Industrial Alliance Continues to Strengthen its Competitive Position by Combining the Operations of its National Life Subsidiary with its Own

National Life also transfers $53.5 million from the participating policyholders’ account to the retained earnings

QUEBEC CITY, Dec. 1, 2004 – Industrial Alliance Insurance and Financial Services Inc. (“Industrial Alliance” or the “Company”) announced today two measures that will further strengthen its competitive position and profitability in the Canadian life and health insurance market.

Combination with National Life

First, Industrial Alliance announced that the Boards of Directors of The National Life Assurance Company of Canada (“National Life”) and Industrial Alliance have approved the Company’s decision to combine the operations of its Toronto subsidiary, National Life, with its own. From a legal standpoint, Industrial Alliance expects to complete the combination by December 31, 2005, once all the necessary approvals have been obtained. By then, all new contracts formerly underwritten under the National Life name will be underwritten by Industrial Alliance or Industrial Alliance Pacific and all in-force National Life contracts will be transferred to and assumed by Industrial Alliance.

“This decision is the culmination of an integration process that began a few years ago and which aimed to maximize the synergies between the Industrial Alliance Group’s three life insurance companies,” stated Yvon Charest, President and Chief Executive Officer of Industrial Alliance. “The combination with National Life will allow us to streamline the structure of Industrial Alliance, making it an even more efficient organization, thereby allowing us to become more competitive and more profitable.”

A few years ago, Industrial Alliance began a harmonization process of the operations of the Industrial Alliance Group’s three life insurance companies, namely Industrial Alliance, which acts as the Group’s parent company, and whose head office is in Quebec City, Industrial Alliance Pacific, whose head office is in Vancouver, and National Life, whose head office is in Toronto. Industrial Alliance has successively combined the investment departments of the three life insurance companies, repatriated the Group Pensions operations to Industrial Alliance and now markets its Group Insurance (employee plans) products and services under a single brand name – that of Industrial Alliance.

In September 2004, the Company went one step further in the harmonization process by combining the retail distribution operations of National Life’s Individual Insurance and Annuities sectors with the already largely integrated operations of Industrial Alliance and Industrial Alliance Pacific. This combination led to the reorganization of the distribution structure in the Individual Insurance and Annuities sectors by network rather than by company. Today, sales representatives distribute the Company’s products through one of the Group’s three existing networks, which are: the Career network, made up of dedicated agents, who distribute the Company’s products mainly in Quebec; the General Agents network, composed of insurance brokers, who distribute the Company’s products across Canada in both the medium- and high-income markets; and the National Accounts network, made up of securities brokers and financial planners, who distribute the Company’s products across Canada, through securities brokerage firms and mutual fund broker dealers.

“This new distribution structure has diminished the advantages of maintaining a distinct legal entity for National Life, since the entire Industrial Alliance Group will now use the same products, systems and distribution strategy,” explained Mr. Charest. Once the integration of National Life is completed, the Industrial Alliance Group will have two life insurance companies, Industrial Alliance and Industrial Alliance Pacific, four primary administrative centres, one in Quebec City, one in Montreal, one in Toronto and one in Vancouver, but a single Canada-wide distribution strategy and a single family of products for each line of business, those being Individual Insurance, Individual Annuities, Group Insurance (employee plans) and Group Pensions.

Mr. Charest emphasized that the decision announced today does not impact the Group’s Vancouver subsidiary, Industrial Alliance Pacific. In addition to the fact that most of its operations have been integrated for a number of years with those of Industrial Alliance in the Individual Insurance and Annuities sectors, Industrial Alliance Pacific generates about half of its business in three markets that the parent company does not operate in: creditor insurance among car dealers, Special Markets Group (SMG) and the U.S. market.

The main operations affected by the combination announced today are those related to National Life’s corporate support services, including Accounting, Actuarial, Communications and Information Systems. All business development, client service and administration operations currently done by National Life will continue to be carried out from Toronto, for both the individual and group sectors. Clients and sales representatives will thus continue to be served from Toronto, since the administrative units in charge of these sectors remain unchanged.

From an operational standpoint, the integration of National Life with Industrial Alliance will take place over the next two years. Approximately 25% of the 370 positions at National Life will be gradually phased-out. Of the positions that will be phased-out, almost half are occupied by National Life information systems employees who will be offered new jobs with CGI Group Inc. CGI, which already manages a certain number of information systems functions for Industrial Alliance, has also been given a contract to support the Company during the systems integration process. All other National Life employees whose positions will be phased-out and who are not able to find positions with another company in the Industrial Alliance Group will be provided with a severance allowance and a job search assistance program.

From a financial standpoint, Industrial Alliance estimates that the integration of National Life will lead to an after-tax restructuring charge of $5.4 million in the fourth quarter of 2004, $3.3 million in 2005 and $3.8 million in 2006. The charge for the fourth quarter of 2004 takes into account the increase in the future tax liability, while for 2005 and 2006, it reflects the acceleration of the depreciation of the capitalized cost of computer systems, which will be phased-out, the expenses incurred to pay the severance allowances and the additional expenses resulting from the integration.

The Company also estimates that the cost savings resulting from this integration will reach $6.6 million after taxes, per year, starting in 2007, once the integration is completed.

Hence, in total, the Company believes that the combination with National Life will be EPS accretive starting in 2006, with an increase in the net income of $2.2 million in 2006 ($0.05 per common share). Once the integration is completed, starting in 2007, the Company believes that the net income will improve by $6.6 million per year, after taxes ($0.17 per common share).


