Industrial Alliance A Sustainable Business Strategy
Industrial Alliance
Insurance and Financial Services Inc.
Institutional Presentation November 2011
A partner you can trust.
1
A Sustainable Business Strategy >
Focused growth > > > >
>
Proven profitability >
>
Organic growth supplemented by strategic acquisitions Business-line and geographic diversification Leading market shares in the Canadian market Eighth consecutive quarter of top-line growth in Q3-11 In-force operations provide strong visibility of earnings
Strong capital base > > > >
Tier 1 accounts for 89% of total capital Recent issue of common shares ($200M) Capacity to further support capital with non-equity (~$200M) Comfortably positioned given current macro environment
2
Industrial Alliance Insurance and Financial Services Inc. Institutional Presentation November 2011
Growth in P&D Premiums1 and deposits (P&D) ($Million) 6,766 6,077 Q4
1,399
Q3
1,326
Q2
1,591
5,668
5,422
1,252
• Strong position in retail
1,823
1,577
• Growing contribution from wealth management
1,580
1,478
• Building scale in creditor
1,402 1,297
Q1
insurance
5,261
1,567
insurance
1,623
1,698
1,842
1,983
2010
2011
• Expanding top line in U.S.
1,276
1,761
1,447
2007
2008
1,272
2009
CGAAP
IFRS
An eighth consecutive quarter of business growth. 3
1 Includes
premium equivalents
Earnings Stability and Growth Profitability ($Million) 242.2 Q4
205.8
63.1
250.8
246.8
67.4
66.6
66.11
• Continued geographic 184.5
67.4
Q3
59.1
51.2
Q2
62.1
63.4
Q1
57 9 57.9
61 7 61.7
2007
2008
65.4
64.4
57.7
56.6
46 2 46.2
60 3 60.3
59 2 59.2
2009
2010
2010
45.7
various life stages
• Serial approach to organic
60.1
72.7
32.1
CGAAP2
diversification
• Many businesses at growth and low-risk acquisitions
66.1 66
2011 IFRS
A successful balance of top-line growth, profitability and risk management. 4
1 2
Reserve strengthening of $138.2M after tax in Q4 reduced profitability in 2008. Excludes impact of debt asymmetry.
Industrial Alliance Insurance and Financial Services Inc. Institutional Presentation November 2011
Market Share by Business Line (At September 30, 2011)
Individual Insurance
Individual Wealth Mgmt Seg Funds
Group Insurance
Group Savings and Retirement
Employee Groups1
Mutual Funds
Market Share
Rank
Rank
Market Share
Rank
8.7%
4th 10.5%
14th
6th
4.4%
5th
5.1%
9 4% 9.4%
1st 43.0% 43 0%
11th
5th
8 1% 8.1%
6th
5 5% 5.5%
Rank
Market Share
In Force 2
4th
New Business 3
4th
Rank
Individual wealth management steadily outperforming the industry. Number one in net segregated fund sales in Canada. 1 2 3
5
Target market: 50 to 1,000 employees. In force in insurance sectors refers to direct premiums and premiums equivalents; in other sectors it refers to assets. New business in Individual Wealth Management refers to net sales; in other sectors it refers to first-year annualized premiums.
Industry data: CLHIA, Fraser Group, Investor Economics, IFIC and LIMRA.
Individual Wealth Management Net Sales In Line with 2010 Record Year Net Sales ($Million)
1,722 1,378 797 875
696 149
799 612
281
289 547
608
2005
2006
646
758
267
579 323 2007
2008
Seg Funds
1,205
925 559
477 2009
2010
Mutual Funds
6
Industrial Alliance Insurance and Financial Services Inc. Institutional Presentation November 2011
9 M/11
Market Share
IA Consistently Delivers Positive Net Sales of Mutual Funds Quarterly Net Sales ($Million) Industry
IA 475
20 000 20,000
Industry
IA
375
15,000
275 10,000 175 5,000 75 0,0
-26
2007
2008
2009
2010
2011
IA has delivered positive net sales, even when the industry is in net redemptions. 7
Industry figures exclude Franklin Templeton as of Feb 2011 and IGM Financial (Mackenzie Financial, Counsel Portfolio & Investors Group) as of Jan 2011
Creditor Insurance & Complementary P&C Warranties Sales (Gross Premiums In $Million)
218 26
P&C Warranties Creditor Insurance
240
231 37
202
57
246 44
complementary (P&C) business • 3 acquisitions in the last 12 months
50
192
194 152
2007
2008
2009
183
2010
• Development of a
202
9 M/11
Quickly becoming a sizeable niche operation. 8
Industrial Alliance Insurance and Financial Services Inc. Institutional Presentation November 2011
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Q4
-226
Q3
-10,000
Q2
-126
Q1
5 000 -5,000
Interest Rate and Equity Market Indicators Headwinds from both equity markets and interest rates in Q3.
Interest Rates (%) 6.5
S&P /TSX Oct. 31, 2011
Canada long-term interest rates
6.0
16000
14000
5.5 12000
5.0 4.5
10000 S&P/TSX
4.0
8000
3.5 6000
3.0 2.5
4000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
9
Reinvestment Risk on Fixed Income Assets IRR
URR
I iti l Reinvestment Initial R i t t Rate R t
Ulti t Reinvestment Ultimate R i t t Rate R t
Investment rate for cash flows to be invested during the first 19 years
Investment rate for cash flows to be invested during year 20 and beyond
after the valuation date.
after the valuation date.
