While the profits of some insurers were undermined in the first quarter of 2008 by market volatility and the commercial paper crisis, Industrial Alliance already took that hit in Q3 2007.
“We took a 15% provision starting in Q3 2007 to factor in the devaluation, which we think is sufficient in light of the documents received from the Crawford committee,” Jacques Carrière, vice-president, investor relations at Industrial Alliance explains. Chaired by Purdy Crawford, the committee recently had its proposal to reconvert non-bank ABCP into more liquid instruments approved by the court.
In the first quarter of 2008, Industrial Alliance racked up net earnings of $62 million, equal to growth of 6.6% compared with the first quarter of 2007.
The insurer’s premiums and deposits fell by 16% during the same period, to reach $1,418 million. “Premiums and deposits were hobbled by stock market weakness. Many investors are waiting out the storm before they reinvest in segregated funds and mutual funds,” Mr. Carrière notes.
Although return on shareholder’s equity slipped from 15.2% to 14.4% between the two quarters, Mr. Carrière is unruffled. He points out that the company’s target bracket for returns is between 13% and 15%.
The insurer’s net return on common shares rose by 9% in 2007 compared with 2006. At $242.2 million, these earnings are at record levels. They would have been even higher if not for the 15% writedown of IA’s $104.1 million in assets under management in ABCP.
“This devaluation, of which one third has been absorbed by the provisions for future policy benefits, led to a $7.3 million decrease in net income to common shareholders in 2007, or $0.09 per common share,” says Yvon Charest, president and CEO of IA, in the annual report.
In addition, IA reported that premiums and deposits grew by 15% in 2007 compared with 2006, to reach $5.8 billion. This marks the sixth consecutive year that the insurer’s premiums and deposits advanced by more than 10%.
The company also attained its 2007 objective of having all its business sectors produce more income outside Quebec than within the province. In 2007, 56.9% of premiums and deposits come from outside Quebec, the annual report confirms.
Individual insurance had already being generating more income outside than inside Quebec, Mr. Carrière points out. “We have well established networks outside Quebec in this sector. In fact, sales in the insurance and group pension sectors, as well as individual estate management are higher outside Quebec for the first time. This success is driven by the opening of new offices in group and the recent acquisition of Clarington.”
He adds that business grew vigorously, as individual wealth management surged by 26% in 2007 compared with 2006.
Industrial Alliance reported a return on shareholder’s equity of 15.2% in 2007 compared to 15.7% in 2006.