Industrial Alliance Delivers Solid Third Quarter Performance
Net earnings from continuing activities increase by 49%
- Net earnings of $68.1 million exclude gain from sale of US annuity business
- Premiums and deposits remain robust at $1.7 billion (+7%)
- Assets under management and administration reach a record high of $81.0 billion
- Annualized ROE of 17.4% (11.3% excluding the gain on sale of the US annuities)
Solvency ratio of 211%
|The following financial results are based on International Financial Reporting Standards ("IFRS") unless otherwise noted. A full discussion of the third quarter results is available at www.inalco.com under Investor Relations/Financial Reports.|
QUEBEC CITY, Nov. 7, 2012 /CNW Telbec/ - For the third quarter ended September 30, 2012, Industrial Alliance Insurance and Financial Services Inc. (TSX: IAG) reported net earnings of $105.5 million, including an after-tax gain of $37.4 million on the sale of the US annuity business announced on August 16th. Excluding this gain, net earnings were $68.1 million versus $45.7 million in the same quarter last year, an increase of 49%.
Diluted and adjusted earnings per share, excluding the gain on sale of the US annuity business and the dilutive impact of the Company's innovative Tier 1 debt instruments, amounted to $0.75 compared with $0.53 a year ago. The consensus estimate for the third quarter was $0.71 per share.
At September 30, 2012, the solvency ratio was 211%, bolstered by the capital relief and gain on sale of the US annuity business that added 12 percentage points.
"We delivered a solid performance in the third quarter," commented Yvon Charest, President and Chief Executive Officer. "Profitability was well ahead of our results a year ago - even excluding the gain on the sale of the US annuity business - reflecting better equity markets, an improvement in long-term disability claims and lower strain on new business. We also ended the quarter with a solvency ratio well above our guidance of 175-200%."
"We continue to make headway on our plan to secure our core earnings power," added Mr. Charest. "A key element is reducing the cost of writing new business on our life products and, in that regard, we are in line to meet our 2012 objective. Strain on new business should be close to 25% at year-end, representing potential pre-tax savings of about $50 million on a yearly basis."
"Business growth is an important driver of tomorrow's potential earnings power," said Mr. Charest. "I am extremely satisfied that volumes continue to be healthy, with premiums and deposits up 7% year over year. Sales growth was strong with notable increases in group accumulation products, US insurance, complementary warranties and general insurance."
"Over the last two years a growing proportion of our operating income has come from lines of business that require less capital and are less sensitive to interest rate and equity market movements," concluded Mr. Charest. "These businesses include mutual funds, creditor insurance and complementary warranties, special markets and general insurance, to name but a few. For the year to date, our non-traditional businesses have contributed 43% to our pre-tax operating income, up from 33% for the full year 2011 and 28% the year before."
|Third quarter||Year-to-date as at September 30|
|(In millions of dollars, unless otherwise indicated)||2012||2011||Variation||2012||2011||Variation|
|Net income attributed to shareholders||114.5||51.7||121%||259.6||202.4||28%|
|Less: preferred share dividends||9.0||6.0||50%||21.5||17.9||20%|
|Net income available to common shareholders||105.5||45.7||131%||238.2||184.5||29%|
|Less: gain from the sale of the US annuity business||37.4||--||--||37.4||--||--|
|Net income attributed to common shareholders on continuing activities||68.1||45.7||49%||200.7||184.5||9%|
|Earnings per common share (diluted)||$1.11||$0.52||$0.59||$2.52||$2.10||$0.42|
|Earnings per common share (diluted and adjusted1)||$0.75||$0.53||$0.22||$2.21||$2.16||$0.05|
|Return on common shareholders' equity2||17.4%||8.0%||940 bps||6.7%||11.3%||(460 bps)|
|Premiums and deposits||1,688.9||1,579.9||7%||5,152.7||5,260.8||(2%)|
|Effective tax rate on continuing activities (%)||17.9%||22.7%||--||14.0%||22.9%||--|
|Book value per share||$27.21||$26.28||$25.54||$26.74|
|Assets under management and administration||80,966.6||77,212.1||73,350.7||70,393.4|
|Net impaired investments||8.9||8.8||13.1||13.2|
|Net impaired investments as a % of total investments||0.04%||0.04%||0.06%||0.06%|
|1||Excluding the dilutive impact of the innovative Tier 1 debt instruments (IATS) and the gain on the sale of the US annuity business.|
|2||Annualized for the quarter. Trailing twelve months for the year to date.|
Third Quarter Highlights
Profitability - Industrial Alliance ended the third quarter of 2012 with net income to common shareholders of $105.5 million, including a gain of $37.4 million on the sale of its US annuity business. Excluding this gain, net income was $68.1 million, representing an increase of 49% over the previous year.