Basis
Spot rate at quarter-end. Aligned with IA’s investment policy and asset mix.
Moving average (5&10-year) of Canada longterm bonds with an additional 10% margin.
Proxy
Quebec long term bonds (see Annex)
Bank of Canada long-term bonds (V122544)
Trend
In decline since 2010 after staying in a 4.8%-5.1% range between 2006 and 2009.
In steady decline over the last five years.
Impact
IRR -10 bps Î Net income ~$-28M1
URR -10 bps Î Net income ~$-49M1
Description
Risk Management
10
1
Globally through management actions and conservative reserving practices. (eg: assuming future URR reductions before they become CIA mandated)
Evaluation as of June 30, 2011
Industrial Alliance Insurance and Financial Services Inc. Institutional Presentation November 2011
Ultimate Reinvestment Rate (URR) Projections to 2015 5.0%
5.0% Prescribed maximum: 3.8% IA: 3.6%
4.7%
V122544 at Oct. 31, 2011: 3.02%
4.5% 4.5%
4.5% Maximum prescribed URR under various interest rate scenarios 1
4.3%
4.4%
Assumed long-term Canada bond rates (V122544) from November 2011
4.1%
4.2%
4.0% 4.0% 4.0%
3.8%
3.9%
3.7%
3.6%
3.6% 3 6% 3.5%
3.7% 3.6%
3.5%
3.5%
3.6% 3.4%
3.3%
3.4%
3.2%
3.1%
3.6% 3.3%
2.9%
2005 2006 2006 2007 2007 2008 2008 2009 2010 2010 2011 2011 2005 0 2009
11
1
3.0% 2012
2013
2014
3.00%
2.7%
2.50%
2015
IA projections
Year-to-date Management Actions Management actions
Amount of assets traded
>
Intersegment notes
∼ $300 M
>
Bonds forward
∼ $130 M
>
A/L matching improvement
∼ $670 M
∼ $1.1 billion
Management actions have contained IRR sensitivity to $28M/10 bps. IA is optimistic that IRR sensitivity can be further decreased.
12
Industrial Alliance Insurance and Financial Services Inc. Institutional Presentation November 2011
3.50%
3.0%
IA's URR CIA's max. URR
4 00% 4.00%
Mortality Improvement Historical average mortality improvement >
Canadian industry
(2000-2009)
2.5%
>
Industrial Alliance
(2001-2010)
2.4%
>
CPP 1
(1991-2006)
2.3%
On a rolling five-year basis, mortality improvement has proven to be a constant.
Projected mortality improvement >
CPP (annuitants)1
1 5%/20 years 1.5%/20
>
Prescribed by CIA (annuitants)
1.5-3.0%/25 years
>
Max. allowed by CIA (life)
0.5-1.0%/25 years
Long-term data supports IA decision to retain mortality risk. 13
1
Male 45 to 65 years
Solvency Ratio (%) 223
224
208
211
205
202
196
208 194
197
Target
Q3 solvency ratio
• Share issue (+14 pts) • Increase in cap. req’ts for seg funds (-4 pts)
• Adverse markets (-4%) • Lower net income (-2%) • Phase Phase-in in of IFRS (-1%) ( 1%) Q4/09 Q1/10 Q2/10 Q3/10 Q4/10 Q4/10 Q1/11
CGAAP
Q2/11 Q2/11* Q3/11
IFRS
Given current macroeconomic conditions, comfortably positioned at the top of the 175-200% target range. 14 * Pro forma following common share issue on September 15, 2011.
Industrial Alliance Insurance and Financial Services Inc. Institutional Presentation November 2011
Solvency Ratio: Sensitivity to Markets and Interest Rates IRR TSX
4 60 4.60
4 15 4.15
3 951 3.95
+10%
12,800
206
200
189
+5%
12,200
207
201
190
Q3/11
11,624
202
197
186
-10%
10,500
190
185
175
-20%
9,300
173
169
160
-30%
8,100
158
154
145
Macroeconomic conditions would need to deteriorate significantly for solvency ratio to be at low end of target range.
15 1 Reflects an additional 10 bps reduction in URR to 3.5%
Non-equity Capital Capacity Leverage Ratio (debt & hybrids)
35% 28%
S&P Maximum
IAG Q3/2011
Fixed Charge Coverage Ratio
5.0x
S&P Minimum
5.8x
IAG Q3/2011
16
Industrial Alliance Insurance and Financial Services Inc. Institutional Presentation November 2011
IA has capacity of ~ $200M to support capital with nonequity issue.
Long-term Capital Management Non-Permanent Capital Capital opportunity IATS
Pref. reset
Sub.
Sub.
Sub.
$150M
$100M
$150M
$100M
$100M
Rate
5.714%
6.20%
5.13%
8.25%
5.63%
Issue Date
2003
2008
2004
2009
2008
Reset/ Maturity
2013
2014
> If interest rates remain at current levels or decrease: > capital will be refinanced at lower rates > If interest rates increase: > provisions for long-term liabilities will benefit
2018
17
Year-end Assumption Changes >
IA reserves can absorb year-to-date drop in interest rates and reduce URR by 10 bps (3.6%) at September 30, 2011 >
>
If interest rates fall below Q3 thresholds (4.15% for Québec LT bonds and 2.8% for Canada LT bonds) >
>
Combination of mortality assumption update and management actions year to date
IA would have to strengthen reserves and most likely reduce y another 10 bps p ((3.5%)) URR by
If interest rates remain at Q3 thresholds or higher >
IA is optimistic that it can manage its year-end review with minimal impact to overall reserves.
