June 29, 2004 1 Investor and Analyst Conference IAG key messages � Good top line momentum in all business segments with a disciplined approach that delivers a stable ROE � IAG is taking advantage of consolidation to grow its market shares � IAG has a proven track record and a well-executed strategy � Low risk � Clean story � Quality of investments � Hidden value (visibility of future earnings) � Conservative approach to bottom line (limited use of reinsurance, seg funds guarantee reserve) � Embedded value � Excess capital 2 Industrial Alliance Insurance and Financial Services Inc. 2004 Investor and Analyst Conference Toronto, June 29, 2004
Investor and Analyst Conference Agenda Section 1 - Bottom line 1. Can IAG maintain a 13 to 15% ROE? Section 2 - Top line 2. Can IAG grow at "industry +5%" in each line of business? Section 3 - Current issues 3. What is IAG going to do about its exces capital? 4. Is IAG being too conservative in its reserving practices for seg fund guarantees? 5. How sensitive is IAG to interest rate and equity market movements? 3 Investor and Analyst Conference First question Bottom line Can IAG maintain a 13 to 15% ROE? 4 Industrial Alliance Insurance and Financial Services Inc. 2004 Investor and Analyst Conference Toronto, June 29, 2004
Question 1: Bottom line Can IAG maintain a 13 to 15% ROE? � Proven track record � No loss leader: each sector contributes to profit � Strategy aims to avoid competing on price alone � Competitive cost structure � Limited use of reinsurance (hidden value) � Strong top line momentum (see section 2) 5 Question 1: Bottom line Proven track record 6 Industrial Alliance Insurance and Financial Services Inc. 2004 Investor and Analyst Conference Toronto, June 29, 2004
Proven track record Five-year adjusted 1 ROE 14.0 15% Target 13-15% 14.5 14.4 14.3 2.2 12% 12.6 Teleglobe 11.8 9% 6% 3% 0% 1999 2000 2001 2002 2003 Pro forma 7 1 See Appendix for details about adjusted figures Question 1: Bottom line No loss leader: Each sector contributes to profit 8 Industrial Alliance Insurance and Financial Services Inc. 2004 Investor and Analyst Conference Toronto, June 29, 2004
No loss leader Growing EPS and good diversity of earnings Contribution of each line Five-year adjusted 1 and diluted to adjusted 1 net income EPS growth by line % 6 1 : R G A C a r e 100% $3.50 y - 4 3.42 $3.00 3.09 80% 2.84 $2.50 2.51 $2.00 60% 1.91 $1.50 40% $1.00 $0.50 20% $0.00 '99 '00 '01 '02 '03 Pro forma 0% '99 '00 '01 '02 '03 Indiv. Insurance Indiv. Annuities Group Insurance Group Pensions 9 1 See Appendix for details about adjusted figures No loss leader Adjusted ROE by line of business 1 2001-2003 ROE by line 2001-2003 Comments 100% Group Pensions Met hurdle rate. 90% 13.1% Repositioning towards 80% accumulation products 70% Group Insurance Steady growth 60% 16.2% 50% Individual High since market rebound 40% Annuities 16.7% 30% Individual Substantial embedded value. 20% Insurance 13.5% Short term ROE could be 10% increased to between 15% 0% and 16% if the company were to reinsure at industry level Net income Required (see slides 22 to 26) surplus Company: 14.3% 1 See Appendix for details about adjusted figures. ROE calculated on 10 required surplus, using same MCCSR and same leverage by line. Industrial Alliance Insurance and Financial Services Inc. 2004 Investor and Analyst Conference Toronto, June 29, 2004
Question 1: Bottom line Strategy aims to avoid competing on price alone 11 Avoid competing on price alone Distribution is at the heart of our strategy � The key paradigm of the life insurance industry: life insurance is a product that is “sold” to consumers, not a product that is bought by consumers � Thus, success is achieved through a sound distribution strategy IAG’s distribution strategy Build strong relationships with distributors, captive or independent, in order to develop long-lasting partnerships and become their insurer of choice 12 Industrial Alliance Insurance and Financial Services Inc. 2004 Investor and Analyst Conference Toronto, June 29, 2004
Avoid competing on price alone IAG key differentiating skill Distribution Strategy: Be better Strategy: (how IAG differentiates itself) Be competitive � Build and manage multi-channel distribution � Product price � Support distributors in building their business � Compensation � Provide innovative products � Point-of-sale � Provide marketing support technology 13 Avoid competing on price alone Good at managing multi-channel networks Individual Insurance 2003 sales National Career Insurance brokers accounts Altern. 26% 63% 8% 3% Individual Annuities 2003 sales Career Insurance brokers 37% 63% Career Insurance National Mutual fund agents brokers accounts brokers 1,309 Over 12,000 Over 300 Over 1,000 14 Industrial Alliance Insurance and Financial Services Inc. 2004 Investor and Analyst Conference Toronto, June 29, 2004
