Industrial Alliance Reports Q3 Results

EPS of $0.91 and annualized ROE of 11.2%
Dividend increased for the second time in 2014

• Net income of $91.5M
• Premiums and deposits of $1.8B
• AUA/AUM of $106.9B
• BVPS of $33.00
• Solvency ratio of 215%
• Quarterly dividend hike of 8% to 28¢ per share

QUEBEC CITY, Nov. 5, 2014 /CNW Telbec/ - For the third quarter ended September 30, 2014, Industrial Alliance Insurance and Financial Services Inc. (TSX: IAG) reports net income attributed to common shareholders of $91.5 million and diluted earnings per common share of $0.91. The annualized return on shareholders' equity was 11.2%, and the solvency ratio at quarter-end was 215%. The Company is pleased to announce that the quarterly dividend to common shareholders has been raised by 8% to $0.28 per share, the second increase this year.

Yvon Charest, President and Chief Executive Officer commented, "Despite some weakness in equity markets this past quarter, we are pleased to report positive fund flows and a significant pick-up in premiums and deposits. Our seg fund business was a key driver along with Group Savings and Retirement, both of which had markedly higher inflows in the quarter.

René Chabot, Executive Vice-President and Chief Actuary added, "Our earnings came in within guidance for the quarter despite being a little lower than expected. Items of note include policyholder claims, higher than expected strain on new retail insurance business and a one-time charge related to unclaimed death benefits in the US. IA Auto and Home benefited from favourable weather conditions and delivered a good contribution. For the year to date, our earnings are strong and we remain confident that we can deliver the top of our earnings guidance for the full year."

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¹ Annualized for the quarter. Trailing twelve months for the year to date.

THIRD QUARTER HIGHLIGHTS

Profitability – For the third quarter ended September 30, 2104, Industrial Alliance reports net income attributed to common shareholders of $91.5 million. Diluted earnings per share of $0.91 compare with $1.07 in the same quarter a year ago, which posted exceptionally strong policyholder, market and hedging gains. The annualized shareholders' return on equity was 11.2% in the third quarter of 2014, which is in line with guidance provided by management to the financial markets.

The key elements that explain profitability follow. All figures are after taxes unless otherwise indicated.

Expected profit on in-force increased by 13% to $119.7 million pre-tax over the last year, mainly attributed to growth in assets under management in the wealth management businesses. Expected profit on in-force for the wealth management businesses is updated on a quarterly basis to reflect market growth and net fund sales.

Effective the third quarter of 2014 and through to the end of 2015, expected profit on in-force for Group Insurance  ̶  Employee Plans is being revised downward to reflect recent adverse experience. Earnings per share is thus reduced by $0.03 for each of the third and fourth quarters of 2014, and $0.10 for 2015.

Individual Insurance reported an experience loss of $0.05 per share ($5.0 million). Adverse lapse and morbidity accounted for $0.03 per share. The remaining $0.02 per share is a one-time cost related to the identification and payment of unclaimed death benefits in the US business.

Individual Wealth Management had an experience gain of $0.02 per share ($2.2 million) attributed to the dynamic hedging program for the segregated fund guarantee.

Group Insurance reported an experience loss of $0.04 per share ($4.1 million). Dealer Services experienced higher than expected health claims resulting in a loss of $0.03 per share. The remaining $0.01 per share is attributed to disability claims in Special Market Solutions.

Strain – In the Individual Insurance sector, the strain-to-new business ratio of 34% was higher than the range provided for the quarter (15-30%). Management estimates that the higher strain represented a loss of $0.02 per share.

Income on capital – Total income on capital of $27.3 million pre-tax compares with $19.9 million in the previous quarter. The increase is attributed mainly to a seasonally stronger contribution from IA Auto and Home.

Income taxes – The effective tax rate of 18% is at the low end of our guidance, as expected this year.

Business Growth – Premiums and deposits gained momentum in the third quarter, increasing 11% over the previous year, attributed to strong segregated fund inflows and higher sales in Group Savings and Retirement. Total fee‑earning assets under management and administration rose 2% in the quarter and 20% in the year, ending the period at $106.9 billion.

