Industrial Alliance Ends 2009 on a Strong Note: Record Income, Higher Return,
Strong Business Growth and Improved Financial Strength in the Fourth Quarter
Profit for the quarter was stimulated by the stock market upswing (
In terms of business growth, premiums and deposits increased by 27% in the fourth quarter, compared to the same period in 2008, amounting to
"We are extremely satisfied with these results," stated Yvon Charest, President and Chief Executive Officer. "Strict risk management, close monitoring of investments, strong capitalization, and a focused, balanced and realistic strategy for growth all contributed to these excellent results. Income quickly returned to its pre-crisis level. The solvency ratio is above our target range. The leeway that we have available to absorb potential market downturns remains high. The quality of investments is excellent. Business growth is back on track. Assets reached a new high. The dividend on common shares has been maintained. And we continued to build for the future by concluding two acquisitions in the fourth quarter and by creating a local management team in the US."
------------------------------------------------------------------------- Highlights ------------------------------------------------------------------------- Fourth quarter Year (In millions of dollars, unless otherwise indicated) 2009 2008 2009 2008 ------------------------------------------------------------------------- Net income to common shareholders 67.4 (110.2) 205.8 66.1 Earnings per common share (diluted) $0.83 ($1.37) $2.55 $0.82 Return on common shareholders' equity 14.9% (25.8%) 11.9% 4.0% Premiums and deposits 1,546.8 1,221.1 5,231.2 5,542.9 ------------------------------------------------------------------------- December September December 31, 2009 30, 2009 31, 2008 ------------------------------------------------------------------------- Assets under management and under administration 58,406.6 56,737.6 49,472.2 Solvency ratio 208% 197% 199% Net impaired investments 13.0 15.3 8.8 Net impaired investments as a % of total investments 0.08% 0.10% 0.06% -------------------------------------------------------------------------
Highlights
Following are the highlights of the fourth quarter.
Changes in assumptions - The year-end review of valuation assumptions did not have a significant impact on results, as the provisions for future policy benefits were strengthened by
Even though the review of the valuation assumptions did not have a significant impact on results, substantial transfers of provisions for future policy benefits were made from one business block to another to take into account the evolution of the economic and financial environment and the Company's experience. Provisions were released to take into account improved mortality in the Individual Insurance sector and the improved return on investments, resulting from the stock market upswing and optimization of the Company's asset-liability matching. These releases were offset, however, by strengthening of provisions for future policy benefits to primarily take into account the increased longevity of annuitants in the annuity sectors (Group Pensions and Individual Wealth Management), the decrease in individual insurance policy lapse rates, the 10 basis point decrease in the ultimate reinvestment rate ("URR") and, to a lesser degree, increased unit costs in the Individual Insurance sector.
Four additional points to consider about the changes in assumptions:
- The Company's recent mortality studies show a significant improvement in mortality. These results are in line with the trends observed in the most recent work done by the industry, including work by the Canadian Institute of Actuaries. This improvement has major, but diverging effects on the Company's activity sectors, benefiting the Individual Insurance sector, but adversely affecting the annuity sectors (Group Pensions and Individual Wealth Management). In total, since the Company's insurance operations are much larger than its annuity operations, the Company benefits from the improved mortality. The Company also retains a higher proportion of mortality risk than the industry, which adds to the income that the Company draws from improved mortality. - The strengthening of provisions for future policy benefits to take into account the increased longevity of annuitants comes from the fact that, among other things, the Company adopted one year early the recommendation that it expects the Canadian Institute of Actuaries to make about improved future mortality of annuitants. - The Company did not modify its valuation assumption for the initial reinvestment rate ("IRR"). Despite fairly significant variations during the year, this rate closed 2009 at essentially the same level as at the end of 2008. - Even though it was not obligated to, the Company decided to reduce the ultimate reinvestment rate ("URR") by 10 basis points in order to recognize the downward trend in long-term interest rates. The Company thus reduced the ultimate reinvestment rate from 4.0% at the end of 2008 to 3.9% at the end of 2009. The maximum rate that the Company could use at the end of 2009 for the ultimate reinvestment rate was 4.1%, according to the formula prescribed by the Canadian Institute of Actuaries. If the long-term interest rates used to calculate the ultimate reinvestment rate remain at the current level, the maximum rate that the Company could use at the end of 2010 would be 4.0%. This rate would gradually decrease to reach 3.9% at the end of 2011, 3.8% at the end of 2012, 3.7% at the end of 2013 and 2014 and 3.6% starting in 2015, the level at which it will stabilize. This means that, in these circumstances, the Company would not be obligated to strengthen its provisions for future policy benefits for the ultimate reinvestment rate before 2012. The Company was using an ultimate reinvestment rate of 5.0% at the end of 2006. Therefore, most of the decrease in the ultimate reinvestment rate has already been recognized in the provisions for future policy benefits.
Fair value of debt instruments - The Company recorded an unusual, temporary gain 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 32% of earnings on regular operations (excluding the gain resulting from the favourable evolution of the difference between the fair value of the debt instruments and the underlying assets), which is in the upper part of the Company's 25% to 35% target range for the medium term.
Business growth - The Company had its best quarter in terms of business growth since the beginning of the financial crisis that shook the global economies. Following are the highlights of the fourth quarter:
- Sales in the Individual Wealth Management sector grew 68% in the fourth quarter, compared to the same period in 2008, to reach $756.2 million. The increase is primarily explained by the sustained stock market recovery, and by the increasing popularity of the Ecoflextra guaranteed minimum withdrawal benefit. Net sales were also up, which allowed the Company to gain market share. At the end of 2009, the Company ranked 4th in terms of net segregated fund sales, with a 10.1% market share (5.7% in 2008), and 7th in terms of net mutual fund sales, compared to 17th in terms of assets. - Sales were up in the Individual Insurance sector's traditional insurance market (minimum premiums increased by 6%), but were down in the Universal Life policy savings market (excess premiums decreased by 48%). Consumers are thus continuing to cover their basic insurance needs, but are still hesitant to invest their savings in their Universal Life policies. In total, the sector ended the quarter with $41.0 million in sales, a 3% decrease compared to the same period in 2008. - In the group sectors, business growth resumed in the Group Pensions sector (4% increase in sales compared to the fourth quarter of 2008) and remained satisfactory in the Special Markets Group ("SMG") sector despite a difficult economic environment (2% decrease in sales). Only the Group Insurance Employee Plans sector (23% decrease in sales), which did not sign any agreements with large groups, and Group Creditor Insurance distributed through car dealers (17% decrease in sales), which suffered from the decline in car sales and the tightening of credit conditions in the automobile market, continue to feel the effects of the economic slowdown. - Strong sales in the Individual Wealth Management sector carried premiums and deposits to $1.5 billion in the fourth quarter, a 27% jump over the same period in 2008, and the value of new business to $36.2 million, a 33% increase. - The stock market upswing and positive net fund entries in all sectors increased assets under management and under administration to a new high of $58.4 billion as at December 31, 2009, which represents an increase of 3% for the quarter and 18% for the year.
