Insurer relishes conversion

Thanks partly to earlier acquisitions and a merger, the company, with headquarters in Sillery, Que., already does business throughout Canada and the U.S. Last January, it bought Vancouver’s Seabord Life Insurance Co. Although the purchase bumped assets to $12 billion from $10.6 billion, it left unchanged Industrial-Alliance’s rank as Canada’s seventh-largest life insurer.

The company has no intention of failing to fulfil what Yvon Charest, the chief operating officer who recently assumed the additional title of president, describes as a corporate imperative.

‘There’s a consolidation going on in Canada that we want to participate actively in,’ he says. ‘To do so, we have to have access to the capital that common shares will bring.’

The company plans to float its issue on the Montreal and Toronto exchanges. Should the ME be closed to corporate listings by the proposed reorganization of the country’s exchanges, the issue will be listed on Toronto only. It will be floated in 2000, as soon as conditions are deemed attractive.

Charest believes the idea carries solid support from policyholders, who must approve the idea. ‘All indications are a big majority will be in favour.’

One reason for his optimism is that demutualization will enable policyholders to convert freely into cash some or all of their new shares in Industrial-Alliance, something that is impossible while it remains a mutual company.

Some key factors in the changeover remain to be fixed: the number of shares offered, for example, and the price. Together they will determine the amount of capital Industrial-Alliance can add to its acquisition war chest. Evaluating the market value of the company, or capitalization, can be based on book value or profits, Charest maintains. Assuming a reasonable multiple of 12 times 1998 profits of $69.7 million, he says, the initial public offering would realize $836 million. If book value is the yardstick, however, the market value would be roughly $1 billion, given a multiple of 1.5 or 2 times policyowners’ equity (or book value) of $583 million.

One advantage Industrial-Alliance carries in the drive to become public is that it operates under a Quebec charter, unlike the four other insurers which are federally chartered.

Its changes will be steered through Quebec’s National Assembly by a private bil. ‘Our bill will be tailored-to-measure,’ he says. ‘That will give us a slight advantage. The Quebec authorities are a little more relaxed.’ As an example, he cites information circulars that must be distributed to policyowners. The federally mandated documents forwarded in April to 900,000 policyowners by Mutual Life Assurance Co. ran 226 pages in English and 240 in French, Charest says. And, he adds, they are ‘hard for the average person to understand.’

Industrial-Alliance’s Quebec-supervised document will be shorter and less daunting, he says.

In its current form, Industrial-Alliance is a relatively young entity, but with a history spanning more than 100 years. It was founded in 1987 with the merger of two Quebec companies, the older of which, Alliance Mutual Life Insurance Co., dates from 1892. Toronto’s National Life Assurance Co. was acquired in 1988, and The Solidarity of Quebec City in 1995. (Industrial-Alliance also operates in general assurance, which last year earned profit of $4 million and premium income of $104 million.)

In the year ended last Dec. 31, company-wide profit totalled $69.7 million. Of some $2.4 billion in revenue, $1.7 billion was generated by insurance and annuity premiums, and $597 million, or 24%, by investment income.

The company’s net profit for the quarter ended March 31 was $12.4 million, a drop from $16.4 million a year earlier. The decline came despite a 15.3% growth in revenue to $706 million. Seabord Life’s results are incorporated in this year’s figures.

Charest attributes part of the earnings shrinkage to an unexpected increase in new disability claims, and says there is no reason for alarm.

A second reason for the profit dip resulted, paradoxically, from strong sales in individual life insurance. New contracts are treated conservatively with heavy actuarial reserves that initially dictate a paper loss.

‘We call it the first-year strain, and it’s a temporary happening,’ Charest says. Indeed, individual life-insurance premiums (annualized) totalled $25.3 million in the first three months of 1999, compared with $14.7 million in the 1998 period.

Charest, 42, an actuary and chartered administrator who has spent his entire career at Industrial Alliance, is being groomed to take over from chairman and chief executive Raymond Garneau. Garneau will give up the CEO position early next year, but will remain as chairman.