In the retail sectors, insurance sales of $51.1 million (-6%) reflect a year-over-year decline in excess premiums, offset by favourable results in the US (+40%) and Excellence (+17%), our adjustable disability business. Net investment fund inflows were $57.4 million, representing net sales of segregated funds ($68.5 million) offset by slightly negative mutual fund sales (-$11.1 million). In Group Insurance, Employee Plans achieved higher sales of $45.6 million and Special Market Solutions delivered $40.6 million in sales (+9%). In Dealer Services, sales totalled $112.5 million (-4%) in creditor insurance and $43.2 million (+3%) in P&C products. In Group Savings and Retirement, sales were $258.2 million, up 44% over the previous year.

Capital – At September 30, 2104 the solvency ratio was 215%, unchanged from the previous quarter end. The change in macroeconomic conditions during the quarter was neutralized by the third quarter earnings contribution.

Dividend – The Board of Directors increased the quarterly dividend by 8% to 28 cents per share on the Company's outstanding common shares. This dividend is payable on December 15, 2014 to shareholders of record at November 21, 2014.  

Dividend Reinvestment and Share Purchase – Registered shareholders wishing to enroll in the Company's Dividend Reinvestment and Share Purchase Plan so as to be eligible to reinvest the next dividend payable on December 15^th must ensure that the duly completed form is delivered to Computershare no later than 4:00 p.m. on November 14, 2014. Enrollment information is provided on the Company's website at www.inalco.com under Investor Relations/Dividends.

Macroeconomic Sensitivity at September 30, 2104

• The Company can absorb a sudden decrease of about 26% in the S&P/TSX index before having to strengthen reserves for policyholder liabilities (30% at June 30, 2014).
• The Company can absorb a sudden decrease of 41% in the S&P/TSX index before the solvency ratio drops below 175% (43% at June 30, 2014) and a decrease of 54% before the solvency ratio drops below 150% (55% at June 30, 2014).
• The full-year impact on net income attributed to common shareholders of a sudden 10% decrease in the stock markets is $28 million ($26 million at June 30, 2014). This does not take into consideration any potential reserve strengthening.
• The impact on net income attributed to common shareholders of a 10 basis point decrease in the initial and ultimate reinvestment rates totals $91 million ($84 million at June 30, 2014).

Market Guidance for 2014

• Earnings per common share: target range of $3.40 to $3.80
• Return on common shareholders' equity (ROE): target range of 11.0% to 12.5%
• Solvency ratio: target range of 175% to 200%
• Dividend payout ratio: payout range of 25% to 35% with the target being the mid-point
• Effective tax rate: target range of 18% to 22%
• Strain on new business: 25% of sales

Guidance for ROE and earnings per common share excludes any potential reserve strengthening in 2014.

Redemption of Preferred Shares
Industrial Alliance Insurance today announced its intention to redeem, on December 31, 2014, all of its Non-Cumulative Class A Preferred Shares Series E (the "Series E Preferred Shares") then outstanding. The redemption price will be $26.00 for each Series E Preferred Share plus an amount equal to all declared and unpaid dividends, less any tax required to be deducted and withheld by Industrial Alliance. There are 4,000,000 Series E Preferred Shares outstanding as of today.

Change in Actuarial Standard
On May 15, 2014, the Canadian Institute of Actuaries published its revised standard with respect to the economic reinvestment assumptions and assumed investment strategies utilized under the Canadian asset liability method for the valuation of long-tail liability cash flows. The final standard, which took effect on October 15, 2014, fixes the ultimate reinvestment rate (URR) at 3.3% and introduces a maximum credit spread of 80 basis points over the risk-free rate. At the Company's Investor Day on June 11, 2014, management disclosed its intention to use a combined rate of 4.0% at the end of 2014, an increase of 90 basis points over its current URR of 3.1%. The new standard represents a favourable development that will reduce the overall sensitivity of the Company's actuarial reserves to the macroeconomic environment. Industrial Alliance will provide full disclosure of the impact of the revised standard after completion of its year-end assumption review in the fourth quarter of 2014.

