* Non GAAP Q2 EPS C$0.64 vs C$0.77 year earlier
* Profit close to expectations, worst may be over
* Rising equities boost earnings, but sales slow (Adds CEO’s comments from conference call)
By Andrea Hopkins
TORONTO, July 28 (Reuters) - Surging stock markets were not enough to prevent a drop in profit at Industrial Alliance Insurance and Financial Services Inc (IAG.TO) in the second quarter, but results met expectations and analysts said the worst might be over for the life insurer.
Industrial Alliance, Canada’s fourth-biggest publicly traded life insurer, said it was very satisfied with the results even as the economic downturn slowed sales and ate into stock market gains.
The second-quarter profit of 64 Canadian cents a share, before special items, was down from 77 Canadian cents in the same quarter a year earlier, but in line with market expectations.
Shares of Industrial Alliance fell 1.7 percent to C$28.52 in late afternoon Toronto trade, while the broader financial index was 1 percent lower.
One analyst said better times could be on the horizon.
“Sales growth continues to remain weak, but I think it might be plateauing,” Scotia Capital analyst Tom MacKinnon said. “It was in line with what I was looking for ... and after what we’ve seen the last couple of quarters that is somewhat encouraging.”
Quebec-based Industrial Alliance reported net income of C$32.1 million ($29.6 million), compared with C$63.4 million in the second quarter of 2008.
Excluding a C$19.3 million reduction in value related to the difference between the market value of debt instruments and that of the underlying assets, the insurer earned C$51.4 million against C$62.3 million in the second quarter of 2008.
Chief Executive Yvon Charest said the company was very satisfied with the results.
“Even though sales are not as steady as last year, they are comparable to and even better than industry results. The quality of investments remains good,” he said in a statement.
The previous three quarters were tough on Canadian life insurers and their global competitors as stock market declines hammered their huge investment portfolios.
Industrial Alliance’s second quarter was affected by the same three items that hit previous quarters; the stock market — which this quarter was favorable — credit conditions and the economic slowdown.
While Charest said he was pleased with the stock market gains, he said investors should not expect the company to release reserves to boost earnings in the coming quarters, preferring instead to remain cautious against future headwinds.
“Historically, the company has always been more prudent before releasing reserves,” Charest told analysts on a conference call, noting that the cushion has been what has enabled IAG to absorb the shocks of the past year.
The stock market upswing lifted profit by about C$5.6 million after tax, or 7 Canadian cents a share.
Charest also downplayed suggestions that IAG is poised to snap up assets from beleaguered U.S. competitors, noting that risks continue to cloud buying opportunities.
“I’d like to do some bottom fishing, (but) I’d like to know where the bottom is,” Charest said on the call. “You should not expect things soon because we are not prepared to take a huge risk on the asset side just for the benefit of the delivering an acquisition.”
The company held its quarterly dividend at 24.5 Canadian cents, and said it aims to maintain the payout through 2009.
Assets under management rose to C$54.1 billion from C$51.4 billion a year earlier, while the solvency ratio rose to 202 percent from 185 percent.
Industrial Alliance’s return on equity was 7.6 percent in the quarter, down from 14.4 percent a year earlier.
Premiums and deposits totaled C$1.2 billion in the second quarter, down 22 percent from the same period last year. IAG said customers are waiting for stronger signs of a recovery before buying financial products again.
$1=$1.08 Canadian Reporting by Andrea Hopkins; editing by Peter Galloway