Review of performance 2008 Fourth quarter Q4-2008 Review of - PDF document

Review of performance 2008 Fourth quarter

Q4-2008 Review of performance conference call Charles Brindamour Chief Executive Officer Mark Tullis Chief Financial Officer Martin Beaulieu SVP, Personal lines Byron Hindle SVP, Commercial lines 2

Q4-2008 Key points Fourth quarter highlights • Strong financial position with MCT of 205%; a 5.1 point improvement over Q3 • Combined ratio of 98.9% reflects higher claims associated with severe storms and a decrease in favourable prior year claims development in personal lines, which offset strong commercial underwriting results • Net loss in the fourth quarter reflects common equity impairments caused by prolonged capital market weakness 2008 Full year highlights • Strong balance sheet with $427.5 million of excess capital at year-end* and no debt • Combined ratio of 97.1% with healthy combined ratios in each line of business, except personal property which was impacted by severe storms • Excluding catastrophe claims, underwriting income improved slightly • Lower net earnings reflect realized investment losses and impairments related to global capital market decline Since excess capital and MCT are based on market values, recognition of unrealized losses has no impact on our available capital. * In excess of 170% MCT 3

Q4-2008 Financial highlights Q4-2008 Q4-2007 Key points (in $ millions, except as otherwise noted) Cost pressures and changing weather patterns will drive higher Direct premiums $968.2 $961.3 personal lines premiums in 2009; indications that commercial rates written (excl. pools) could start to firm up in 2009. Q4 underwriting profit reflects severe storms in late 2008 as well as Net underwriting $11.0 $68.2 lower favourable prior year development in personal auto. Due to income** seasonality, underwriting profit is typically lowest in Q4. For the first nine months of 2008, combined ratio was trending 260 Combined ratio** 98.9% 93.2% basis points below the industry average for the same period (Q4-08 industry results not yet available). Net op. income per Operating income driven by underwriting income as well as interest $0.63 $0.93 and dividend income. share** (dollars) Net loss reflects capital market conditions which led to common share Earnings (loss) per ($0.53) $0.77 impairments. share (dollars) Impairment impact per $1.06 $0.23 Strong capital position: MCT 205% share (dollars) Excess capital $427.5 million* Earnings per share $0.53 $1.00 No debt excl. impairments * In excess of 170% MCT; as of Dec. 31, 2008 ** Excluding MYA 4

Key drivers of change in operating income in Q4-08 (in $ millions, except as otherwise noted) Pre-tax operating income, 2007 $156.6 Higher / (lower) •Strong favourable prior year Favourable prior year claims development (10.2) claims development but below Q4-2007 level •Current accident year Current accident year underwriting income (34.4) underwriting results reflect: • Severe storms in late 2008 Losses from catastrophes which impacted personal (11.9) lines • Higher average cost of Results from Facility Association (0.7) claims in personal auto Interest and dividend income (8.2) Subtotal Corporate and distribution 0.1 (65.3) Pre-tax operating income, 2008 $91.3 5

Q4-2008 Common share impairments • Common shares impaired by $186 million. Value Aging of unrealized losses (in $ millions) • Impairment process for common shares involves the following: >25% below book value for <3 $77 • We review all equities particularly focusing on those which have traded below book value for consecutive months six months or more and are 25% below book value. >25% below book value for >=3 and • We then apply judgement based upon a 21 review of the individual companies’ financial <6 consecutive months condition, taking into account items such as latest financial results and cash flows, changes in credit ratings, capital structure or >25% below book value for >=6 2 dividend payouts as well as analysts’ recommendations. consecutive months • We also consider the length of time the security has been below book and the Other unrealized losses, net of 34 significance of the unrealized loss. unrealized gains • The prolonged and deep drop in value of Canadian common shares, particularly in the latter part of 2008, and the lack of consensus on Unrealized losses as at Dec. 31, 2008 $134 the timing of a recovery led us to give significant weight to the general market downturn in our judgement process. • We estimate that if we had not given such Impairments have no impact on weighting to current equity market conditions, the available capital or MCT, as unrealized impairment would have been approximately $60 million. losses are fully reflected in both figures. 6

