The Stock Market Upswing Carries Assets to a New High
QUEBEC CITY, July 28 /CNW Telbec/ - Industrial Alliance Insurance and
Financial Services Inc. ("Industrial Alliance" or "the Company") ended the
second quarter of 2009 with net income to common shareholders from regular
operations of $51.4 million, compared to $62.3 million for the same period in
2008. This result translates into diluted earnings per common share of $0.64
($0.77 in the second quarter of 2008) and a 12.1% return on equity to common
shareholders on an annualized basis (14.2% in the second quarter of 2008).
This return is within the 12% to 14% target range given as guidance to the
markets at the beginning of the year.
The income from regular operations excludes a $19.3 million reduction in
value after taxes ($0.24 per common share) resulting from the asymmetric
evolution of the difference between the market value of the debt instruments
and that of the underlying assets (added value of $1.1 million in the second
quarter of 2008). This reduction in value results from the narrowing of
interest rate spreads during the quarter. Any difference between the market
value of the debt instruments and the corresponding assets will be reversed as
the debt instruments approach maturity. Hence, this reduction in value does
not affect the Company's earning power.
Including the reduction in value, net income to common shareholders
amounted to $32.1 million for the second quarter of 2009, compared to $63.4
million for the same period in 2008. This result translates into diluted
earnings per common share of $0.40 ($0.78 in the second quarter of 2008) and a
return on equity to common shareholders of 7.6% on an annualized basis (14.4%
in the second quarter of 2008).
Profitability for the quarter was stimulated by the stock market upswing
during the period, which improved the profit by $5.6 million after taxes
($0.07 per common share) compared to the expected result. However, this gain
was offset by the posting of a $1.5 million provision after taxes ($0.02 per
common share) for two investments weakened by the current economic environment
and by an increase in group insurance claims, which resulted in a $3.9 million
experience loss after taxes ($0.05 per common share).
"We are very satisfied with the results for the quarter," declared Yvon
Charest, President and Chief Executive Officer. "In general, the results
continue to show a great deal of resilience to the current economic and
financial environment. The return rose to within our new target range early in
the year. The solvency ratio is still above our target range. The dividend is
maintained at the same level as the last quarter. Assets reached a historical
high. Even though sales are not as steady as last year, they are comparable to
and even better than industry results. The quality of investments remains
good. The book value per common share is increasing. And the leeway that we've
developed in the last year to absorb significant potential market downturns
remains intact. Despite the improvement of market conditions and encouraging
signs of an economic recovery, we are not taking anything for granted. We are
continuing to focus on financial strength and positioning ourselves to take
advantage of growth opportunities when the markets become more stable."
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Highlights
-------------------------------------------------------------------------
Second quarter Year-to-date as at June 30
(In millions
of dollars,
unless
otherwise Varia- Varia-
indicated) 2009 2008 tion 2009 2008 tion
-------------------------------------------------------------------------
Net income
to common
shareholders
on regular
operations 51.4 62.3 (17%) 90.1 125.6 (28%)
Net effect
of the
variation
in the fair
value of
debt instru-
ments and
underlying
assets
(after taxes) (19.3) 1.1 - (11.8) (0.5) -
-------------------------------------------------------------------------
Net income
to common
shareholders 32.1 63.4 (49%) 78.3 125.1 (37%)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per
common share
on regular
operations
(diluted) $0.64 $0.77 ($0.13) $1.12 $1.55 ($0.43)
Earnings per
common share
(diluted) $0.40 $0.78 ($0.38) $0.97 $1.54 ($0.57)
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Return on
common
shareholders
equity on
regular
operations 12.1% 14.2% (210 pts) - - -
Return on
common
shareholders
equity 7.6% 14.4% (680 pts) - - -
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Premiums and
deposits 1,197.3 1,528.6 (22%) 2,435.8 2,947.0 (17%)
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June 30, March 31, Dec. 31, June 30,
2009 2009 2008 2008
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Assets under
management
and under
administration 54,126.2 49,731.5 49,472.2 51,401.8
Solvency ratio 202% 204% 199% 185%
Net impaired
investments 14.2 8.4 8.8 16.0
Net impaired
investments
as a % of
total
investments 0.09% 0.06% 0.06% 0.11%
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Highlights
Following are a few highlights of the second quarter.
