Mr. Yvon Charest reports

INDUSTRIAL ALLIANCE REPORTS Q3 RESULTS

For the third quarter ended Sept. 30, 2014, Industrial Alliance Insurance and Financial Services Inc. had net income attributed to common shareholders of $91.5-million and diluted earnings per common share of 91 cents. The annualized return on shareholder equity was 11.2 per cent, and the solvency ratio at quarter-end was 215 per cent. The company is pleased to announce that the quarterly dividend to common shareholders has been raised by 8 per cent to 28 cents per share, the second increase this year.

Yvon Charest, president and chief executive officer, commented: "Despite some weakness in equity markets this past quarter, we are pleased to report positive fund flows and a significant pickup in premiums and deposits. Our seg fund business was a key driver along with group savings and retirement, both of which had markedly higher inflows in the quarter. Rene Chabot, executive vice-president and chief actuary, added: "Our earnings came in within guidance for the quarter despite being a little lower than expected. Items of note include policyholder claims, higher than expected strain on new retail insurance business and a one-time charge related to unclaimed death benefits in the United States. IA auto and home benefited from favourable weather conditions and delivered a good contribution. For the year to date, our earnings are strong and we remain confident that we can deliver the top of our earnings guidance for the full year."

                                          HIGHLIGHTS   
                         (In millions, unless otherwise indicated)    
                                                                                                 
                                                         Third quarter Year to date at Sept. 30, 
                                                      2014        2013          2014        2013

Net income attributed to shareholders                $98.5      $114.4        $309.2      $284.7
Less: preferred share dividends                        7.0         8.6          21.2        25.9
Net income attributed to common shareholders          91.5       105.8         288.0       258.8
Earnings per common share (diluted)                  $0.91       $1.07         $2.86       $2.66
Return on common shareholder equity                  11.2%       14.9%         12.1%       12.3%


                                   Sept. 30, 2014 June 30, 2014   Dec. 31, 2013   Sept. 30, 2013

Solvency ratio                               215%          215%            217%             227%
Book value per share                       $33.00        $32.47          $30.67           $29.34
Assets under management and 
administration                            106,856       105,269          98,693           89,028
Net impaired investments as a 
percentage of total investments             0.07%         0.07%           0.06%            0.06%

Third quarter highlights

Profitability

For the third quarter ended Sept. 30, 2104, Industrial Alliance reports net income attributed to common shareholders of $91.5-million. Diluted earnings per share of 91 cents compare with $1.07 in the same quarter a year ago, which posted exceptionally strong policyholder, market and hedging gains. The annualized shareholder return on equity was 11.2 per cent in the third quarter of 2014, which is in line with guidance provided by management to the financial markets.

The key elements that explain profitability follow. All figures are after taxes unless otherwise indicated.

Expected profit on in force increased by 13 per cent to $119.7-million pretax over the last year, mainly attributed to growth in assets under management in the wealth management businesses. Expected profit on in force for the wealth management businesses is updated on a quarterly basis to reflect market growth and net fund sales. Effective the third quarter of 2014 and through to the end of 2015, expected profit on in force for group insurance employee plans is being revised downward to reflect recent adverse experience. Earnings per share are thus reduced by three cents for each of the third and fourth quarters of 2014, and 10 cents for 2015.

Individual insurance reported an experience loss of five cents per share ($5.0-million). Adverse lapse and morbidity accounted for three cents per share. The remaining two cents per share are a one-time cost related to the identification and payment of unclaimed death benefits in the U.S. business.

Individual wealth management had an experience gain of two cents per share ($2.2-million) attributed to the dynamic hedging program for the segregated fund guarantee.

Group insurance reported an experience loss of four cents per share ($4.1-million). Dealer services experienced higher than expected health claims resulting in a loss of three cents per share. The remaining one cent per share is attributed to disability claims in special market solutions.

Strain

In the individual insurance sector, the strain-to-new-business ratio of 34 per cent was higher than the range provided for the quarter (15 to 30 per cent). Management estimates that the higher strain represented a loss of two cents per share.

Income on capital

Total income on capital of $27.3-million pretax compares with $19.9-million in the previous quarter. The increase is attributed mainly to a seasonally stronger contribution from IA auto and home.

Income taxes

The effective tax rate of 18 per cent is at the low end of the company's guidance, as expected this year.

Business growth

Premiums and deposits gained momentum in the third quarter, increasing 11 per cent over the previous year, attributed to strong segregated fund inflows and higher sales in group savings and retirement. Total fee-earning assets under management and administration rose 2 per cent in the quarter and 20 per cent in the year, ending the period at $106.9-billion.