GENERAL INFORMATION

Non-IFRS Financial Information
The Company reports its financial results in accordance with International Financial Reporting Standards(IFRS). It also publishes certain non-IFRS financial measures that do not have an IFRS equivalent, including sales, value of new business, embedded value and solvency ratio, or which have an IFRS equivalent such as data on operating profit and income taxes on earnings presented in the sources of earnings table. The Company also uses non-IFRS adjusted data in relation to net income, earnings per share and return on equity. These non-IFRS financial measures are always accompanied by and reconciled with IFRS financial measures. The Company believes that these non-IFRS financial measures provide investors and analysts with additional information to better understand the Company's financial results as well as assess its growth and earnings potential. Since non-IFRS financial measures do not have a standardized definition, they may differ from the non-IFRS financial measures used by other institutions. The Company strongly encourages investors to review its financial statements and other publicly-filed reports in their entirety and not to rely on any single financial measure.

Conference Call
Management will hold a conference call to present the Company's results on Wednesday, November 5, 2014 at 2:00 p.m. (ET). To listen in on the conference call, dial 1-800-658-7107 (toll-free). A replay of the conference call will also be available for a one-week period, starting at 4:30 p.m. on November 5, 2014. To listen to the conference call replay, dial 1 800 558-5253 (toll-free) and enter access code 21732590. A webcast of the conference call (in listen only mode) will also be available on the Industrial Alliance website at www.inalco.com.

Documents Related to the Financial Results
For a detailed discussion of the Company's third quarter results, investors are invited to consult the MD&A for the quarter ended September 30, 2014, related consolidated financial statements and accompanying notes as well as our supplemental information package, all of which are available on the Industrial Alliance website at www.inalco.com under Investor Relations / Financial Reports and on SEDAR at www.sedar.com.

Forward-looking Statements
This press release may contain statements relating to strategies used by Industrial Alliance or statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as "may", "will", "could", "should", "would", "suspect", "expect", "anticipate", "intend", "plan", "believe", "estimate", and "continue" (or the negative thereof), as well as words such as "objective" or "goal" or other similar words or expressions. Such statements constitute forward‑looking statements within the meaning of securities laws. Forward‑looking statements include, but are not limited to, information concerning the Company's possible or assumed future operating results. These statements are not historical facts; they represent only the Company's expectations, estimates and projections regarding future events.

Although Industrial Alliance believes that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements. Factors that could cause actual results to differ materially from expectations include, but are not limited to: general business and economic conditions; level of competition and consolidation; changes in laws and regulations including tax laws; liquidity of Industrial Alliance including the availability of financing to meet existing financial commitments on their expected maturity dates when required; accuracy of information received from counterparties and the ability of counterparties to meet their obligations; accuracy of accounting policies and actuarial methods used by Industrial Alliance; insurance risks including mortality, morbidity, longevity and policyholder behaviour including the occurrence of natural or man-made disasters, pandemic diseases and acts of terrorism.

Additional information about the material factors that could cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward-looking statements may be found in the "Risk Management" section of the 2013 Management's Discussion and Analysis and in the "Management of Risks Associated with Financial Instruments" note to Industrial Alliance's consolidated financial statements, and elsewhere in Industrial Alliance's filings with Canadian securities regulators, which are available for review at www.sedar.com.

The forward-looking statements in this news release reflect the Company's expectations as of the date of this press release. Industrial Alliance does not undertake to update or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events, except as required by law.

About Industrial Alliance
Founded in 1892, Industrial Alliance Insurance and Financial Services Inc. operates throughout Canada as well as in the United States. The Company offers life and health insurance, mutual and segregated funds, savings and retirement plans, securities, auto and home insurance, mortgage and car loans and other financial products and services for both individuals and groups. Ranked among the top four life and health insurance companies in Canada, Industrial Alliance is one of Canada's largest public companies and trades on the Toronto Stock Exchange under the ticker symbol IAG.

SOURCE Industrial Alliance Insurance and Financial Services Inc.