in-force contracts. Refer to note 1 at the end of this report for the definition of sales for each line of business.

Individual Insurance - Beginning the year on a positive note, sales of minimum premiums experienced strong growth, increasing 14% year over year (sales of minimum premiums, or basic insurance protection, grew throughout the crisis). Sales of excess premiums rebounded in the first quarter, increasing 88% year over year, driven by investors' renewed confidence in the stock markets. Overall, total sales amounted to $39.8 million, up 26% year over year. Sales were up for all markets, all regions, all distribution networks and all product categories.

Individual Wealth Management - For the second consecutive quarter, sales of wealth management products were exceptionally strong, reflecting the sustained recovery in the stock market as well as record high net sales. Gross sales reached an all-time high of $1,082.6 million, up 84% over the same quarter last year. With renewed investor confidence in the stock markets, sales of segregated funds increased by 99% and mutual funds by 115%, while sales of general funds (the main source of growth during the financial crisis) were down by 5%.

For the second consecutive quarter, net sales more than tripled those of the previous year, amounting to $527.6 million, as Industrial Alliance continues to gain market share in segregated and mutual fund sales. At the end of the first quarter, the Company ranked 1st in terms of net segregated fund sales, with a market share of 31.1%, compared with 4th position and a market share of 10.1% in 2009. For mutual funds, the Company ranked 7th in terms of net sales, well ahead of its 17th place industry ranking in terms of assets as at March 31, 2010.

Group Insurance: Employee Plans - Sales in this sector continue to reflect the lingering effects of the recent economic crisis that has affected marketing opportunities. As a result, first quarter sales were down 11% year over year. On a positive note, the Company remains very disciplined in terms of pricing, deriving strong experience gains, and the persistency rate improved and is back to historical levels.

Group Insurance: Creditor Insurance - Creditor insurance began to show signs of recovery, after four quarters of no growth. Creditor insurance sales grew by 3% year over year, to $30.3 million in the first quarter, driven mainly by the increase in car sales. Sales for this sector rely on car sales, since the products are distributed primarily through car dealers.

Group Insurance: Special Markets Group (SMG) - SMG had a satisfactory first quarter. Sales of $28.9 million were comparable with the previous year. This sector specializes in certain insurance markets that are not well served by traditional insurance carriers.

Group Pensions - The Group Pensions sector ended the first quarter with sales of $183.7 million, a year-over-year increase of 15%. In the accumulation products segment, recurring premiums increased by 22% over the previous year, reflecting the acquisition of new blocks of business over the last few years that are beginning to generate additional premiums. Some 80% of new plan sales were derived from markets outside Quebec, consistent with the Company's geographic diversification strategy.

    
    -------------------------------------------------------------------------
    Sales(1)
    -------------------------------------------------------------------------
    (In millions of dollars, unless                     First quarter
     otherwise indicated)                        2010       2009  Variation
    -------------------------------------------------------------------------
    Individual Insurance
      Minimum premiums                           30.0       26.3         14%
      Excess premiums                             9.8        5.2         88%
    -------------------------------------------------------------------------
      Total                                      39.8       31.5         26%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Individual Wealth Management
      General fund                              116.0      122.2         (5%)
      Segregated funds                          432.2      217.7         99%
      Mutual funds                              534.4      249.1        115%
    -------------------------------------------------------------------------
      Total                                   1,082.6      589.0         84%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Group Insurance
      Employee Plans                             21.6       24.4        (11%)
      Creditor insurance                         30.3       29.3          3%
      Special Markets Group (SMG)                28.9       28.7          1%
    -------------------------------------------------------------------------
    Group Pensions                              183.7      157.6         17%
    -------------------------------------------------------------------------
    

Assets Under Management and Under Administration

Assets under management and under administration (AUM/AUA) reached a record $60.7 billion for the period ended March 31, 2010. All main asset components grew in value, particularly mutual funds and segregated funds, which were up by 38% and 33%, respectively, over the same quarter in 2009. AUM/AUA grew by 4% during the first quarter, compared with 2.5% for the TSX.

    
    -------------------------------------------------------------------------
    Assets Under Management and Under Administration
    -------------------------------------------------------------------------
    (In millions of dollars)                    March   December      March
                                             31, 2010   31, 2009   31, 2009
    -------------------------------------------------------------------------
    Assets under management
      General fund                           18,206.0   17,626.5   15,622.4
      Segregated funds                       11,935.1   11,450.3    8,945.8
      Mutual funds                            7,056.4    6,615.7    5,096.2
      Other                                     542.1      563.3      586.2
    -------------------------------------------------------------------------
      Subtotal                               37,739.6   36,255.8   30,250.6
    Assets under administration              22,948.1   22,150.8   19,314.7
    -------------------------------------------------------------------------
    Total                                    60,687.7   58,406.6   49,565.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Value of New Business

Value of new business (VNB) reached a high of $38.7 million ($0.47 per common share) in the first quarter of 2010, representing an increase of 36% (or $10.3 million) over the same period last year. The increase is primarily attributable to the strong sales of segregated and mutual funds by the Individual Wealth Management sector.

The value of new business is based on three components: the level of sales, profit margins and changes in the discount rate, net of changes in interest rates and expected stock market returns, as seen in the following table. During the first quarter, VNB grew by $15.5 million due to increased sales, mainly of segregated and mutual funds as noted above. This was partially offset by a decrease in profit margins of $4.0 million related to the product mix (profit margins in the first quarter take into account the impact of the changes in assumptions made at the end of 2009). Finally, VNB was negatively impacted by $1.2 million resulting from the increase in the discount rate, net of changes in interest rates and expected stock market returns (the discount rate was increased from 6.50% in 2009 to 7.25% in 2010; this is consistent with the discount rate used to calculate the Company's embedded value).

    
    -------------------------------------------------------------------------
    Value of New Business by Component
    -------------------------------------------------------------------------
    (In millions of dollars)                                  First quarter
    -------------------------------------------------------------------------
    Value of new business in 2009                                      28.4
    Sales                                                              15.5
    Profit margins                                                     (4.0)
    Discount rate                                                      (1.2)
    -------------------------------------------------------------------------
    Value of new business in 2010                                      38.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

FINANCIAL STRENGTH

Financial strength continued to improve in the first quarter. Following are the highlights.

Solvency

The solvency ratio amounted to 223% as at March 31, 2010, which is higher than the ratio of 208% as at December 31, 2009. This ratio is above the Company's 175% to 200% target range.

The solvency ratio benefited from the $100 million common share and $100 million preferred share issues completed in February (see below for more details about these issues). However, there was some downward pressure on the solvency ratio, primarily due to higher capital requirements related to the increase in the market value of bonds (increase resulting from the decrease in long-term interest rates) and the increase in the market value of stock market securities.

The acquisition of American-Amicable Holding, Inc., announced on April 28, 2010, will reduce the solvency ratio by nine percentage points (see below for more details about this acquisition).

    
    -------------------------------------------------------------------------
    Solvency
    -------------------------------------------------------------------------
    (In millions of dollars, unless             March   December      March
     otherwise indicated)                    31, 2010   31, 2009   31, 2009
    -------------------------------------------------------------------------
    Available capital
      Tier 1                                  2,209.6    1,961.9    1,744.3
      Tier 2                                    348.0      343.1      289.6
    -------------------------------------------------------------------------
      Total                                   2,557.6    2,305.0    2,033.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Required capital                          1,149.1    1,107.2      997.9
    Solvency ratio                                223%       208%       204%
    -------------------------------------------------------------------------
    

Capitalization

The Company's capital totalled $2,949.8 million as at March 31, 2010, which is 9% ($246.7 million) higher than December 31, 2009. This growth is primarily explained by the $100 million common share and $100 million preferred share issues and by the increase in retained earnings (resulting from the income for the quarter reduced by the dividends paid to common shareholders).

