Industrial Alliance Reports Second Quarter Earnings
Profitability and solvency ratio at top of guidance
Business growth continues to roll forward
QUEBEC CITY, Aug. 2, 2012 /CNW Telbec/ - Industrial Alliance Insurance and Financial Services Inc. (TSX: IAG) announces its results for the second quarter ended June 30, 2012. All financial results are based on International Financial Reporting Standards ("IFRS") unless otherwise noted. A full discussion of the second quarter results is available at www.inalco.com under Investor Relations / Financial Reports.
|Q-2 Overview||2012 Guidance|
|Diluted and adjusted EPS of $0.75||$2.50 to $3.10 full year ($0.625 to $0.775/quarter)|
|Annualized ROE of 11.6%||9% to 11%|
|Solvency ratio of 200%||175% to 200%|
|Dividend payout ratio of 33%||25% to 35%|
|Effective tax rate of 9.8%||22% to 24%|
"Our all-round performance this quarter was solid in terms of sales and profitability," commented Yvon Charest, President and Chief Executive Officer. "Business growth continued to be robust, with standout performances by retail insurance in both Canada and the U.S., creditor and special market solutions, as well as our wealth management operations on the group side."
"Profit is the best source of capital and that is our key focus in today's challenging macroeconomic environment," said Mr. Charest. "We are pleased to report that the recent unfavourable claims experience for Employee Plans has begun to reverse and we expect additional improvement in the last half of the year. In Individual Insurance, the price increase at the end of 2011 has taken hold and we saw a significant decline in strain as a percentage of new sales this quarter. Subsequent to quarter-end, we introduced another price increase on July 3rd that will further reduce strain this year."
"As presented at our recent Investor Day, our goal is to remain minutely
focused on preserving the right balance between growth and
profitability, while assuring a strong capital base upon which to
pursue the development of our business," concluded Mr. Charest.
|Second quarter||Year-to-date as at June 30|
|(In millions of dollars, unless otherwise indicated)||2012||2011||Variation||2012||2011||Variation|
|Net income attributed to shareholders||74.7||78.6||(5%)||145.1||150.7||(4%)|
|Less: preferred share dividends||6.5||5.9||10%||12.5||11.9||5%|
|Net income available to common shareholders||68.2||72.7||(6%)||132.6||138.8||(4%)|
|Earnings per common share (diluted and adjusted1)||$0.75||$0.85||($0.10)||$1.46||$1.63||($0.17)|
|Earnings per common share (diluted)||$0.72||$0.83||($0.11)||$1.39||$1.59||($0.20)|
|Return on common shareholders' equity2||11.6%||13.5%||190 bps||4.3%||13.0%||(870 bps)|
|Premiums and deposits||1,606.0||1,698.4||(5%)||3,470.9||3,680.9||(6%)|
|Effective tax rate (%)||9.8%||22.8%||--||11.7%||22.9%||--|
|Book value per share||$26.28||$25.85||$25.54||$25.84|
|Assets under management and administration||77,212.1||76,252.1||72,350.7||71,537.1|
|Net impaired investments||8.8||9.3||13.1||15.0|
|Net impaired investments as a % of total investments||0.04%||0.04%||0.06%||0.08%|
|1||Excluding the dilutive impact of the innovative Tier 1 debt instruments (IATS).|
|2||Annualized for the quarter. Trailing twelve months for the year to date.|
Second Quarter Highlights
Profitability - Industrial Alliance ended the second quarter of 2012 with diluted earnings per share of $0.75 ignoring the dilutive impact of the Company's innovative Tier 1 debt instruments. Net income to common shareholders amounted to $68.2 million and diluted earnings per share were $0.72. The return on common shareholders' equity was 11.6% on an annualized basis.
The key elements that had an impact on second quarter earnings follow. All figures are after taxes unless otherwise indicated.
Market-related experience - The decline in stock markets resulted in a loss of $5.3 million or $0.06 per share. Of this amount, $0.04 per share is attributed to the Individual Insurance sector and the remaining $0.02 per share to Individual Wealth Management. The dynamic hedging program did not have a significant impact on the results for the quarter.
Policyholder experience - Excluding the market impact, experience was generally favourable in the second quarter. Individual Insurance reported a net experience gain on contingencies, and Individual Wealth Management benefited from favourable longevity and lower expenses. Employee Plans reported a significant reversal of policyholder experience with a loss of $0.02 per share compared with a loss of $0.12 per share in the first quarter. Employee Plans experience should continue to improve in the second half of 2012.
Strain - In the Individual Insurance sector, significantly higher sales during the quarter generated more strain, reducing earnings by at least $2.8 million or $0.03 per share according to management estimates. As a percentage of sales, strain was 44% compared with 56% in the first quarter of 2012. This improvement reflects the higher pricing introduced in December 2011 that was almost fully reflected in second quarter sales. We expect a further decline in the second half of the year as a result of the additional pricing increase implemented at the beginning of July.
