February 12, 2010 / 3:42 PM / in 8 years

UPDATE 2-IAG rebounds to record profit, shares jump

* Q4 EPS C$0.83 vs loss C$1.37/shr yr-ago

* Tops analysts’ forecast for EPS C$0.69

* Maintains dividend, says growth back on track

* Shares surge 4.1 pct (Recasts with analyst, CEO comment)

By Andrea Hopkins

TORONTO, Feb 12 (Reuters) - Industrial Alliance Insurance and Financial Services IAG.TO reported a record quarterly profit on Friday, reversing big losses a year earlier and sending shares 4.1 percent higher.

Canada’s fourth-largest life insurer bucked the largely disappointing showing of its bigger lifeco peers earlier in the week, reporting stronger-than-expected sales and stock market gains that boosted its large investment portfolio.

The strong profit and optimistic outlook provided by the company for 2010 prompted one analyst to speculate that IAG may lead the pack in increasing payout to shareholders for the first time since the financial crisis began in 2008.

“With a 29 percent payout ratio, IAG maybe the first lifeco to raise its dividend some time in 2010,” BMO Capital Markets analyst John Reucassel said in a research note.

Reucassel pointed to IAG’s 27 percent increase in premiums and deposits in the quarter, mainly driven by growth in the sale of wealth management products -- mutual funds and segregated funds -- as proof of its momentum.

“We believe that IAG is capitalizing on new sales opportunities, as (Manulife) and (Sun Life) have pulled back somewhat from this market,” Reucassel said.

Manulife Financial Corp MFC.TO, North America’s largest life insurer, and Sun Life Financial Inc SLF.TO, Canada’s No. 3, reported weaker-than-expected results on Thursday, despite an increase in profit.

Winnipeg-based rival Great West Lifeco GWO.TO saw profit drop, but earnings were in line with expectations.

Quebec-based IAG’s net income came in at C$67.4 million ($64.2 million), or 83 Canadian cents a share, in the fourth quarter. That was up from a loss of C$110.2 million, or C$1.37 a share, in the same period a year earlier, when the company increased provisions as the value of its financial investments plunged.

The latest results surpassed analysts’ average estimates for earnings of 69 Canadian cents a share, according to Thomson Reuters I/B/E/S.

Shares pf IAG rose 4.1 percent to C$33.48 in late afternoon trade on the Toronto Stock Exchange, defying a broader downtrend in Canadian financials. Manulife was off 2.0 percent, while Sun Life ebbed 1.3 percent.

IAG Chief Executive Yvon Charest said he was pleased with the record profit after the company suffered during the financial crisis, when declines in financial markets sideswiped the big investment portfolios of insurance companies.

In the fourth quarter, sales of individual wealth management products rose 68 percent, boosted by stock market gains, while assets under management and administration rose 18 percent for the year to C$58.4 billion, the company said.

“From a business growth perspective, momentum is back,” Charest told analysts on a conference call.

Return on equity, a key measure of profitability, rose to 14.9 percent in the quarter and was at 11.9 percent in 2009 as a whole, up from just 4.0 percent in 2008.

The company maintained its dividend and said the outlook for 2010 was good.

It expects return on equity to be between 12 percent and 14 percent, which translates to earnings per share of about C$2.75 to C$3.25. That target range is up from 2009’s per share profit target of between C$2.50 and C$3.00.

IAG said it is maintaining its 25 percent to 35 percent target range for the dividend payout ratio, and expects it to be in the “upper part” of the range in 2010.

$1=$1.05 Canadian Reporting by Andrea Hopkins; editing by Rob Wilson

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