Net income increases by 11%, premiums and deposits up 17%
- Net income attributed to common shareholders of $73.3 million, up 11%
- Diluted EPS of $0.74, or $0.81 excluding the one-time debt buyback fee
- Return on shareholders' equity of 10.5% is in line with guidance
- Premiums and deposits of $1.9 billion, up by 17%
- Solvency ratio comfortably positioned at 224%
- Acquisition of Jovian enhances capital-light wealth platform
A full discussion of our second-quarter results is available at www.inalco.com under Investor Relations/Financial Reports. |
QUEBEC CITY, Aug. 1, 2013 /CNW Telbec/ - For the second quarter ended June 30, 2013, Industrial Alliance Insurance and Financial Services Inc. (TSX: IAG) reports net income attributed to common shareholders of $73.3 million and diluted earnings per share of $0.74. Comparable net income for the previous year was $66.0 million and earnings per share were $0.70. Beginning this quarter, the Company no longer adjusts for the potential dilutive impact of its innovative Tier 1 debt instruments (IATS).
"We are pleased to report second quarter earnings of $0.74 per share, which includes the impact of the debt buybacks that cost us 7 cents," commented Yvon Charest, President and Chief Executive Officer. "Business growth continued at a brisk pace during the quarter, with premiums and deposits up 17% and our capital-light businesses accounting for more than 80% of P&D inflows."
"We continue to execute our strategy to expand our capital-light products and services," added Mr. Charest. "On July 16th, we announced an agreement to acquire Jovian Capital Corporation, which brings us immediate scale in the private wealth management arena together with additional distribution across Canada. This is an exciting opportunity that adds another leg to our wealth management platform."
"All our lines of business reported year-over-year improvement in operating results," continued René Chabot, Senior Vice-President and Appointed Actuary. "I would like to highlight the continued decrease in strain on new business, one of our key objectives for the current year. Capital is strong and our solvency ratio of 224% at quarter-end gives us room to absorb market turbulence as well as to support the future growth of our businesses."
Highlights | ||||||||||||
Second quarter | Year-to-date as at June 30 | |||||||||||
(In millions of dollars, unless otherwise indicated) | 2013 | 20121 | Variation | 2013 | 20121 | Variation | ||||||
Net income attributed to shareholders | 81.9 | 72.5 | 13% | 170.3 | 140.7 | 21% | ||||||
Less: preferred share dividends | 8.6 | 6.5 | 32% | 17.3 | 12.5 | 38% | ||||||
Net income attributed to common shareholders | 73.3 | 66.0 | 11% | 153.0 | 128.2 | 19% | ||||||
Earnings per common share (diluted) | $0.74 | $0.70 | $0.04 | $1.59 | $1.35 | $0.24 | ||||||
Earnings per common share (diluted and adjusted2) | -- | $0.73 | -- | -- | $1.42 | -- | ||||||
Return on common shareholders' equity3 | 10.5% | 11.5% | (100 bps) | 12.6% | 4.1% | 850 bps | ||||||
June 30, 2013 |
March 31, 2013 |
December 31, 2012 |
June 30, 2012 |
|||||||||
Solvency ratio | 224% | 237% | 217% | 200% | ||||||||
Book value per share | $28.55 | $28.67 | $27.451 | $26.371 | ||||||||
Assets under management and administration4 | 86,847 | 87,630 | 83,4661 | 77,4171 | ||||||||
Net impaired investments as a % of total investments | 0.04% | 0.04% | 0.04% | 0.04% |
1 | Restated for comparability following the amendment to IAS-19 (Employee Benefits) effective January 1, 2013. |
2 | The innovative Tier 1 debt instruments (IATS) were redeemed on June 30th, 2013. As of the second quarter, earnings per share are no longer adjusted. |
3 | Annualized for the quarter.Trailing twelve months for the year to date. |
4 | In Q2-2013, a change in interfund eliminations led to an adjustment for prior periods. |
SECOND QUARTER HIGHLIGHTS
Profitability - Industrial Alliance reports net income attributed to common shareholders of $73.3 million, an increase of 11% from one year ago. Diluted earnings per share amounted to $0.74 versus $0.70 in 2012. Excluding the redemption fee for the Company's 8.25% subordinated debentures on April 1st and its IATS on June 30th, net income would be $80.1 million or $0.81 per share. The annualized return on shareholders' equity of 10.5% (11.5% in 2012) reflects the full-quarter impact of the equity issue completed in February 2013.
The key elements that explain profitability follow. All figures are after taxes unless otherwise indicated.
Individual Insurance had an experience loss of $0.13 per share ($13.0 million). While mortality was in line with expectations, policyholder experience was particularly challenging this quarter and reduced earnings by $0.12 per share. The impact on Universal Life policies of the drop in equity markets represented $0.01 per share.
Individual Wealth Management had an experience gain of $0.09 per share ($8.3 million). The dynamic hedging program for the segregated funds guarantee provided a benefit of $0.07 per share ($6.7 million). Higher fund sales contributed $0.02 per share ($1.5 million).
Group Insurance reported a net experience gain of $0.01 per share ($1.0 million). Dealer Services contributed $0.02 per share ($1.8 million), while Employee Plans had a loss of $0.01 per share ($1.1 million) for dental and health claims. Special Market Solutions results were in line with expectations.