    
    -------------------------------------------------------------------------
    Capitalization
    -------------------------------------------------------------------------
    (In millions of dollars)                    March   December      March
                                             31, 2010   31, 2009   31, 2009
    -------------------------------------------------------------------------
    Equity
      Common shares                             643.6      545.7      541.0
      Preferred shares                          425.0      325.0      223.7
      Retained earnings                       1,293.2    1,254.8    1,154.4
      Contributed surplus                        22.2       21.6       20.4
      Accumulated other comprehensive income     18.1       10.5      (53.4)
    -------------------------------------------------------------------------
      Subtotal                                2 402.1    2,157.6    1,886.1
    Debentures                                  521.3      519.8      476.4
    Participating policyholders' account         26.4       25.7       27.9
    -------------------------------------------------------------------------
    Total                                     2,949.8    2,703.1    2,390.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Financial Leverage

The common and preferred share issues and increase in the Company's retained earnings contributed to a decrease in the debt ratio, from 19.2% as at December 31, 2009 to 17.7% as at March 31, 2010, if the debentures alone are included in the debt items. However, if the preferred shares are added (including those issued in February), the debt ratio actually increased, from 31.3% as at December 31, 2009 to 32.1% as at March 31, 2010. These rates are in line with credit agency requirements for Industrial Alliance.

    
    -------------------------------------------------------------------------
    Debt Ratio
    -------------------------------------------------------------------------
                                                March   December      March
                                             31, 2010   31, 2009   31, 2009
    -------------------------------------------------------------------------
    Debentures/capital                           17.7%      19.2%      19.9%
    Debentures + preferred shares/capital        32.1%      31.3%      29.3%
    -------------------------------------------------------------------------
    

Book Value per Common Share and Market Capitalization

Industrial Alliance's book value per common share reached a record high of $23.68 as at March 31, 2010, up 4% compared to December 31, 2009. A large part of this increase is attributable to the Company's good profitability during the quarter and the accumulation of latent gains in the accumulated other comprehensive income. These latent gains are made up of unrealized gains on bonds, following the narrowing of interest rate spreads, and on stocks, due to the growth of the stock markets. The book value per share has grown 16% since decreasing at the end of 2008 due to the financial crisis.

The Company's market capitalization amounted to $2,922.2 million as at March 31, 2010, an increase of 13% compared to December 31, 2009. This growth is primarily attributable to the 9% increase in Industrial Alliance's stock price, which increased from $32.20 as at December 31, 2009 to $35.00 as at March 31, 2010 and, to a lesser degree, the issuance of 2,980,000 common shares in the first quarter.

The Company had 83,491,771 issued and outstanding common shares as at March 31, 2010 compared to 80,511,771 as at December 31, 2009. The increase during the quarter comes from the issuance of 2,950,000 common shares on February 19, 2010 and 30,000 other common shares following the exercise of options under the Company's stock option plan.

    
    -------------------------------------------------------------------------
    Book Value per Common Share and Market Capitalization
    -------------------------------------------------------------------------
    (In millions of dollars, unless             March   December      March
     otherwise indicated)                    31, 2010   31, 2009   31, 2009
    -------------------------------------------------------------------------
    Book value per common share                $23.68     $22.77     $20.70
    Market capitalization                     2,922.2    2,592.5    1,593.0
    -------------------------------------------------------------------------
    

QUALITY OF INVESTMENTS

There were few changes to the composition and quality of the Company's investments in the first quarter. The majority of the portfolio is made up of fixed-income securities and the overall quality remains very high. Following are the highlights of the first quarter.

Composition of Investments

The Company's investment portfolio is composed of various categories of assets, the main ones being bonds, mortgage loans, stocks and real estate. The total value of the portfolio grew $515.1 million in the first quarter, from $16,490.2 million as at December 31, 2009 to $17,005.3 million as at March 31, 2010, a 3% increase. Most of this increase is attributable to net purchases of new bonds and growth in the fair market value of these securities, a result of narrower interest rate spreads during the quarter.

The combined effect of net purchases of new securities and increases in market value grew the proportion of bonds by 1.4 percentage points, which was offset in part by a 1.0 percentage point decrease in mortgage securities.

    
    -------------------------------------------------------------------------
    Composition of Investments
    -------------------------------------------------------------------------
    (In millions of dollars, unless             March   December      March
     otherwise indicated)                    31, 2010   31, 2009   31, 2009
    -------------------------------------------------------------------------
    Book value of investments                17,005.3   16,490.2   14,551.9
    Distribution of investments by
     asset category
      Bonds                                      58.5%      57.1%      55.7%
      Mortgage loans                             19.6%      20.6%      24.1%
      Stocks                                     11.6%      11.5%       9.2%
      Real estate                                 3.8%       3.9%       4.4%
      Other                                       6.5%       6.9%       6.6%
    -------------------------------------------------------------------------
      Total                                     100.0%     100.0%     100.0%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Quality of Investments

In an environment where the North American stock markets are showing more and more signs of an economic recovery, the overall quality of the investment portfolio remained very high. Following are a few highlights of the quarter:

    
    -------------------------------------------------------------------------
    Quality of Investments
    -------------------------------------------------------------------------
    (In millions of dollars, unless             March   December      March
     otherwise indicated)                    31, 2010   31, 2009   31, 2009
    -------------------------------------------------------------------------
    Net impaired investments                     13.3       13.0        8.4
    Net impaired investments as a % of
     total investments                           0.08%      0.08%      0.06%
    Bonds - Proportion rated BB or lower         0.21%      0.07%      0.26%
    Mortgage loans - Delinquency rate            0.34%      0.36%      0.26%
    Real estate - Occupancy rate                 93.9%      94.4%      94.2%
    -------------------------------------------------------------------------

    - In terms of credit, no bonds defaulted during the quarter and the
      Company realized a $0.1 million net gain before taxes. This gain
      results from two small, almost identical amounts which cancelled each
      other out, a $1.0 million provision that the Company chose to record
      for a security weakened by the prevailing economic environment, but
      that has not defaulted, and a $1.1 million gain on the maturity of
      another security which was partially provisioned in 2009.

    - At $13.3 million during the quarter, net impaired investments remained
      fairly stable, with the proportion of net impaired investments
      remaining low and stable at 0.08% between December 31, 2009 and
      March 31, 2010.

    - The proportion of bonds rated BB or lower increased slightly during
      the quarter, from 0.07% as at December 31, 2009 to 0.21% as at March
      31, 2010. The overall quality of the bond portfolio remains very high,
      with the proportion of bonds rated AA or higher increasing from 27.13%
      as at December 31, 2009 to 28.29% as at March 31, 2010.

    - In terms of mortgage loans, the delinquency rate of the portfolio
      dropped slightly, from 0.36% as at December 31, 2009 to 0.34% as at
      March 31, 2010. This lower rate primarily results from a decrease in
      delinquent loans on single family homes.

    - The real estate occupancy rate remained fairly stable during the
      quarter (93.9% as at March 31, 2010 compared to 94.4% as at December
      31, 2009) and the market value of the real estate portfolio is still
      much higher than the book value (the market to book value ratio was
      126.3% as at March 31, 2010 compared to 126.9% as at December 31,
      2009).