18
Industrial Alliance Insurance and Financial Services Inc. Institutional Presentation November 2011
Transition to IFRS I The Company adopted International Financial Reporting Standards (IFRS) beginning with the first quarter of 2011. All amounts in this document are presented on an IFRS basis for comparative periods in 2011 and 2010, and on a Canadian GAAP (CGAAP) basis for 2009 and before. For a full description of the impact of the transition of IFRS, see Note 4 Transition to International Financial Reporting Standards (IFRS) accompanying the unaudited condensed consolidated financial statements for the period ended September 30, 2011. All amounts are in Canadian dollars unless noted otherwise.
19
Non-IFRS Financial Information The Company reports its financial results in accordance with International Financial Reporting Standards(IFRS). It also publishes certain non-IFRS financial measures that th t do d nott have h an IFRS equivalent, i l t including i l di sales, l value l off new business, embedded value and solvency ratio, or which have an IFRS equivalent such as data on operating profit and income taxes on earnings presented in the sources of earnings table. The Company also uses non-IFRS adjusted data in relation to net income, earnings per share and return on equity. These non-IFRS financial measures are always accompanied by and reconciled with IFRS financial measures. The Company believes that these non-IFRS financial measures provide investors and analysts with additional information to better understand the Company’s Company s financial results as well as assess its growth and earnings potential. potential Since non-IFRS financial measures do not have a standardized definition, they may differ from the non-IFRS financial measures used by other institutions. The Company strongly encourages investors to review its financial statements and other publicly-filed reports in their entirety and not to rely on any single financial measure. 20
Industrial Alliance Insurance and Financial Services Inc. Institutional Presentation November 2011
Forward-Looking Statements This document may contain statements relating to strategies used by Industrial Alliance or statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “may”, “will”, “could”, “should”, “would”, “suspect”, “expect”, “anticipate”, “intend”, “plan”, “believe”, “estimate”, and “continue” continue (or the negative thereof), thereof) as well as words such as “objective” objective or “goal” goal or other similar words or expressions. Such statements constitute forward-looking statements within the meaning of securities laws. Forward-looking statements include, but are not limited to, information concerning the Company’s possible or assumed future operating results. These statements are not historical facts; they represent only the Company’s expectations, estimates and projections regarding future events. Although Industrial Alliance believes that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements. Factors that could cause actual results to differ materially from expectations include, but are not limited to: general business and economic conditions; level of competition and consolidation; changes in laws and regulations including tax laws; liquidity of Industrial Alliance including the availability of financing to meet existing financial commitments on their expected maturity dates when required; and insurance risks including mortality, morbidity, longevity and policyholder behaviour including the occurrence of natural or man-made disasters, pandemic diseases and acts of terrorism. Additional information about material factors that could cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward-looking statements may be found in Industrial Alliance's most recent annual report under the “Risk Management” section of the Management’s Discussion and Analysis and in the “Management of Risks Associated with Financial Instruments” note to Industrial Alliance’s consolidated financial statements, available for review at www.sedar.com. Industrial Alliance does not undertake to update or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events, except as required by law.
