Mr. Edward Kohlberg reports

A.M. BEST AFFIRMS RATINGS OF INDUSTRIAL ALLIANCE INSURANCE AND FINANCIAL SERVICES, INC. AND ITS SUBSIDIARIES

A.M. Best has affirmed the financial strength rating (FSR) of A plus (superior) and the issuer credit rating (ICR) of AA minus of Industrial Alliance Insurance and Financial Services Inc. (IA) (Quebec). Additionally, A.M. Best has affirmed the existing debt ratings of IA. Concurrently, A.M. Best has affirmed the FSR of A (excellent) and the ICR of A of IA's U.S. life insurance subsidiaries: IA American Life Insurance Company (Atlanta, Ga.), American-Amicable Life Insurance Company of Texas, Pioneer Security Life Insurance Company, Pioneer American Insurance Company and Occidental Life Insurance Company of North Carolina. (These companies are collectively known as the IA American Life Group.) All U.S. companies are domiciled in Waco, Tex., unless otherwise specified. Additionally, A.M. Best has affirmed the FSR of A (excellent) and the ICR of A plus of Industrial Alliance Pacific General Insurance Corp. (IAPG) (Vancouver, Canada). The outlook for all ratings is stable. (See the following for a detailed listing of the debt ratings.)

The ratings of IA reflect its solid absolute and risk-adjusted capitalizations, consistent profitability, growth in assets under management and strong segregated funds inflows. A.M. Best notes that IA has continued to report favourable capital levels despite the current historically low interest rate environment, and financial leverage that has decreased to target levels. Net income trends have been favourable, although results in previous years have been volatile due to the Canadian accounting/regulatory regime being highly sensitive to the sustained low-interest-rate environment and volatile equity markets. The ratings also recognize IA's continued efforts to diversify its business profile and earnings stream in Canada and through the IA American Life Group in the United States.

Partially offsetting these positive rating factors is IA's exposure, albeit somewhat reduced, to equity market and interest rate volatility. The equity market exposure is largely through the organization's mutual fund and segregated fund lines of business in Canada. This exposure makes IA susceptible to fluctuations in equity market performance, lower fee income from assets under management and administration, lower sales from its savings and investment products and the possibility of higher reserve charges. However, IA's dynamic hedging program for its segregated fund products has performed well. Additionally, top-line growth has been impacted by slower mutual fund growth in 2014 due to the very competitive market and weaker industry sales compared with 2013.

The ratings for the IA American Life Group recognize the support it has received from IA through capital contributions via surplus notes, several capital infusions and synergies from home office management of its actuarial reserves and investment portfolio. A.M. Best also views positively IA American Life Group's core focus on individual life insurance in the United States and positive, albeit modest, earnings for the group in 2014.

The IA American Life Group will continue to face challenges to gain market share in a highly competitive life insurance market in the United States, where it faces larger, more established players. While significant overall earnings have not yet materialized, A.M. Best expects further premium growth and improved returns following progress made in new business expense strain reduction and underwriting.

A.M. Best believes the potential for positive rating actions on IA is unlikely in the near to medium term. Key factors that could result in negative rating actions include a significant and sustained decline in IA's risk-adjusted capitalization, investment losses or operating performance that does not meet A.M. Best's expectations over a sustained period, or financial leverage and/or interest coverage that falls short of A.M. Best's guidelines for the organization's current rating level.

The ratings and outlook reflect IAPG's adequate capitalization, strong operating performance, prominent market profile within its market niche, and the implicit and explicit support it receives from its parent company, IA. Partially offsetting these positive rating factors are IAPG's recent non-operationally based capital fluctuations, changing product mix, the competitive market conditions in Canada and upward pressure on operating expenses.

A.M. Best does not expect to downgrade IAPG's ratings or revise the outlook to negative in the near to midterm. However, such actions would ensue if the company were to incur material losses in its capitalization; have a severe reduction in the profitability of its core book of business; have its relationship to its parent change in a manner that affects the operations of the company; or be unable to contain the company's exposure to adverse development within its reserves with the current set of preventative pricing measures that have been recently put in place.

The following debt ratings have been affirmed.

Industrial Alliance Insurance and Financial Services Inc.

• A on $250-million of 4.75-per-cent subordinated debentures due 2021;
• A on $250 million of 2.8-per-cent subordinated debentures due 2024;
• A minus on $125-million of 4.6-per-cent non-cumulative perpetual preferred shares, Series B;
• A minus on $100-million of 5.9-per-cent non-cumulative perpetual preferred shares, Series F;
• A minus on $250-million of 4.3-per-cent non-cumulative perpetual preferred shares, Series G.

The indicative ratings on securities available under the shelf registration have been affirmed.

Industrial Alliance Insurance and Financial Services Inc.

• A plus on senior unsecured debt;
• A on subordinated debt;
• A minus on preferred shares.

The methodology used in determining these ratings is Best's credit rating methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's credit rating methodology can be found at the A.M. Best website.