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Industrial Alliance Reports Strong Q2
EPS of $1.13, annualized ROE of 14.2%
- Net income of $113.6 M
- Annualized ROE of 14.2%
- BVPS of $32.47
- Solvency ratio of 215%
- Dividend of 26¢ per share
|A full discussion of our results is available at www.inalco.com under Investor Relations/Financial Reports.|
QUEBEC CITY, July 31, 2014 /CNW Telbec/ - For the second quarter ended June 30, 2014, Industrial Alliance Insurance and Financial Services Inc. (TSX: IAG) reports net income attributed to common shareholders of $113.6 million and diluted earnings per common share of $1.13. The annualized return on shareholders' equity was 14.2%, and the solvency ratio at quarter-end was 215%. All these results exceed guidance provided by management for the quarter.
Yvon Charest, President and Chief Executive Officer commented, "The first half of 2014 closed on a strong note. Second-quarter earnings reflect both market- and business-related gains. Top-line growth was mixed but overall continues to show good momentum, notably for Dealer Services, segregated funds, the US, IA Auto and Home and Excellence, our adjustable disability business. In addition, the Jovian acquisition is on track, including the integration of their IIROC business into IA Securities on April 1st."
"Our second quarter profit was strong and had the benefit of a 15 cent tax gain," continued René Chabot, Executive Vice-President and Appointed Actuary. "The two main drivers were our retail insurance and wealth management businesses. In Individual Insurance, strain on new business and mortality both made a favourable contribution. In addition, the rise in equity markets benefited our retail insurance as well as our wealth management results. Equity markets are an important driver of our fee-earnings assets, up 3% for the quarter and 21% over the last year."
|Second quarter||Year-to-date as at June 30|
|(In millions of dollars, unless otherwise indicated)||2014||2013||Variation||2014||2013||Variation|
|Net income attributed to shareholders||120.7||81.9||47%||210.7||170.3||24%|
|Less: preferred share dividends||7.1||8.6||(17%)||14.2||17.3||(18%)|
|Net income attributed to common shareholders||113.6||73.3||55%||196.5||153.0||28%|
|Earnings per common share (diluted)||$1.13||$0.74||$0.39||$1.96||$1.59||$0.37|
|Return on common shareholders' equity 1||14.2%||10.5%||370 bps||13.0%||12.6%||40 bps|
| June 30, |
| March 31, |
| December 31, |
| June 30, |
|Book value per share||$32.47||$31.49||$30.67||$28.55|
|Assets under management and administration||105,269||102,697||98,693||86,847|
|Net impaired investments as a % of total investments||0.07%||0.06%||0.06%||0.04%|
1 Annualized for the quarter. Trailing twelve months for the year to date.
SECOND QUARTER HIGHLIGHTS
Profitability - For the second quarter ended June 30, 2014, Industrial Alliance reports net income attributed to common shareholders of $113.6 million. Diluted earnings per share of $1.13 compare with $0.74 a year earlier, an increase of $0.39 per share. The annualized shareholders' return on equity of 14.2% compares with 10.5% a year earlier. Earnings in the second quarter of 2014 principally reflect growth in equity markets, a benefit from our hedging program, favourable mortality experience and tax gains, offset by a loss in group insurance benefits.
The key elements that explain profitability follow. All figures are after taxes unless otherwise indicated.
Expected profit on in-force increased by 17% to $115.7 million pre-tax over the last year, mainly attributed to growth in assets under management in the wealth management businesses. Beginning in 2014, expected profit on in-force for the wealth management businesses is updated on a quarterly basis to reflect market growth and net fund sales.
Individual Insurance reported a net experience gain of $0.04 per share ($4.0 million). Equity markets contributed $0.02 per share, while mortality gains offset by adverse lapse and morbidity contributed the remaining $0.02 per share.
Individual Wealth Management had an experience gain of $0.08 per share ($8.0 million). The dynamic hedging program for the segregated fund guarantee provided $0.06 per share. Equity markets contributed $0.01 per share, as did favourable longevity.