21
Industrial Alliance
Insurance and Financial Services Inc.
Third Quarter 2011 Conference Call Presentation
A partner you can trust.
22
November 2, 2011
Industrial Alliance Insurance and Financial Services Inc. Institutional Presentation November 2011
Taux journaliers Canada long terme DATE
Obligations
Zéro coupon
Can ‐ 20 ans Can ‐ 30 ans QC ‐ 20 ans QC ‐ 30 ans
QC ‐ 20 ans QC ‐ 30 ans
Taux annualisé Réf*
Zéro coupon 25 ans
Quotidien V39056
Mensuel** V122544
Annualisé V39056
Spread (pbs)
(y)
(x) ‐ (y)
31‐Dec‐07 31‐Dec‐08
4.12 3.56
4.10 3.42
4.73 5.06
4.74 4.93
4.94 5.39
4.86 4.92
4.94 5.21
(x) 4.96 5.22
4.10 3.45
4.18 3.45
4.14 3.48
80 173
30 Jan 09 30‐Jan‐09 27‐Feb‐09 31‐Mar‐09 30‐Apr‐09 29‐May‐09 30‐Jun‐09 31‐Jul‐09 31‐Aug‐09 30 S 09 30‐Sep‐09 30‐Oct‐09 30‐Nov‐09 31‐Dec‐09 29‐Jan‐10 26‐Feb‐10 31‐Mar‐10 30‐Apr‐10 30 Apr 10 31‐May‐10 30‐Jun‐10 30‐Jul‐10 31‐Aug‐10 30‐Sep‐10 29‐Oct‐10 30‐Nov‐10 31 Dec 10 31‐Dec‐10 31‐Jan‐11 28‐Feb‐11 31‐Mar‐11 29‐Apr‐11 31‐May‐11 30‐Jun‐11 29‐Jul‐11 31‐Aug‐11 30‐Sep‐11 31‐Oct‐11 01‐Nov‐11 02‐Nov‐11 03‐Nov‐11 04‐Nov‐11 07‐Nov‐11
3.92 3.84 3.63 3.90 4.07 3.97 4.06 4.00 3 3.95 9 4.04 3.94 4.19 4.00 4.05 4.09 4.03 3.74 3.63 3.68 3.42 3.33 3.37 3.49 3 51 3.51 3.73 3.70 3.75 3.69 3.45 3.50 3.22 3.03 2.71 2.85 2.72 2.75 2.79 2.74 2 73 2.73
3.73 3.66 3.53 3.80 3.94 3.80 3.89 3.82 3 3.78 8 3.86 3.84 4.08 3.94 4.01 4.04 3.98 3.70 3.62 3.67 3.41 3.32 3.40 3.49 3 53 3.53 3.73 3.70 3.76 3.69 3.49 3.54 3.29 3.10 2.77 2.93 2.79 2.82 2.86 2.83 2 82 2.82
5.31 5.43 5.19 5.22 5.30 5.07 4.98 4.90 4.73 3 4.84 4.76 4.95 4.79 4.78 4.86 4.93 4.77 4.63 4.63 4.41 4.27 4.24 4.39 4 37 4.37 4.57 4.53 4.57 4.56 4.33 4.35 4.11 4.05 3.81 3.86 3.75 3.77 3.80 3.76 3 75 3.75
5.09 5.21 5.05 5.13 5.19 4.91 4.86 4.79 4.65 6 4.78 4.70 4.88 4.77 4.78 4.86 4.93 4.79 4.68 4.66 4.44 4.29 4.30 4.41 4 42 4.42 4.61 4.55 4.60 4.58 4.38 4.42 4.18 4.12 3.88 3.94 3.83 3.84 3.87 3.85 3 84 3.84
5.69 5.61 5.55 5.66 5.74 5.47 5.34 5.24 5.19 9 5.16 5.13 5.34 5.14 5.19 5.23 5.26 5.11 4.95 5.06 4.81 4.68 4.63 4.72 4 76 4.76 4.96 4.90 4.86 4.87 4.65 4.73 4.42 4.44 4.20 4.21 4.09 4.11 4.15 4.11 4 09 4.09
5.05 4.97 4.96 5.17 5.21 4.87 4.84 4.75 4.70 0 4.81 4.77 4.95 4.82 4.89 4.97 5.01 4.91 4.76 4.81 4.50 4.40 4.44 4.57 4 63 4.63 4.79 4.77 4.76 4.75 4.59 4.68 4.34 4.29 4.05 4.10 3.96 3.98 4.03 4.00 3 98 3.98
5.42 5.36 5.31 5.46 5.53 5.22 5.14 5.04 4.98 98 5.03 4.99 5.19 5.02 5.08 5.14 5.18 5.05 4.89 4.97 4.69 4.56 4.56 4.67 4 72 4.72 4.91 4.86 4.84 4.84 4.65 4.73 4.40 4.38 4.14 4.17 4.04 4.06 4.11 4.07 4 05 4.05
5.44 5.36 5.32 5.49 5.55 5.24 5.15 5.06 5.01 0 5.05 5.01 5.21 5.04 5.10 5.17 5.20 5.07 4.91 5.00 4.71 4.59 4.59 4.70 4 75 4.75 4.93 4.89 4.87 4.87 4.67 4.76 4.43 4.41 4.17 4.20 4.07 4.09 4.13 4.10 4 08 4.08
3.77 3.70 3.57 3.84 3.99 3.86 3.95 3.89 3 3.84 8 3.92 3.84 4.08 3.94 4.02 4.07 4.01 3.73 3.65 3.69 3.44 3.35 3.44 3.48 3 52 3.52 3.73 3.70 3.75 3.69 3.49 3.55 3.29 3.10 2.77 2.92 2.79 2.81 2.86 2.83 2 81 2.81
3.72 3.69 3.74 3.82 4.19 3.91 4.05 3.9 3 3.84 8 3.96 3.85 4.07 3.96 4.05 4.07 4.04 3.68 3.65 3.77 3.47 3.33 3.50 3.65 3 54 3.54 3.75 3.75 3.72 3.74 3.50 3.53 3.35 3.10 2.83 3.02
3.81 3.73 3.60 3.88 4.03 3.90 3.99 3.93 3.88 3 88 3.96 3.88 4.12 3.98 4.06 4.11 4.05 3.76 3.68 3.72 3.47 3.38 3.47 3.51 3 55 3.55 3.76 3.73 3.79 3.72 3.52 3.58 3.32 3.12 2.79 2.94 2.81 2.83 2.88 2.85 2 83 2.83
162 163 171 159 150 132 115 111 110 0 107 111 107 104 102 103 113 128 121 124 122 119 109 116 117 114 113 106 112 113 115 109 126 135 123 123 123 123 122 122
S&P/TSX
Tx swap 30 ans
8,695 8,720 9,325 10,370 10,375 10,787 10,868 11,395 39 10,911 11,447 11,746 11,094 11,630 12,038 12,211 11,763 11,294 11,713 11,914 12,369 12,676 12,953 13 443 13,443 13,552 14,137 14,116 13,945 13,803 13,301 12,946 , 12,769 11,624 12,252 12,115 12,242 12,468 12,408 12 462 12,462
3.17 3.02 3.03 3.08 3.04 3 03 3.03
* Taux référence = 90 % QC zéro coupon 25 ans + 10 % obligations QC 25 ans sur base annualisée ** Taux du dernier mercredi du mois. Indice servant au URR (Ultimate Reinvestment Rate)
R:/sas/document/Intérêt/hist taux pricing.xls
Insurance and Financial Services Inc.