    - The Company received $2.1 million in repayments of principal for the
      notes resulting from non-bank sponsored asset-backed commercial paper
      (ABCP) in the first quarter (repayments of $25.5 million in 2009). When
      combined with the sale of certain notes backed by ineligible assets
      which had a nominal value of $0.1 million, Industrial Alliance's
      exposure was reduced by $2.2 million during the quarter, to
      $88.8 million as at March 31, 2010. The acquisition of MD Life's
      individual insurance portfolio in December increased Industrial
      Alliance's exposure to ABCP by $14.0 million, to $91.0 million as at
      December 31, 2009. The overall devaluation due to credit risk taken
      for the ABCP, including the impact of the MD Life portfolio at the end
      of 2009, amounted to $35.6 million as at March 31, 2010, which is equal
      to 40.1% of the nominal value of the notes held. The Company believes
      that this devaluation is appropriate under the current market
      conditions.

    - With respect to events that made headlines during the quarter, the
      Company has very little direct exposure to securities issued by
      certain European countries involved in a debt crisis since the
      beginning of 2010. Industrial Alliance also has very little direct
      exposure to securities that have received the most media attention in
      the last two years. The Company has no investments in the US subprime
      mortgage loan market, no investments in US automobile manufacturers, no
      investments in monolines, and a $25 million investment in the
      securities of UK financial institutions, including $3 million in
      capital notes ($1.5 million after provisions).
    

Finally, still in terms of investment quality, the following two statistics on institutional fixed-income securities continued to improve during the quarter:

    
    - Unrealized losses on corporate fixed income securities classified as
      "available for sale" amounted to $11.3 million as at March 31, 2010,
      compared to $14.5 million as at December 31, 2009.

    - The nominal value of bonds whose market value has been 20% or more
      lower than the nominal value for six or more months amounted to
      $34.0 million as at March 31, 2010, compared to $46.0 million as at
      December 31, 2009. This figure, which increased to $111.5 million as
      at June 30, 2009, following the financial crisis, continues to decrease
      as the economic situation improves. Moreover, the unrealized losses on
      these bonds (measured according to the difference between the market
      value and the nominal value) also continued to decrease in the first
      quarter of 2010, from $13.3 million as at December 31, 2009 to
      $9.0 million as at March 31, 2010. Most of these securities are
      classified as "held for trading."
    

CREDIT RATINGS

On March 2 and 12, 2010 respectively, DBRS and A.M. Best both confirmed all credit ratings and outlooks that they assign to Industrial Alliance. Also, the three agencies that rate Industrial Alliance assigned the new preferred shares issued by the Company in the first quarter ($100 million issue concluded on February 26, 2010) the same ratings that they had assigned to the preferred shares previously issued by the Company (these ratings appear in the table below). There are no other events to report concerning the credit ratings assigned to Industrial Alliance during the quarter. All credit ratings of the Company remained stable and at the same level as before the financial crisis that began in the fall of 2008, which attests to the Company's capacity to absorb the effects of financial market upheaval and to properly manage risk under such conditions.

    
    -------------------------------------------------------------------------
    Industrial Alliance Credit Ratings as at May 5, 2010
    -------------------------------------------------------------------------
    Agency             Type of Evaluation          Rating          Outlook
    -------------------------------------------------------------------------
    Standard & Poor's  Financial Strength          A+ (Strong)     Negative
                       Subordinated Debentures     A               -
                       Industrial Alliance Trust
                        Securities (IATS) (global
                        scale)                     A-              -
                       Preferred Shares (global
                        scale)                     A-              -
    -------------------------------------------------------------------------
    A.M. Best          Financial Strength          A (Excellent)   Stable
                       Issuer Credit Rating        a+              Stable
                       Subordinated Debentures     a-              -
                       Industrial Alliance Trust
                        Securities (IATS)          bbb+            -
                       Preferred Shares            bbb+            -
    -------------------------------------------------------------------------
    DBRS               Claims Paying Ability       IC-2            Stable
                       Subordinated Debentures     A               Stable
                       Industrial Alliance Trust
                        Securities (IATS)          A (low)yn       Stable
                       Preferred Shares            Pfd-2 (high)n   Stable
    -------------------------------------------------------------------------
    

INDUSTRIAL ALLIANCE SHARE ISSUES

On February 26, 2010, Industrial Alliance announced the closing of two share issues: 2,950,000 common shares at $34.00 per common share, for aggregate gross proceeds of $100 million, and 4,000,000 class A series F preferred shares, with a non-cumulative dividend of 5.90%, at $25.00 per series F preferred share, for aggregate gross proceeds of $100 million.

The purpose of these issues is to increase the Company's financial flexibility, further improve its balance sheet and provide it with the necessary capital to finance potential acquisitions. The net proceeds of the issues were added to Industrial Alliance's capital.

The series F preferred shares yield 5.90% per annum, payable quarterly, as and when declared by the Company's Board of Directors. They are traded on the Toronto Stock Exchange under the symbol IAG.PR.F.

The series F preferred shares are not redeemable by the Company prior to March 31, 2015. Subject to regulatory approval, on or after March 31, 2015, Industrial Alliance may, on no less than 30 and no more than 60 days' notice, redeem the series F preferred shares in whole or in part, at the Company's option, by the payment of an amount in cash of $26.00 per series F preferred share if redeemed prior to March 31, 2016, $25.75 per series F preferred share if redeemed on or after March 31, 2016 but prior to March 31, 2017, $25.50 per series F preferred share if redeemed on or after March 31, 2017 but prior to March 31, 2018, $25.25 per series F preferred share if redeemed on or after March 31, 2018 but prior to March 31, 2019 and $25.00 per series F preferred share if redeemed on or after March 31, 2019, in each case together with all declared and unpaid dividends up to but excluding the date fixed for redemption.

The issuance of common shares and series F preferred shares was made under the terms of prospectus supplements dated February 19, 2010 to the short form base shelf prospectus dated April 30, 2009. The prospectus supplements are available on the SEDAR website at www.sedar.com and on the Company's website at www.inalco.com.

SUBSEQUENT EVENT: ACQUISITION OF AMERICAN-AMICABLE HOLDING IN THE US

On April 28, 2010, Industrial Alliance Insurance and Financial Services Inc. announced the signing of an agreement to acquire all the outstanding shares of American-Amicable Holding, Inc. ("American-Amicable") for a cash consideration of approximately $145 million including estimated excess capital of $45 million (all amounts in Canadian dollars). The transaction will be carried out through the Company's wholly-owned US subsidiary IA American Life Insurance Company ("IA American"), and financed from available cash.

The acquisition is expected to be immediately accretive to earnings by $0.05 per share on an annual basis. Post-transaction the Company's solvency ratio becomes 214% compared with 223% as at March 31, 2010. The agreement with American-Amicable is subject to the usual regulatory approvals and expected to close in the summer of 2010.

The addition of American-Amicable will significantly increase the Company's scale and presence in the US. Founded in 1910, American-Amicable is based in Waco, Texas and employs about 115 persons. It operates through four Texas-domiciled subsidiaries: Pioneer Security Life Insurance Company, American-Amicable Life Insurance Company of Texas, Pioneer American Insurance Company and Occidental Life Insurance Company of North Carolina.

American-Amicable markets primarily life insurance products to mid-market customers in the individual and funeral and other final expenses markets. It is licensed to sell life insurance in 49 states and territories, and its products are marketed through a national distribution network of more than 6,000 independent agents. American-Amicable has a strong presence in the South, Southwest and Southeast portions of the US, with its primary markets being Texas, Puerto Rico, California, Illinois, Alabama and North Carolina.

American-Amicable currently has $7.1 billion of life insurance in force covering a policy base of more than 211,500. For the year ended December 31, 2009, total premiums amounted to $86 million and total assets were $687 million. New business written over the last five years has averaged almost $24 million, representing a compound annual growth rate of 13% in their current markets. American-Amicable's balance sheet is debt-free and, in anticipation of the transaction, its portfolio has been repositioned and is now invested in primarily low-risk, fixed income securities. On March 2, 2010, its financial strength ratings were upgraded to A- (Excellent) by A.M. Best.

