Industrial Alliance has released its third quarter financials, and managed to do so without mentioning any prospects for regulatory change. This is the same policy as was followed with the 2Q10 Shareholders’ Report.
However, it was another good quarter:
Top-line growth in the third quarter continued to show strong momentum. Premiums and deposits increased 15% to $1.4 billion and the value of new business rose 44% to $41.4 million. For the nine-month period, premiums and deposits were up 31% over 2009 and 7% over 2007 – the Company’s record year. This growth is fuelled primarily by the Individual Wealth Management sector that continues to benefit from stock market gains and high net sales.
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Top-line growth in the third quarter continued to be strong for the fourth quarter in a row. Almost all sectors contributed to this growth, with Individual Wealth Management in the lead as a result of the upswing in equity markets. For the period ended September 30th, this sector had gross sales of $686.7 million, up 29% over the previous year, and net sales of $243.3 million, up 52% over 2009. For the first nine months of 2010, Industrial Alliance ranked second in Canada for net sales of segregated funds, with a 34.1% market share, and fifth in terms of net mutual fund sales.
There are a few changes planned for their asset mix and hedging practice:
Management has taken a number of initiatives to reduce its sensitivity to interest rate risk. These initiatives are in the process of being implemented and will include a 5% increase in the proportion of stocks backing long-term liabilities. Had these initiatives been in place at September 30, 2010, the Company expects that it would be able to absorb a 15% decline in equity markets and that provisions for future policy benefits would not have to be strengthened as long as the S&P/TSX remains above 10,500 points.
Additionally, as part of its risk management process, the Company has implemented a dynamic hedging program to manage the equity risk related to its guaranteed annuity (GMWB) product, effective October 20th, 2010. The GMWB portfolio represents approximately $1.5 billion of assets under management, including $900 million in equities. The Company also entered into a reinsurance agreement during the third quarter to share 60% of the longevity risk related to its $2.5 billion insured annuity block of business.
As far as current sensitivities are concerned:
The Company’s sensitivity analysis varies from one quarter to another according to numerous factors, including changes in the economic and financial environment and the normal evolution of the Company’s business. The results of these analyses show that the leeway the Company has to absorb potential market downturns remains very high overall.
At September 30, 2010, the analysis was as follows:
- Stocks matched to the long-term liabilities – The Company believes that it will not have to strengthen its provisions for future policy benefits for stocks matched to long-term liabilities as long as the S&P/TSX index remains above 9,400 points.
- Solvency ratio – The Company believes that the solvency ratio will stay above 175% as long as the S&P/TSX index remains above 7,650 points, and will stay above 150% as long as the S&P/TSX index remains above 6,450 points.
- Ultimate reinvestment rate (“URR”) – The Company estimates that a 10 basis point decrease (or increase) in the ultimate reinvestment rate would require the provisions for future policy benefits to be strengthened (or would allow them to be released) by some $44 million after taxes.
- Initial reinvestment rate (“IRR”) – The Company estimates that a 10 basis point decrease (or increase) in the initial reinvestment rate would require the provisions for future policy benefits to be strengthened (or would allow them to be released) by some $25 million after taxes.
They estimate that a sudden 10% decline in equity markets would take $18-million off their net income; unfortunately, they neither provide pro-forma figures reflecting the asset mix changes, nor provide estimates of the effect of larger equity market declines – which will, of course, not be proportional to the adverse effect of such a normal correction.
This entry was posted on Thursday, November 4th, 2010 at 1:43 pm and is filed under Issue Comments, Regulation. You can follow any responses to this entry through the RSS 2.0 feed.
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IAG Silent on Regulatory Change
Industrial Alliance has released its third quarter financials, and managed to do so without mentioning any prospects for regulatory change. This is the same policy as was followed with the 2Q10 Shareholders’ Report.
However, it was another good quarter:
There are a few changes planned for their asset mix and hedging practice:
As far as current sensitivities are concerned:
They estimate that a sudden 10% decline in equity markets would take $18-million off their net income; unfortunately, they neither provide pro-forma figures reflecting the asset mix changes, nor provide estimates of the effect of larger equity market declines – which will, of course, not be proportional to the adverse effect of such a normal correction.
This entry was posted on Thursday, November 4th, 2010 at 1:43 pm and is filed under Issue Comments, Regulation. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.