Solvency - Financial strength continued to improve in the fourth quarter. The solvency ratio increased to 208% as at
Quality of investments - The effects of the global financial crisis have started to dissipate and, with the help of the economic environment, the quality of investments remained very good, and even improved in certain respects in the fourth quarter. Following are the highlights of the fourth quarter:
- No new securities defaulted during the fourth quarter. - The Company recorded a $1.5 million provision for a bond that was weakened by the economic environment. The effect of this provision was reduced, however, by a $0.8 million net gain realized on the sale of previously devalued securities. In total, credit-related items resulted in a net loss of $0.7 million before taxes during the quarter ($0.5 million after taxes, or $0.01 per common share). - Net impaired investments decreased during the quarter, from $15.3 million as at September 30, 2009 to $13.0 million as at December 31, 2009. This decrease results from the posting of the previously mentioned $1.5 million provision, which reduced the net value of impaired investments, as well as the sale of a previously devalued bond at a profit. The proportion of net impaired investments represents just 0.08% of total investments as at December 31, 2009 (0.10% as at September 30, 2009). - The proportion of bonds rated BB and lower decreased during the quarter, from 0.12% as at September 30, 2009 to 0.07% as at December 31, 2009. This decrease is essentially attributable to the sale of a bond rated BB and lower. - The Company's total exposure to notes obtained in exchange for non-bank sponsored asset-backed commercial paper ("ABCP") when the ABCP was restructured on January 21, 2009, amounted to $91.0 million as at December 31, 2009. This exposure takes into account the ABCP that the Company held directly, the ABCP that the Company held indirectly through its 45% ownership in MD Life Insurance Company Limited ("MD Life") and, since December 31, 2009, the ABCP acquired following the purchase of MD Life's individual life insurance portfolio. The overall devaluation taken for the ABCP due to credit risk amounted to $35.6 million, which is equal to 39.1% of its nominal value. The Company believes that this devaluation is adequate under the circumstances.
Embedded value - The Company took advantage of the disclosure of its fourth quarter results to publish its embedded value for 2009. As at
The increase in the embedded value is primarily explained by: the stock market upswing, which added 8.6% to the embedded value (
In total, recurring items of embedded value, which are those over which the Company has a certain amount of control (expected growth of embedded value and new sales) added 11.0% to the embedded value in 2009 (
Acquisitions - The Company concluded the two acquisitions announced in the fourth quarter, namely the acquisition of the socially responsible investing mutual fund business of Inhance Investment Management Inc., a subsidiary of
Market guidance for 2010 - Following is the Company's main market guidance for 2010:
- Return on common shareholders' equity: maintain the 12% to 14% target. - Earnings per common share: new target range of $2.75 to $3.25 (up from the $2.50 to $3.00 target range given as guidance for 2009). - Solvency ratio: maintain the 175% to 200% target range. - Dividend payout ratio: maintain the 25% to 35% target range in the medium term. However, the Company expects the ratio to be in the upper part of the target range in 2010. - Effective tax rate: maintain an expected effective tax rate of about 26% to 27%.
Sensitivity analysis - The Company took advantage of the publication of the fourth quarter results to update its sensitivity analyses. The results of these analyses show that the leeway available to the Company to absorb potential stock market downturns remains very high. 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 about 9,050 points. The solvency ratio will remain above 175% as long as the S&P/TSX index remains above about 7,700 points and will remain above 150% as long as the index remains above about 6,300 points. (Refer to the "Sensitivity Analysis" heading of the "Detailed Comments on the Fourth Quarter 2009 Results" section below for more information.)
Ten years on the
The Company's results are explained in more detail in the following section.
DETAILED COMMENTS ON THE FOURTH QUARTER 2009 RESULTS
ECONOMIC AND FINANCIAL ENVIRONMENT IN THE FOURTH QUARTER OF 2009
The results of Industrial Alliance depend in part on the prevailing economic and financial environment. In this respect, after having gone through one of the worst financial crises in its history, the Canadian economy continued to show signs of recovery in the fourth quarter. The stock markets continued to grow (3% increase in the S&P/TSX index in the fourth quarter and 31% for 2009), credit conditions continued to improve, even though the situation remains precarious in certain sectors, interest rates remained low, even though there has been a certain upward movement, spreads continued to narrow and, despite the general improvement in economic conditions, consumers and businesses continue to behave very cautiously.
Industrial Alliance benefited considerably from the improved economic and financial environment in the fourth quarter, particularly due to the stock market upswing and improved credit conditions. This permits the Company to present its strongest quarterly results since the financial crisis began.
PROFITABILITY
Industrial Alliance ended the fourth quarter of 2009 with record net income to common shareholders of
------------------------------------------------------------------------- Profitability ------------------------------------------------------------------------- Fourth quarter Year (In millions of dollars, unless otherwise indicated) 2009 2008 2009 2008 ------------------------------------------------------------------------- Net income to common shareholders 67.4 (110.2) 205.8 66.1 Earnings per common share (diluted) $0.83 ($1.37) $2.55 $0.82 Return on common shareholders' equity 14.9% (25.8%) 11.9% 4.0% -------------------------------------------------------------------------
Profit for the quarter was stimulated by the stock market upswing, which increased the Company's net profit by
Following are a few additional highlights about profitability for the quarter.
Changes in assumptions - The year-end review of valuation assumptions did not have a significant impact on results, as the provisions for future policy benefits were strengthened by
Even though the review of the valuation assumptions did not have a significant impact on results, substantial transfers of provisions for future policy benefits were made from one business block to another to take into account the evolution of the economic and financial environment and the Company's experience. Provisions were released to take into account improved mortality in the Individual Insurance sector and the improved return on investments, resulting from the stock market upswing and optimization of the Company's asset-liability matching. These releases were offset, however, by the strengthening of provisions for future policy benefits to primarily take into account the increased longevity of annuitants in the annuity sectors (Group Pensions and Individual Wealth Management), the decrease in individual insurance policy lapse rates, the 10 basis point decrease in the ultimate reinvestment rate ("URR") and, to a lesser degree, increased unit costs in the Individual Insurance sector.