Institutional Presentation November 2011
A partner you can trust.
1
A Sustainable Business Strategy >
Focused growth > > > >
>
Proven profitability >
>
Organic growth supplemented by strategic acquisitions Business-line and geographic diversification Leading market shares in the Canadian market Eighth consecutive quarter of top-line growth in Q3-11 In-force operations provide strong visibility of earnings
Strong capital base > > > >
Tier 1 accounts for 89% of total capital Recent issue of common shares ($200M) Capacity to further support capital with non-equity (~$200M) Comfortably positioned given current macro environment
2
Industrial Alliance Insurance and Financial Services Inc. Institutional Presentation November 2011
Growth in P&D Premiums1 and deposits (P&D) ($Million) 6,766 6,077 Q4
1,399
Q3
1,326
Q2
1,591
5,668
5,422
1,252
• Strong position in retail
1,823
1,577
• Growing contribution from wealth management
1,580
1,478
• Building scale in creditor
1,402 1,297
Q1
insurance
5,261
1,567
insurance
1,623
1,698
1,842
1,983
2010
2011
• Expanding top line in U.S.
1,276
1,761
1,447
2007
2008
1,272
2009
CGAAP
IFRS
An eighth consecutive quarter of business growth. 3
1 Includes
premium equivalents
Earnings Stability and Growth Profitability ($Million) 242.2 Q4
205.8
63.1
250.8
246.8
67.4
66.6
66.11
• Continued geographic 184.5
67.4
Q3
59.1
51.2
Q2
62.1
63.4
Q1
57 9 57.9
61 7 61.7
2007
2008
65.4
64.4
57.7
56.6
46 2 46.2
60 3 60.3
59 2 59.2
2009
2010
2010
45.7
various life stages
• Serial approach to organic
60.1
72.7
32.1
CGAAP2
diversification
• Many businesses at growth and low-risk acquisitions
66.1 66
2011 IFRS
A successful balance of top-line growth, profitability and risk management. 4
1 2
Reserve strengthening of $138.2M after tax in Q4 reduced profitability in 2008. Excludes impact of debt asymmetry.
Industrial Alliance Insurance and Financial Services Inc. Institutional Presentation November 2011
Market Share by Business Line (At September 30, 2011)
Individual Insurance
Individual Wealth Mgmt Seg Funds
Group Insurance
Group Savings and Retirement
Employee Groups1
Mutual Funds
Market Share
Rank
Rank
Market Share
Rank
8.7%
4th 10.5%
14th
6th
4.4%
5th
5.1%
9 4% 9.4%
1st 43.0% 43 0%
11th
5th
8 1% 8.1%
6th
5 5% 5.5%
Rank
Market Share
In Force 2
4th
New Business 3
4th
Rank
Individual wealth management steadily outperforming the industry. Number one in net segregated fund sales in Canada. 1 2 3
5
Target market: 50 to 1,000 employees. In force in insurance sectors refers to direct premiums and premiums equivalents; in other sectors it refers to assets. New business in Individual Wealth Management refers to net sales; in other sectors it refers to first-year annualized premiums.
Industry data: CLHIA, Fraser Group, Investor Economics, IFIC and LIMRA.
Individual Wealth Management Net Sales In Line with 2010 Record Year Net Sales ($Million)
1,722 1,378 797 875
696 149
799 612
281
289 547
608
2005
2006
646
758
267
579 323 2007
2008
Seg Funds
1,205
925 559
477 2009
2010
Mutual Funds
6
Industrial Alliance Insurance and Financial Services Inc. Institutional Presentation November 2011
9 M/11
Market Share
IA Consistently Delivers Positive Net Sales of Mutual Funds Quarterly Net Sales ($Million) Industry
IA 475
20 000 20,000
Industry
IA
375
15,000
275 10,000 175 5,000 75 0,0
-26
2007
2008
2009
2010
2011
IA has delivered positive net sales, even when the industry is in net redemptions. 7
Industry figures exclude Franklin Templeton as of Feb 2011 and IGM Financial (Mackenzie Financial, Counsel Portfolio & Investors Group) as of Jan 2011
Creditor Insurance & Complementary P&C Warranties Sales (Gross Premiums In $Million)
218 26
P&C Warranties Creditor Insurance
240
231 37
202
57
246 44
complementary (P&C) business • 3 acquisitions in the last 12 months
50
192
194 152
2007
2008
2009
183
2010
• Development of a
202
9 M/11
Quickly becoming a sizeable niche operation. 8
Industrial Alliance Insurance and Financial Services Inc. Institutional Presentation November 2011
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Q4
-226
Q3
-10,000
Q2
-126
Q1
5 000 -5,000
Interest Rate and Equity Market Indicators Headwinds from both equity markets and interest rates in Q3.
Interest Rates (%) 6.5
S&P /TSX Oct. 31, 2011
Canada long-term interest rates
6.0
16000
14000
5.5 12000
5.0 4.5
10000 S&P/TSX
4.0
8000
3.5 6000
3.0 2.5
4000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
9
Reinvestment Risk on Fixed Income Assets IRR
URR
I iti l Reinvestment Initial R i t t Rate R t
Ulti t Reinvestment Ultimate R i t t Rate R t
Investment rate for cash flows to be invested during the first 19 years
Investment rate for cash flows to be invested during year 20 and beyond
after the valuation date.
after the valuation date.