Subsequent to closing, American-Amicable will become a wholly-owned subsidiary of IA American. IA American intends to maintain the American-Amicable platform in Waco, Texas as well as the existing IA American presence in Scottsdale, Arizona.

DECLARATION OF DIVIDEND

The Company's financial strength has enabled the Board of Directors to announce the payment of a quarterly dividend of $0.2450 per common share. This dividend is the same as the one announced in the last quarter. It corresponds to a payout ratio of 33% of earnings, which is in the upper part of the Company's 25% to 35% target range. The Company expects the dividend payout ratio to remain in the upper part of the target range in 2010.

Following are the amounts and dates of payment and closing of registers for the Company's common shares and the various categories of its preferred shares.

The Board of Directors has declared the payment of a quarterly dividend of $0.2450 per common share. The dividend is payable in cash on June 15, 2010, to the common shareholders of record as at May 21, 2010.

The Board of Directors has declared the payment of a quarterly dividend of $0.2875 per non-cumulative class A preferred share series B. The dividend is payable in cash on June 30, 2010, to the preferred shareholders of record as at May 28, 2010.

The Board of Directors has declared the payment of a quarterly dividend of $0.3875 per non-cumulative class A preferred share series C. The dividend is payable in cash on June 30, 2010, to the preferred shareholders of record as at May 28, 2010.

The Board of Directors has declared the payment of a quarterly dividend of $0.3750 per non-cumulative class A preferred share series E. The dividend is payable in cash on June 30, 2010, to the preferred shareholders of record as at May 28, 2010.

The Board of Directors has declared the payment of an initial dividend of $0.5011 per non-cumulative class A preferred share series F. The dividend is payable in cash on June 30, 2010, to the preferred shareholders of record as at May 28, 2010. The issuance of Non-Cumulative Class A Preferred Share Series F closed on February 26, 2010.

For the purposes of the enhanced dividend tax credit rules contained in the Income Tax Act (Canada) and any corresponding provincial and territorial tax legislation, all dividends paid by Industrial Alliance on its common and preferred shares since January 1, 2006 are considered to be eligible dividends. Unless otherwise indicated, all dividends paid by the Company are now eligible dividends for the purposes of such rules.

ADDITIONAL COMMENTS ON THE FINANCIAL RESULTS

Following is the presentation of the Company's first quarter 2010 financial results according to the financial statements.

Revenues

Revenues are composed of three items in the financial statements: premiums (which include the amounts invested by insureds in the Company's segregated funds, but exclude those invested by clients in mutual funds), net investment income and fees and other revenues. Revenues totalled $1.8 billion for the first quarter, which represents a 55% increase compared to the same period the previous year. The factors that contributed to these variations are explained below.

    
    -------------------------------------------------------------------------
    Revenues
    -------------------------------------------------------------------------
                                                       First quarter
    (In millions of dollars, unless
     otherwise indicated)                        2010       2009  Variation
    -------------------------------------------------------------------------
    Premiums                                  1,272.2      989.4         29%
    Net investment income                       380.2       60.2        532%
    Fees and other revenues                     105.0       81.1         29%
    -------------------------------------------------------------------------
    Total                                     1,757.4    1,130.7         55%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Premiums totalled $1.3 billion in the first quarter of 2010, a 29% increase year over year. This increase is primarily explained by increased sales in the Individual Wealth Management sector, although strong individual insurance sales also contributed to this result.

If mutual fund deposits are added to the premiums, premiums and deposits totalled $1.8 billion in the first quarter of 2010, a 46% increase over the same period last year. This growth reflects a 115% increase in mutual fund deposits in the first quarter of 2010 compared to the same period last year. This increase shows that investor confidence has returned to the stock markets.

    
    -------------------------------------------------------------------------
    Premiums and Deposits
    -------------------------------------------------------------------------
                                                       First quarter
    (In millions of dollars, unless
     otherwise indicated)                        2010       2009  Variation
    -------------------------------------------------------------------------
    Premiums
      General fund                              675.4      630.6          7%
      Segregated funds                          596.8      358.8         66%
    -------------------------------------------------------------------------
      Subtotal                                1,272.2      989.4         29%
    Deposits - mutual funds                     534.4      249.1        115%
    -------------------------------------------------------------------------
    Total                                     1,806.6    1,238.5         46%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

The main items that make up net investment income are: investment income as such (including interest income, dividends and net income from rental properties), the amortization of realized and unrealized gains and losses on real estate, realized gains and losses on the disposition of assets available for sale and variations in the market value of assets held for trading.

Since the adoption of the new accounting standards concerning financial instruments at the beginning of 2007, assets held for trading (other than real estate) have been accounted for at their market value. This accounting approach may lead to significant volatility of the net investment income from period to period since variations in the market value of these assets now directly influence net investment income rather than being amortized on the income statement, as was the case in the past. However, a large portion of these variations in market value are offset by corresponding variations in the provisions for future policy benefits, such that their overall impact on net income is largely mitigated.

Net investment income amounted to $380.2 million in the first quarter of 2010, compared to $60.2 million in the first quarter of 2009. The difference between these two amounts (a $320.0 million increase), is primarily attributable to the appreciation of the stock portfolio, which benefited from the growth of the stock markets, and the increase in the bond portfolio, a result of narrower interest rate spreads during the quarter. It is important to note that the majority of stocks and bonds are classified as held for trading and used as assets matching the provisions for future policy benefits. For this reason, the impact of the increase in net investment income on the results is largely neutralized by a corresponding increase in the provisions for future policy benefits.

The table below provides an overview of the composition of net investment income.

    
    -------------------------------------------------------------------------
    Net Investment Income
    -------------------------------------------------------------------------
                                                             First quarter
    (In millions of dollars)                                2010       2009
    -------------------------------------------------------------------------
    Investment income                                      149.4      109.0
    Amortization of realized and unrealized gains
     (losses) on real estate                                 4.7        5.1
    Gains (losses) realized on assets available
     for sale                                                2.4        0.5
    Variation in the market value of assets held
     for trading                                           223.6      (54.4)
    Change in provisions for losses                          0.1        0.0
    -------------------------------------------------------------------------
    Total                                                  380.2       60.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Fees and other revenues represent fees earned from the management of investment funds (segregated funds and mutual funds), revenues from administrative services only (ASO) contracts and fees from the Company's brokerage subsidiaries. Fees and other revenues amounted to $105.0 million at the end of the first quarter of 2010, an increase of $23.9 million compared to the same period last year. This increase was driven by the growth of average investment fund assets under management. Investment fund assets under management benefited from the fact that the S&P/TSX Index grew 38% between March 31, 2009 and March 31, 2010.

Policy Benefits and Expenses

Policy benefits and expenses totalled $1.7 billion in the first quarter of 2010, a $626.7 million increase compared to the same period in 2009. Policy benefits and expenses are made up of the items shown in the table below.

    
    -------------------------------------------------------------------------
    Policy Benefits and Expenses
    -------------------------------------------------------------------------
                                                             First quarter
    (In millions of dollars)                                2010       2009
    -------------------------------------------------------------------------
    Variation in provisions for future
     policy benefits                                       309.2       56.4
    Payments to policyholders and beneficiaries            545.8      476.1
    Net transfer to segregated funds                       519.2      287.8
    Commissions                                            142.3      121.6
    General expenses                                       104.9       92.4
    Other                                                   46.3       26.4
    -------------------------------------------------------------------------
    Total                                                1,667.7    1,060.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Provisions for future policy benefits grew by $309.2 million in the first quarter of 2010, compared to a $56.4 million increase in the first quarter of 2009, which represents a $252.8 million expense increase for this item on the income statement. This increase reflects the growth of the market value of the underlying assets and largely offsets the increase in investment income related to these assets.