Four additional points to consider about the changes in assumptions:
- The Company's recent mortality studies show a significant improvement in mortality. These results are in line with the trends observed in the most recent work done by the industry, including work by the Canadian Institute of Actuaries. This improvement has major, but diverging effects on the Company's activity sectors, benefiting the Individual Insurance sector, but adversely affecting the annuity sectors (Group Pensions and Individual Wealth Management). In total, since the Company's insurance operations are much larger than its annuity operations, the Company benefits from the improved mortality. The Company also retains a higher proportion of mortality risk than the industry, which adds to the income that the Company draws from improved mortality. - The strengthening of provisions for future policy benefits to take into account the increased longevity of annuitants comes from the fact that, among other things, the Company adopted one year early the recommendation that it expects the Canadian Institute of Actuaries to make about improved future mortality of annuitants. - The Company did not modify its valuation assumption for the initial reinvestment rate ("IRR"). Despite fairly significant variations during the year, this rate closed 2009 at essentially the same level as at the end of 2008. - Even though it was not obligated to, the Company decided to reduce the ultimate reinvestment rate ("URR") by 10 basis points in order to recognize the downward trend in long-term interest rates. The Company thus reduced the ultimate reinvestment rate from 4.0% at the end of 2008 to 3.9% at the end of 2009. The maximum rate that the Company could use at the end of 2009 for the ultimate reinvestment rate was 4.1%, according to the formula prescribed by the Canadian Institute of Actuaries. If the long-term interest rates used to calculate the ultimate reinvestment rate remain at the current level, the maximum rate that the Company could use at the end of 2010 would be 4.0%. This rate would gradually decrease to reach 3.9% at the end of 2011, 3.8% at the end of 2012, 3.7% at the end of 2013 and 2014 and 3.6% starting in 2015, the level at which it will stabilize. This means that, in these circumstances, the Company would not be obligated to strengthen its provisions for future policy benefits for the ultimate reinvestment rate before 2012. The Company was using an ultimate reinvestment rate of 5.0% at the end of 2006. Therefore, most of the decrease in the ultimate reinvestment rate has already been recognized in the provisions for future policy benefits.
Experience gains in Individual Insurance - In addition to the gains resulting from the stock market upswing, the Individual Insurance sector had good experience results, particularly in terms of returns and morbidity.
Experience gains in Individual Wealth Management - The gains obtained in the Individual Wealth Management sector from the stock market upswing were almost entirely cancelled out by poor mortality results and a higher than expected persistency rate on investment funds (which is favourable in the long term, but reduces the income from surrender fees in the short term compared to expectations).
Experience gains in Group Insurance - Experience results for the Group Insurance Employee Plans sector were very good in the fourth quarter, thanks to good mortality, dental care and long-term disability results. Claims in this sector had increased considerably for these benefits in the last few quarters. Improved economic conditions and good claims management contributed to the results. These good results were partially offset, however, by an experience loss in Creditor Insurance distributed through car dealers, which continues to be affected by weak car sales in the country.
Individual Insurance strain - New business strain as a percentage of sales in the Individual Insurance sector returned to the 50% to 55% target range for the first time in the last year, despite the fact that excess premiums paid into Universal Life policies remained low. This is primarily explained by a favourable product mix this quarter.
Effective tax rate - The effective tax rate amounted to 27.4% in the fourth quarter, which is slightly higher than the Company's expectations of a tax rate of around 26% to 27% in the medium term.
Fair value of debt instruments - The Company recorded an unusual, temporary gain of
The debt instruments that were part of the Company's balance sheet when the new accounting standards on financial instruments took effect on
If this gain is excluded, the Company ended the fourth quarter with net income to common shareholders of
------------------------------------------------------------------------- Profitability on Regular Operations ------------------------------------------------------------------------- Fourth quarter Year (In millions of dollars, unless otherwise indicated) 2009 2008 2009 2008 ------------------------------------------------------------------------- Net income to common shareholders 67.4 (110.2) 205.8 66.1 Less: gain (loss) resulting from the variation in the fair value of debt instruments and underlying assets (after taxes) 5.3 7.8 (5.4) 7.6 ------------------------------------------------------------------------- Net income to common shareholders on regular operations 62.1 (118.0) 211.2 58.5 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Earnings per common share (diluted) on regular operations $0.77 ($1.46) $2.62 $0.72 Return on common shareholders' equity on regular operations 13.7% (27.6%) 12.2% 3.6% -------------------------------------------------------------------------
Profit by line of business - By line of business, the changes made to the valuation assumptions resulted in a
------------------------------------------------------------------------- Sources of Earnings ------------------------------------------------------------------------- Fourth quarter Year (In millions of dollars) 2009 2008 2009 2008 ------------------------------------------------------------------------- Operating profit Individual Insurance 104.3 (171.6) 194.4 (91.0) Individual Wealth Management (0.7) 6.1 32.4 80.2 Group Insurance 12.2 5.6 36.8 44.1 Group Pensions (45.9) (21.5) (35.9) (17.5) ------------------------------------------------------------------------- Total 69.9 (181.4) 227.7 15.8 Income on capital 21.4 14.8 79.7 62.4 Income taxes (25.0) 50.1 (82.4) (13.9) ------------------------------------------------------------------------- Net income to shareholders on regular operations 66.3 (116.5) 225.0 64.3 Less: dividends on preferred shares 4.2 1.5 13.8 5.8 ------------------------------------------------------------------------- Net income to common shareholders on regular operations 62.1 (118.0) 211.2 58.5 Plus: gain (loss) resulting from the variation in the fair value of debt instruments and underlying assets (after taxes) 5.3 7.8 (5.4) 7.6 ------------------------------------------------------------------------- Net income to common shareholders 67.4 (110.2) 205.8 66.1 ------------------------------------------------------------------------- -------------------------------------------------------------------------
Profitability for 2009 - The good profitability for the quarter increased the net income to common shareholders to
These good results are primarily explained by the stock market upswing, which increased the profit by
MARKET GUIDANCE FOR 2010
Following is the Company's main market guidance for 2010:
Return on common shareholders' equity - The Company expects that the return on common shareholders' equity should be between about 12% and 14% in 2010. This target range is the same as the one for 2009.
Earnings per common share - A 12% to 14% return on common shareholders' equity translates into earnings per common share between about
Solvency ratio - The Company continues to target a 175% to 200% solvency ratio.
Dividend payout ratio - The Company is maintaining its 25% to 35% target range for the dividend payout ratio in the medium term. The Company expects, however, that the ratio should be in the upper part of the target range in 2010.
Effective tax rate - The Company expects the effective tax rate to be around 26% to 27% in 2010, which is the same level as in 2009.
SENSITIVITY ANALYSIS
The Company took advantage of the publication of the fourth 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, which take into account the changes made to the provisions for future policy benefits following the year-end review of valuation assumptions, show that the leeway available to the Company to absorb potential market downturns remains very high.
