Key Success Factors Insurance Industry

Snapshot of a Successful Life CompanyDoes Size Matter?Industrial Alliance Insurance and Financial ServicesCIBC World Markets Frontenac Institutional Investor ConferenceQuebec City, September 18, 2003

1

Snapshot of a Successful Life CompanyDoes Size Matter?

CIBC World MarketsFrontenac Institutional Investor Conference

Quebec City, September 18, 2003

2

Key Success Factors of a Life Company

� Sound business strategy� Good financial strength� Strong operational efficiency

Which lead to strong growth andhigh and consistent profits


3

Excel in one functional skill

Build dominant positions in chosen marketsStake out position less vulnerable tohead-to-head competitionExploit industry changes

Develop permanent competitive advantages

Sound Business Strategy

Impact of size

�

�

�

-

-

4

Good Financial Strength

Strong asset quality

Adequate actuarial reserves

Proven risk management

Capacity to raise long-term capital

High ratings

Impact of size

�

�

---


5

Strong Operational Efficiency

Cost-efficient

Competitive and up-to-date technology

Performance-driven environment

Well-developed people system

Impact of size

--

�

�

6

Industry Characteristics

� Products No differentiation� Growth potential Moderate for insurance products

High for wealth management� Distribution Distributors have significant power in

consumer purchasing decisions� Fixed costs Represent a small proportion of the

cost structure (beyond a certain criticalmass, relatively few economies of scale)

Conclusion: Distribution is the key


7

Industry Characteristics

Claims53%

Compensation19%

Expenses14%

Profit and taxes (incl. IIT)

14%

Distribution of the Price of an Individual Insurance Policy

Example of a UL level cost of insurance policy

Expenses are not a key differentiating factor

8

Sound Business Strategy


9

Sound Business StrategyKey Elements of IAG’s Business Strategy

1. Excel in one functional skill: Distribution (underpins strategy)

2. Build dominant positions in chosen markets3. Stake out a position that is less vulnerable to head-to-head

attacks from competitors4. Exploit industry changes (forward-looking management)5. Develop permanent competitive advantages

10

1. Excel in One Functional Skill: Distribution

� The key paradigm of the life insurance industry: lifeinsurance is a product that is “sold to” consumers,not a product that is “bought by” consumers

� Success is therefore achieved through distribution

IAG’s strategyServe all the needs of a segment of distributors, captive or

independent, where our “global offering” can make a difference


11

1. Excel in One Functional Skill: Distribution

Insurance brokers

64%

Securities brokers

9%Other

2%

Exclusive agents

25%

Insurance brokers

59%

Exclusive agents

41%

Exclusive Insurance Securities Mutual fundsagents brokers dealers planners1,280 Over 12,000 Over 300 Over 1,000 (new)

IAG’s Key Strength: Manage Large and Multi-Channel Networks

Individual InsuranceH1 2003 sales: $61.3 million

Individual AnnuitiesH1 2003 sales: $365.1 million

12

2. Build Dominant Positions in Chosen Markets

Individual Insurance Segregated FundsTop 52002 Sales Premiums Net sales Assets

1 Sun/Clarica Sun/Clarica Great-West Great-West2 IAG Great-West Sun/Clarica Manulife3 Manulife Manulife IAG Maritime4 Great-West IAG TD Bank Sun/Clarica5 Transamerica Maritime Manulife IAG

IAG marketshare1 12.9% 6.9% 14.4% 7.3%

Among the top 5 providers in each line of businessin which we choose to operate

IAG: Key Player in the Retail Insurance and Annuity Markets

1 2002 figures, except for seg fund assets (June 30, 2003)Sources: CLHIA, LIMRA, IFIC, Investor Economics and Beyond 20/20


13

Current Price Pressures

2. Build Dominant Positions in Chosen Markets

� Not a new element� Usually only lasts for a very short period� If pressure is maintained for a longer period, there are only

two possible outcomes for each company:� Move back towards more disciplined pricing� Lose margins

14

3. Stake Out a Position That is Less Vulnerableto Head-to-Head Attacks From Competitors

IAG Avoids Competing on Price Only� Develop a smart product mix

� IAG is not a “single” product company

� Rely on a loyal sales force� Exclusive career agents and dedicated brokers

� More concentrated in the family market (less crowded),while pursuing development in the high-income market

