Industrial Alliance profit falls 28%

Industrial Alliance dropped $2.86 or 8.8% to $29.42 in afternoon trading on the Toronto Stock Exchange.

“The largest losses experienced came from the equity market,” president and CEO Yvon Charest told analysts after reporting earnings fell to $45.7 million, or 52 cents per share.

Charest noted that earnings per share for the Quebec City-based insurance company dropped more than 20 cents from the same quarter last year, down from 73 cents per share on earnings of $63.5 million in the same quarter in 2010.

“This quarter was certainly one of the most difficult that we have experienced since 2008-2009. It resulted in one of our most disappointing quarters as well,” he said.

The company also said low interest rates combined with market turbulence hampered profitability at its individual insurance and wealth management businesses.

Net earnings adjusted for one-time items came in at 53 cents per share, compared with 75 cents per share a year earlier. That was well below the 74 cents per share analysts had on average expected the company to earn, according to a survey by Thomson Reuters.

“In addition to long-term interest rates that hovered near all-time lows, equity markets pulled back in Q3 taking 19 cents per share off our individual insurance and wealth management businesses,” Charest said.

About one-third of the drag on earnings in those divisions came from hedges related to Industrial Alliance’s guaranteed annuity product, Charest noted.

“Profitability in the third quarter was equally affected by unfavourable policyholder experience in individual insurance and group insurance.”

The company said it took an additional hit of nine cents a share linked to insurance mortality rates — the death of policyholders — that was “less favourable than expected.”

Industrial Alliance also said its group insurance business had a loss of seven cents a share reflecting more long-term disability claims.

The volatile markets are also expected to hit most of Canada’s insurers hard since so much of their investments are in equities and bonds.

Industrial Alliance’s weaker results are expected to match weaker financial results at other major Canadian insurance companies.

Sun Life Financial (TSX:SLF),Canada’s third-biggest insurer is slated to report later Wednesday. It has already warned it will lose $621 million in the July-to-September period — the company’s first quarterly loss in two years.

Manulife Financial (TSX:MFC), Canada’s largest insurer, could lose more than $800 million in the third-quarter, according to one analyst, who revised his outlook for Canadian insurers in the wake of volatile markets and other factors.

At Industrial Alliance, premiums and deposits for the quarter rose seven per cent to $1.6 billion, and the company noted that impaired loans hit an all-time low of 0.06 per cent of total investments.

Industrial Alliance posted an annualized return on equity of eight per cent, versus 12.7% a year earlier.

The company said it believes it can absorb the year-to-date drop of 58 basis points in long-term interest rates.

However, Charest said, “I would caution that if interest rates further deteriorate in the fourth quarter, we will have to strengthen actuarial reserves and most likely decrease our ultimate reinvestment rate by another 10 basis points.”

The reinvestment rate is related to Industrial Alliance’s annuity products.

“Otherwise, we are confident that we can manage our year-end assumption review with minimal impact to our overall reserves if long-term interest rates co-operate and remain above third quarter-end thresholds.”

Industrial Alliance has about 3,900 employees and more than $70 billion in assets.