Stocks matched to the long-term liabilities - The Company 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 about 9,050 points. The Company is thus in a position to absorb a decrease in the S&P/TSX index of about 23% compared to the
Solvency ratio - The solvency ratio will remain above 175% as long as the S&P/TSX index stays above about 7,700 points and will remain above 150% as long as the index stays above about 6,300 points. This means that the Company is able to absorb a decrease of about 34% in the S&P/TSX index, compared to the
Net income - The Company estimates that if, on average, the stock markets were to remain at a level 10% lower (or higher) than its expectations for a full year (the Company generally expects the S&P/TSX index to grow about 7% annually), the net income to common shareholders would be about
Ultimate reinvestment rate ("URR") - The Company believes that a 10 basis point decrease (or increase) in the ultimate reinvestment rate would require the provisions for future policy benefits to be strengthened (or would allow them to be released) by some
Initial reinvestment rate ("IRR") - The Company believes that a 10 basis point decrease (or increase) in the initial reinvestment rate would require the provisions for future policy benefits to be strengthened (or would allow them to be released) by some
------------------------------------------------------------------------- Sensitivity Analysis ------------------------------------------------------------------------- Stocks matched to the Level of S&P/TSX index requiring 9,050 points long-term liabilities a strengthening of the provisions for future policy benefits for stocks matched to long-term liabilities Solvency ratio Level of S&P/TSX index for the 7,700 points solvency ratio to be at 175% Level of S&P/TSX index for the 6,300 points solvency ratio to be at 150% Net income Impact on the net income of a ($18 million) sudden 10% decrease in the stock markets (impact for a complete year) Ultimate reinvestment Impact on the net income of a ($41 million) rate (URR) 10 basis point decrease in the URR Initial reinvestment Impact on the net income of a ($24 million) rate (IRR) 10 basis point decrease in the IRR -------------------------------------------------------------------------
BUSINESS GROWTH
The Company had its best quarter in terms of business growth since the beginning of the financial crisis that shook the global economies. Following are the highlights of the fourth quarter.
Premiums and Deposits
The good stock market performance and general improvement in economic conditions resulted in strong renewed growth in premiums and deposits in the fourth quarter. Premiums and deposits amounted to
------------------------------------------------------------------------- Premiums and Deposits ------------------------------------------------------------------------- Fourth quarter Year (In millions of dollars, unless otherwise Varia- Varia- indicated) 2009 2008 tion 2009 2008 tion ------------------------------------------------------------------------- Individual Insurance 241.4 233.7 3% 938.4 920.7 2% Individual Wealth Management 756.2 450.9 68% 2,350.0 2,422.4 (3%) Group Insurance 244.1 245.4 (1%) 962.4 956.5 1% Group Pensions 267.4 257.8 4% 839.8 1,114.9 (25%) General insurance 37.7 33.3 13% 140.6 128.4 10% ------------------------------------------------------------------------- Total 1,546.8 1,221.1 27% 5,231.2 5,542.9 (6%) ------------------------------------------------------------------------- -------------------------------------------------------------------------
Sales by Line of Business
Generally speaking, fourth quarter sales were up for the savings and investment product sectors, and up very sharply for the Individual Wealth Management sector, and for the family market in the Individual Insurance sector. Only the Group Insurance sector continues to feel the effects of the economic slowdown.
Individual Insurance - Families continued to cover their basic insurance needs, but are still hesitant to invest their savings in their Universal Life policies. Sales in the traditional life, health and disability insurance market (measured by "minimum premiums") continued to grow in the fourth quarter (6% increase), as was the case throughout the financial crisis, but sales in the savings market (measured by "excess premiums") dropped in the fourth quarter (48% decrease). In total, the sector ended the quarter with
Individual Wealth Management - The highlight of the quarter in terms of business growth is the fact that fourth quarter sales jumped in the Individual Wealth Management sector, both for segregated funds (107% increase) and mutual funds (66% increase). This increase is primarily explained by the sustained stock market recovery, and the growing popularity of the Ecoflextra guaranteed minimum withdrawal benefit. In total, the sector ended the quarter with
Net sales are also up sharply compared to last year, which allowed the Company to gain market share. At the end of 2009, the Company ranked 4th in terms of net segregated fund sales, with a 10.1% market share, which is almost double the previous year's result (5.7% in 2008). For mutual funds, the Company continues to perform better than its size would suggest, ending 2009 ranked 7th in terms of net sales, compared to 17th in terms of assets. These results can be explained by the Company's vast range of funds, their good relative performance in the last year (more than half of investment fund assets performed above the median for one-, three-, five- and ten-year periods) and the size of the Company's distribution networks.
Group Insurance: Employee Plans - The Group Insurance Employee Plans sector continues to be affected by the general weakness of the job market, such that sales totalled
Group Creditor Insurance - The decline in car sales and the tightening of credit conditions in the automobile market continue to affect sales in the Group Creditor Insurance sector. The sector ended the fourth quarter with
Group Insurance: Special Markets Group ("SMG") - The SMG sector continues to hold its own in the current economic environment, with
Group Pensions - The Group Pensions sector ended the year on a strong note, with
------------------------------------------------------------------------- Sales(1) ------------------------------------------------------------------------- Fourth quarter Year (In millions of dollars, unless otherwise Varia- Varia- indicated) 2009 2008 tion 2009 2008 tion ------------------------------------------------------------------------- Individual Insurance Minimum premiums 37.4 35.3 6% 126.4 118.6 7% Excess premiums 3.6 6.9 (48%) 20.7 28.3 (27%) ------------------------------------------------------------------------- Total 41.0 42.2 (3%) 147.1 146.9 0% ------------------------------------------------------------------------- ------------------------------------------------------------------------- Individual Wealth Management General fund 92.0 87.3 5% 404.3 345.5 17% Segregated funds 308.1 149.2 107% 866.2 815.7 6% Mutual funds 356.1 214.4 66% 1,079.5 1,261.2 (14%) ------------------------------------------------------------------------- Total 756.2 450.9 68% 2,350.0 2,422.4 (3%) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Group Insurance Employee Plans 17.0 22.1 (23%) 75.0 92.9 (19%) Creditor Insurance 34.6 41.6 (17%) 152.4 194.2 (22%) Special Markets (SMG) 31.2 31.8 (2%) 113.2 112.9 0% Group Pensions 267.4 257.8 4% 839.8 1,114.9 (25%) -------------------------------------------------------------------------
Assets Under Management and Under Administration
The stock market upswing and positive net fund entries in all lines of business carried assets under management and under administration to a new high of
------------------------------------------------------------------------- Assets Under Management and Under Administration ------------------------------------------------------------------------- (In millions of dollars, unless otherwise December September December Q4 1 year indicated) 31, 2009 30, 2009 31, 2008 variation variation ------------------------------------------------------------------------- Assets under management General fund 17,626.5 16,920.4 15,415.2 4% 14% Segregated funds 11,450.3 10,970.4 8,924.2 4% 28% Mutual funds 6,615.7 6,224.5 5,277.7 6% 25% Other 563.3 659.0 596.7 (15%) (6%) ------------------------------------------------------------------------- Subtotal 36,255.8 34,774.3 30,213.8 4% 20% Assets under administration 22,150.8 21,963.3 19,258.4 1% 15% ------------------------------------------------------------------------- Total 58,406.6 56,737.6 49,472.2 3% 18% ------------------------------------------------------------------------- -------------------------------------------------------------------------
Value of New Business
The value of new business showed renewed growth in the fourth quarter, with a 33% (or
The value of new business evolves according to three components: the level of sales, profit margins and changes in the discount rate. Hence, as the table below shows, the "sales" component increased the value of new business by
------------------------------------------------------------------------- Value of New Business by Component ------------------------------------------------------------------------- Fourth (In millions of dollars) quarter Year ------------------------------------------------------------------------- Value of new business in 2008 27.3 122.8 Sales 8.0 (8.5) Profit margins (1.0) 0.0 Discount rate (decrease) 1.9 7.1 ------------------------------------------------------------------------- Value of new business in 2009 36.2 121.4 ------------------------------------------------------------------------- -------------------------------------------------------------------------
FINANCIAL STRENGTH
Financial strength continued to improve in the fourth quarter. Following are the highlights.
