IAG has released its package of materials for 3Q09.
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They can’t resist getting a poke into MFC and SLF, both of whom are expected to incur significant charges for policyholder benefits assumption changes:
The Company’s past prudence in terms of evaluating the provisions for future policy benefits was rewarded once again this quarter, since the Company did not have to strengthen its provisions for future policy benefits in the third quarter. In addition, according to the indications available at this time, and if current market conditions prevail until the end of 2009, the Company believes that the in-depth review of the various valuation assumptions that it performs at the end of the year should not lead to a significant adjustment to the provisions for future policy benefits in the fourth quarter, and should therefore not have a material impact on year-end net profit.
Their MCCSR is remaining strong:
The Company ended the third quarter with a solvency ratio of 197% as at September 30, 2009, which is slightly below the ratio of 202% recorded as at June 30, 2009. However, if the $100 million preferred share issue concluded on October 15, 2009 is included, the solvency ratio amounts to 207% on a pro forma basis, which is higher than the Company’s 175% to 200% target range. There was downward pressure on the solvency ratio in the third quarter primarily due to the higher capital requirements related to the increase in market value of stocks and bonds (a consequence of the stock market upswing, the reduction in long-term interest rates and the purchase of new securities). The decrease in the solvency ratio was, however, mitigated by the contribution of the net income to the available capital, net of the normal increase in required capital related to business growth.
The equity ratio has declined substantially from 3Q08, but is holding steady and is acceptable at levels of over 150%:
| IAG Equity-only MCCSR | ||||
| Item | 3Q09 | 2Q09 | 4Q08 | 3Q08 |
| Equity | 1,790.9 | 1,719.0 | 1,634.2 | 1,787.4 |
| Required Capital | 1,090.4 | 1,041.2 | 967.1 | 981.0 |
| Equity Ratio | 164% | 165% | 169% | 182% |
| Equity is taken from the table “Capitalization” and consists of all elements of reported equity, less preferred shares. | ||||
| Required Capital is taken from the table “Solvency” | ||||
Sensitivity is constant:
Hence, the provisions for future policy benefits will not have to be strengthened for the stocks matched to the long-term liabilities (including the segregated funds guarantee) as long as the S&P/TSX index remains above about 8,200 points (7,850 in the last update). The solvency ratio will remain above 175% as long as the S&P/TSX index remains above about 7,300 points (7,100 in the last update) and will remain above 150% as long as the index remains above 5,800 points (5,450 in the last update).
The results of all other sensitivity analyses concerning the impact of a decrease or increase in the stock markets or interest rates on the net profit, the ultimate reinvestment rate (“URR”) or the initial reinvestment rate (“IRR”) remain unchanged (for more details refer to the Management’s Discussion and Analysis that follows this news release).