Industrial Alliance Insurance and Financial Services Inc. is combining the operations of its Toronto-based subsidiary National Life Assurance Co. of Canada with Industrial Alliance in an effort to strenghthen its brand.

Industrial Alliance expects to complete the combination by Dec. 31, 2005, once all the necessary approvals have been obtained. By then, all new contracts formerly underwritten under the National Life name will be underwritten by Industrial Alliance or Industrial Alliance Pacific and all in-force National Life contracts will be transferred to and assumed by Industrial Alliance.

“This decision is the culmination of an integration process that began a few years ago and which aimed to maximize the synergies between the Industrial Alliance Group’s three life insurance companies,” Yvon Charest, president and CEO of Industrial Alliance, said in a news release. “The combination with National Life will allow us to streamline the structure of Industrial Alliance, making it an even more efficient organization, thereby allowing us to become more competitive and more profitable.”

The assimilation of National Life continues a harmonization process Industrial Alliance began a few years ago. Industrial Alliance has combined the investment departments of the three life insurance companies (Industrial Alliance, Industrial Alliance Pacific, and National Life), repatriated the group pensions operations to Industrial Alliance and now markets its Group Insurance (employee plans) products and services under a single Industrial Alliance brand.

In September 2004, the company combined the retail distribution operations of National Life’s Individual insurance and annuities sectors with the operations of Industrial Alliance and Industrial Alliance Pacific.

Today, sales representatives distribute the company’s products through one of the group’s three existing networks: the career network, made up of dedicated agents; the general agents network, composed of insurance brokers; and the national accounts network, which distributes the company’s products through securities brokerage firms and mutual fund broker dealers.

“This new distribution structure has diminished the advantages of maintaining a distinct legal entity for National Life, since the entire Industrial Alliance Group will now use the same products, systems and distribution strategy,” said Charest.

Once the integration of National Life is completed, the Industrial Alliance Group will have two life insurance companies, Industrial Alliance and Industrial Alliance Pacific, four primary administrative centres, one in Quebec City, one in Montreal, one in Toronto and one in Vancouver.

Charest said that the decision does not impact the Group’s Vancouver subsidiary, Industrial Alliance Pacific.

The main operations affected by the combination are those related to National Life’s corporate support services, including accounting, actuarial, communications and information systems. All business development, client service and administration operations currently done by National Life will continue to be carried out from Toronto for both the individual and group sectors. Clients and sales representatives will continue to be served from Toronto since the administrative units in charge of these sectors remain unchanged.

About 25% of the 370 positions at National Life will be gradually phased-out over the next two years.

Of the positions that will be phased-out, almost half are occupied by National Life information systems employees who will be offered new jobs with CGI Group Inc. CGI already manages a certain number of information systems functions for Industrial Alliance.

From a financial standpoint, Industrial Alliance estimates that the integration of National Life will lead to an after-tax restructuring charge of $5.4 million in the fourth quarter of 2004, $3.3 million in 2005 and $3.8 million in 2006.

The company estimates that the cost savings resulting from this integration will reach $6.6 million after taxes, per year, starting in 2007, once the integration is completed.

The company also announced that it will be transferring $53.5 million from the participating policyholders’ account to retained earnings.

Standard & Poor’s Ratings Services said,
“The transfer of funds from the participating policyholder’s account to retained earnings represents a truing up of accounts and has been reviewed by third-party legal, actuarial, and accounting firms hired by Industrial Alliance, and will have no effect on the company’s capital adequacy ratios.”