Group Insurance reported an experience loss of $0.07 per share ($7.0 million). Employee Plans experienced higher than expected disability, dental and health claims resulting in a loss of $0.06 per share. The remaining $0.01 per share is attributed to adverse disability in Special Market Solutions.
Strain - In the Individual Insurance sector, the strain-to-new business ratio of 23% compared with guidance of 25% for the quarter. Management estimates that the lower strain ratio, attributed to a favourable sales mix, represented a gain of $0.02 per share.
Income on capital - Total income on capital of $19.9 million pre-tax compares with $16.1 million in the previous quarter. The variation is due primarily to the results of IA Auto and Home.
Income taxes - The effective tax rate is 7% compared with the Company's guidance of 18% to 22%. The second quarter gain of $0.15 per share, relative to the low end of our guidance, is related to adjustments following the completion of tax reviews.
Business Growth - Fee-earning assets, an important driver of long-term earnings growth, benefited from strong equity markets in the quarter. Assets under management and administration rose 3%, ending the period at $105.3 billion. Premiums and deposits of $1.7 billion compared with $1.9 billion last year, when a single transfer related to a large mandate was recorded.
Sales growth in the quarter was mixed. In the retail sectors, insurance sales of $55.5 million reflect a decline in excess premiums. Net sales of segregated funds ($35.7 million) were positive for the second quarter in a row, but offset by negative net mutual fund sales (-$98.0 million). In the group sectors, Dealer Services reported strong sales of P&C products of $46.5 million (+23%), while creditor insurance sales of $105.6 million were comparable to the previous year. Employee Plans sales of $8.1 million were in line with the last three quarters. Special Markets Solutions had sales of $37.6 million, slightly above the previous year. In Group Savings and Retirement, where results can fluctuate significantly because of the size of mandates awarded, sales were $206.5 million versus $340.2 million a year earlier when funds related to a large mandate were transferred.
Capital - At June 30, 2014, the solvency ratio stood at 215% compared with 212% at March 31, 2014. The increase is primarily attributed to the debt issuance during the quarter as well as the strong earnings contribution, offset by the decrease in long-term interest rates.
Dividend - The Board of Directors today approved a dividend of 26 cents per share on the Company's outstanding common shares representing a payout ratio of 23%. This dividend is payable on September 15, 2014 to shareholders of record at August 22, 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 September 15th must ensure that the duly completed form is delivered to Computershare no later than 4:00 p.m. on August 15, 2014. Enrollment information is provided on the Company's website at www.inalco.com under Investor Relations/Dividends.
Macroeconomic Sensitivity at June 30, 2014
- The Company can absorb a sudden decrease of about 30% in the S&P/TSX index before having to strengthen reserves for policyholder liabilities (27% at March 31, 2014).
- The Company can absorb a sudden decrease of 43% in the S&P/TSX index before the solvency ratio drops below 175% (40% at March 31, 2014) and a decrease of 55% before the solvency ratio drops below 150% (52% at March 31, 2014).
- The full-year impact on net income attributed to common shareholders of a sudden 10% decrease in the stock markets is $26 million ($25 million at March 31, 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 $84 million ($80 million at March 31, 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.
Issuance of Subordinated Debentures
On May 16, 2014, Industrial Alliance completed an offering of $250 million of subordinated debentures bearing interest of 2.80% due May 16, 2024. The net proceeds were used for general corporate purposes including the redemption of Industrial Alliance's $150 million 5.13% subordinated debentures due June 30, 2019. The debentures were redeemed effective June 30, 2014 at $1,025.65 per $1000.
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 takes 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.
Investor Day 2014
Industrial Alliance held its biennial Investor Day on June 11, 2014. A written transcript, webcast and audio recording of management's presentations are available at www.inalco.com under Investor Relations/Events and Presentations.
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, July 31, 2014 at 2:00 p.m. (ET). To listen in on the conference call, dial 1-800-667-8757 (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, July 31, 2014. To listen to the conference call replay, dial 1 800 558-5253 (toll-free) and enter access code 21720488. 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 for the quarter ended June 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.
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.
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