Dividend - The Company's financial strength has enabled the Board of
Directors to announce the payment of a quarterly dividend of $0.2450 per
common share. This dividend is the same as the one announced in the last
quarter. The Company reiterates that its business plan provides for the
quarterly dividend to common shareholders to be maintained at the current
level for 2009.
Business growth - Despite the market upswing in the second quarter and
several encouraging signs here and there, growth has not yet returned to
normal, as consumers are waiting for stronger signs of a recovery before
beginning to buy financial products again. Sales of products related to the
stock markets are the most seriously affected, despite the recent recovery of
the markets. Creditor insurance through car dealers also continues to feel the
impact of the decrease in automobile sales. Several positive points have
nevertheless been observed. For example, sales of traditional insurance in the
family market continue to do well in the Individual Insurance sector and sales
have recovered in the Group Insurance Employee Plans sector, thanks to the
signing of a number of small groups.
Premiums and deposits totalled $1.2 billion in the second quarter, which
is 22% lower than the same period last year.
Measured in terms of assets, the strong upswing in the stock markets and
positive net fund entries in all lines of business increased assets under
management and under administration to a new high of $54.1 billion as at June
30, 2009, an increase of 9% for the quarter and for the year-to-date. All
asset components increased, particularly segregated funds and mutual funds.
Solvency - The Company ended the second quarter with a solvency ratio of
202% as at June 30, 2009, which is slightly below the ratio of 204% recorded
as at March 31, 2009, but still higher than the Company's 175% to 200% target
range. This decrease is primarily explained by the stock market upswing, which
increased the capital requirements following the increase in the market value
of stock market securities. On the other hand, the solvency ratio benefited
from the elimination of the capital requirement for the segregated funds
guarantee. The Company is only required to consider the capital requirement
for the segregated funds guarantee when the S&P/TSX falls below about 9,000
points. The Toronto Stock Exchange closed the first quarter at 8,720 points
and the second at 10,375 points.
Book value per common share - The book value per common share increased
for a second consecutive quarter, amounting to $21.41 as at June 30, 2009, an
increase of 3% compared to March 31, 2009 and 5% since the end of 2008. The
Company's good profitability during the quarter and the decrease in latent
losses accumulated in the other comprehensive income, attributable to the
narrowing of interest rate spreads and the stock market upswing, are among the
factors that contributed to this increase.
Quality of investments - The quality of investments remained good in the
second quarter, even though the economic environment continued to be
difficult. Following are a few highlights of the quarter.
- The Company posted a $1.5 million provision before taxes on a bond that
was weakened by the current economic environment (the provision
represents 20% of the value of the bond) and a $0.6 million provision
before taxes for a mortgage loan. After taxes, these two provisions
reduced the Company's profit by $1.5 million or $0.02 per common share.
- Net impaired investments increased during the quarter, from
$8.4 million as at March 31, 2009 to $14.2 million as at June 30, 2009.
The increase essentially represents the $6.0 million residual book
value of the bond for which a provision was taken, as mentioned above.
Nevertheless, the proportion of net impaired loans represents just
0.09% of total investments as at June 30, 2009 (0.06% as at
March 31, 2009).
- The proportion of bonds rated BB and lower decreased from 0.26% as at
March 31, 2009 to 0.15% as at June 30, 2009. This decrease is
attributable to the fact that $13 million in non-bank sponsored asset-
backed commercial paper (ABCP) rated BB or lower was reimbursed to the
Company in the second quarter. This downward effect was, however,
partially neutralized by the fact that certain financial sector bonds
were downgraded during the quarter.
- The Company received a $19.7 million reimbursement of ABCP capital in
the second quarter. This reimbursement reduced the nominal value of the
ABCP held by the Company to $83.4 million. Despite the improved market
conditions, the Company believes that the overall devaluation of
$29.6 million taken for the ABCP due to credit risk is still justified.
This devaluation is equal to 35.5% of the nominal value of the ABCP
held as at June 30, 2009.
Sensitivity analysis - All sensitivity analyses that the Company has
provided to the financial markets in the last few months remain valid.