Group Savings and Retirement contributed $0.01 per share ($1.4 million) related to investment income gains and favourable longevity.
Strain - In the Individual Insurance sector, the strain-to-new business ratio was 22%, which is below the expectation for the second quarter. A favourable sales mix resulted in strain improvement of $0.03 per share ($3.1 million) according to management estimates. Management maintains that strain should average 25% for full-year sales in 2013.
Income on capital - Total income on capital of $23.0 million pre-tax compares with $18.6 million in the previous quarter. The second quarter reflects higher gains on assets available for sale (+$1.1 million), a higher contribution from IA Auto and Home (+$6.6 million), other investment gain (+$4.1 million) and lower financing costs (+$1.9 million). These gains were partially offset by a one-time pre-payment fee of $9.3 million for debt redemption.
Income taxes - The effective tax rate in the second quarter was 23% which is in line with our guidance of 21-24%.
Business Growth - Premiums and deposits reached almost $1.9 billion in the second quarter, which is among the best quarters on record. Assets under management and administration ended the quarter at $86.8 billion, down slightly over the previous quarter because of the drop in the S&P/TSX but up 12% over the previous year.
In the Group sectors, Employee Plans reported sales growth of 65% to $13.2 million, primarily in its target market of 50-999 employees. In the Dealer Services segment, sales of creditor insurance grew by 8% to $106.2 million and sales of P&C products grew by 11% to $37.7 million. Special Market Solutions reported a 5% increase in sales to $36.8 million with all blocks of business contributing to the growth. Group Savings and Retirement reported an increase in sales of 81% to $340.2 million, with accumulation products accounting for most of this result.
In the Individual sectors, insurance sales amounted to $57.2 million, down by 8% over the previous year, attributed principally to the price increase implemented at the end of March. Wealth management reported gross fund sales of $783.5 million, up 17% from the previous year. Net sales of $146.9 million, which more than doubled over the previous year, are attributed to mutual funds that reported a third consecutive quarter of strong growth.
Capital - At June 30, 2013, the solvency ratio was 224% compared with 237% at March 31, 2013. The key elements explaining the variation include the redemption of debt during the quarter which reduced available capital; the increase in long-term interest rates which reduced capital requirements for balance sheet items; and the drop in equity markets which increased capital requirements for segregated fund guarantees.
Quality of Investments - At June 30, 2013, net impaired investments stood at 0.04% of total investments, unchanged from March 31, 2013. The proportion of bonds rated BB and lower was 0.17% (0.11% as at March 31, 2013) and the real estate occupancy rate was 93% (95% at March 31, 2013).
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. This dividend is payable on September 16, 2013 to shareholders of record as at August 23, 2013.
Registered shareholders wishing to enroll in the Company's Dividend Reinvestment and Share Purchase Plan so as to be eligible to reinvest the September 16th dividend must ensure that the duly completed form is delivered to Computershare no later than 4:00 p.m. on August 16th, 2013. Enrollment information is provided on the Company's website at www.inalco.com under Investor Relations/Dividends.
Macroeconomic Sensitivity - Following the update of its sensitivity analysis at June 30, 2013:
- The Company can absorb a sudden decrease of about 13% (16% at March 31, 2013) in the S&P/TSX index before having to strengthen reserves for policyholder liabilities.
- The Company can absorb a sudden decrease of 31% (40% at March 31, 2013) in the S&P/TSX index before the solvency ratio drops below 175% and a decrease of 42% (51% at March 31, 2013) before the solvency ratio drops below 150%.
- The full-year impact on net income attributed to common shareholders of a sudden 10% decrease in the stock markets is $23 million ($24 million at March 31, 2013). 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 $75 million ($80 million at March 31, 2013).
Redemption of Subordinated Debentures and IATS
Effective April 1, 2013, the Company completed the redemption of all the outstanding subordinated debentures with a nominal value of $100 million and bearing interest of 8.25%. The debentures were redeemed at $1,054.84 per $1,000.
Effective June 30, 2013, the Company completed the redemption of all the outstanding Industrial Alliance Trust Securities - Series A ("IATS") with a nominal value of $150 million in accordance with the terms of the Amended and Restated Declaration of Trust dated as of July 4, 2003. The redemption price was $1,021.75 per IATS.
Agreement to Acquire Jovian Capital Corporation
Subsequent to quarter end on July 16, 2013, the Company announced an agreement to acquire through a plan of arrangement all of the outstanding common shares of Jovian Capital Corporation at $10.23 per share for an aggregate consideration of $94 million. Jovian, which is publicly traded on the TSX, holds interests in a portfolio of financial services companies. The transaction is subject to customary closing conditions and is expected to be completed in early October 2013.
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 Thursday, August 1, 2013 at 4 p.m. (ET). To listen in on the conference call, dial 1 800 272-6255 (toll-free). A replay of the conference call will also be available for a one-week period, starting at 6:30 p.m. on Thursday, August 1, 2013. To listen to the conference call replay, dial 1 800 558-5253 (toll-free) and enter access code 21660916. 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.
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 2012 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. 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 security of over three million Canadians, employs 4,300 people and manages and administers $87 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.
Investor Relations
Grace Pollock
Office: 418 780-5945
Email: [email protected]
Website: www.inalco.com
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