July 29, 2008 / 2:41 PM / 9 years ago

Industrial Alliance profit edges higher

TORONTO (Reuters) - Industrial Alliance Insurance and Financial Services (IAG.TO) said on Tuesday that net income rose 2 percent in the second quarter, a smaller increase than expected due to elevated claims and a bond default in its investment portfolio.

The company, based in Quebec City, nevertheless boosted its quarterly dividend by 9 percent to 24.5 Canadian cents a share, citing confidence in its core insurance and wealth management operations.

Industrial Alliance shares were up 38 Canadian cents, or 1 percent, at C$33.66 late Tuesday afternoon on the Toronto Stock Exchange.

The company said profit in the three months ended June 30 was C$63.4 million ($62 million), or 78 Canadian cents a share. That was up from C$62.1 million, or 77 Canadian cents a share, a year earlier.

Analysts had expected to see a profit of 80 Canadian cents before items, according to Reuters Estimates.

Net income was constrained by higher than expected death claims in the individual insurance sector, abnormally high auto and home insurance claims due to poor weather, and a C$5 million provision for a bond investment that defaulted, the company said. After tax, the loss on the bond default amounted to C$3.6 million, or 4 Canadian cents a share.

Company officials did not identify the borrower, but said the debt was issued in a private placement, and was not in the auto, insurance or financial services industry.

"We are confident that this (default) is not indicative of any trend," Michel Tremblay, executive vice-president of investments, said on a conference call.

While "disappointed" by the bond provision, President and Chief Executive Yvon Charest said he hoped it would not overshadow achievements in the quarter, such as signing some big accounts in the group insurance sector.

Industrial Alliance sells and manages the IA Clarington family of mutual funds, and is the fourth-biggest publicly traded life insurer in Canada.

Premiums and mutual fund deposits inched up to C$1.53 billion in the second quarter from C$1.51 billion a year earlier. Individual wealth management sales fell 16 percent, led by a 20 percent fall in mutual fund sales due to unstable markets, the company said.

The company said return on equity was 14.4 percent in the quarter, down from 15.8 percent a year earlier, but within its target range of 14 percent to 16 percent.

($1=$1.02 Canadian)

Additional reporting by Frank Pingue; editing by Rob Wilson

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