DBRS Confirms Ratings on Industrial Alliance with Stable Trend

DBRS has today confirmed its ratings on Industrial Alliance Insurance and Financial Services Inc.’s (IAG or the Company) Subordinated Debentures at A, Non-Cumulative Preferred Shares at Pfd-2 and Claims Paying Ability at IC-2. All ratings have a Stable trend.

IAG continues to execute well on its strategy to grow outside of its traditional Québec market and to enhance the relative contribution of wealth management products and services. Across all business lines, more than half of new sales are to non-Québec clients. Recent acquisitions in the wealth management area have been successfully integrated and are now contributing to both sales and the bottom line.

Company earnings have been steady, with return on equity (ROE) above the Company’s 13% to 15% target range. In individual insurance, where the Company is the fourth largest manufacturer in the Canadian market and the largest in terms of sales of the popular Universal Life product, price adjustments caused sales to fall in H1 2007 as the Company has shifted its mix in favour of renewable term coverage as opposed to level cost in an effort to reduce the new business strain in this line of business. The Company is well positioned to benefit from expense and revenue synergies through consolidation of technology platforms, expanded distribution channels and cross-selling of its products and services across the organization.

Capitalization remains conservative for the rating, with a total debt plus preferred ratio of just 21.1% and a solvency ratio of 197%. The Company regularly generates excess capital as earnings are more than adequate to fund both organic growth and shareholder dividends. Asset quality is superior to that of the peer group.

Despite the Company’s recent success in diversifying its sources of earnings by product, geography and distribution channel, the Company’s rating is limited by its relatively small scope and scale. Relative to its peer group, IAG remains more heavily exposed to the stagnant individual life insurance market in Canada, which in addition to relatively high new business strain and exposure to the level of interest rates in the longer term, is also the most competitive segment of the industry. However, the rating is supported by an increasing presence in wealth management as well as in the group insurance and group pension markets across the country, complementing the Company’s existing strong presence in Québec.