Shares of Industrial Alliance Insurance and Financial Services plunged nearly 8 per cent Wednesday after the company reported an unexpected 28-per-cent drop in quarterly profit on the back of weak markets and claims-related losses.
The Quebec City-based life insurer and wealth manager earned a net $45.7-million, or 53 cents per share, in the third quarter, which ended Sept. 30.
That compared with a year-before profit of $63.5-million, or 75 Canadian cents per share, and missed analysts' expectations of a profit of 74 cents a share as compiled by Thomson Reuters I/B/E/S.
"The macroeconomic environment in the third quarter of 2011 was certainly one of the most difficult since the financial crisis in 2008," chief executive Yvon Charest said in a statement.
Mr. Charest said weak equity markets – the Toronto Stock Exchange's benchmark S&P/TSX composite index fell 12.6 per cent during the quarter – stripped 19 cents per share from the profit of the company's individual insurance and wealth management businesses.
He also said that if bond yields fell further in the fourth quarter, the company would have to strengthen actuarial reserves. Strengthening reserves usually entails a charge to earnings.
While the equity market impact was significant, the large profit miss was also due to weakness in the Industrial Alliance's core insurance business, said CIBC World Markets analyst Robert Sedran.
"The equity market impact was certainly worse than we were forecasting," he said.
"(But) they had some pretty significant negative experience around the traditional insurance risks, like mortality, disability and the stuff they should be better at pricing for that is frankly more troubling."
The company said it took an additional hit of 9 cents per share due to mortality experience – occurrence of death among policy holders – that was "less favorable than expected."
It also said its group insurance business realized a loss of 7 cents per share due to a higher number of long-term disability claims.
Sales in the company's individual insurance business rose 21 per cent to $55.5-million, while net sales of segregated and mutual funds eased 5.8 per cent to $229.1-million.
Return on equity was 8 per cent on an annualized basis, down from 12.7 per cent in the year-before quarter.
The company's shares were down $2.44, or 7.6 per cent, at $29.84 on Wednesday morning on the Toronto Stock Exchange.
Industrial Alliance is Canada's No. 4 life insurer. Larger rival Sun Life Financial reports results later Wednesday. Canada's biggest insurer, Manulife Financial , reports Thursday.
Industrial Alliance's profit miss did not appear to affect shares of other life insurers, suggesting investors saw the shortfall as company-specific, rather than markets-related.