Diluted earnings per share amounted to $1.11 compared with $0.52 a year ago. Excluding the gain on the US annuities and the dilutive impact of the Company's innovative Tier 1 debt instruments, diluted and adjusted earnings per share amounted to $0.75 compared with $0.53 a year ago.
The annualized return on common shareholders' equity was 17.4%. Excluding the gain on the sale of the US annuities, the return was 11.3% on an annualized basis, which is slightly above the Company's guidance of 9-11% for 2012.
The key elements that had an impact on profitability follow. All figures are after taxes unless otherwise indicated.
Sale of US annuity business - On August 16th, 2012, the Company announced the sale of its US annuity business, reflecting its strategic decision to focus its resources in the US on the development of its life insurance business. The sale of the fixed annuities and accumulation riders generated an after-tax gain of $67.9 million, before charges related to goodwill and intangible assets. After the latter items, the net gain was $37.4 million. Management estimates that the sale of this business should reduce after-tax earnings by approximately $1.5 million to $2.5 million on an annual basis.
Market-related experience - The stock market improvement contributed a gain of $5.1 million or $0.05 per share, attributed to the Individual Insurance and Wealth Management sectors. The dynamic hedging program accounted for $0.04 per share of this gain.
Policyholder experience - After four quarters of poor claims experience, we are pleased to report that Employee Plans generated a gain of $2.0 million or $0.02 per share related to an improvement in long-term disability experience. The Individual Insurance sector experienced a loss of $7.6 million or $0.09 per share, primarily attributed to unfavourable lapse and mortality.
Strain - In the Individual Insurance sector, the strain-to-new business ratio was 37% in the third quarter, down from 44% in the second quarter and 56% in the first quarter of 2012. This improvement reflects the higher pricing introduced in July at which 31% of new sales were made during the third quarter. The strain-to-new business ratio should drop to approximately 25% by year-end as the new pricing continues to work its way through all new sales.
Change in assumptions for US operations - Concurrent with the sale of the US annuity business, actuarial assumptions were reviewed for the remaining block of US business. The review resulted in a net reserve strengthening of $1.3 million after tax, or $0.01 per share.
Income taxes - The Company reported a tax gain of $0.04 per share in the third quarter. The benefit is mostly attributed to an increase in the fair value of real estate, which would be taxed as a capital gain when realized (50% of the amount of the gain would be taxable at the regular corporate tax rate). The increase in fair value resulted in a deferred tax gain, reducing the effective tax rate to 17.9%.
Income on capital - Total income on capital for the third quarter was $18.5 million pre-tax, compared with $26.4 million in the second quarter and $25.8 million a year earlier. The decrease is due to lower income on capital following higher gains on assets available for sale (AFS) over the last five quarters, together with lower AFS gains in the quarter. IA Auto and Home had a third profitable quarter this year contributing a pre-tax gain of $4.1 million compared with $3.8 million last quarter and a loss of $0.8 million a year ago.
Business Growth - Premiums and deposits reached $1.7 billion in the third quarter, an increase of 7% over the previous year. Assets under management and administration at September 30, 2012 were $81.0 billion, up 5% over the second quarter and 15% year over year.
Individual Insurance sales grew by 5% to $58.5 million, with a strong contribution from the U.S. operations.
In Group Insurance, Creditor insurance sales reached a record high of $98.6 million in the third quarter, and sales of complementary warranties increased 64% to $36.5 million. Special Market Solutions continued to report good momentum, with sales increasing 13% to $35.1 million. Employee Plans reported sales of $10.6 million compared with $4.8 million a year earlier, when the third quarter was unusually weak.
Group Savings and Retirement reported excellent sales of $277.1 million, an increase of 79% attributed to growth in accumulation products.
Individual Wealth Management net sales continue to be positive. Net mutual fund sales were $93.5 million and net sales of segregated funds were $45.0 million.