The variation in provisions for future policy benefits evolves according to several factors, including the increase in premiums (upward impact on the provisions for future policy benefits), the return on the underlying assets (increase), claims incurred (decrease) and the net transfer to segregated funds (decrease). Since the new accounting standards concerning financial instruments took effect at the beginning of 2007, the variation in the market value of the assets underlying the provisions for future policy benefits (increase or decrease) must be added to this list of factors. The impact of the new accounting standards on the variation in provisions for future policy benefits has very little impact on net income, however, given that a corresponding variation in net investment income is recorded on the income statement, as explained above.

Payments to policyholders and beneficiaries in the first quarter of 2010 amounted to $545.8 million, a $69.7 million year over year increase. This increase reflects the normal evolution of business and the increase in the in-force block of business. Payments to policyholders and beneficiaries include benefits paid due to death, disability, illness or contract terminations, as well as annuity payments.

Net transfers to segregated funds in the first quarter of 2010 increased by $231.4 million, compared to the first quarter of 2009, amounting to $519.2 million as at March 31, 2010. This increase is primarily explained by higher segregated fund sales in the Individual Wealth Management sector compared to last year. Net transfers to segregated funds are made up of amounts withdrawn from the general fund to be invested in segregated funds, less any amounts transferred from segregated funds to the general fund. Net transfers to segregated funds can vary from one period to another depending on the demand from clients, who at times favour general fund products, which usually offer guaranteed returns, and at other times are more attracted by segregated fund products, whose return fluctuates with the markets. Also, in a sector like Group Pensions, segregated fund deposits can fluctuate substantially from one quarter to another according to the size of the mandates granted by certain groups.

Commissions totalled $142.3 million in the first quarter of 2010, $20.7 million more than in the first quarter of 2009. The increase in commissions mainly results from higher sales in the Individual Insurance and Individual Wealth Management sectors (resulting from the stock market upswing). Commissions correspond to the remuneration of financial advisors for new sales and certain in-force contracts.

General expenses amounted to $104.9 million as at March 31, 2010, a first-quarter increase of $12.5 million compared to the same period last year. This increase is primarily explained by expenses related to the different acquisitions made in 2009 (which are added to the 2010 general expenses), the auto and home insurance subsidiary's advertising campaign, the increase in the number of employees (resulting mainly from acquisitions), and growth of sales.

Financial Results for the Last Eight Quarters

The following table presents a summary of Industrial Alliance's financial results for the last eight quarters.

    
    -------------------------------------------------------------------------
    Selected Financial Information
    -------------------------------------------------------------------------
    (In millions of
     dollars, unless
     otherwise indicated)   Q1/2010   Q4/2009   Q3/2009   Q2/2009   Q1/2009
    -------------------------------------------------------------------------
    Revenues                1,757.4   1,383.2   1,692.8   1,607.6   1,130.7
    Net income
      Net income (net loss)
       to common
       shareholders            60.3      67.4      60.1      32.1      46.2
      Less: gain (loss)
       resulting from the
       variation in the
       fair value of debt
       instruments and
       underlying assets
       (after taxes)            1.1       5.3       1.1     (19,3)      7.5
    -------------------------------------------------------------------------
      Net income (net loss)
       to common
       shareholders on
       regular operations      59.2      62.1      59.0      51.4      38.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings per common
     share
      Basic                   $0.74     $0.84     $0.75     $0.40     $0.58
      Diluted                 $0.73     $0.83     $0.74     $0.40     $0.58
    Earnings per common
     share on regular
     operations
      Basic                   $0.73     $0.77     $0.74     $0.64     $0.48
      Diluted                 $0.72     $0.77     $0.73     $0.64     $0.48
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    (In millions of
     dollars, unless
     otherwise indicated)                       Q4/2008   Q3/2008   Q2/2008
    -------------------------------------------------------------------------
    Revenues                                    1,043.9     818.1   1,313.9
    Net income
      Net income (net loss)
       to common
       shareholders                              (110.2)     51.2      63.4
      Less: gain (loss)
       resulting from the
       variation in the
       fair value of debt
       instruments and
       underlying assets
       (after taxes)                                7.8       0.3       1.1
    -------------------------------------------------------------------------
      Net income (net loss)
       to common
       shareholders on
       regular operations                        (118.0)     50.9      62.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings per common
     share
      Basic                                      ($1.37)    $0.64     $0.79
      Diluted                                    ($1.37)    $0.63     $0.78
    Earnings per common
     share on regular
     operations
      Basic                                      ($1.47)    $0.63     $0.78
      Diluted                                    ($1.46)    $0.63     $0.77
    -------------------------------------------------------------------------
    

Cash Flows

In the first quarter of 2010, operating activities provided cash flows of $107.2 million, a decrease of $27.3 million compared to the same period the previous year. This decrease reflects the normal evolution of business and variations in other assets and liabilities. A large part of the increase in expenses associated with the increase in provisions for future policy benefits during the quarter was offset by a variation in the fair value of securities designated as "held for trading."

Investment activities used cash flows of $358.8 million in the first quarter of 2010, compared with $214.6 million in the first quarter of 2009, which represents a difference of $144.2 million. This difference primarily results from higher net purchases of bonds compared to the first quarter of 2009.

Financing activities provided cash flows of $168.3 million for the first quarter of 2010, which is $92.9 million higher than the same period last year. This increase is related to common and preferred share issues in the first quarter of 2010, net of financing expenses.

    
    -------------------------------------------------------------------------
    Cash Flows
    -------------------------------------------------------------------------
                                                             First quarter
    (In millions of dollars)                                2010       2009
    -------------------------------------------------------------------------
    Cash flows related to the following activities:
      Operating                                            107.2      134.5
      Investment                                          (358.8)    (214.6)
      Financing                                            168.3       75.4
    Currency gain (loss) on cash and cash equivalents        0.3        0.7
    -------------------------------------------------------------------------
    Increase (decrease) in cash and cash equivalents       (83.0)      (4.0)
    Cash and cash equivalents at beginning of period       381.9      258.5
    -------------------------------------------------------------------------
    Cash and cash equivalents at end of period             298.9      254.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Liquidity

The Company's main source of capital is fund entries related to operations, particularly premiums, net investment income and management fees and other revenues. This capital is primarily used to pay benefits to policyholders and beneficiaries, dividends attributed to participating policyholders, commissions, operating expenses, interest charges and dividends to shareholders. Cash flows from operating activities are generally applied to payments that will have to be made at a later date, including the payment of dividends to shareholders. The Company maintains a prudent level of liquidity in order to honour its commitments by holding a good proportion of marketable securities and by strictly managing cash flows and matching.

Given the quality of its investment portfolio, and despite the financial market volatility, the Company does not expect its liquidity level to become insufficient in the near future. Due to the nature of its operations and its matching policy, the Company regularly finds itself in a positive cash flow position. This means that fund entries are regularly higher than fund disbursements.

The Company maintains a high level of liquidity. In an extreme scenario where the Company would have to redeem all of its redeemable contracts, easily convertible assets, which represent sources of liquidity, would cover almost two times the liquidity needed. Hence, according to this extreme scenario, the liquidity ratio totalled 196% as at March 31, 2010 (190% as at December 31, 2010).

Moreover, given the difficult liquidity conditions that prevailed in the financial markets at the end of 2008 and beginning of 2009, the Company carried out additional simulations to take into account a lower level of liquidity for certain asset categories that are normally considered very liquid. According to the most demanding scenario considered in these simulations, which assumes that it would become totally impossible to liquidate bonds other than government bonds and preferred shares, the liquidity ratio amounted to 150% as at March 31, 2010 (145% as at December 31, 2009).