The Company's results are explained in more detail in the Management's
Discussion and Analysis that follows this news release.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE SECOND QUARTER OF 2009
and for the six-month period ended June 30, 2009
July 28, 2009
ECONOMIC AND FINANCIAL ENVIRONMENT IN THE SECOND QUARTER OF 2009
The results of Industrial Alliance Insurance and Financial Services Inc.
("Industrial Alliance" or "the Company") greatly depend on the prevailing
economic and financial environment. In the second quarter, the results were
mainly influenced by the following four factors:
- The upswing in the stock markets, which appreciated 19% during the
quarter, with the S&P/TSX closing at 10,375 points on June 30, 2009.
- Credit conditions which, despite a general improvement in market
conditions, remain difficult for certain sectors.
- The economic slowdown which, also despite the encouraging signs of a
recovery, continues to slow consumer momentum and force businesses to
maximize the efficiency of their operations.
- A reduction in interest rate spreads which, after having widened
considerably since the beginning of the financial crisis, began to
narrow in the last few months.
All of these factors influenced the results for the quarter, whether it
be the Company's profit, business growth, solvency or quality of investments.
In general, the Company's results continue to show a great deal of resilience
to the current economic and financial environment. The return rose to within
the Company's new target range early in the year. The solvency ratio is still
above the Company's target range. The dividend is maintained at the same level
as the last quarter. Assets reached a historical high. Sales, though not as
steady as last year, are comparable to and even better than industry results.
The quality of investments remains good. The book value per common share is
increasing. And the leeway the Company has developed in the last year to
absorb significant potential market downturns remains intact.
PROFITABLITY
Industrial Alliance ended the second quarter of 2009 with net income to
common shareholders from regular operations of $51.4 million, compared to
$62.3 million for the same period in 2008. This result translates into diluted
earnings per common share of $0.64 ($0.77 in the second quarter of 2008) and a
12.1% return on equity to common shareholders on an annualized basis (14.2% in
the second quarter of 2008). This return is within the 12% to 14% target range
given as guidance to the markets at the beginning of the year.
The income from regular operations excludes a $19.3 million reduction in
value after taxes ($0.24 per common share) resulting from the asymmetric
evolution of the difference between the market value of the debt instruments
and that of the underlying assets (added value of $1.1 million in the second
quarter of 2008). This reduction in value results from the narrowing of
interest rate spreads during the quarter. Debt instruments were classified as
"held-for-trading" when the new accounting standards on financial instruments
took effect on January 1, 2007. Hence, any difference between the market value
of the debt instruments and the corresponding assets must be recognized
immediately in the income statement. The gaps thus created will be reversed as
the debt instruments approach maturity, which is in the next five years. As at
June 30, 2009, the Company had accumulated gaps worth $7.0 million after
taxes. These are temporary gaps that don't affect the Company's earning power.
Including the reduction in value, net income to common shareholders
amounted to $32.1 million for the second quarter of 2009, compared to $63.4
million for the same period in 2008. This result translates into diluted
earnings per common share of $0.40 ($0.78 in the second quarter of 2008) and a
return on equity to common shareholders of 7.6% on an annualized basis (14.4%
in the second quarter of 2008).
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Profitability
-------------------------------------------------------------------------
Second quarter Year-to-date as at June 30
(In millions
of dollars,
unless
otherwise Varia- Varia-
indicated) 2009 2008 tion 2009 2008 tion
-------------------------------------------------------------------------
Net income
to common
shareholders
on regular
operations 51.4 62.3 (17%) 90.1 125.6 (28%)
Net effect
of the
variation
in the fair
value of
debt instru-
ments and
underlying
assets
(after taxes) (19.3) 1.1 - (11.8) (0.5) -
-------------------------------------------------------------------------
Net income
to common
shareholders 32.1 63.4 (49%) 78.3 125.1 (37%)
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-------------------------------------------------------------------------
Earnings per
common share
on regular
operations
(diluted) $0.64 $0.77 ($0.13) $1.12 $1.55 ($0.43)
Earnings per
common share
(diluted) $0.40 $0.78 ($0.38) $0.97 $1.54 ($0.57)
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Second quarter annualized Trailing twelve months
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Return on
common
shareholders
equity on
regular
operations 12.1% 14.2% - 1.3% 14.6% -
Return on
common
shareholders
equity 7.6% 14.4% - 1.1% 14.6% -
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The results for the quarter were affected by the same three items that
had an impact on previous quarters, namely the evolution of the stock markets,
which this quarter were favourable, credit conditions and the economic
slowdown. The gains that the Company drew from the market upswing in the
second quarter were cancelled out by the losses generated by credit conditions
and the economic slowdown. Here are some details about the impact of these
three items:
- The market upswing improved the Company's profit by some $5.6 million
after taxes ($0.07 per common share) compared to the expected result.
