A.M. Best Co. has affirmed the A (Excellent) financial strength rating of Industrial-Alliance Life Insurance Co., and its two life subsidiaries, National Life Assurance Co. of Canada and Industrial-Alliance Pacific Life Insurance Co.

The ratings agency has also assigned an “a-” rating to IA’s existing subordinated debt and a “bbb+” rating to the company’s preferred shares.

According to A.M. Best, these ratings reflect the company’s diversified distribution, excellent profitability, continued sales growth in a number of core business lines and adequate capitalization. It credits the firms’ distribution capacity and diversification, which it says has enabled IA to achieve annual premium growth and strong sales in its core universal life product line.

The ratings agency says that IA’s risk adjusted capitalization remains adequate, supported by steady earnings growth and a high quality fixed income and mortgage portfolio, which has performed well over the long-term. Although mortgage loan holdings were reduced over 1999, A.M. Best notes IA’s proportion of mortgage loans to capital remains greater than other large Canadian companies.

IA’s operating performance is very favorable, with a significant increase in earnings reported for 2000, reflecting a combination of integration synergies across the three operating companies and reduced new business strain.

A.M. Best believes IA faces several challenges in significantly expanding its core lines of business in Canada due to the maturity of the Canadian market. Furthermore, in A.M. Best’s opinion, it will be difficult for IA to increase market share in the group segment, where it has experienced fluctuating sales and earnings results and where larger Canadian companies have strong competitive advantages. Additionally, IA will be challenged to significantly expand its asset accumulation business and achieve meaningful economies of scale.