Solvency - At September 30, 2012, the solvency ratio was 211% compared with 200% at June 30, 2012. The increase is attributed to the sale of the US annuity business that provided both capital relief and a gain, adding a total of 12 percentage points to the solvency ratio. It should be noted that the impact of macroeconomic factors was neutral in the third quarter.
Quality of Investments - Our investment portfolio continues to be of the highest quality. At September 30, 2012, net impaired loans remained unchanged from the previous quarter at 0.04% of total investments. The real estate occupancy rate also remained unchanged at 95.2%. The proportion of bonds rated BB and lower increased slightly to 0.11%.
Dividend - The Board of Directors declared a quarterly dividend of $0.2450 per common share. This corresponds to a payout ratio of 33% of net earnings from continuing activities.
Sensitivity Analysis - Market sensitivities decreased over the previous quarter. At September 30, 2012:
The Company can absorb a decrease of about 12% (9% at June 30, 2012) in
the S&P/TSX index before having to strengthen policy liabilities.
The Company can absorb a decrease of 30% (21% at June 30,2012) before
the solvency ratio drops below 175% and a decrease of 42% (35% at June
30, 2012) before the solvency ratio drops below 150%.
The full-year impact on net income of a sudden 10% decrease in the stock
markets is $23 million ($24 million at June 30, 2012).
- The impact on net income of a 10 basis point decrease in the initial re-investment rate (IRR) is $24 million ($29 million at June 30, 2012) and the comparable impact for the ultimate re-investment rate (URR) is $60 million ($62 million at June 30, 2012). The improvement is mostly related to the sale of the US annuity business.
Market Guidance for 2012
- Return on common shareholders' equity (ROE): target range of 9% to 11%
- Earnings per common share: target range of $2.50 to $3.10
- Solvency ratio: 175% to 200% target range
- Dividend payout ratio: 25% to 35% medium-term payout range
- Effective tax rate: target range of 22% to 24%
Guidance for ROE and earnings per common share excludes any potential reserve strengthening in 2012.
Non-IFRS Financial Information
The Company reports its financial results in accordance with International Financial Reporting Standards(IFRS). It also publishes certain non-IFRS financial measures that do not have an IFRS equivalent, including sales, value of new business, embedded value and solvency ratio, or which have an IFRS equivalent such as data on operating profit and income taxes on earnings presented in the sources of earnings table. The Company also uses non-IFRS adjusted data in relation to net income, earnings per share and return on equity. These non-IFRS financial measures are always accompanied by and reconciled with IFRS financial measures. The Company believes that these non-IFRS financial measures provide investors and analysts with additional information to better understand the Company's financial results as well as assess its growth and earnings potential. Since non-IFRS financial measures do not have a standardized definition, they may differ from the non-IFRS financial measures used by other institutions. The Company strongly encourages investors to review its financial statements and other publicly-filed reports in their entirety and not to rely on any single financial measure.
Management will hold a conference call to present the Company's results on Wednesday, November 7, 2012 at 2 p.m. (ET). To listen in on the conference call, dial 1 800 268-5851 (toll-free). A replay of the conference call will also be available for a one-week period, starting at 4:30 p.m. on Wednesday, November 7, 2012. To listen to the conference call replay, dial 1 800 997-6910 (toll-free) and enter access code 21603450. 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, 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.
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 2011 Management's Discussion and Analysis and in the "Management of Risks Associated with Financial Instruments" note to Industrial Alliance's consolidated financial statements, and elsewhere in Industrial Alliance's filings with Canadian securities regulators, which are available for review at www.sedar.com.
The forward-looking statements in this news release reflect the Company's expectations as of the date of this document. Industrial Alliance does not undertake to update or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events, except as required by law.
About Industrial Alliance
Founded in 1892, Industrial Alliance Insurance and Financial Services Inc. is a life and health insurance company with operations in all regions of Canada as well as in the United States. The Company offers a wide range of life and health insurance products, savings and retirement plans, RRSPs, mutual and segregated funds, securities, auto and home insurance, mortgage loans and other financial products and services for both individuals and groups. The fourth largest life and health insurance company in Canada, Industrial Alliance contributes to the financial wellbeing of over three million Canadians, employs 4,200 people and manages and administers more than $80 billion in assets. Industrial Alliance stock is listed on the Toronto Stock Exchange under the ticker symbol IAG.
SOURCE INDUSTRIAL ALLIANCE INSURANCE AND FINANCIAL SERVICES INC.