In particular, the increase in the markets had the following effects:
- Increased the income from fees collected on funds managed by the
Company by $1.9 million after taxes. This gain primarily affected the
Individual Wealth Management sector.
- Increased the discounted future revenues on Universal Life policy
funds by $2.9 million after taxes. This gain only affected the
Individual Insurance sector.
- Increased the income on capital by $0.8 million after taxes. This
gain comes primarily from the appreciation in the market value of
seed money and the increase in profit generated by the Company's 45%
share in a life insurance company.
- Credit conditions prompted the Company to post $1.5 million in
provisions after taxes ($0.02 per common share) for a bond weakened by
the current economic environment and for a mortgage loan.
- The economic slowdown contributed to an increase in group insurance
claims. This increase led to an experience loss of $3.9 million after
taxes ($0.05 per common share).
-------------------------------------------------------------------------
Impact of the Economic and Financial Environment on the Net Income to
Common Shareholders for the Second Quarter, by Component
-------------------------------------------------------------------------
(In millions of dollars, Per common
unless otherwise indicated) Before taxes After taxes share
-------------------------------------------------------------------------
Increase in the stock markets
Higher than expected management
fees on investment funds 2.6 1.9 $0.02
Discounted future revenues on
Universal Life policy funds 4.1 2.9 $0.04
Income on capital 0.9 0.8 $0.01
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Subtotal 7.6 5.6 $0.07
Credit conditions (2.1) (1.5) ($0.02)
Economic slowdown (5.3) (3.9) ($0.05)
-------------------------------------------------------------------------
Total 0.2 0.2 $0.00
-------------------------------------------------------------------------
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The items indicated above affected both the Company's operating profit and
income on capital. The following table shows the impact of these various items
by line of business.
-------------------------------------------------------------------------
Impact of the Economic and Financial Environment on the Net Income to
Common Shareholders for the Second Quarter, by Line of Business
-------------------------------------------------------------------------
(In millions of
dollars, unless Credit
otherwise Stock con- Economic
indicated) markets ditions slowdown Total Total
-------------------------------------------------------------------------
Operating profit (Before taxes) (After
(loss) taxes)
Individual
Insurance 4.3 (0.6) - 3.7 2.6
Individual Wealth
Management 2.1 (1.5) - 0.6 0.4
Group Insurance - - (5.3) (5.3) (3.8)
Group Pensions 0.3 - - 0.3 0.2
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Subtotal 6.7 (2.1) (5.3) (0.7) (0.6)
Income on capital 0.9 - - 0.9 0.8
-------------------------------------------------------------------------
Total -
Before taxes 7.6 (2.1) (5.3) 0.2 0.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total -
After taxes 5.6 (1.5) (3.9) 0.2 0.2
-------------------------------------------------------------------------
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Per common share
(diluted) $0.07 ($0.02) ($0.05) $0.00 $0.00
-------------------------------------------------------------------------
-------------------------------------------------------------------------
------------------------------------------
(In millions of After dis- Per
dollars, unless tribution common
otherwise of income share
indicated) on capital (diluted)
------------------------------------------
Operating profit (After taxes)
(loss)
Individual
Insurance 3.2 $0.04
Individual Wealth
Management 0.4 $0.01
Group Insurance (3.7) ($0.05)
Group Pensions 0.3 $0.00
------------------------------------------
Subtotal 0.2 $0.00
Income on capital - -
------------------------------------------
Total -
Before taxes - -
------------------------------------------
------------------------------------------
Total -
After taxes 0.2 $0.00
------------------------------------------
------------------------------------------
Per common share
(diluted) $0.00 $0.00
------------------------------------------
------------------------------------------
SOURCES OF EARNINGS
Following is an analysis of the Company's profitability for the second
quarter of 2009 according to the sources of earnings.