Basis
Spot rate at quarter-end. Aligned with IA’s investment policy and asset mix.
Moving average (5&10-year) of Canada longterm bonds with an additional 10% margin.
Proxy
Quebec long term bonds (see Annex)
Bank of Canada long-term bonds (V122544)
Trend
In decline since 2010 after staying in a 4.8%-5.1% range between 2006 and 2009.
In steady decline over the last five years.
Impact
IRR -10 bps Î Net income ~$-28M1
URR -10 bps Î Net income ~$-49M1
Description
Risk Management
10
1
Globally through management actions and conservative reserving practices. (eg: assuming future URR reductions before they become CIA mandated)
Evaluation as of June 30, 2011
Industrial Alliance Insurance and Financial Services Inc. Institutional Presentation November 2011
Ultimate Reinvestment Rate (URR) Projections to 2015 5.0%
5.0% Prescribed maximum: 3.8% IA: 3.6%
4.7%
V122544 at Oct. 31, 2011: 3.02%
4.5% 4.5%
4.5% Maximum prescribed URR under various interest rate scenarios 1
4.3%
4.4%
Assumed long-term Canada bond rates (V122544) from November 2011
4.1%
4.2%
4.0% 4.0% 4.0%
3.8%
3.9%
3.7%
3.6%
3.6% 3 6% 3.5%
3.7% 3.6%
3.5%
3.5%
3.6% 3.4%
3.3%
3.4%
3.2%
3.1%
3.6% 3.3%
2.9%
2005 2006 2006 2007 2007 2008 2008 2009 2010 2010 2011 2011 2005 0 2009
11
1
3.0% 2012
2013
2014
3.00%
2.7%
2.50%
2015
IA projections
Year-to-date Management Actions Management actions
Amount of assets traded
>
Intersegment notes
∼ $300 M
>
Bonds forward
∼ $130 M
>
A/L matching improvement
∼ $670 M
∼ $1.1 billion
Management actions have contained IRR sensitivity to $28M/10 bps. IA is optimistic that IRR sensitivity can be further decreased.
12
Industrial Alliance Insurance and Financial Services Inc. Institutional Presentation November 2011
3.50%
3.0%
IA's URR CIA's max. URR
4 00% 4.00%
Mortality Improvement Historical average mortality improvement >
Canadian industry
(2000-2009)
2.5%
>
Industrial Alliance
(2001-2010)
2.4%
>
CPP 1
(1991-2006)
2.3%
On a rolling five-year basis, mortality improvement has proven to be a constant.
Projected mortality improvement >
CPP (annuitants)1
1 5%/20 years 1.5%/20
>
Prescribed by CIA (annuitants)
1.5-3.0%/25 years
>
Max. allowed by CIA (life)
0.5-1.0%/25 years
Long-term data supports IA decision to retain mortality risk. 13
1
Male 45 to 65 years
Solvency Ratio (%) 223
224
208
211
205
202
196
208 194
197
Target
Q3 solvency ratio
• Share issue (+14 pts) • Increase in cap. req’ts for seg funds (-4 pts)
• Adverse markets (-4%) • Lower net income (-2%) • Phase Phase-in in of IFRS (-1%) ( 1%) Q4/09 Q1/10 Q2/10 Q3/10 Q4/10 Q4/10 Q1/11
CGAAP
Q2/11 Q2/11* Q3/11
IFRS
Given current macroeconomic conditions, comfortably positioned at the top of the 175-200% target range. 14 * Pro forma following common share issue on September 15, 2011.
Industrial Alliance Insurance and Financial Services Inc. Institutional Presentation November 2011
Solvency Ratio: Sensitivity to Markets and Interest Rates IRR TSX
4 60 4.60
4 15 4.15
3 951 3.95
+10%
12,800
206
200
189
+5%
12,200
207
201
190
Q3/11
11,624
202
197
186
-10%
10,500
190
185
175
-20%
9,300
173
169
160
-30%
8,100
158
154
145
Macroeconomic conditions would need to deteriorate significantly for solvency ratio to be at low end of target range.
15 1 Reflects an additional 10 bps reduction in URR to 3.5%
Non-equity Capital Capacity Leverage Ratio (debt & hybrids)
35% 28%
S&P Maximum
IAG Q3/2011
Fixed Charge Coverage Ratio
5.0x
S&P Minimum
5.8x
IAG Q3/2011
16
Industrial Alliance Insurance and Financial Services Inc. Institutional Presentation November 2011
IA has capacity of ~ $200M to support capital with nonequity issue.
Long-term Capital Management Non-Permanent Capital Capital opportunity IATS
Pref. reset
Sub.
Sub.
Sub.
$150M
$100M
$150M
$100M
$100M
Rate
5.714%
6.20%
5.13%
8.25%
5.63%
Issue Date
2003
2008
2004
2009
2008
Reset/ Maturity
2013
2014
> If interest rates remain at current levels or decrease: > capital will be refinanced at lower rates > If interest rates increase: > provisions for long-term liabilities will benefit
2018
17
Year-end Assumption Changes >
IA reserves can absorb year-to-date drop in interest rates and reduce URR by 10 bps (3.6%) at September 30, 2011 >
>
If interest rates fall below Q3 thresholds (4.15% for Québec LT bonds and 2.8% for Canada LT bonds) >
>
Combination of mortality assumption update and management actions year to date
IA would have to strengthen reserves and most likely reduce y another 10 bps p ((3.5%)) URR by
If interest rates remain at Q3 thresholds or higher >
IA is optimistic that it can manage its year-end review with minimal impact to overall reserves.
