July 15, 2010 / 7:40 PM / 7 years ago

UPDATE 2-INTERVIEW-Industrial Alliance shops for wealth unit

* Could acquire wealth manager, CEO says

* Would spend up to C$500 mln on acquisition

* Stock has outperformed larger rivals (Adds details on accounting changes, analyst's comment)

By Cameron French

TORONTO, July 15 (Reuters) - Industrial Alliance (IAG.TO), Canada's No. 4 insurer, could spend up to C$500 million ($480 million) to acquire a wealth management company as it seeks to extend its sector-topping growth rate, the company's chief executive said on Thursday.

Industrial Alliance Insurance and Financial Services has long operated in the shadow of Canada's three dominant insurers, which are led by Manulife Financial (MFC.TO). But it has found itself standing out as a survivor of the recent financial crisis, posting strong quarterly earnings and easily outperforming its rivals on the Toronto Stock Exchange.

The Quebec City-based company even took the bold move in April of launching a C$145 million acquisition of Texas life insurer American-Amicable Holding, as part of a long-term growth strategy in the United States.

Chief Executive Yvon Charest says he could follow that up with a sizable deal to bulk up the company's wealth management franchise, where he sees more potential for quick growth than in its core Canadian life insurance business.

"Certainly, we see that there is more consolidation potential in wealth management than life insurance," he said in an interview.

"We would be able to consider a deal up to C$500 million," he added, noting the company would have to raise cash on capital markets for a deal of that size.

EXPANDING BEYOND QUEBEC

Once a regional insurer that operated solely in the French-speaking province of Quebec, the company now does 55 percent of its business outside the province. Charest expects that figure to continue to rise as Industrial Alliance slowly wins market share away from other domestic players.

Charest says the company's main business segments have outgrown those of its rivals since 2004.

"We believe we (can continue to do that)," he said.

The company's stock, meanwhile, has easily outperformed the shares of its rivals since the days before the 2008 market crash.

Industrial Alliance stock is down 2 percent from Sept. 30, 2008, while Sun Life Financial (SLF.TO) is down 25 percent, Great-West Lifeco (GWO.TO) has fallen 22 percent, and Manulife is off nearly 60 percent.

Investors are now beginning to look ahead to the day when the company might resume dividend increases, which have been on hold since 2008.

Charest said he will wait for more clarity on proposed accounting changes that could affect how insurers calculate their long-term capital commitments and earnings.

A draft of the rules is expected to be released by the International Accounting Standards Board this summer. Insurance company executives in Canada, including Charest, have spoken out against the changes.

"The best thing that could happen to the industry is to just have the same system," he said.

In a recent research note, RBC Capital Markets analyst Andre-Philippe Hardy said he expected the new rules would have less impact on Industrial Alliance than on its peers, and said the company is the Canadian insurer in the best position to increase its dividend.

Industrial Alliance shares fell 6 Canadian cents to C$33.43 on Thursday.

$1=$1.04 Canadian Reporting by Cameron French; editing by Peter Galloway

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