Solvency
The solvency ratio increased to 208% as at
The issue of
------------------------------------------------------------------------- Solvency ------------------------------------------------------------------------- (In millions of dollars, unless December September December otherwise indicated) 31, 2009 30, 2009 31, 2008 ------------------------------------------------------------------------- Available capital Tier 1 1,961.9 1,842.6 1,726.0 Tier 2 343.1 309.5 195.4 ------------------------------------------------------------------------- Total 2,305.0 2,152.1 1,921.4 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Required capital 1,107.2 1,090.0 967.1 Solvency ratio 208% 197% 199% -------------------------------------------------------------------------
Capitalization
The Company's capital totalled
------------------------------------------------------------------------- Capitalization ------------------------------------------------------------------------- (In millions of dollars) December September December 31, 2009 30, 2009 31, 2008 ------------------------------------------------------------------------- Equity Common shares 545.7 541.5 541.0 Preferred shares 325.0 225.0 223.7 Retained earnings 1,254.8 1,207.3 1,127.7 Contributed surplus 21.6 21.6 19.8 Accumulated other comprehensive income 10.5 20.5 (54.3) ------------------------------------------------------------------------- Subtotal 2,157.6 2,015.9 1,857.9 Debentures 519.8 524.3 385.9 Participating policyholders' account 25.7 27.9 27.0 ------------------------------------------------------------------------- Total 2,703.1 2,568.1 2,270.8 ------------------------------------------------------------------------- -------------------------------------------------------------------------
Financial Leverage
The decrease in the market value of the Company's debentures and the increase in capital contributed to a decrease in the debt ratio, from 20.4% as at
------------------------------------------------------------------------- Debt Ratio ------------------------------------------------------------------------- December September December 31, 2009 30, 2009 31, 2008 ------------------------------------------------------------------------- Debentures/capital 19.2% 20.4% 17.0% Debentures + preferred shares/capital 31.3% 29.2% 26.8% -------------------------------------------------------------------------
Book Value per Common Share and Market Capitalization
Industrial Alliance's book value per common share continued to grow in the fourth quarter, in line with the rebound that began in the first quarter of 2009, thanks to the increase in common shareholders' equity. Hence, the book value amounted to
The Company's market capitalization amounted to
The Company had 80,511,771 issued and outstanding common shares as at
------------------------------------------------------------------------- Book Value per Common Share and Market Capitalization ------------------------------------------------------------------------- (In millions of dollars, unless December September December otherwise indicated) 31, 2009 30, 2009 31, 2008 ------------------------------------------------------------------------- Book value per common share $22.77 $22.30 $20.35 Market capitalization 2,592.5 2,355.0 1,872.5 -------------------------------------------------------------------------
QUALITY OF INVESTMENTS
The effects of the global financial crisis have started to dissipate and, with the help of the economic environment, the quality of investments remained very good, and even improved in certain respects in the fourth quarter. Following are the highlights of the fourth quarter:
------------------------------------------------------------------------- Quality of Investments ------------------------------------------------------------------------- (In millions of dollars, unless December September December otherwise indicated) 31, 2009 30, 2009 31, 2008 ------------------------------------------------------------------------- Net impaired investments 13.0 15.3 8.8 Impaired investments as a % of total investments 0.08% 0.10% 0.06% Bonds - Proportion rated BB or lower 0.07% 0.12% 0.23% Mortgage loans - Delinquency rate 0.36% 0.34% 0.26% Real estate - Occupancy rate 94.4% 94.3% 94.0% ------------------------------------------------------------------------- - No new securities defaulted during the fourth quarter. - The Company posted a $1.5 million provision for a bond that was weakened by the economic environment. The effect of this provision was reduced, however, by a net gain of $0.8 million realized on the sale of previously devalued securities. In total, credit-related events resulted in a net loss of $0.7 million before taxes for the quarter ($0.5 million after taxes or $0.01 per common share). - Net impaired investments decreased during the quarter, from $15.3 million as at September 30, 2009 to $13.0 million as at December 31, 2009. This decrease results from the posting of the previously mentioned $1.5 million provision, which reduced the net value of impaired investments, and the sale of a previously devalued bond at a profit. The proportion of net impaired investments represents just 0.08% of total investments as at December 31, 2009 (0.10% as at September 30, 2009). - The proportion of bonds rated BB or lower decreased during the quarter, from 0.12% as at September 30, 2009 to 0.07% as at December 31, 2009. This decrease is essentially attributable to the sale of a bond rated BB or lower. - The Company received $1.8 million in repayments of principal for the old non-bank sponsored asset-backed commercial paper ("ABCP") in the fourth quarter, which increased the total amount of repayments of principal to $25.5 million since the ABCP was restructured (the restructuring took place on January 21, 2009 and the ABCP was converted into floating rate long-term notes). During the quarter, the Company wrote off its entire holdings in certain notes resulting from the ABCP, whose underlying assets, composed exclusively of ineligible assets, had a nominal value of $72,000. These transactions reduced the nominal value of the notes resulting from the ABCP held directly by the Company or indirectly through its 45% ownership in MD Life Insurance Company Limited ("MD Life"), from $78.9 million as at September 30, 2009, to $77.0 million as at December 31, 2009. This latter amount excludes the fact that Industrial Alliance acquired MD Life's entire individual life insurance portfolio on December 31, 2009 and, when the acquisition was made, 55% of the residual value of the old ABCP from MD Life's life insurance portfolio, net of the effect of adjustments related to restructuring and repayments of principal received, was added to Industrial Alliance's balance sheet. This led to a $14.0 million increase in the nominal value of the notes resulting from the ABCP to which Industrial Alliance is exposed, carrying it to $91.0 million as at December 31, 2009. Moreover, the overall devaluation taken for the old ABCP due to credit risk, including the impact of the acquisition of MD Life's life insurance portfolio, amounted to $35.6 million as at December 31, 2009, which is equal to 39.1% of the nominal value of the notes resulting from the ABCP held. The Company believes that this devaluation is adequate under the circumstances. - In terms of mortgage loans, the delinquency rate of the portfolio increased slightly, from 0.34% as at September 30, 2009 to 0.36% as at December 31, 2009. The increase in the quarter primarily results from an increase in delinquent loans on single family homes, which follows the same trend as the market for single family homes in Canada. Despite this increase, the quality of the mortgage loan portfolio for single family homes remains very high. - The real estate occupancy rate remained pretty much stable during the quarter (94.3% as at September 30, 2009 and 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 126.9% as at December 31, 2009, which is the same ratio as September 30, 2009). - There was little change in the last quarter for securities that have been making the headlines. 