18
Industrial Alliance Insurance and Financial Services Inc. Institutional Presentation November 2011
Transition to IFRS I The Company adopted International Financial Reporting Standards (IFRS) beginning with the first quarter of 2011. All amounts in this document are presented on an IFRS basis for comparative periods in 2011 and 2010, and on a Canadian GAAP (CGAAP) basis for 2009 and before. For a full description of the impact of the transition of IFRS, see Note 4 Transition to International Financial Reporting Standards (IFRS) accompanying the unaudited condensed consolidated financial statements for the period ended September 30, 2011. All amounts are in Canadian dollars unless noted otherwise.
19
Non-IFRS Financial Information The Company reports its financial results in accordance with International Financial Reporting Standards(IFRS). It also publishes certain non-IFRS financial measures that th t do d nott have h an IFRS equivalent, i l t including i l di sales, l value l off new business, embedded value and solvency ratio, or which have an IFRS equivalent such as data on operating profit and income taxes on earnings presented in the sources of earnings table. The Company also uses non-IFRS adjusted data in relation to net income, earnings per share and return on equity. These non-IFRS financial measures are always accompanied by and reconciled with IFRS financial measures. The Company believes that these non-IFRS financial measures provide investors and analysts with additional information to better understand the Company’s Company s financial results as well as assess its growth and earnings potential. potential Since non-IFRS financial measures do not have a standardized definition, they may differ from the non-IFRS financial measures used by other institutions. The Company strongly encourages investors to review its financial statements and other publicly-filed reports in their entirety and not to rely on any single financial measure. 20
Industrial Alliance Insurance and Financial Services Inc. Institutional Presentation November 2011
Forward-Looking Statements This document may contain statements relating to strategies used by Industrial Alliance or statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “may”, “will”, “could”, “should”, “would”, “suspect”, “expect”, “anticipate”, “intend”, “plan”, “believe”, “estimate”, and “continue” continue (or the negative thereof), thereof) as well as words such as “objective” objective or “goal” goal or other similar words or expressions. Such statements constitute forward-looking statements within the meaning of securities laws. Forward-looking statements include, but are not limited to, information concerning the Company’s possible or assumed future operating results. These statements are not historical facts; they represent only the Company’s expectations, estimates and projections regarding future events. Although Industrial Alliance believes that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements. Factors that could cause actual results to differ materially from expectations include, but are not limited to: general business and economic conditions; level of competition and consolidation; changes in laws and regulations including tax laws; liquidity of Industrial Alliance including the availability of financing to meet existing financial commitments on their expected maturity dates when required; and insurance risks including mortality, morbidity, longevity and policyholder behaviour including the occurrence of natural or man-made disasters, pandemic diseases and acts of terrorism. Additional information about material factors that could cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward-looking statements may be found in Industrial Alliance's most recent annual report under the “Risk Management” section of the Management’s Discussion and Analysis and in the “Management of Risks Associated with Financial Instruments” note to Industrial Alliance’s consolidated financial statements, available for review at www.sedar.com. Industrial Alliance does not undertake to update or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events, except as required by law.
