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The ING Ottawa Marathon
The National Capital Race Weekend featuring the 2005 ING Ottawa
Marathon took place May 28 – 29 and attracted over 26,000 runners,
walkers, inline skaters and their families who ran, walked and skated
through distances ranging from 2 km to 42.2 km.
For 2006 event details, go to www.ingottawamarathon.ca.
www.ingcanada.com
ING Canada Inc.
181 University Avenue, 7th Floor
Toronto, Ontario M5H 3M7
ING Canada Inc.
2005 annual report
People
Passion
Performance
CORPORATE PROFILE
OUR STRATEGY
SHAREHOLDER INFORMATION
front cover
left to right:
Markens Delince
belairdirect
Workforce Coordinator,
Quebec
Nathalie Thériault
Commercial Underwriter,
Quebec
David Gale
Manager, Internal
Communications,
Ontario
Punam Makwana
Claims Representative,
Alberta
ING Canada is the largest provider of property
We intend to leverage the advantages of scale
and casualty insurance in Canada, through the
to achieve sophisticated pricing, consistently
ING Novex, Nordic, Trafalgar, Belair and ING
profi table underwriting and cost-effective and
Insurance companies. We provide automobile,
timely claims management.
property and liability insurance to individuals and
small to medium-sized businesses across Canada.
Fundamental to our strategy is a customer-centric
An investment management subsidiary manages
commitment to product innovation, multi-
the invested assets of our insurance subsidiaries.
channel access and ease of doing business for
We enjoy leading positions in all markets where
policyholders and brokers alike.
we operate including Ontario, Quebec and
Asset management will continue as an internal
Alberta, our three largest markets.
core competency focused on achieving superior
Personal automobile insurance accounts for
approximately 50% of our business while
after-tax returns.
personal property comprises roughly 20%
OUR PRIORITIES
and commercial insurance about 30%.
OUR GOAL
To create a sustainable, superior performance gap,
as measured by return on equity, relative to the
Canadian property and casualty industry of not
less than 500 basis points (5%).
Our priorities are to:
• introduce improved technologies to make doing
business easier and less costly, particularly
regarding our direct, Internet-based products;
• reduce claims costs through greater use of
preferred providers in settling auto, property
and health care claims;
• make accretive domestic acquisitions, as
opportunity permits, where our operating
strengths can be applied quickly to familiar
product lines and geographies.
Financial Strength Rating
(Insurance subsidiaries)
A.M. Best A+
Standard & Poor’s A+
Long-term Senior Debt
(ING Canada Inc.)
Dominion Bond Rating Service A (low)
Toronto Stock Exchange Listing
Ticker Symbol: IIC.LV
(Effective June 12, 2006 our
symbol will be “IIC”)
2005 Annual Meeting
The Annual Meeting will be held on:
Date: May 1, 2006
Time: 10:00 a.m. EST
Place: Design Exchange
234 Bay Street
Toronto, Ontario M5K 1B2
Institutional investors, security analysts and others
who may want additional fi nancial information
can visit the Investor Relations section of the
www.ingcanada.com web site, call 1-866-778-0774
or contact:
Brian Lynch
Director, Investor Relations
416-941-5181
brian.lynch@ingcanada.com
For media inquiries, please contact:
Shawn Murray
Manager, External Communications
416-941-5151 ext. 2930
shawn.murray@ingcanada.com
Version française
Il existe une version française du présent rapport annuel
à la section Relations investisseurs de notre site Web
ingcanada.com. Les parties intéressées peuvent obtenir
une version imprimée en appelant au 1 866 778-0774
ou en envoyant un courriel à ir@ingcanada.com.
Transfer Agent and Registrar
Computershare Investor Services Inc.