Income taxes - The Company reported a tax gain of $0.11 per share. Of this amount, $0.05 per share is related to the merger of the Industrial Alliance Pacific operations with the parent company; $0.04 per share is related to the recent repeal of the income tax decrease in Ontario (the discounted tax benefit of income from Canadian dividend stocks that had been reflected in the actuarial reserves was greater than the increase in the deferred tax liability); and $0.02 per share related primarily to a higher proportion of income from dividend stocks during the quarter. The effective tax rate in the second quarter was 9.8%.
Income on capital - Assets available for sale generated pre-tax income of $10.1 million compared with $9.7 million last quarter and $13.3 million in the same quarter last year. IA Auto and Home had a strong quarter contributing a pre-tax gain of $3.8 million compared with $1.8 million last quarter and $2.2 million last year. Total income on capital of $26.4 million pre-tax is in line with the recent trend.
Business Growth - Premiums and deposits reached $1.6 billion in the second quarter. Assets under management and administration ended the quarter at $77.2 billion, up 8% year over year.
The key drivers of business growth in the second quarter were the following:
Individual Insurance sales increased by 41% to $62.2 million, with both the Canadian and the U.S. operations contributing to the growth.
In Group Insurance, Creditor insurance sales increased by 36% to $91.9 million, reflecting organic growth in all geographic regions. Sales of complementary warranties continue to build momentum, increasing 70% to $33.9 million in the quarter. Special Market Solutions reported a 19% increase in sales to $35.2 million. Employee Plans had a soft quarter relative to the previous year when two large employee groups were signed.
Group Savings and Retirement reported an increase in sales of 7% to $188.3 million.
Individual Wealth Management sales were challenged by volatile market conditions but continue to be positive. Net mutual fund sales were $32.4 million and IA continued to rank 11th in Canada for the quarter. Net sales of segregated funds amounted to $34.9 million in the second quarter. Approximately 30% of the change in gross segregated fund inflows related to our Guaranteed Minimum Withdrawal Benefit product.
Solvency - At June 30, 2012, the solvency ratio was 200% compared with 186% at March 31, 2012. The increase is attributed to an issuance of preferred shares in two tranches for proceeds of $250 million (+15%); the impact of the macroeconomic environment (-6%); improved correlation between the TSX and the derivatives market (+3%); the reduction of stocks in the surplus (+3%); and the transition to IFRS standards to be completed by December 31st, 2012 (-1%).
Quality of Investments -The overall quality of our investment portfolio continues to be very high. At June 30, 2012,
impaired loans stood at 0.04% of total investments (0.04% at March 31,
the proportion of bonds rated BB and lower decreased to 0.09% (0.10% as
at March 31, 2012);
- the real estate occupancy rate increased to 95.2% (94.8% at March 31, 2012).
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.
Sensitivity Analysis - Market sensitivities as at June 30, 2012 have been updated as follows:
The Company can absorb a decrease of about 9% (14% at March 31, 2012) in
the S&P/TSX index before having to strengthen policy liabilities. This
means that the index would have to decrease to 10,600 points from its
level at June 30, 2012.
The solvency ratio will remain above 175% as long as the S&P/TSX index
stays above 9,200 points (10,500 points at March 31, 2012) and above
150% as long as the S&P/TSX remains above 7,500 points (8,700 points at
March 31, 2012). This improvement is explained by the capital issue of
$250 million in preferred shares during the second quarter.
The full-year impact on net income of a sudden 10% decrease in the stock
markets is $24 million ($25 million at March 31, 2012). This does not
take into consideration any potential reserve strengthening.
- The impact on net income of a 10 basis point decrease in the initial re-investment rate (IRR) is $29 million ($28 million at March 31, 2012) and the comparable impact for the ultimate re-investment rate (URR) is $62 million ($61 million at March 31, 2012).
Issuance of Preferred Shares
During the second quarter, the Company completed an offering of 10,000,000 Non-Cumulative 5-Year Reset Class A Preferred Shares, Series G at a price of $25.00 per share, for gross proceeds of $250 million. The offering consisted of two issuances, the first for 6,000,000 preferred shares on June 1st and the second for 4,000,000 preferred shares on June 19th. The proceeds, which added 15 percentage points to the solvency ratio, were added to the Company's capital to be used for general corporate and capital planning purposes.
The Company held its Investor Day on June 12, 2012. Management presentations, webcast and podcast are available on the Company's website at www.inalco.com.
Internal Control over Financial Reporting
During the interim period ended June 30, 2012, the Company implemented a new accounting system that enables it to improve its internal control over financial reporting.
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 Thursday, August 2, 2012 at 2 p.m. (ET). To listen in on the conference call, dial 1 800 269-4378 (toll-free). A replay of the conference call will also be available for a one-week period, starting at 4:30 p.m. on Thursday, August 2, 2012. To listen to the conference call replay, dial 1 800 633-8284 (toll-free) and enter access code 21597954. 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 second 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 $75 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.