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. - Finally, two points with respect to losses in value on certain securities in the investment portfolio, a subject likely to still be of interest to the financial markets: - Unrealized losses on corporate fixed income securities classified as "available for sale" amounted to $14.5 million as at December 31, 2009, compared to $9.6 million as at September 30, 2009. This increase results from the reclassification of a security during the quarter. - 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 $46.0 million as at December 31, 2009, compared to $54.4 million as at September 30, 2009. This figure, which had increased continually since the beginning of the financial crisis, amounted to $111.5 million as at June 30, 2009. However, the unrealized losses on these bonds (measured according to the difference between the market value and the nominal value) decreased again in the fourth quarter of 2009, from $17.3 million as at September 30, 2009 to $13.3 million as at December 31, 2009. Most of these securities are classified as "held for trading."
In the current financial market environment, the Company continues to closely monitor its investment portfolio and remains on the lookout for any developments that could affect the quality of the portfolio in one way or another.
Composition of Investments
The Company's investment portfolio is composed of various assets, the main ones being bonds, mortgage loans, stocks and real estate. There was no significant change to the distribution of investments by asset category in the fourth quarter. However, the total value of investments has increased by
------------------------------------------------------------------------- Investments ------------------------------------------------------------------------- (In millions of dollars, unless December September December otherwise indicated) 31, 2009 30, 2009 31, 2008 ------------------------------------------------------------------------- Book value of investments 16,490.2 15,812.5 14,396.3 Distribution of investments by asset category Bonds 57.1% 57.1% 55.2% Mortgage loans 20.6% 21.6% 24.3% Stocks 11.5% 11.3% 9.3% Real estate 3.9% 4.1% 4.4% Other 6.9% 5.9% 6.8% ------------------------------------------------------------------------- Total 100.0% 100.0% 100.0% ------------------------------------------------------------------------- -------------------------------------------------------------------------
CREDIT RATINGS
There were no changes to the credit ratings assigned to Industrial Alliance in the fourth quarter of 2009. However, on
------------------------------------------------------------------------- Industrial Alliance Credit Ratings ------------------------------------------------------------------------- Agency Type of Evaluation Rating Outlook ------------------------------------------------------------------------- Standard & Poor's Financial Strength A+ (Strong) Negative Issuer Credit Rating 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- Stable Industrial Alliance Trust Securities (IATS) bbb+ Stable Preferred Shares bbb+ Stable ------------------------------------------------------------------------- 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 -------------------------------------------------------------------------
ACQUISITIONS
The Company concluded the two acquisitions announced in the fourth quarter.
Inhance Socially Responsible Investment Funds
On
Inhance is a mutual fund company recognized as a leader in the socially responsible investing ("SRI") arena in
The majority of Inhance funds were merged with IA Clarington's new SRI funds, which will be offered across
The agreement also provides for the establishment of a strategic long-term relationship whereby IA Clarington mutual funds will be distributed in Vancity branches.
From a strategic standpoint, this agreement has numerous advantages for Industrial Alliance. It gives the Company access to the socially responsible investing market, which is becoming increasingly popular; it allows the Company to enter this market with a well known line of funds and seasoned managers; and it gives the Company access to a new distribution network in Western
Individual Life Insurance Portfolio of MD Life
Effective
MD Life is a life and health insurance company that offers life insurance and annuity products to Canadian doctors. It is 55% owned by MD Physician Services Inc., a Canadian Medical Association company, and 45% owned by Industrial Alliance.
The acquired life insurance portfolio contains more than 8,800 policies and riders, which generated
MD Life will continue to manufacture the MD Stable Income Fund ("MDSIF Fund") group pension contract. The MDSIF Fund will continue to be distributed by MD Insurance Agency Ltd., a subsidiary of MD Physician Services Inc., and managed by Industrial Alliance.
The transaction includes a distribution agreement whereby MD Insurance Agency Limited will offer Industrial Alliance insurance products to Canadian doctors.
EMBEDDED VALUE
The Company took advantage of the disclosure of its fourth quarter results to publish its embedded value for 2009. As at
The increase in the embedded value is primarily explained by:
- The stock market upswing, which added 8.6% to the embedded value ($2.68 per common share). - Normal growth of the in-force business block, which added 6.1% to the embedded value ($1.92 per common share). - The value of new business, which added 4.9% to the embedded value ($1.51 per common share). The Company thus continues to stand out through its ability to generate profitable new sales. The embedded value of new business is particularly significant, since it allows for a judgement to be made about the profitability of the products and services offered by the Company.
In total, recurring items of embedded value, which are those over which the Company has a certain amount of control (namely expected growth of embedded value and new sales) added 11.0% to the embedded value in 2009 (
The changes in assumptions made to the provisions for future policy benefits at the end of 2009, and the increase in the discount rate (from 6.50% to 7.25%) and the risk-free rate for purposes of calculating the embedded value (from 3.50% to 4.25%) did not have a significant impact on embedded value in 2009. The Company used the same discount rate and the same risk-free rate in 2009 as it did in 2007, before the financial crisis. These changes in assumptions aim to reflect changes in the current economic environment in which the Company operates.
