May 6, 2009 / 1:40 PM / 9 years ago

UPDATE 4-IAG profit falls 25 pct, but shares rise

* EPS C$0.58 vs analyst forecast of C$0.57

* Says Q1 results are “very satisfying” given environment

* Shares up 0.8 pct at C$26.17 (Recasts, adds dividend, details)

By Andrea Hopkins

TORONTO, May 6 (Reuters) -Industrial Alliance Insurance and Financial Services Inc IAG.TO said on Wednesday quarterly profit fell 25 percent, but the shares rose on hopes that rising equity markets could boost the Canadian life insurer’s outlook.

While the country’s life insurers have outperformed U.S. peers since the start of the credit crunch last year, equity market exposure has hurt earnings and sales have suffered due to the the weak economy.

Industrial Alliance, Canada’s fourth-biggest publicly traded life insurer, said the stock market downturn and gloomy economic environment in the first quarter sharply eroded earnings.

Premiums and mutual fund deposits fell 13 percent to C$1.24 billion as a rise in group premiums failed to offset a drop in consumer appetite for savings and investment products.

Scotia Capital analyst Tom MacKinnon said sales were a bit weaker than expected but credit hits not as bad.

“The percentage of fixed income securities trading below 80 percent of costs for more than six months has nearly tripled quarter over quarter, so I think there still could be credit issues going forward,” MacKinnon said.

“But capitalization is fine and, if anything, with the uptick in equity markets, I suspect that their company consensus EPS estimates could go up,” he said.

Equity markets have risen sharply in recent weeks on hopes that the worst of the global economic malaise was over.

Analysts generally consider Industrial Alliance, like other Canadian life insurance companies, adequately capitalized to manage a difficult credit environment.

PROFIT SLIGHTLY ABOVE CONSENSUS

Net income dropped to C$46.2 million ($39.5 million), or 58 Canadian cents a share, in the three months ended March 31, from C$61.7 million, or 76 Canadian cents, in the same 2008 period.

Analysts had expected a profit of 57 Canadian cents before items, according to Reuters Estimates.

Industrial said a decline in equity market cut earnings by about C$9.9 million, or 12 Canadian cents, while results benefited from a gain of C$7.5 million, or 10 Canadian cents.

Despite the sharp drop in profit, the Canadian insurer said it was satisfied with the results given the tough economy.

“Profits are positive, the return is relatively high, financial strength remains very solid, the quality of investments remains excellent, the company’s book value is growing and we still have enough leeway to absorb significant market downturns,” Chief Executive Yvon Charest said in a statement.

The company boasted an 11.2 percent return on equity, positive net sales in all lines of business and a reinforced solvency ratio of 204 percent, which is above the company’s 175 percent to 200 percent target range.

Industrial’s shares rose 0.8 percent to C$26.17 in midday trade on the Toronto Stock Exchange. The S&P/TSX financial index of banks, insurance companies and asset managers was up 2.0 percent overall.

Industrial Alliance maintained its dividend at 24.5 Canadian cents a share, and said it expects to maintain that level through 2009.

Other big Canadian insurers, including Great-West Lifeco Inc GWO.TO, Sun Life Financial Inc SLF.TO and Manulife Financial Corp MFC.TO are due to release first-quarter results on Thursday.

$1=$1.175 Canadian Reporting by Andrea Hopkins, editing by Rob Wilson

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