In the retail sectors, insurance sales of $51.1-million (minus 6 per cent) reflect a year-over-year decline in excess premiums, offset by favourable results in the U.S. (plus 40 per cent) and Excellence (plus 17 per cent), the company's adjustable disability business. Net investment fund inflows were $57.4-million, representing net sales of segregated funds ($68.5-million) offset by slightly negative mutual fund sales (minus $11.1-million). In group insurance, employee plans achieved higher sales of $45.6-million and special market solutions delivered $40.6-million in sales (plus 9 per cent). In dealer services, sales totalled $112.5-million (minus 4 per cent) in creditor insurance and $43.2-million (plus 3 per cent) in P&C products. In group savings and retirement, sales were $258.2-million, up 44 per cent over the previous year.

Capital

At Sept. 30, 2104, the solvency ratio was 215 per cent, unchanged from the previous quarter-end. The change in macroeconomic conditions during the quarter was neutralized by the third quarter earnings contribution.

Dividend

The board of directors increased the quarterly dividend by 8 per cent to 28 cents per share on the company's outstanding common shares. This dividend is payable on Dec. 15, 2014, to shareholders of record at Nov. 21, 2014.

Dividend reinvestment and share purchase

Registered shareholders wishing to enroll in the company's dividend reinvestment and share purchase plan so as to be eligible to reinvest the next dividend payable on Dec. 15 must ensure that the duly completed form is delivered to Computershare no later than 4 p.m. on Nov. 14, 2014. Enrolment information is provided on the company's website under investor relations/dividends.

Macroeconomic sensitivity at Sept. 30, 2104

The company can absorb a sudden decrease of about 26 per cent in the Standard & Poor's/Toronto Stock Exchange index before having to strengthen reserves for policyholder liabilities (30 per cent at June 30, 2014). The company can absorb a sudden decrease of 41 per cent in the S&P/TSX index before the solvency ratio drops below 175 per cent (43 per cent at June 30, 2014) and a decrease of 54 per cent before the solvency ratio drops below 150 per cent (55 per cent at June 30, 2014). The full-year impact on net income attributed to common shareholders of a sudden 10-per-cent decrease in the stock markets is $28-million ($26-million at June 30, 2014). This does not take into consideration any potential reserve strengthening. The impact on net income attributed to common shareholders of a 10-basis-point decrease in the initial and ultimate reinvestment rates totals $91-million ($84-million at June 30, 2014).

Market guidance for 2014

Earnings per common share:  target range of $3.40 to $3.80

Return on common shareholder equity (ROE):  target range of 11.0 per cent to 12.5 per cent

Solvency ratio:  target range of 175 per cent to 200 per cent

Dividend payout ratio:  payout range of 25 per cent to 35 per cent with the target being the midpoint

Effective tax rate:  target range of 18 per cent to 22 per cent

Strain on new business:  25 per cent of sales

Guidance for ROE and earnings per common share excludes any potential reserve strengthening in 2014.

Redemption of preferred shares

Industrial Alliance Insurance today announced its intention to redeem, on Dec. 31, 2014, all of its non-cumulative Class A preferred shares, Series E, then outstanding. The redemption price will be $26 for each Series E preferred share plus an amount equal to all declared and unpaid dividends, less any tax required to be deducted and withheld by Industrial Alliance. There are four million Series E preferred shares outstanding as of today.

Change in actuarial standard

On May 15, 2014, the Canadian Institute of Actuaries published its revised standard with respect to the economic reinvestment assumptions and assumed investment strategies utilized under the Canadian asset liability method for the valuation of long-tail liability cash flows. The final standard, which took effect on Oct. 15, 2014, fixes the ultimate reinvestment rate (URR) at 3.3 per cent and introduces a maximum credit spread of 80 basis points over the risk-free rate. At the company's investor day on June 11, 2014, management disclosed its intention to use a combined rate of 4.0 per cent at the end of 2014, an increase of 90 basis points over its current URR of 3.1 per cent. The new standard represents a favourable development that will reduce the overall sensitivity of the company's actuarial reserves to the macroeconomic environment. Industrial Alliance will provide full disclosure of the impact of the revised standard after completion of its year-end assumption review in the fourth quarter of 2014.

Conference call

Management will hold a conference call to present the company's results on Wednesday, Nov. 5, 2014, at 2 p.m. Eastern Time. To listen in on the conference call, dial 1-800-658-7107 (toll-free). A replay of the conference call will also be available for a one-week period, starting at 4:30 p.m. on Nov. 5, 2014. To listen to the conference call replay, dial 1-800-558-5253 (toll-free) and enter access code 21732590. A webcast of the conference call (in listen-only mode) will also be available on the Industrial Alliance website.

Documents related to the financial results

For a detailed discussion of the company's third quarter results, investors are invited to consult the MD&A for the quarter ended Sept. 30, 2014, related consolidated financial statements and accompanying notes as well as the company's supplemental information package, all of which are available on the Industrial Alliance website under investor relations/financial reports and on SEDAR.

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