------------------------------------------------------------------------- Embedded Value ------------------------------------------------------------------------- Contribu- Embedded tion to value per Embedded embedded common value value share ------------------------------------------------------------------------- ($Million) (%) ($) Embedded value as at December 31, 2008 2,510 - 31.26 Recurring items Expected growth of embedded value 154 6.1 1.92 New sales 121 4.9 1.51 ------------------------------------------------------------------------- Subtotal 275 11.0 3.43 Non-recurring items Experience gains (losses) - related to the equity markets 215 8.6 2.68 Experience gains (losses) - other 47 1.8 0.58 Changes in assumptions and management actions (10) (0.4) (0.12) Changes in solvency requirements (2) (0.1) (0.03) Acquisitions 7 0.3 0.08 ------------------------------------------------------------------------- Subtotal 257 10.2 3.19 Changes in capital structure 6 0.2 (0.01) ------------------------------------------------------------------------- Total variation in embedded value in 2009 538 21.4 6.61 ------------------------------------------------------------------------- Embedded value as at December 31, 2009, before dividends 3,048 - 37.87 Dividends paid to common shareholders (79) (3.1) (0.98) ------------------------------------------------------------------------- Embedded value as at December 31, 2009 2,969 18.3 36.89 ------------------------------------------------------------------------- -------------------------------------------------------------------------
NORMAL COURSE ISSUER BID
With the approval of the
Under this authorization, the purchases will be made at market prices through the facility of the
The average daily trading volume of the Company's common shares was 189,797 on the
Industrial Alliance believes that the purchase of its common shares would represent an effective use of its funds and would be in the best interests of the Company and its shareholders.
The Company may, subject to obtaining the prior written approval of the Exchange, enter into derivative transactions in the normal course of business, including forward contracts, pursuant to which it may acquire its common shares.
Under normal circumstances, the Company uses its normal course issuer bid to eliminate any dilutive effect caused by the issuance of common shares as part of the stock option plan or when business is acquired. However, the Company does not plan to buy back its shares to eliminate the dilutive effect caused by the issuance of common shares as part of the stock option plan until the financial situation in
Shareholders may obtain a free copy of the documents filed with the Exchange concerning this Bid by writing to the Corporate Secretary of Industrial Alliance.
BUY-BACK OF SHARES
Under the current normal course issuer bid, which began on
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 32% of earnings on regular operations (excluding the gain resulting from the favourable evolution of the difference between the fair value of the debt instruments and the underlying assets), which is in the upper end of the Company's 25% to 35% target range for the medium term.
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
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
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
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
For the purposes of the enhanced dividend tax credit rules contained in the Income Tax Act (
WARNING AND GENERAL INFORMATION
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 news release may contain forward-looking statements about the operations, objectives and strategies of Industrial Alliance, as well as its financial situation and performance. The forward-looking nature of these statements can generally, though not always, be identified by the use of words such as "may," "expect," "anticipate," "intend," "believe," "estimate," "feel," "continue," or other similar expressions, in the affirmative, negative or conditional. Unless otherwise indicated, any forward-looking information that presents prospective results of operations, financial position or cash flows was approved by management on the date of this news release. Forward-looking statements entail risks and uncertainties that may cause the actual results, performance or achievements of Industrial Alliance to differ materially from the future results, performance or achievements expressed or implied by the forward-looking statements. Factors that could cause the Company's actual results to differ from expected results include changes in government regulations or tax laws, competition, technological changes, global capital market activity, interest rates, changes in demographic data, changes in consumer behaviour and demand for the Company's products and services, catastrophic events, and general economic conditions in
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
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
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 Employee Plans: first- year annualized premiums, including premium equivalents (Administrative Services Only ("ASO") contracts); Group Creditor Insurance: gross premiums (before reinsurance); Special Markets Group ("SMG"): premiums; Group Pensions: premiums CONSOLIDATED INCOME STATEMENTS ------------------------------------------------------------------------- (in millions of dollars, Quarters ended Twelve months ended unless otherwise indicated) December 31 December 31 2009 2008 2009 2008 $ $ $ $ (unaudited) Revenues Premiums 1,191 1,007 4,152 4,282 Net investment income 99 (44) 1,302 (188) Fees and other revenues 94 81 361 371 ------------------------------------------------------------------------- 1,384 1,044 5,815 4,465 Policy benefits and expenses Payments to policyholders and beneficiaries 496 486 1,928 1,950 Net transfer to segregated funds 454 235 1,299 1,347 Dividends, experience rating refunds and interest on amounts on deposit 16 13 56 62 Change in provisions for future policy benefits 65 229 1,194 53 ------------------------------------------------------------------------- 1,031 963 4,477 3,412 Commissions 145 142 528 545 Premium and other taxes 16 16 63 62 General expenses 108 90 400 358 Financing expenses 4 (11) 64 (4) ------------------------------------------------------------------------- 1,304 1,200 5,532 4,373 Income before income taxes 80 (156) 283 92 Less: income taxes 10 (48) 64 17 ------------------------------------------------------------------------- Net income 70 (108) 219 75 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Less: net income attributed to participating policyholders (2) - (1) 3 ------------------------------------------------------------------------- Net income attributed to shareholders 72 (108) 220 72 Less: preferred share dividends 4 2 14 6 ------------------------------------------------------------------------- Net income available to common shareholders 68 (110) 206 66 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Earnings per common share (in dollars) basic 0.84 (1.37) 2.56 0.82 diluted 0.83 (1.37) 2.55 0.82 CONSOLIDATED BALANCE SHEETS ------------------------------------------------------------------------- As at As at As at December December September 31 31 30 (in millions of dollars) 2009 2008 2009 $ $ $ (unaudited) Assets Invested assets Bonds 9,410 7,942 9,030 Mortgages 3,405 3,508 3,412 Stocks 1,896 1,340 1,785 Real estate 649 630 644 Policy loans 381 320 374 Cash and cash equivalents 382 259 199 Other invested assets 367 397 368 ------------------------------------------------------------------------- 16,490 14,396 15,812 Other assets 646 547 636 Intangible assets 375 357 361 Goodwill 116 115 111 ------------------------------------------------------------------------- Total general fund assets 17,627 15,415 16,920 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Segregated funds net assets 11,450 8,924 10,970 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Liabilities Policy liabilities Provisions for future policy benefits 13,392 11,853 12,923 Provisions for dividends to policyholders and experience rating refunds 60 56 49 Benefits payable and provision for unreported claims 139 156 148 Policyholders' amounts on deposit 212 185 205 ------------------------------------------------------------------------- 13,803 12,250 13,325 Other liabilities 772 648 678 Future income tax 339 236 340 Deferred net realized gains 9 10 9 Debentures 520 386 524 Participating policyholders' account 26 27 28 ------------------------------------------------------------------------- 15,469 13,557 14,904 ------------------------------------------------------------------------- Equity Share capital 871 765 767 Contributed surplus 22 19 22 Retained earnings and accumulated other comprehensive income 1,265 1,074 1,227 ------------------------------------------------------------------------- 2,158 1,858 2,016 ------------------------------------------------------------------------- Total general fund liabilities and equity 17,627 15,415 16,920 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Segregated funds liabilities 11,450 8,924 10,970 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Twelve months ended December 31, 2009 and 2008 (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
