Mr. Yvon Charest reports

A SOLID FIRST QUARTER FOR INDUSTRIAL ALLIANCE

For the quarter ended March 31, 2013, Industrial Alliance Insurance and Financial Services Inc. had net income attributed to common shareholders of $79.7-million versus $62.2-million a year earlier. Diluted earnings per share, adjusted for the dilutive impact of the company's innovative Tier 1 debt instruments (IATS) and reflecting the equity issue completed on Feb. 27, 2013, amounted to 85 cents compared with 69 cents a year earlier. Premiums and deposits exceeded the $2-billion mark, the highest in the company's history.

"Our first quarter performance was solid on all metrics," commented Yvon Charest, president and chief executive officer. "Industrial Alliance set another record for both premiums and deposits, as well as net earnings from continuing operations. In terms of financial flexibility, our solvency ratio remains extremely strong and our leverage ratio shows meaningful improvement as a result of our recent capital strategy."

"All our lines of business delivered experience gains in the quarter together with higher sales," added Rene Chabot, senior vice-president and appointed actuary. "In individual insurance, our strain-to-new business ratio was above our target level but with the new price increase introduced at the end of March, we are in line to achieve our average of 25 per cent for the full year."

                                                                                              
                                     HIGHLIGHTS
                      (In millions, unless otherwise indicated)

                                                           Q1 2013           Q1 2012

Net income attributed to shareholders                         88.4              68.2
Less preferred share dividends                                 8.7               6.0
Net income attributed to common shareholders                  79.7              62.2
Earnings per common share (diluted)                          $0.83             $0.66
Earnings per common share (diluted and adjusted)             $0.85             $0.69
Return on common shareholders' equity                         12.0%             11.0%

First quarter highlights

Profitability

Industrial Alliance reports net income attributed to common shareholders of $79.7-million, an increase of 28 per cent from one year ago. Diluted and adjusted earnings per share amounted to 85 cents (69 cents in 2012), and the annualized return on common shareholders' equity was 12.0 per cent (11.0 per cent in 2012). The 2012 figures have been restated for comparability following the amendment to IAS-19 for employee benefits effective Jan. 1, 2013.

The key elements that explain profitability follow. All figures are after taxes unless otherwise indicated. Individual insurance had a net experience gain of two cents per share ($2.0-million). Equity market growth provided a benefit of four cents per share ($4.3-million) on universal life policies. Unfavourable mortality represented two cents per share ($1.9-million).

Individual wealth management had a net experience gain of 11 cents per share ($9.8-million). The dynamic hedging program for the segregated funds guarantee provided a benefit of 11 cents per share ($10.3-million), and equity market growth had a positive impact on fund management fees of two cents per share ($1.4-million). Higher commissions and expenses related to higher fund sales accounted for an experience loss of two cents per share ($1.9-million). Group insurance reported a net experience gain of one cent per share ($1.4-million). Dealer services provided two cents per share ($2.7-million) and special markets solutions added one cent per share ($600,000). This was offset by a loss of two cents per share ($1.7-million) by employee plans for dental and health claims. Disability was in line with expectations. Group savings and retirement contributed one cent per share ($800,000) related to investment income gains and favourable annuitant behaviour.

Strain

In the individual insurance sector, the strain-to-new business ratio was 30 per cent in the first quarter, which is above the expectation for the full year. The first quarter ratio is explained by the 2012 year-end assumption changes together with seasonally higher expenses. Management estimates that the higher percentage reduced first quarter earnings by three cents per share ($2.8-million).

Management reiterates that strain should represent approximately 25 per cent of individual insurance sales in 2013 as new pricing implemented at the end of March becomes reflected in sales.

Income on capital

Total income on capital was $18.6-million pretax in the first quarter versus $23.2-million a year earlier. The year-over-year decrease is mainly due to the seasonally in-line contribution from IA auto and home (loss of $3.1-million pretax) compared with the first quarter of 2012 (gain of $1.7-million pretax).

Income taxes

The company reported a tax gain of two cents per share ($2.2-million) in the first quarter. The benefit is mostly attributed to a tax recovery in the United States, resulting in an effective tax rate of 19 per cent.

Business growth

Assets under management and administration reached a new high of $87.5-billion at March 31, up 5 per cent over the last quarter and 15 per cent year over year.

Premiums and deposits grew by 12 per cent, also reaching a new quarterly high of $2.1-billion. An outstanding contribution was made by the wealth management and individual insurance lines of business.

Sales of individual insurance products grew by 23 per cent, reaching $65.8-million in the first quarter, driven by a very strong performance from the Canadian operations.