Moreover, as at March 31, 2010, the Company had operating lines of credit totalling $66.9 million (the same amount as at December 31, 2009). As at March 31, 2010, the Company had not used any of the lines of credit. The purpose of these lines of credit is to facilitate financing of the Company's operations and meet its temporary working capital requirements.

Derivative Financial Instruments

The Company holds derivative contracts whose cash flow exchanges are calculated using a nominal reference amount of $990.6 million as at March 31, 2010 ($1.1 billion as at December 31, 2009 and $783.4 million as at March 31, 2009). These contracts primarily aim to alleviate risks associated with interest rate, currency and stock market fluctuations. These contracts are primarily used for matching Universal Life policies.

The current credit risk related to derivative contracts, which corresponds to the amounts payable to the Company by the different counterparties as at March 31, 2010, is $14.4 million. This amount fluctuates from one period to another according to changes in the interest rates and equity markets. For example, it was $12.5 million as at December 31, 2009 and $7.3 million as at March 31, 2009.

The future credit risk related to these contracts, which corresponds to the amount that the counterparties could potentially owe the Company according to different market scenarios, was $35.1 million as at March 31, 2010 ($42.4 million as at December 31, 2009 and $27.6 million as at March 31, 2009).

On the nominal amount of $990.6 million, 95% of the Company's credit risk for derivative financial instruments as at March 31, 2010 was related to financial institutions whose lowest credit rating was AA low, the rest being related to institutions whose credit rating was A strong.

Related Party Transactions

There were no material related party transactions to report in the first quarter of 2010.

Accounting Policies and Main Accounting Estimates

The first quarter unaudited interim consolidated financial statements have been prepared according to Canadian generally accepted accounting principles (GAAP). Note 2 to the 2009 audited consolidated financial statements on pages 89 to 95 of the 2009 Annual Report contains the main accounting policies used by the Company.

These accounting policies require that management make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as at the date of the consolidated financial statements, and the reported amounts of revenues, policy benefits, and expenses during the period. Actual results could differ from management's best estimates. The most significant estimates are related to the determination of policy liabilities, employee future benefits, the fair values of invested assets and the goodwill and intangible assets depreciation test.

No changes were made to the accounting policies used by the Company for the period.

International Financial Reporting Standards (IFRS)

The Company will adopt IFRS on January 1, 2011 and will produce its first financial statements using IFRS in the first quarter of 2011. These statements will have to comply with IAS 34, "Interim Financial Reporting," which requires the presentation of corresponding comparative financial reporting in 2010. In addition, the interim financial statements will have to include an opening balance sheet as at January 1, 2010.

In order to be ready for the transition to IFRS, the Company has established a transition plan containing three phases: 1) determination of risks; 2) implementation of new standards; and 3) conversion.

The transition plan for meeting IFRS requirements is on schedule, which ensures that the Company will be able to meet IFRS requirements. The first two phases of the plan are essentially complete and the Company has started phase 3 of the plan. Hence, the Company has started the parallel collection of data according to IFRS and, during the period, will establish its opening balance sheet, monitor the parallel accounting of financial data, continue to evaluate the financial consequences and impacts of the conversion to IFRS, and complete the design of the financial statements and the notes to the financial statements according to IFRS requirements. It will also evaluate the effect of the new accounting standards on disclosure controls and procedures and internal control over financial reporting and make the necessary changes. The adoption of IFRS will not lead to any significant changes to the Company's information systems. The training and communication plans will continue throughout the year.

The project managers regularly take stock of progress in the plan and convey key elements of the analyses to the project steering committee, management, the Audit Committee and the Board of Directors.

IFRS 1 - "First-time Adoption of International Financial Reporting Standards"

To establish the opening balance sheet, the Company made choices based on IFRS 1, "First-time Adoption of International Financial Reporting Standards." Even though the Company has not yet made its final decisions, it currently expects to take advantage of the following exemptions.

    
    -------------------------------------------------------------------------
    Business         The Company will not restate acquisitions that were made
     combinations    prior to the transition date due to the complexity
                     involved in obtaining historical values and,
                     consequently, will apply the standard for business
                     combinations prospectively.
    -------------------------------------------------------------------------
    Currency         The Company expects to reset the currency gains and
     translation     losses account to zero, which will have an impact on
     account         retained earnings and accumulated other comprehensive
                     income.
    -------------------------------------------------------------------------
    

Major differences between IFRS and GAAP

To date, the Company has established the following major differences between IFRS and GAAP. The differences are presented under two categories: accounting differences and reporting differences.

    
    -------------------------------------------------------------------------
    Accounting Differences
    -------------------------------------------------------------------------
    Classification   For an insurer, one of the important aspects of the
     of contracts    transition plan is the classification of insurance
                     contracts according to the definition in IFRS 4,
                     "Insurance Contracts." Since the Company has classified
                     the majority of its contracts as insurance contracts,
                     the Company does not expect a material impact on its
                     results. Also, according to IFRS 4, which will take
                     effect on January 1, 2011, the Company will continue to
                     evaluate its provisions for future policy according to
                     the Canadian Asset-Liability Method (CALM). According to
                     this method, the evaluation of provisions for future
                     policy benefits is based on the book value of the
                     matched assets, which corresponds to the current
                     accounting method.

                     For the few contracts that will be classified as
                     investment contracts, no more premium income or
                     variation in the provisions for future policy benefits
                     will be posted on the income statement for these
                     contracts and, consequently, there will no longer be an
                     impact on the Company's net income. The amounts for
                     these contracts will be posted directly as amounts on
                     deposit under liabilities on the balance sheet. This
                     represents about 1% of the Company's total premium
                     income. Under liabilities, these contracts will either
                     be measured at fair value or at amortized cost, as
                     chosen by the Company. If they are measured at amortized
                     cost, the assets matching these liabilities will be
                     classified as available for sale according to IFRS in
                     order to reduce the matching spread.

                     A few other contracts, which are currently accounted for
                     as service contracts, will be classified as insurance
                     contracts. These contracts will continue to generate the
                     posting of revenue on the income statement, but this
                     revenue will be reported under premiums rather than
                     other revenues. This represents about 1% of the premium
                     income.
    -------------------------------------------------------------------------
    Real estate      According to Canadian GAAP as it applies to life and
     for investment  health insurance companies, the value of real estate
     purposes        held for investment is carried at the moving average
                     market method, whereby the carrying value is adjusted
                     towards fair value at a rate of 3% per quarter of
                     unrealized gains and losses.