Segmented Income Statements Quarter ended December 31, 2009 Individual Group Life Wealth Life Other and Manage- and activi- Health ment Health Pensions ties* Total $ $ $ $ $ $ Revenues Premiums 241 401 245 267 37 1,191 Net inves- tment income 28 22 12 35 2 99 Fees and other revenues (5) 85 3 7 4 94 ------------------------------------------------------------------------- 264 508 260 309 43 1,384 ------------------------------------------------------------------------- Operating expenses Cost of commitments to policy- holders 65 77 176 235 24 577 Net transfer to segre- gated funds - 344 - 110 - 454 Commissions, general and other expenses 101 84 67 8 13 273 ------------------------------------------------------------------------- 166 505 243 353 37 1,304 ------------------------------------------------------------------------- Income before income taxes 98 3 17 (44) 6 80 Less: income taxes 19 1 3 (15) 2 10 ------------------------------------------------------------------------- Net income before allocation of other activities 79 2 14 (29) 4 70 Allocation of other activities 4 - - - (4) - ------------------------------------------------------------------------- Net income 83 2 14 (29) - 70 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Attributed to shareholders 85 2 14 (29) - 72 Attributed to participating policyholders (2) - - - - (2) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Quarter ended December 31, 2008 Individual Group Life Wealth Life Other and Manage- and activi- Health ment Health Pensions ties* Total $ $ $ $ $ $ Revenues Premiums 234 236 246 258 33 1,007 Net inves- tment income (124) 24 20 36 - (44) Fees and other revenues 1 70 2 6 2 81 ------------------------------------------------------------------------- 111 330 268 300 35 1,044 ------------------------------------------------------------------------- Operating expenses Cost of commitments to policy- holders 179 63 193 270 23 728 Net transfer to segre- gated funds - 192 - 43 - 235 Commissions, general and other expenses 92 65 63 7 10 237 ------------------------------------------------------------------------- 271 320 256 320 33 1,200 ------------------------------------------------------------------------- Income before income taxes (160) 10 12 (20) 2 (156) Less: income taxes (47) 2 4 (6) (1) (48) ------------------------------------------------------------------------- Net income before allocation of other activities (113) 8 8 (14) 3 (108) Allocation of other activities 3 - - - (3) - ------------------------------------------------------------------------- Net income (110) 8 8 (14) - (108) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Attributed to shareholders (110) 8 8 (14) - (108) Attributed to participating policyholders - - - - - - ------------------------------------------------------------------------- ------------------------------------------------------------------------- * Includes other segments and intercompany eliminations. Twelve months ended December 31, 2009 Individual Group Life Wealth Life Other and Manage- and activi- Health ment Health Pensions ties* Total $ $ $ $ $ $ Revenues Premiums 938 1,271 963 840 140 4,152 Net inves- tment income 838 112 89 257 6 1,302 Fees and other revenues 5 304 9 29 14 361 ------------------------------------------------------------------------- 1,781 1,687 1,061 1,126 160 5,815 ------------------------------------------------------------------------- Operating expenses Cost of commitments to policy- holders 1,165 357 739 821 96 3,178 Net transfer to segre- gated funds - 999 - 300 - 1,299 Commissions, general and other expenses 404 290 275 35 51 1,055 ------------------------------------------------------------------------- 1,569 1,646 1,014 1,156 147 5,532 ------------------------------------------------------------------------- Income before income taxes 212 41 47 (30) 13 283 Less: income taxes 47 12 12 (12) 5 64 ------------------------------------------------------------------------- Net income before allocation of other activities 165 29 35 (18) 8 219 Allocation of other activities 8 - - - (8) - ------------------------------------------------------------------------- Net income 173 29 35 (18) - 219 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Attributed to shareholders 174 29 35 (18) - 220 Attributed to participating policyholders (1) - - - - (1) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Twelve months ended December 31, 2008 Individual Group Life Wealth Life Other and Manage- and activi- Health ment Health Pensions ties* Total $ $ $ $ $ $ Revenues Premiums 921 1,161 957 1,115 128 4,282 Net inves- tment income (434) 84 62 103 (3) (188) Fees and other revenues 2 319 9 28 13 371 ------------------------------------------------------------------------- 489 1,564 1,028 1,246 138 4,465 ------------------------------------------------------------------------- Operating expenses Cost of commitments to policy- holders 187 225 699 859 95 2,065 Net transfer to segre- gated funds - 978 - 369 - 1,347 Commissions, general and other expenses 347 274 272 29 39 961 ------------------------------------------------------------------------- 534 1,477 971 1,257 134 4,373 ------------------------------------------------------------------------- Income before income taxes (45) 87 57 (11) 4 92 Less: income taxes (18) 24 14 (4) 1 17 ------------------------------------------------------------------------- Net income before allocation of other activities (27) 63 43 (7) 3 75 Allocation of other activities 3 - - - (3) - ------------------------------------------------------------------------- Net income (24) 63 43 (7) - 75 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Attributed to shareholders (27) 63 43 (7) - 72 Attributed to participating policyholders 3 - - - - 3 ------------------------------------------------------------------------- ------------------------------------------------------------------------- * Includes other segments and intercompany eliminations. Segmented General Fund Assets 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 December 31, 2008 Individual Group Life Wealth Life Other and Manage- and activi- Health ment Health Pensions ties* Total $ $ $ $ $ $ Assets Invested assets 7,915 1,776 1,488 2,981 236 14,396 Other assets 158 147 83 47 112 547 Intangible assets 42 312 2 1 - 357 Goodwill 49 46 20 - - 115 ------------------------------------------------------------------------- Total 8,164 2,281 1,593 3,029 348 15,415 ------------------------------------------------------------------------- ------------------------------------------------------------------------- As at September 30, 2009 (unaudited) Individual Group Life Wealth Life Other and Manage- and activi- Health ment Health Pensions ties* Total $ $ $ $ $ $ Assets Invested assets 8,683 1,953 1,712 3,166 298 15,812 Other assets 219 172 98 45 102 636 Intangible assets 46 311 3 1 - 361 Goodwill 46 45 20 - - 111 ------------------------------------------------------------------------- Total 8,994 2,481 1,833 3,212 400 16,920 ------------------------------------------------------------------------- ------------------------------------------------------------------------- * Includes other segments and intercompany eliminations.
For further information: Jacques Carrière, Vice-President, Investor Relations, (418) 684-5275, Cell: (418) 576-3624, [email protected]; www.inalco.com
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