(Adds details, comments from conference call, share price)
By Lynne Olver
TORONTO, Feb 13 (Reuters) - Industrial Alliance Insurance and Financial Services Inc (IAG.TO) posted a 12 percent increase in fourth-quarter earnings on Wednesday and raised its dividend, but it warned that the stock market plunge that kicked off 2008 could crimp this year's profit.
The Canadian life and health insurer earned C$63.1 million ($63 million), or 78 Canadian cents a share, in the three months ended Dec. 31. That compares with C$56.4 million, or 70 Canadian cents a share, a year earlier.
Analysts had expected earnings before exceptional items of 79 Canadian cents, according to Reuters Estimates.
The Quebec-based company raised its quarterly dividend to 22.5 Canadian cents a share from 20 Canadian cents.
Insurance premiums and mutual fund deposits rose 10 percent to C$1.3 billion in the fourth quarter, led by record mutual fund sales, which surged 35 percent. Industrial Alliance sells and manages the IA Clarington family of funds.
"The year ended on a strong note," Yvon Charest, the company's president and chief executive, said in a news release.
"We have once again obtained low double-digit growth in income, which is in line with our expectations, and we efficiently managed profit margins and sales in the individual insurance sector."
Looking ahead, Industrial Alliance said that "under normal circumstances" it expects adjusted earnings per share to rise by 10 percent to 13 percent annually.
Its 2007 adjusted profit was C$3.08 per share, so the 10-to-13 percent range would mean 2008 earnings of between C$3.39 and C$3.48 per share, Charest noted on a conference call.
But the stock market downturn early this year could hurt 2008 net income, Charest said, adding that the company is not immune to market volatility.
A sudden 10 percent drop in the stock markets at the beginning of the year followed by market growth of about 7.25 percent for the rest of the year would lead to a drop of C$18.6 million in net income, Charest said on the call. That would equate to a drop of 23 Canadian cents per share, or about 6 Canadian cents a share each quarter, he said.
Industrial Alliance's return on equity in the fourth quarter was 15.2 percent on an annualized basis, down from 15.4 percent in the same 2006 period.
Its assets under management and under administration were C$50.4 billion as of Dec. 31, down slightly from the end of the third quarter, but up 7 percent from yearend 2006.
Last quarter, the company wrote down by 15 percent the value of the C$104 million in nonbank-sponsored asset-backed commercial paper to which it is exposed. It said on Wednesday it believed that markdown is still adequate.
On the Toronto Stock Exchange late on Wednesday afternoon, Industrial Alliance stock was up nearly 3 percent at C$37.00.
$1=$1.00 Canadian Reporting by Lynne Olver; Editing by Peter Galloway