Industrial Alliance Insurance and Financial Services Inc. started the year on a strong note with net income to common shareholders of $57.9 million for the first quarter of 2007, a 20% increase over the same period last year.

This income translates into diluted earnings per common share of $0.72 vs $0.59 for the first quarter of 2006, and a return on equity attributable to common shareholders of 15.2% for the quarter annualized, excluding the new equity item “Accumulated other comprehensive income,” or 14.9% including this item, a result of the new accounting standards that took effect on Jan. 1.

The increase in earnings is primarily attributable to strong business growth during the quarter, strict management of the new business strain in the individual insurance sector and the decrease in the tax charge resulting from the reduction in the corporate tax rate adopted by the federal government in the second quarter of 2006.

A very successful RRSP season and record mutual fund entries carried premiums and deposits to a high of $1.7 billion in the first quarter, which is 14% higher than the same period last year. Business grew in all lines of business, with sales up more than 10% in most sectors.

“The year is starting off on the right foot,” stated Yvon Charest, president and CEO. “The profit is up by over 10%, we had a successful RRSP season, our IA Clarington subsidiary achieved record mutual fund sales, even though it is only in its second year with us, sales outside Quebec have once again surpassed sales in Quebec and assets under management and under administration are just shy of the $50 billion mark, which is almost four times the assets that the company was managing when it converted into a stock company in 2000.”

All sectors contributed to the income during the quarter. In addition to the continuous growth of business, the increased income primarily results from the following two factors:
-The substantial decrease in the new business strain in the Individual Insurance sector. The strain decreased to $17.6 million in the first quarter of 2007 from $25.2 million in the first quarter of 2006. This decrease primarily results from the pricing adjustments made to the individual life insurance product line in 2006, in addition to lower individual life insurance sales and the change that occurred in the sales mix during the quarter (sales of yearly renewable term Universal Life insurance policies, which are less strain intensive, jumped 30% in the first quarter, compared to the same period in 2006, and now account for almost half of all Universal Life policy sales).

The strain, expressed as a percentage of sales (measured in terms of first-year annualized premiums), has continually decreased in the last few quarters, from 73% in the first quarter of 2006, to 62% in the fourth quarter of 2006 and 55% in the first quarter of 2007. The company had indicated to the markets that it was expecting strain to be at around 50% to 55% in the medium term. The company has therefore reached the upper end of this range, perhaps more quickly than expected. The company is maintaining the same guidance to the markets for the time being.

-The reduction in the federal corporate tax rate. This reduction led to a decrease in the tax charge of about $2.9 million in the first quarter, compared to the corresponding period in 2006. The effective tax rate was 29.0% for the quarter (32.5% in the first quarter of 2006), which is in line with the company’s expectations.