Quebec City-based Industrial Alliance Insurance and Financial Services Inc. reported on Wednesday that it ended the first quarter of 2009, ended March 31, with net income to common shareholders of $46.2 million, an 11.2% return on equity, positive net sales in all lines of business, growth of individual life insurance sales in the family market, and a reinforced solvency ratio of 204%, which is above the company’s 175%-200% target range.

“Despite weak financial markets and the economic slowdown, we are continuing to produce very satisfying results,” declared Yvon Charest, president and CEO. “Profits are positive, the return is relatively high, financial strength remains very solid, the quality of investments remains excellent, the company’s book value is growing and we still have enough leeway to absorb significant market downturns. We also continued to take steps to solidify our balance sheet. In the first quarter, we issued $100 million in subordinated debentures and we continued to actively manage our investment portfolio to optimize the asset mix and the return.”

IA’s financial strength has enabled its board of directors to announce the payment of a quarterly dividend of $0.245 per common share. This dividend is the same as the one announced in the last quarter and 9% higher than the one announced for the same period last year. According to the company’s business plan, the quarterly dividend to common shareholders is expected to remain at the current level for 2009.

IA ended Q1 with net income to common shareholders of $46.2 million, compared with $61.7 million for the same period in 2008. This result translates into diluted earnings per common share of $0.58, vs $0.76 in the first quarter of 2008, and a return on common shareholders equity of 11.2% on an annualized basis. (The figure was 14.5% in the first quarter of 2008).

The results for the quarter benefited from a $7.5 million gain after taxes resulting from the favourable evolution of the gap between the market value of the debt instruments and that of the underlying assets.

Debt instruments were classified as “held-for-trading” when the new accounting standards took effect on Jan. 1, 2007. Hence, any difference between the variation in the market value of the debt instruments and the corresponding assets must be recognized immediately on the income statement. However, this difference should be gradually eliminated by the time the debt instruments mature in the next five years.

On the other hand, the results for the quarter were affected by the current economic and financial environment, which reduced the company’s expected income by about $9.9 million after taxes.

The stock market downturn reduced the company’s income by some $5.8 million after taxes compared with the expected result. The S&P/TSX index of the Toronto Stock Exchange was very volatile during the quarter, suffering strong downward pressure for a few weeks before regaining a good part of the lost ground. The stock market downturn had the following effects:

– Reduced the fee income on the investment funds managed by the company by $3.9 million after taxes. This shortfall primarily affected the individual wealth management sector and, to a lesser degree, group pensions.

– Reduced the discounted future revenues on universal life policy funds by $1.3 million after taxes. This shortfall only affected the Individual Insurance sector.

– Reduced the income on capital by $600,000 after taxes. This shortfall comes from a decrease in the value of seed money and the decrease in income from a life insurance company in which IA has a 45% share.

The financial environment also reduced IA’s income by $700,000 after taxes
following the permanent writedown of a bond.

The economic situation has contributed to an increase in group insurance claims particularly for the long-term disability benefit. This increase led to an experience loss of $3.4 million after taxes.