Expected profit on in-force - The expected profit on in-force amounted to
$79.6 million for the second quarter of 2009, a 19% decrease compared to the
second quarter of 2008. The decrease mainly affected the savings and
investment product sectors, such as Individual Wealth Management and Group
Pensions. It is primarily explained by the stock market downturn in the last
year (even though the S&P/TSX index grew 19% in the second quarter of 2009, it
has dropped 28% in the last year). The market downturn reduced the management
fee income from segregated funds, mutual funds, Universal Life policy funds
and group pension plan accumulation funds. The decrease in the expected profit
on in-force is in line with the guidance that the Company gave to the
financial markets when it published its fourth quarter 2008 results.
Experience gains (losses) - The Company recorded $1.5 million in
experience losses in the second quarter of 2009, compared to $7.4 million in
experience losses in the second quarter of last year. The experience losses
affected all lines of business, except Individual Insurance. They are
primarily explained by a strong increase in claims in the Group Insurance
sector, unfavourable mortality results in the Group Pensions sector, an
increase in provisions for losses and a higher than expected persistency rate
on investment funds (which is favourable in the long term, but reduces the
expected income from surrender fees in the short term). A good portion of
these experience losses were offset by the stock market upswing during the
quarter, which increased the fees collected on investment funds as well as the
discounted future revenues on Universal Life policy funds. Refer to the
"Profitability" section above for more information about the impact of the
current economic and financial environment on the Company's results by line of
business.
Gain (strain) on sales - New business strain was $24.0 million in the
second quarter, which is $1.8 million higher than the same period last year.
The strain comes almost entirely from the Individual Insurance sector. If the
Individual Insurance sector alone is taken into account, strain, expressed as
a percentage of sales (measured in terms of first-year annualized premiums),
increased from 55% in the second quarter of 2008 to 67% in the second quarter
of 2009. This rate surpasses the Company's 50% to 55% mid-term target range.
The difference primarily results from the sharp drop in sales for the savings
component of Universal Life policies.
Income on capital - Income on capital amounted to $19.7 million in the
second quarter of 2009, which is $0.6 million higher than the same period last
year and $2.6 million higher than the first quarter of 2009. Income on capital
benefited from the stock market upswing, $2.0 million in gains resulting from
the sale of financial securities matched to equity and the good profitability
of the auto and home insurance subsidiary (earnings before taxes of $2.1
million in the second quarter, compared to a loss before taxes of $1.2 million
in the second quarter of 2008 and a loss before taxes of $1.1 million in the
first quarter of 2009).
Income taxes - Income taxes totalled $19.4 million for the second quarter
of 2009, which is $5.1 million lower than the second quarter of 2008. This
decrease primarily results from a decrease in the Company's operating profit,
but also from a slight reduction in the effective tax rate, which amounted to
26.3% in the second quarter of 2009 compared to 27.7% for the corresponding
quarter of 2008. The effective tax rate for the quarter is in line with the
Company's expectations of approximately 26% to 27% in the medium term.
Net effect of the variation in the fair value of debt instruments and
underlying assets - The profit for the quarter was reduced by an unusual-and
temporary-amount of $19.3 million after taxes resulting from the asymmetric
evolution of the difference between the market value of debt instruments and
the underlying assets. Refer to the "Profitability" section above for more
information about the impact of this factor.
-------------------------------------------------------------------------
Sources of Earnings
-------------------------------------------------------------------------
Year-to-date
Second quarter as at June 30
(In millions of dollars) 2009 2008 2009 2008
-------------------------------------------------------------------------
Operating profit
Expected profit
on in-force 79.6 98.8 153.6 191.1
Experience gains
(losses) (1.5) (7.4) (12.6) (13.2)
Gain (strain) on
sales (24.0) (22.2) (45.7) (42.2)
Changes in
assumptions 0.0 0.0 0.0 0.0
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Subtotal 54.1 69.2 95.3 135.7
Income on capital
Investment income 17.7 16.0 34.3 31.3
Gains (losses) on
assets available
for sale 2.0 3.1 2.5 5.6
-------------------------------------------------------------------------
Subtotal 19.7 19.1 36.8 36.9
Income taxes (19.4) (24.5) (35.4) (44.1)
-------------------------------------------------------------------------
Net income to
shareholders on
regular operations 54.4 63.8 96.7 128.5
Less: dividends on
preferred shares 3.0 1.5 6.6 2.9
-------------------------------------------------------------------------
Net income to common
shareholders on
regular operations 51.4 62.3 90.1 125.6
Net effect of the
variation in the
fair value of debt
instruments and
underlying assets
(after taxes) (19.3) 1.1 (11.8) (0.5)
-------------------------------------------------------------------------
Net income to common
shareholders 32.1 63.4 78.3 125.1
-------------------------------------------------------------------------
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SENSITIVITY ANALYSIS
All sensitivity analyses that the Company has provided to the financial
markets in the last few months remain valid.