                     According to IAS 40, "Investment Property," for real
                     estate classified as "held for investment purposes," the
                     Company must choose between the cost model and the fair
                     value model. The Company plans to use the fair value
                     model and report a higher value in its balance sheet for
                     this real estate than currently posted according to
                     Canadian GAAP. However, for real estate used to match
                     the provisions for future policy benefits in the
                     matching process, any variation in the fair value will
                     be offset by a corresponding adjustment in the
                     provisions for future policy benefits, such that there
                     will be no impact on the Company's net income.
    -------------------------------------------------------------------------
    Own-use          According to Canadian GAAP, the value of own-use
     property        property is carried at the moving average market method.
                     Under IFRS, IAS 16, "Property, Plant and Equipment,"
                     property that a corporation holds for its own use may be
                     valued at cost or using a revaluation model, and a
                     depreciation expense for use of such property must be
                     posted. The Company intends to use the cost method to
                     evaluate its own-use property.
    -------------------------------------------------------------------------
    Debentures       Some of the Company's debentures are currently posted at
                     fair value, which leads to volatility in its results.
                     Since transition rules allow classification choices for
                     financial instruments to be amended, these debentures
                     will be reported at cost under IFRS. Consequently, the
                     assets backing these debentures will be classified as
                     available for sale and the variation in the fair value
                     will be posted under other comprehensive income. The
                     Company was expecting that, over time, the gains and
                     losses related to the asymmetric impact of fluctuations
                     in value of the debentures and the value of the assets
                     matched to them would be offset over the remaining term
                     of the debentures and would have no overall impact on
                     the results. Since the Company is changing this
                     classification, the result is that the accumulated loss
                     as at December 31, 2009 will be posted under retained
                     earnings on the opening balance sheet. The impact will
                     be less than $1 million.
    -------------------------------------------------------------------------
    Earnings per     According to GAAP, even though the Company's IATS
     share (EPS)     debentures can be converted into common shares, they
                     currently have no dilutive effect on the EPS
                     calculation, since they meet certain specific criteria.
                     However, since these criteria will no longer exist under
                     IFRS, these securities must be considered as dilutive,
                     which will have a slight impact on the diluted EPS.
    -------------------------------------------------------------------------
    Employee future  The Company is currently reviewing the impact of the
     benefits        different choices for accounting employee future
                     benefits, both for the opening balance sheet and the
                     accounting policy to adopt. This could result in a
                     significant impact on the Company's opening balance
                     sheet.
    -------------------------------------------------------------------------
    Goodwill         Goodwill depreciation tests will cover more detailed
                     items, namely "cash generating units" according to IFRS,
                     rather than operating units according to GAAP. This
                     could lead to more frequent write-offs.
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Reporting Differences
    -------------------------------------------------------------------------
    Segregated       While segregated fund assets and liabilities are
     fund assets     currently reported separately from general fund assets
     and             and liabilities, under IFRS they will be included in the
     liabilities     total general fund, but presented on a separate line.
                     This will add about $11 billion to the general fund
                     assets and liabilities.
    -------------------------------------------------------------------------
    Reinsurance      Reinsurance amounts are currently presented on a net
                     basis. Under IFRS, they will have to be presented on a
                     gross basis, which will have an impact on certain asset
                     and liability balances, as well as certain items on the
                     income statement, but will not have an impact on the net
                     income.
    -------------------------------------------------------------------------
    Pension fund     According to GAAP, the pension fund is presented in the
     assets          financial statements at its net value (liabilities minus
                     assets). According to IFRS, since the Company's pension
                     fund assets do not meet the eligibility criteria to
                     continue this presentation, the Company will have to
                     report these assets directly in the asset section,
                     without offsetting the liabilities. This will increase
                     the general fund assets and liabilities by about
                     $470 million.
    -------------------------------------------------------------------------
    Investment       For purposes of presentation on the income statement,
     income and      investment expenses are currently presented as a
     general         deduction from investment income in order to determine
     expenses        the net investment income. This offsetting will no
                     longer be allowed under IFRS, which will result in an
                     increase in investment income and an increase in general
                     expenses, but will have no impact on net income.
    -------------------------------------------------------------------------
    Other income     Commissions paid to fund brokers can no longer be offset
     and commission  against commission income, which will increase other
     expenses        income and automatically increase the commission
                     expense. It will have no impact on net income.
    -------------------------------------------------------------------------
    

The analyses also take into account the tax aspects and incidence on the Company's regulatory capital. In this respect, the regulatory authorities will allow companies to take advantage of an option to gradually amortize the impact resulting from linear conversion over a period of two years, from the January 1, 2011 conversion date to December 31, 2012. Companies that take advantage of this option will have to do so on the conversion date and the choice will be irrevocable. Companies will also have to indicate in the notes to the financial statements that they made this choice and specify what their regulatory capital would correspond to without this choice.

The Company also monitors and analyzes changes made to IFRS given that these changes could influence the preliminary decisions. Changes are expected for financial instruments, among others. Phase I of IFRS 9, "Financial Instruments," was published in November 2009 and will take effect on January 1, 2013. Early adoption is possible, but is not authorized by the regulatory authorities.

Significant modifications to come include phase II of IFRS 4, "Insurance Contracts," which covers the valuation and recognition of insurance contracts. This standard is currently being developed and should not take effect until 2013.

WARNING AND GENERAL INFORMATION

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, 2010, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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 or data on regular operations - 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 or data on regular operations, as indicated above, are not subject to GAAP.

Forward-Looking Statements

This Management's Discussion and Analysis may contain statements relating to strategies of 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", "objective" and "continue" (or the negative thereof) or similar words or expressions. Such statements are forward-looking statements within the meaning of securities laws. Forward-looking statements include, without limitation, the information concerning possible or assumed future results of operations of the Company. These statements are not historical facts but instead 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 (including but not limited to performance of equity markets, interest rate fluctuations, currency rates, investment losses and defaults, movements in credit spreads, market liquidity and creditworthiness of guarantors and counterparties); level of competition and consolidation; changes in laws and regulations including tax laws; liquidity of Industrial Alliance including the availability of financing to satisfy existing financial liabilities 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; failure of information systems and Internet-enabled technology; breaches of computer security and privacy; dependence on third-party relationships including outsourcing arrangements; ability to maintain Industrial Alliance's reputation; regulatory investigations and proceedings and private legal proceedings and class actions relating to practices in the mutual fund, insurance, annuity and financial product distribution industries; the ability to adapt products and services to the changing market; the ability to implement effective hedging strategies; the ability to attract and retain key executives; the ability to complete acquisitions including the availability of equity and debt financing when required for this purpose; the ability to execute strategic plans; the disruption of or changes to key elements of Industrial Alliance's or public infrastructure systems; and environmental concerns. Additional information about 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 Industrial Alliance's most recent annual report, under the "Risk Management" section in 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.

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 Management's Discussion and Analysis or to reflect the occurrence of unanticipated events, except as required by law.

Documents Related to the Financial Results

All documents related to Industrial Alliance's financial results are available on the Company's website at www.inalco.com, in the Investor Relations section, under Financial Reports. More information about the Company can also be found on the SEDAR website at www.sedar.com, as well as in the Company's Annual Information Form, which can be found on the Company website or the SEDAR website.

Conference Call

Management will hold a conference call to present the Company's results on Wednesday, May 5, 2010 at 11:30 a.m. (ET). To listen in on the conference call, dial 1 800 729-7116 (toll-free). A replay of the conference call will also be available for a one-week period, starting at 2:00 p.m. on Wednesday, May 5, 2010. To listen to the conference call replay, dial 1 800 558-5253 (toll-free) and enter access code 21462556. 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.

Investor Day

Industrial Alliance will hold an Investor Day on Tuesday, June 15, 2010, in Toronto, from 8:30 a.m. to 1:30 p.m. (ET). The details of this Investor Day will be announced over the next few weeks.

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 in all regions of Canada, as well as in the United States. Industrial Alliance contributes to the financial wellbeing of over three million Canadians, employs more than 3,500 people and manages and administers over $60 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) 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
       (premiums before reinsurance) for Creditor Insurance and premiums for
       Special Markets Group (SMG); Group Pensions: premiums.