Individual wealth management gross sales gathered momentum in the first quarter, reflecting strong demand for mutual funds. Gross sales of all funds totalled $1.1-billion, up 9 per cent over the previous year. Net sales of mutual funds more than doubled to $318.6-million. Segregated funds had net sales of $36.9-million.

In-group insurance, sales of creditor insurance and P&C products (dealer services) continued to grow with a year-over-year increase of 5 per cent to $94.8-million. Special market solutions gained momentum, with sales increasing 23 per cent to $48.3-million. Employee plans had an exceptionally strong quarter, with sales improving by 49 per cent to $29.3-million.

Group savings and retirement reported sales of $251.6-million, an increase of 54 per cent over the previous year.

Capital

At March 31, 2013, the solvency ratio was 237 per cent compared with 217 per cent at Dec. 31, 2012. The key elements contributing to the increase include regulatory capital relief for lapse effective Jan. 1 and the equity issue of $237-million in February. On April 1, 2013, the company redeemed all its 8.25-per-cent subordinated debt with a nominal value of $100-million and will redeem on or about June 30, 2013, all the 5.714-per-cent Industrial Alliance Trust Securities, Series A (IATS), with a nominal value of $150-million. Following these buybacks, the solvency ratio stands at 221 per cent and the company's leverage ratio improves to 29 per cent from 36 per cent at Dec. 31, 2012.

Quality of investments

At March 31, 2013, both net impaired investments (0.04 per cent of total investments) and the real estate occupancy rate (95 per cent) remained unchanged from the last two quarters. The proportion of bonds rated BB and lower increased slightly to 0.11 per cent.

Dividend

The board of directors declared a quarterly dividend of 24.5 cents per common share, which corresponds to a payout of 29 per cent of net income attributed to common shareholders. This dividend is payable on June 17, 2013, to shareholders of record as at May 24, 2013.

Registered shareholders wishing to enroll in the company's dividend reinvestment and share purchase plan so as to be eligible to reinvest the June 17 dividend must ensure that the duly completed form is delivered to Computershare no later than 4 p.m. on May 16, 2013. Enrolment information is provided on the company's website under investor relations/dividends.

Macroeconomic sensitivity

The company can absorb a decrease of about 16 per cent (14 per cent at Dec. 31, 2012) in the S&P/TSX index before having to strengthen reserves for policyholder liabilities.

The company can absorb a decrease of 40 per cent (35 per cent at Dec. 31, 2012) in the S&P/TSX index before the solvency ratio drops below 175 per cent and a decrease of 51 per cent (46 per cent at Dec. 31, 2012) before the solvency ratio drops below 150 per cent.

The full year impact on net income attributed to common shareholders of a sudden 10-per-cent decrease in the stock markets is $24-million ($23-million at Dec. 31, 2012).

The impact on net income attributed to common shareholders of a 10-basis-point decrease in the initial and ultimate reinvestment rates totals $80-million versus $89-million a year ago, attributed to continuing improvement in the matching of asset-liability cash flows.

Market guidance for 2013

• Earnings per common share: target range of $3.00 to $3.40;
• Return on common shareholders' equity (ROE): target range of 10.5 per cent to 12.0 per cent;
• Solvency ratio: target range of 175 per cent to 200 per cent;
• Dividend payout ratio: medium-term payout range of 25 per cent to 35 per cent;
• Effective tax rate: target range of 21 per cent to 24 per cent.

Guidance for ROE and earnings per common share excludes any potential reserve strengthening in 2013.

Management will hold a conference call to present the company's results on Thursday, May 9, 2013, at 11:30 a.m. ET. To access the conference call, dial 1-800-408-6335 (toll-free). A replay of the conference call will be available for a one-week period, starting at 2 p.m. on Thursday, May 9, 2013. To access the conference call replay, dial 1-800-558-5253 (toll-free) and enter access code 21653328. A webcast of the conference call (in listen-only mode) will be available on the Industrial Alliance website.

Documents related to the financial results

A detailed discussion of the company's first quarter results is provided in the management's discussion and analysis, financial statements, and accompanying notes, as well as the supplemental information package, all of which are available on the Industrial Alliance website under investor relations/financial reports and on SEDAR.

Annual general meeting of shareholders

Industrial Alliance is holding its annual general meeting of shareholders this afternoon at 2 p.m. at the Quebec City Convention Centre located at 1000 Rene-Levesque Blvd. E in Quebec City. Media will have the opportunity to meet with chairman of the board John LeBoutillier, as well as president and chief executive officer Yvon Charest immediately after the AGM at approximately 3:30 p.m. A videocast of the meeting as well as a copy of the management presentation will be available on the Industrial Alliance website.

We seek Safe Harbor.