- Stocks matched to the long-term liabilities and segregated funds
guarantee - The Company does not expect to have to strengthen its
provisions for future policy benefits for stocks matched to long-term
liabilities, including the segregated funds guarantee, as long as the
S&P/TSX index remains above about 7,850 points. Hence, the Company did
not have to increase the provisions for future policy benefits for
stocks matched to long-term liabilities in the second quarter and does
not have to maintain provisions for the segregated funds guarantee,
according to industry standards of practice.
- Impact of the variation in the stock markets on net profit - The
Company estimates that if, on average, the stock markets were to remain
at a level 10% lower (or higher) than its expectations for a full year
(the Company generally expects the S&P/TSX to grow about 7.5%
annually), the net income to common shareholders would be about
$17 million lower (or higher) than expected. This amount represents the
impact of a stock market variation for a full year. By quarter,
however, the decrease (or increase) in profit is not necessarily
proportional. Among other things, it depends on the average level of
the stock market index during the period and its closing level at the
end of the period
- Impact of a stock market downturn on the solvency ratio - The Company
expects that the solvency ratio would be 175% if the S&P/TSX index
dropped to about 7,100 points, and 150% if it dropped to about
5,450 points.
- Impact of a stock market downturn on the capital required for the
segregated funds guarantee - The Company believes that it does not have
to consider the capital requirement for the segregated funds guarantee
when the S&P/TSX is above about 9,000 points.
- Ultimate reinvestment rate (URR) - The Company believes that a 10 basis
point decrease in the ultimate reinvestment rate would require the
provisions for future policy benefits to be strengthened by some
$35 million after taxes. As at December 31, 2008, to calculate its
provisions for future policy benefits, the Company was using a lower
ultimate reinvestment rate than the maximum rate expected at the end
2009. If the rate of long-term federal government bonds remains at the
current level (3.91% as at June 30, 2009) until the end of the year,
the maximum ultimate reinvestment rate would be 4.10% at the end of
2009.
- Initial reinvestment rate (IRR) - The Company believes that a 10 basis
point increase in the initial reinvestment rate would lead to the
release of some $24 million after taxes in provisions for future policy
benefits. To calculate its provisions for future policy benefits, the
Company uses an initial reinvestment rate that takes into account
existing rates of return on the valuation date, taking into account the
target composition of the asset portfolio.
BUSINESS GROWTH
Following are the business growth highlights for the second quarter.
Premiums and Deposits
Despite the market upswing in the second quarter and several encouraging
signs here and there, growth has not yet returned to normal, as consumers are
waiting for stronger signs of a recovery before beginning to buy financial
products again. Premiums and deposits totalled $1.2 billion in the second
quarter, which is 22% lower than the same period last year. The decrease
primarily comes from the two savings and investment product sectors:
Individual Wealth Management, where investors are still hesitant to trust the
stock markets, and Group Pensions, which had very strong sales of accumulation
products last year. However, as the results for the first six months show,
growth continues in the three sectors that distribute traditional insurance
products.
