Industrial Alliance Insurance and Financial Services Inc.’s increased provision for Norshield doesn’t change the company’s credit outlook, but it does impact earnings, says Dominion Bond Rating Service.

Industrial Alliance announced, that it had increased its loss provision to a total of $77.9 million ($52.1 million after taxes) for investments connected with Norshield Financial Group, a bankrupt hedge fund firm. It also managed two of Industrial Alliance’s segregated funds.

DBRS says it expects this event will not materially change the credit profile of the company, but the impact of this one-time loss will reduce 2005 earnings significantly.

IA reports that as part of the tabling of its take-over bid circular for Clarington Corp., it issued new consolidated financial statements for the three-month period and the nine months ended September 30, to take into account the revised Norshield situation. As a result, the third quarter now posts a net loss of $1.4 million, rather than a net income of $42.0 million. Net income for the year to date is $85.5 million, rather than $128.9 million. The amount of the loss is manageable for the company relative to capital, DBRS adds.

The posting of a provision for the entire investment in Norshield increased gross impaired investments from $18.6 million at June 30, to $96.4 million at September 30. The provision for impaired investments increased from $11.3 million at June 30, to $89.1 million at September 30.

Looking ahead, DBRS suggests, “This event does not cast doubt on the company’s risk management processes or the quality of other similar types of investments. The company has taken steps to tighten criteria used in selecting external fund managers.”

DBRS also says that the company’s bid to acquire Clarington, remains on track with the recent mailing of its take-over bid circular.