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Industrial Alliance shares fall on weak forecast, 'challenging' environment

Industrial Alliance CEO Yvon Charest said the results reflect 'the extremely challenging environment in 2011, both for equity markets and especially long-term interest rates.'

Francis Vachon for The Globe and Mail/francis vachon The Globe and Mail

Industrial Alliance Insurance and Financial Services fell to a loss in the fourth quarter and unveiled a weaker-than-expected earnings forecast, sending its shares down.

Canada's No. 4 insurer said it expects 2012 earnings per share of $2.50 to $3.10, a range that largely lags current analyst estimates of $3.07 a share, according to Thomson Reuters I/B/E/S.

National Bank Financial analyst Peter Routledge said a result in the low end of that range suggests the company might be compelled to cut its dividend, given its stated payout range of 25 to 35 per cent of profit and a current annual dividend of 98 cents a share.

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"I think that's what's driving the stock," he said.

For the quarter, Industrial Alliance lost $81.2-million or 90 cents a share. That compared with a year-before profit of $74.1-million, or 87 cents.

The loss was attributed to a $152-million charge to offset the impact of falling bond yields and equity markets, which change the valuation assumptions on the assets Industrial Alliance uses to pay future liabilities.

"Our year-end results reflect the extremely challenging environment in 2011, both for equity markets and especially long-term interest rates," Yvon Charest, the company's chief executive officer, said in a statement.

The loss was slightly better than the 96-cents-a-share loss analysts had expected.

Quebec City-based Industrial Alliance is the last of Canada's top four life insurers to report fourth-quarter results.

Manulife Financial Corp. and Sun Life Financial Inc. both took losses due to charges and writedowns, while Great-West Lifeco Inc., which is the insurer least susceptible to market swings, recorded a profit.

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Industrial Alliance's revenue rose to $2.3-billion in the quarter from $1.7-billion, helped by a sharp jump in investment income.

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