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Premiums and Deposits
-------------------------------------------------------------------------
Second quarter Year-to-date as at June 30
(In millions
of dollars,
unless
otherwise Varia- Varia-
indicated) 2009 2008 tion 2009 2008 tion
-------------------------------------------------------------------------
Individual
Insurance 231.8 225.4 3% 458.4 451.4 2%
Individual
Wealth
Management 473.8 660.0 (28%) 1,062.8 1,452.7 (27%)
Group
Insurance 237.8 244.0 (3%) 470.4 463.3 2%
Group
Pensions 219.9 367.7 (40%) 377.5 517.3 (27%)
General
insurance 34.0 31.5 8% 66.7 62.3 7%
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Total 1,197.3 1,528.6 (22%) 2,435.8 2,947.0 (17%)
-------------------------------------------------------------------------
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Sales by Line of Business
Following are the second quarter sales results by line of business. Sales
are defined as fund entries on new business written during the period (sales
exclude fund entries from in-force contracts). Refer to note 1 at the end of
this report for the definition of sales for each line of business.
In general, sales continue to feel the effects of the economic slowdown.
Sales of products related to the stock market are the most seriously affected,
despite the recent recovery of the markets. Several positive points have
nevertheless been observed. For example, sales of traditional insurance in the
family market continue to do well in the Individual Insurance sector and sales
have recovered in the Group Insurance Employee Plans sector, thanks to the
signing of a number of small groups.
Individual Insurance - Families continued to cover their basic insurance
needs, but are waiting for a definitive market recovery before using the full
potential of their Universal Life insurance policies for financial planning
purposes. Sales in the Individual Insurance sector totalled $33.9 million in
the second quarter, down 7% compared to the same period last year. Sales in
the traditional family market continued to grow ("minimum premiums" were up 6%
for the quarter), but were down in the high net-worth market ("excess
premiums" were down 52%). Also, the level of activity among agents has
remained steady, with the number of policies sold up 3% during the quarter.
Minimum premiums and the number of policies sold are two of the most important
components the Company uses to measure the sector's profitability.
Individual Wealth Management - The current economic and financial
environment has prompted investors to continue to act with caution by
favouring guaranteed return investment products over variable return
investments. Sales in the Individual Wealth Management sector totalled $473.8
million, down 28% compared to the same period last year. This result is
essentially explained by the decline in segregated fund and mutual fund sales,
since sales of fixed-return products, such as guaranteed investment
certificates, jumped 23% during the quarter.
Net segregated fund and mutual fund sales continue to be positive,
however, totalling $108.5 million in the second quarter. This good performance
allowed the Company to continue to stand out in the investment funds market.
At the end of the first six months of the year, the Company ranked 4th in
terms of net segregated fund sales, with a 6.9% market share (5.7% for all of
2008). For mutual funds, the Company continues to perform better than its rank
in terms of business growth, ending the first half ranked 10th in terms of net
sales of long-term funds, compared to 19th in terms of assets. The Company's
wide range of funds, their good relative performance in the last few quarters
and the size of the Company's distribution networks should contribute to
getting sales back on track as soon as the markets are more stable.
Group Insurance: Employee Plans - Second quarter sales made up for almost
the entire shortfall accumulated in the first quarter in the Group Insurance
Employee Plans sector, totalling $21.1 million, up 13% compared to the same
period last year. The sector succeeded in growing its business through sales
to a number of small groups, primarily outside Quebec, thanks to the close
ties developed with new distributors in the last few years. More than half of
all sales came from outside Quebec in the second quarter, in accordance with
the Company's desire to expand throughout the country.
Group Creditor Insurance - The decline in car sales continued to affect
growth in the Group Creditor Insurance sector, whose sales dropped 25% in the
second quarter compared to the same period last year, totalling $42.4 million.
This decrease is similar to the one recorded in the automobile market, where
light vehicle sales were down 24% in the first half of the year. Sales for
this sector rely on car sales, since the products are distributed primarily by
car dealers. The Company has been a leader in Canada in the creditor insurance
market among car dealers for several years.
Group Insurance: Special Markets Group (SMG) - The SMG sector is
resisting the economic slowdown, with $24.8 million in sales in the second
quarter, the same level as the corresponding period last year. This sector
specializes in certain insurance markets that are not well served by
traditional group insurance carriers.
Group Pensions - After a good first quarter, business was slower in the
second quarter in the Group Pensions sector, with $219.9 million in sales,
down 40% compared to the same period last year. This is due to its success
last year, when two large savings plan contracts (accumulation products) were
signed in the second quarter. In terms of insured annuities (disbursement
products), the Company continues to favour the attainment of profit margins
over business growth.