Avoid competing on price alone Smart positioning could deliver higher ROE High Field force dedication scale ROE potential Low Commodity Value Product value scale 15 Question 1: Bottom line Competitive cost structure 16 Industrial Alliance Insurance and Financial Services Inc. 2004 Investor and Analyst Conference Toronto, June 29, 2004
Competitive cost structure Competitive cost structure � IAG believes that it has: � A competitive cost structure in the retail markets where it is an industry leader � A cost structure compatible with a 13 to 15% ROE in the group markets where it is a focused/niche player � Possibilities to even further improve the cost structure of the IAG group � However no industry data are available to compare companies’ cost structure � Demonstration about IAG’s competitive cost structure must therefore be "indirect" 17 Competitive cost structure Breakdown of costs in the price of a UL product Claims 53% With its low cost structure, if IAG were to double in size, management believes that the Compen- price of products could be sation reduced by some 1% to 2% 19% Administration costs 5.5% Profits and taxes (incl. IIT) Acquisition costs Increasing profitability and 14% 8.5% a market share above 10% in sales certainly put IAG in the best "cost structure" category 18 Industrial Alliance Insurance and Financial Services Inc. 2004 Investor and Analyst Conference Toronto, June 29, 2004
Competitive cost structure Factors influencing cost structure Retail market Group market Size A leader in Canada with a Smaller player than the top 3 competitive cost structure Strategy Size and cost structure allow Strategy adapted to size IAG to compete in all markets, � Target small- and medium- in all provinces, with all sized businesses distribution networks � Exploit niches neglected by traditional carriers, such as creditor insurance with car dealers and special risks market Culture � IAG is a lean organization with a cost-minded management culture � IAG has the reputation of being an efficient operator 19 Competitive cost structure Constant efforts to improve cost structure � Group Pensions: one IAG operation (since 2000) � Group Insurance: one IAG operation (harmonization since 2000 and integration since 2002) � Individual Annuities: common family of funds since 2002 � Investments: common leadership since 2000 � Career sales force: increased use of technology (Career sales force cost structure within 5% of brokerage network cost structure) Measures are aimed at improving productivity while keeping the entrepreneurial spirit to maintain top line momentum 20 Industrial Alliance Insurance and Financial Services Inc. 2004 Investor and Analyst Conference Toronto, June 29, 2004
Question 1: Bottom line Limited use of reinsurance: Hidden value 21 Limited use of reinsurance IAG uses less reinsurance than the industry Industry IAG New business New business In-force Distribution Reinsured Distribution Reinsured Reinsured (% FYAP) (%face amount) (% FYAP) (%face amount) (% face amount) UL 52 78 72 32 27 Term 24 80 18 86 63 Others 24 70 10 20 12 It is estimated that over 75% of 2003 individual life new business face amount in Canada was reinsured. 22 Industrial Alliance Insurance and Financial Services Inc. 2004 Investor and Analyst Conference Toronto, June 29, 2004
Limited use of reinsurance Decision to reinsure - Permanent products High NO � IAG improvement Mortality YES None Reinsurance Inexpensive Expensive quote � Reinsurers have embedded mortality improvement in their quotes � IAG wants to retain future mortality improvement benefits 23 Limited use of reinsurance New business profits - Permanent products Assumption: Moderate level of mortality improvement (% of annualized premiums) 150 Use of lower levels of 125 130 reinsurance means: 100 � More capital intensive 75 80 � More hidden value 70 50 40 � Lower short-term ROE 25 0 -30 -25 IAG level of reinsurance -50 -50 Industry level of reinsurance -75 1st year Years 2+ Total Present value 24 Industrial Alliance Insurance and Financial Services Inc. 2004 Investor and Analyst Conference Toronto, June 29, 2004
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