Our strong financial position $6.6 billion in cash and invested Strong balance sheet assets • 205% MCT regulatory capital ratio, improved from 188% year-end 2007 Preferred shares • No debt and $150 million unsecured committed 19% Common credit facility shares • $427 million excess capital, based on 170% MCT 12% Broker loans 4% Changes in portfolio mix in Q4-08 Canada T-bills Fixed income 12% • Reduced common equity exposure; proceeds were 53% invested in T-bills • Reinvested dividend and interest income in Canadian treasury bills • Reduced the risk profile of bond portfolio • Equity and preferred portfolio is 100% Canadian • More than 97% of fixed income portfolio is rated Since excess capital and MCT are A or better based on market values, recognition of • Nearly 90% of preferred share portfolio is rated unrealized losses has no impact on our P1 or P2 available capital. • Minimal U.S. exposure • No leveraged investments 7

Q4-2008 Performance results

A challenging quarter in personal lines (in $ millions, except as otherwise noted) Combined ratios** Personal auto Q4-08 Chg %* 102.9% 94.5% 95.9% 95.9% Net premiums earned $520.6 1.0% 24.4% 23.8% 24.7% 24.7% Underwriting $(14.8) n/a 78.5% 72.1% 71.2% income** 69.8% Combined ratio** 102.9% 7.0 pts Q4-07 Q4-08 FY 2007 FY 2008 Claims ratio Expense ratio Personal property Q4-08 Chg % 97.9% 114.1% 102.2% 113.6% Net premiums earned $227.9 4.7% 33.4% 33.4% 33.6% 33.2% Underwriting $(32.0) n/a 80.7% 80.2% 68.6% 64.7% income** Combined ratio** 114.1% 16.2 pts Q4-07 Q4-08 FY 2007 FY 2008 Claims ratio Expense ratio * Year-over-year change (Q4-2008 versus Q4-2007) ** Excluding MYA 9

Very strong combined ratios in commercial lines (in $ millions, except as otherwise noted) Combined ratios** Comm. non-auto Q4-08 Chg %* 77.9% 73.2% 90.1% 85.3% Net premiums earned $190.7 (0.2)% 35.6% 35.6% 35.9% 36.8% Underwriting $51.0 20.9% income** 54.5% 49.7% 42.0% 36.4% Combined ratio** 73.2% (4.7) pts Q4-07 Q4-08 FY 2007 FY 2008 Claims ratio Expense ratio Commercial auto Q4-08 Chg % 87.2% 99.9% 91.6% 93.7% Net premiums earned $80.1 (0.7)% 27.2% 27.7% 27.7% 27.3% Underwriting $6.8 n/a 72.7% 63.9% 66.0% 59.9% income** Combined ratio** 91.6% (8.3) pts Q4-07 Q4-08 FY 2007 FY 2008 Claims ratio Expense ratio * Year-over-year change (Q4-2008 versus Q4-2007) ** Excluding MYA 10

Year-to-date combined ratio relative to P&C insurance industry average (to Q3-2008) a) Sophisticated pricing and 2008 combined ratios* underwriting 104% 102.9% 102.4% b) In-house claims expertise: Cdn. P&C 101.5% 102% Industry average = 99.2% • Innovation 100% • Supplier relationships and speed 98% 96.5% of response reduce cost and 96% increase customer satisfaction 94% c) Size and scale: 92% Top 5 Top 10 Top 15 ING • Generates benefits that are (average) Canada (average) (average) difficult to emulate by competitors or new entrants *First nine months of 2008 only. Q4-2008 industry results are not available yet. 11

Loss ratios by line of business versus the P&C insurance industry Personal property Automobile* Industry ING Canada Industry ING Canada 75% 75% 71.6% 70% 70% 65.4% 64.0% 63.5% 65% 65% 60% 60% 55% 55% 50% 50% 5 year avg 5 year avg Commercial non-auto Liability 75% 75% 70% 70% 64.9% 65% 65% 59.4% 60% 60% 52.6% 55% 55% 51.0% 50% 50% 45% 45% 40% 40% 5 year avg 5 year avg Source: MSA Research; Industry excludes Lloyd’s and ICBC. Loss ratios are on a net basis. * Automobile includes both personal auto and commercial auto. 12

2008 Full year results