21
Industrial Alliance
Insurance and Financial Services Inc.
Third Quarter 2011 Conference Call Presentation
A partner you can trust.
22
November 2, 2011
Industrial Alliance Insurance and Financial Services Inc. Institutional Presentation November 2011
Taux journaliers Canada long terme DATE
Obligations
Zéro coupon
Can ‐ 20 ans Can ‐ 30 ans QC ‐ 20 ans QC ‐ 30 ans
QC ‐ 20 ans QC ‐ 30 ans
Taux annualisé Réf*
Zéro coupon 25 ans
Quotidien V39056
Mensuel** V122544
Annualisé V39056
Spread (pbs)
(y)
(x) ‐ (y)
31‐Dec‐07 31‐Dec‐08
4.12 3.56
4.10 3.42
4.73 5.06
4.74 4.93
4.94 5.39
4.86 4.92
4.94 5.21
(x) 4.96 5.22
4.10 3.45
4.18 3.45
4.14 3.48
80 173
30 Jan 09 30‐Jan‐09 27‐Feb‐09 31‐Mar‐09 30‐Apr‐09 29‐May‐09 30‐Jun‐09 31‐Jul‐09 31‐Aug‐09 30 S 09 30‐Sep‐09 30‐Oct‐09 30‐Nov‐09 31‐Dec‐09 29‐Jan‐10 26‐Feb‐10 31‐Mar‐10 30‐Apr‐10 30 Apr 10 31‐May‐10 30‐Jun‐10 30‐Jul‐10 31‐Aug‐10 30‐Sep‐10 29‐Oct‐10 30‐Nov‐10 31 Dec 10 31‐Dec‐10 31‐Jan‐11 28‐Feb‐11 31‐Mar‐11 29‐Apr‐11 31‐May‐11 30‐Jun‐11 29‐Jul‐11 31‐Aug‐11 30‐Sep‐11 31‐Oct‐11 01‐Nov‐11 02‐Nov‐11 03‐Nov‐11 04‐Nov‐11 07‐Nov‐11
3.92 3.84 3.63 3.90 4.07 3.97 4.06 4.00 3 3.95 9 4.04 3.94 4.19 4.00 4.05 4.09 4.03 3.74 3.63 3.68 3.42 3.33 3.37 3.49 3 51 3.51 3.73 3.70 3.75 3.69 3.45 3.50 3.22 3.03 2.71 2.85 2.72 2.75 2.79 2.74 2 73 2.73
3.73 3.66 3.53 3.80 3.94 3.80 3.89 3.82 3 3.78 8 3.86 3.84 4.08 3.94 4.01 4.04 3.98 3.70 3.62 3.67 3.41 3.32 3.40 3.49 3 53 3.53 3.73 3.70 3.76 3.69 3.49 3.54 3.29 3.10 2.77 2.93 2.79 2.82 2.86 2.83 2 82 2.82
5.31 5.43 5.19 5.22 5.30 5.07 4.98 4.90 4.73 3 4.84 4.76 4.95 4.79 4.78 4.86 4.93 4.77 4.63 4.63 4.41 4.27 4.24 4.39 4 37 4.37 4.57 4.53 4.57 4.56 4.33 4.35 4.11 4.05 3.81 3.86 3.75 3.77 3.80 3.76 3 75 3.75
5.09 5.21 5.05 5.13 5.19 4.91 4.86 4.79 4.65 6 4.78 4.70 4.88 4.77 4.78 4.86 4.93 4.79 4.68 4.66 4.44 4.29 4.30 4.41 4 42 4.42 4.61 4.55 4.60 4.58 4.38 4.42 4.18 4.12 3.88 3.94 3.83 3.84 3.87 3.85 3 84 3.84
5.69 5.61 5.55 5.66 5.74 5.47 5.34 5.24 5.19 9 5.16 5.13 5.34 5.14 5.19 5.23 5.26 5.11 4.95 5.06 4.81 4.68 4.63 4.72 4 76 4.76 4.96 4.90 4.86 4.87 4.65 4.73 4.42 4.44 4.20 4.21 4.09 4.11 4.15 4.11 4 09 4.09
5.05 4.97 4.96 5.17 5.21 4.87 4.84 4.75 4.70 0 4.81 4.77 4.95 4.82 4.89 4.97 5.01 4.91 4.76 4.81 4.50 4.40 4.44 4.57 4 63 4.63 4.79 4.77 4.76 4.75 4.59 4.68 4.34 4.29 4.05 4.10 3.96 3.98 4.03 4.00 3 98 3.98
5.42 5.36 5.31 5.46 5.53 5.22 5.14 5.04 4.98 98 5.03 4.99 5.19 5.02 5.08 5.14 5.18 5.05 4.89 4.97 4.69 4.56 4.56 4.67 4 72 4.72 4.91 4.86 4.84 4.84 4.65 4.73 4.40 4.38 4.14 4.17 4.04 4.06 4.11 4.07 4 05 4.05
5.44 5.36 5.32 5.49 5.55 5.24 5.15 5.06 5.01 0 5.05 5.01 5.21 5.04 5.10 5.17 5.20 5.07 4.91 5.00 4.71 4.59 4.59 4.70 4 75 4.75 4.93 4.89 4.87 4.87 4.67 4.76 4.43 4.41 4.17 4.20 4.07 4.09 4.13 4.10 4 08 4.08
3.77 3.70 3.57 3.84 3.99 3.86 3.95 3.89 3 3.84 8 3.92 3.84 4.08 3.94 4.02 4.07 4.01 3.73 3.65 3.69 3.44 3.35 3.44 3.48 3 52 3.52 3.73 3.70 3.75 3.69 3.49 3.55 3.29 3.10 2.77 2.92 2.79 2.81 2.86 2.83 2 81 2.81
3.72 3.69 3.74 3.82 4.19 3.91 4.05 3.9 3 3.84 8 3.96 3.85 4.07 3.96 4.05 4.07 4.04 3.68 3.65 3.77 3.47 3.33 3.50 3.65 3 54 3.54 3.75 3.75 3.72 3.74 3.50 3.53 3.35 3.10 2.83 3.02
3.81 3.73 3.60 3.88 4.03 3.90 3.99 3.93 3.88 3 88 3.96 3.88 4.12 3.98 4.06 4.11 4.05 3.76 3.68 3.72 3.47 3.38 3.47 3.51 3 55 3.55 3.76 3.73 3.79 3.72 3.52 3.58 3.32 3.12 2.79 2.94 2.81 2.83 2.88 2.85 2 83 2.83
162 163 171 159 150 132 115 111 110 0 107 111 107 104 102 103 113 128 121 124 122 119 109 116 117 114 113 106 112 113 115 109 126 135 123 123 123 123 122 122
S&P/TSX
Tx swap 30 ans
8,695 8,720 9,325 10,370 10,375 10,787 10,868 11,395 39 10,911 11,447 11,746 11,094 11,630 12,038 12,211 11,763 11,294 11,713 11,914 12,369 12,676 12,953 13 443 13,443 13,552 14,137 14,116 13,945 13,803 13,301 12,946 , 12,769 11,624 12,252 12,115 12,242 12,468 12,408 12 462 12,462
3.17 3.02 3.03 3.08 3.04 3 03 3.03
* Taux référence = 90 % QC zéro coupon 25 ans + 10 % obligations QC 25 ans sur base annualisée ** Taux du dernier mercredi du mois. Indice servant au URR (Ultimate Reinvestment Rate)
R:/sas/document/Intérêt/hist taux pricing.xls