� Stand out with:� New complementary products: RESPs, hedge funds� Original sales concepts: new insured annuities� Innovative features: critical illness refund


15

Take Advantage of Convergence in Distribution

� Stock brokers 74% have a life license� Mutual fund agents 60% have a life license� Life agents 65% have a mutual funds license

4. Exploit Industry Changes

And many agents have more than two licenses

16

Year Company Sector

2001 Concorde Mutual fund dealer2002 ISL-Lafferty Securities broker2002 BNP (Canada) Securities broker2002/03 FundEX (75%) Mutual fund dealer2002 Leduc Securities broker2003 Global Allocation Mutual fund dealer2003 Co-operators MF Mutual fund manufacturer

IAG’s Wealth Management Strategy: Recent AcquisitionsAimed at Enhancing Distribution

4. Exploit Industry Changes

Total purchase price: less than $14 million1,000 new brokers and some $4.5 billion in AUA


17

5. Develop Permanent Competitive Advantages

� We help our distributors grow their business,attract new agents and improve their head office

� No key decision is made without their input� We focus on distributors for which our support

can make a difference

IAG Focuses on Distribution

18



19


Strong asset quality

Adequate actuarial reserves

Proven risk management

Capacity to raise long-term capital

High ratings

Impact of size

�

�

---

20

Prudent Long-Term Management Approach

� Strong asset quality� Everyone agrees that IAG has a high, above-average

quality of assets

� Adequate actuarial reserves� Compares favorably to peers on any criteria (PADs, EmV)� Conservative seg fund reserving: highest standard at CTE 80

� Proven risk management� Conservatively-designed seg fund guarantee� Optimal/limited use of reinsurance: not used to front-end profits



21

Capacity to Raise Long-Term CapitalSuccessful Issue of Innovative Tier 1 (IATS)on July 4, 2003� Issue of $150 million

� Permanent capital now accounts for 87% of total capital

� Securities carry an annual yield of 5.714%� Represents a spread of 120 basis points over 10-year

Canada bonds� IATS spread is only 15 basis points higher than Sun Life,

Manulife and Great-West

22

High Ratings

Rating agency Rating Level Trend First rating

Standard & Poor’s A+ 4/21 Stable 19951

DBRS IC-2 2/5 Stable 2000A.M. Best A (Excellent) 3/16 Stable 1995

1 Originally from CBRS

� A+ rating from S&P, similar to that of 3 out of the 5 largestCanadian banks

� Rating influence on ability to attract new business� Very low for retail and group insurance businesses� Somewhat important for large Group Pensions accounts


23


24


Cost-efficient

Competitive and up-to-date technology

Performance-driven environment

Well-developed people system

Impact of size

--

�

�


25

IAG is a Low-Cost Producer

� Our strategy favours policy count over size� IAG sells over 100,000 individual life insurance policies a year

(17% market share in 2002)

� Top management’s ability to penetrate to businessmicrolevels

� Culture: one sponsor for every dollar of expenses� Quebec City is a cost-efficient location to operate

Cost-Efficient

We improve what we measure

26

Competitive and Up-To-Date Technology

� Invest in technology if strategic, important and profitable� Close follower, except where we can make a difference

� Software at points-of-sale� Customer relationship management (CRM) for agents

� Technology decision-making process is geared to meetreal needs and deliver benefits

� Job rotation for information system users and professionals� Investments chosen by head of business unit (not head of IS)


27

Focus on Achieving Long-Term Goals

� Performance-driven environment� Managers responsible for both the top and the bottom line� Demanding work place� Systematically learn from mistakes

� Well-developed people system� Focus on performance and motivation� Low turnover rate: 5%� Average length of service with the Company: 18 years� Training programs: 3% of payroll


28

And the Future...


29

And the Future...

� Beyond a certain critical mass, that IAG easily satisfies,size is not a key success factor

� Sound business strategy matters more than size� Excel in one functional skill: Distribution

� IAG’s distribution strategy is what distinguishes it fromits competitors

Well-Nurtured Success Factors Leadto Successful Results

IAG can be as successful in the futureas it has in the past

30

Snapshot of a Successful Life CompanyDoes Size Matter?

CIBC World MarketsFrontenac Institutional Investor Conference

Quebec City, September 18, 2003

Documents

Key Success Factors Insurance Industry