    CONSOLIDATED INCOME STATEMENTS

    -------------------------------------------------------------------------
    (in millions of dollars, unless otherwise             Three months ended
     indicated)                                                March 31
                                                            2010       2009
                                                              $          $
                                                              (unaudited)
    Revenues
    Premiums                                               1,272        989
    Net investment income                                    380         60
    Fees and other revenues                                  105         81
    -------------------------------------------------------------------------
                                                           1,757      1,130

    Policy benefits and expenses
    Payments to policyholders and beneficiaries              546        476
    Net transfer to segregated funds                         519        288
    Dividends, experience rating refunds and
     interest on amounts on deposit                           20         14
    Change in provisions for future policy benefits          309         56
    -------------------------------------------------------------------------
                                                           1,394        834

    Commissions                                              142        122
    Premium and other taxes                                   17         15
    General expenses                                         105         92
    Financing expenses                                         9         (3)
    -------------------------------------------------------------------------
                                                           1,667      1,060

    Income before income taxes                                90         70
    Less: income taxes                                        24         19
    -------------------------------------------------------------------------

    Net income                                                66         51
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Less: net income attributed to participating
     policyholders                                             1          1
    -------------------------------------------------------------------------

    Net income attributed to shareholders                     65         50

    Less: preferred share dividends                            5          4
    -------------------------------------------------------------------------

    Net income available to common shareholders               60         46
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per common share (in dollars)
      basic                                                 0.74       0.58
      diluted                                               0.73       0.58


    CONSOLIDATED BALANCE SHEETS

    -------------------------------------------------------------------------
                                                           As at
                                                As at   December      As at
                                             March 31         31   March 31
    (in millions of dollars)                     2010       2009       2009
                                                    $          $          $
                                           (unaudited)           (unaudited)
    Assets
    Invested assets
    Bonds                                       9,957      9,410      8,114
    Mortgages                                   3,325      3,405      3,507
    Stocks                                      1,967      1,896      1,332
    Real estate                                   654        649        635
    Policy loans                                  417        381        366
    Cash and cash equivalents                     299        382        254
    Other invested assets                         386        367        344
    -------------------------------------------------------------------------
                                               17,005     16,490     14,552

    Other assets                                  711        646        603
    Intangible assets                             374        375        352
    Goodwill                                      116        116        115
    -------------------------------------------------------------------------

    Total general fund assets                  18,206     17,627     15,622
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Segregated funds net assets                11,935     11,450      8,946
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities
    Policy liabilities
    Provisions for future policy benefits      13,691     13,392     11,909
    Provisions for dividends to
     policyholders and experience rating
     refunds                                       72         60         60
    Benefits payable and provision for
     unreported claims                            149        139        167
    Policyholders' amounts on deposit             213        212        187
    -------------------------------------------------------------------------
                                               14,125     13,803     12,323

    Other liabilities                             771        772        597
    Future income tax                             351        339        302
    Net deferred gains                              9          9         10
    Debentures                                    521        520        476
    Participating policyholders' account           27         26         28
    -------------------------------------------------------------------------
                                               15,804     15,469     13,736
    -------------------------------------------------------------------------

    Equity
    Share capital                               1,069        871        765
    Contributed surplus                            22         22         20
    Retained earnings and accumulated
     other comprehensive income                 1,311      1,265      1,101
    -------------------------------------------------------------------------
                                                2,402      2,158      1,886
    -------------------------------------------------------------------------

    Total general fund liabilities and
     equity                                    18,206     17,627     15,622
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Segregated funds liabilities               11,935     11,450      8,946
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                       Three months ended March 31, 2010 and 2009 (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

                           Three months ended March 31, 2010 (unaudited)

                       Individual           Group

                     Life    Wealth      Life               Other
                      and    Manage-      and              activi-
                   Health      ment    Health  Pensions      ties*    Total
                        $         $         $         $         $         $

    Revenues
    Premiums          269       548       234       184        37     1,272
    Net investment
     income           265        31        21        61         2       380
    Fees and
     other
     revenues           1        90         3         9         2       105
    -------------------------------------------------------------------------
                      535       669       258       254        41     1,757
    -------------------------------------------------------------------------
    Operating
     expenses
    Cost of
     commitments
     to
     policyholders    398        90       180       184        23       875
    Net transfer
     to segregated
     funds              -       464         -        55         -       519
    Commissions,
     general and
     other
     expenses          96        89        66         9        13       273
    -------------------------------------------------------------------------
                      494       643       246       248        36     1,667
    -------------------------------------------------------------------------
    Income before
     income taxes      41        26        12         6         5        90
    Less: income
     taxes             10         8         3         1         2        24
    -------------------------------------------------------------------------
    Net income
     before
     allocation
     of other
     activities        31        18         9         5         3        66
    Allocation
     of other
     activities         3         -         -         -        (3)        -
    -------------------------------------------------------------------------
    Net income         34        18         9         5         -        66
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Attributed to
     shareholders      33        18         9         5         -        65
    Attributed to
     participating
     policyholders      1         -         -         -         -         1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                           Three months ended March 31, 2009 (unaudited)

                       Individual           Group

                     Life    Wealth      Life               Other
                      and    Manage-      and              activi-
                   Health      ment    Health  Pensions      ties*    Total
                        $         $         $         $         $         $

    Revenues
    Premiums          227       340       233       157        32       989
    Net investment
     income           (18)       23        18        36         1        60
    Fees and
     other
     revenues           4        67         2         7         1        81
    -------------------------------------------------------------------------
                      213       430       253       200        34     1,130
    -------------------------------------------------------------------------
    Operating
     expenses
    Cost of
     commitments
     to
     policyholders     85       111       182       142        26       546
    Net transfer
     to segregated
     funds              -       241         -        47         -       288
    Commissions,
     general and
     other
     expenses          82        69        61         5         9       226
    -------------------------------------------------------------------------
                      167       421       243       194        35     1,060
    -------------------------------------------------------------------------
    Income before
     income taxes      46         9        10         6        (1)       70
    Less: income
     taxes             12         3         3         1         -        19
    -------------------------------------------------------------------------
    Net income
     before
     allocation
     of other
     activities        34         6         7         5        (1)       51
    Allocation
     of other
     activities        (1)        -         -         -         1         -
    -------------------------------------------------------------------------
    Net income         33         6         7         5         -        51
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Attributed to
     shareholders      32         6         7         5         -        50
    Attributed to
     participating
     policyholders      1         -         -         -         -         1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    * Includes other segments and intercompany eliminations.


    Segmented General Fund Assets

                                As at March 31, 2010 (unaudited)

                   Individual            Group

                     Life    Wealth      Life               Other
                      and    Manage-      and              activi-
                   Health      ment    Health  Pensions      ties*    Total
                        $         $         $         $         $         $

    Assets
    Invested
     assets         9,630     2,219     1,621     3,185       350    17,005
    Other assets      286       203        98        46        78       711
    Intangible
     assets            50       321         2         1         -       374
    Goodwill           55        41        20         -         -       116
    -------------------------------------------------------------------------
    Total          10,021     2,784     1,741     3,232       428    18,206
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                   As at December 31, 2009

                      Individual            Group

                     Life    Wealth      Life               Other
                      and    Manage-      and              activi-
                   Health      ment    Health  Pensions      ties*    Total
                        $         $         $         $         $         $
    Assets
    Invested
     assets         9,274     2,128     1,607     3,128       353    16,490
    Other assets      242       178        99        42        85       646
    Intangible
     assets            49       322         3         1         -       375
    Goodwill           55        41        20         -         -       116
    -------------------------------------------------------------------------
    Total           9,620     2,669     1,729     3,171       438    17,627
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                As at March 31, 2009 (unaudited)

                      Individual            Group

                     Life    Wealth      Life               Other
                      and    Manage-      and              activi-
                   Health      ment    Health  Pensions      ties*    Total
                        $         $         $         $         $         $
    Assets
    Invested
     assets         7,970     1,833     1,500     2,993       256    14,552
    Other assets      180       171        91        54       107       603
    Intangible
     assets            40       310         1         1         -       352
    Goodwill           49        46        20         -         -       115
    -------------------------------------------------------------------------
    Total           8,239     2,360     1,612     3,048       363    15,622
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    * Includes other segments and intercompany eliminations.
    


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


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