($Million)                         Q4 2004      2005      2006      2007+
Restructuring charge                  (5.4)     (3.3)     (3.8)      0.0
Cost savings                           0.1       3.4       6.0       6.6
Increase (decrease) in net income     (5.3)      0.1       2.2       6.6
Impact on the diluted
 earnings per share ($)             ($0.13)    $0.00     $0.05     $0.17

National Life has been a subsidiary of Industrial Alliance since 1988. Industrial Alliance owns 99.9% of the issued and outstanding shares of National Life. The transfer of National Life’s business, and its assumption by Industrial Alliance, is subject to approval by the Federal Minister of Finance, as well as the regulatory authorities of the two companies. A meeting of National Life’s shareholders and policyholders will be held in 2005.

Transfer from the Participating Policyholders’ Account

Industrial Alliance also announced that the Board of Directors of its National Life subsidiary has approved the transfer, as of today, of $53.5 million from the participating policyholders’ account to the retained earnings. This transfer was made necessary after National Life discovered that the amount that could be transferred from the participating policyholders’ account to the retained earnings, pursuant to the Insurance Companies Act, had been undervalued, each year, since 1981, following the incorrect application of the calculation method.

“This correction will simply restore National Life to the position it would have been in today, if the calculation method had been properly applied,” explained Yvon Charest. “The participating policyholders will be fully informed of this situation. This situation has no impact whatsoever on their insurance policies or on the amounts that will be paid to them as dividends in the future, just as the incorrect application of the calculation method that was observed had no impact on the dividends that were paid to them in the past.”

Under Canadian generally accepted accounting principles (GAAP), a correction of this type leads to the restatement of previous years’ financial statements. The 2004 financial statements for National Life and Industrial Alliance will reflect the restatement for prior years. The table below outlines the impact of this restatement for 2003 and the first three quarters of 2004 for the Company’s consolidated financial results. For a complete financial year, i.e., 2003, the restatement resulted in a $1.9 million increase in the net income to shareholders, which reached $136.9 million; increased the diluted earnings per share by $0.05, to $3.47; reduced the return on equity by 0.4 percentage points, to 13.9%; increased the book value per common share by $1.31, to $27.22; and increased the embedded value per common share by $0.66, to $48.99. The restatement has no impact on the Company’s solvency ratio or debt ratio.

                    Year              First three              Third
                    2003             quarters 2004         quarter 2004
              Actual   Restated    Actual   Restated     Actual  Restated
Net income
 to share-
 holders    $ 135.0 M   $ 136.9 M  $ 119.3 M  $ 120.8 M  $ 42.8 M $43.3 M

 per share   $ 3.42      $ 3.47     $ 3.00     $ 3.04    $ 1.07  $ 1.09

Return on

   annualized    --          --         --         --      15.3%   14.7%

   months      14.3%       13.9%      14.5%      14.0%       --      --

Book value per
 share      $ 25.91     $ 27.22    $ 28.61    $ 29.94        --      --

Embedded value
 per common
 share      $ 48.33     $ 48.99         --         --        --      --

 account     $ 64.8 M    $ 13.2 M   $ 67.6 M   $ 14.5 M      --      --

Equity     $1,036.9 M  $1,088.5 M $1,136.7 M $1,189.8 M      --     --

The Company has been provided with legal, actuarial and accounting opinions from independent external professional firms as to the appropriateness of making this correction. The legal and actuarial opinions confirm that the transfer is fair to par policyholders and does not prejudice their rights. Final calculations of the actual amount transferred, including accrued interest, have also been reviewed by the independent external actuarial consulting firm.

Non-GAAP Financial Measures

The Company occasionally uses non-GAAP financial measures for presentation and analysis purposes. The non-GAAP financial measures are always clearly indicated, and are always accompanied by and reconciled with GAAP financial measures. The non-GAAP measures are presented in order to facilitate the comparison of results from one period to another and to allow for a better analysis of the Company’s business growth and profitability potential. These non-GAAP financial measures do not have a standardized definition and cannot be compared directly with similar measures presented by other issuers. The data related to the embedded value and the added value of sales are not subject to GAAP.

Forward-Looking Statements

This news release may contain forward-looking statements about the operations, objectives and strategies of Industrial Alliance Insurance and Financial Services Inc., as well as its financial situation and performance. These statements can generally be identified by the use of words such as “may,” “expect,” “anticipate,” “intend,” “believe,” “estimate,” “feel,” “continue,” or other similar expressions, in the affirmative or negative. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied by the forward-looking statements. Factors that could cause actual results to differ materially from the Company’s expectations include changes in government regulations or in tax laws, competition, technological changes, global capital market activity, interest rates, changes in demographic data, changes in consumer demand for the Company’s products and services, catastrophic events and general economic conditions in Canada or elsewhere in the world. This list is not exhaustive of the factors that may affect any of Industrial Alliance’s forward-looking statements. These and other factors must be examined carefully and readers should not place undue reliance on Industrial Alliance’s forward-looking statements.

About Industrial Alliance

Founded in 1892, Industrial Alliance Insurance and Financial Services Inc. is a life and health insurance company that offers a wide range of insurance products and financial services. The fifth largest life insurance company in Canada, Industrial Alliance is at the head of a large financial group – the Industrial Alliance Group – which has operations across Canada. Industrial Alliance insures over 1.7 million Canadians, employs more than 2,400 people and manages and administers $25.5 billion in assets. Industrial Alliance stock is listed on the Toronto Stock Exchange under the ticker symbol IAG. Industrial Alliance is among the 100 largest public companies in Canada.