100 University Avenue, 9th Floor
Toronto, Ontario M5J 2Y1
1-800-564-6253
Earnings Release Dates
February 16, 2006
May 11, 2006
August 10, 2006
November 9, 2006
Dividend Payment Dates
(Subject to approval by the Board of Directors)
March 31, 2006
June 30, 2006
September 29, 2006
December 29, 2006
Dividend Record Dates
(Subject to approval by the Board of Directors)
March 15, 2006
June 15, 2006
September 15, 2006
December 15, 2006
Dividend Reinvestment
Shareholders can reinvest their cash dividends in
common shares of ING Canada Inc. on a commission-
free basis either through their broker, subject to
eligibility as determined by the broker, or through
Canadian ShareOwner Investments Inc. Full details
can be obtained by contacting Investor Relations
or at www.investor.ingcanada.com under
“Share Information”.
Auditors
Ernst & Young LLP
1
Financial Highlights
2 Chairman’s Message
4
President and CEO’s Message
7 Off to a Great Start
49 Notes to Financial Statements
78 Board of Directors
79
Executive Offi cers
80 Corporate Information
13 Management’s Discussion & Analysis
81
Shareholder Information
45
Financial Statements
Design: Haughton Brazeau Design Associates Photography: Paul Orenstein Photography Printing: grafi kom.
FINANCIAL HIGHLIGHTS
Combined Ratio*
3,444
3,576
3,905
2003
2004
2005
Return on Equity
782
624
151
2003
2004
2005
(in millions of dollars)
Direct premiums written
Net premiums earned
Total revenue
Net income
Total shareholders’ equity
Debt outstanding
Debt to capital
Claims ratio
Expense ratio
Combined ratio
Return on equity
98.1%
86.0% 86.0%
2003
2004
2005
Direct Premiums Written
($ millions)
40.9%
31.6%
16.5%
2003
2004
2005
Net Income
($ millions)
2005
2004
2003
$ 3,905
$ 3,576
$ 3,444
$ 3,840
$ 3,365
$ 2,761
$ 4,446
$ 3,781
$ 3,015
$
782
$
624
$ 2,893
$ 2,060
$
127
$
256
4.2%
11.1%
56.3%
56.6%
29.7%
29.4%
86.0%
86.0%
$
$
$
151
989
483
32.8%
68.1%
30.0%
98.1%
31.6%
40.9%
16.5%
* For Property and Casualty insurance subsidiaries. The combined ratio is the sum of claims, claims expenses,
commissions, premium taxes and general expenses divided by net premiums earned.
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2
Chairman’s Message
Our Strategy Is Working
ING Canada proved its profi ciency at
implementing its growth strategy in 2005,
leading to another year of record results.
The Company’s growth strategy, overseen by
the Board of Directors, has remained consistent
over several years. It is to acquire and build upon
ING Canada’s scale advantage as the country’s
leading provider of property and casualty insurance,
through both organic growth and acquisitions.
This size advantage is in turn applied in several key
ways to enhance the quality of the Company’s
operations and the value it extends to customers.
By virtue of the growth in the scale of its
operations, ING Canada has developed high levels
of skill and expertise in risk assessment and
management across the country. This knowledge
translates into sophisticated application of pricing
and underwriting, which helps ensure that
products are priced fairly for consumers as well
as profi tably for ING Canada and its shareholders.
Scale is also used to advantage in the timely
management of claims and the optimal utilization
of capital and investments.
Size alone, however, does not guarantee success.
In 2005, ING Canada also furthered its customer-
centric strategic focus with the introduction of
innovative new products and investments to grow
its main distribution channels.
Results Are Exceeding Expectations
Through the successful execution of its strategy
in 2005, ING Canada continued to reach its goal
of outperforming its industry peers, delivering
excellent value to shareholders. The Company
continued to grow despite a softer premium
environment, achieving exceptional earnings
while implementing new measures and platforms
for future growth.
ING Canada has a lengthy history of successful
acquisitions and integrations and demonstrated
this yet again last year with Allianz Canada,
which was acquired in December of 2004.
“ By virtue of the growth in the scale of
its operations, ING Canada has developed
high levels of skill and expertise in
risk assessment and management across
the country.”
Yves Brouillette
Chairman
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ING Canada Inc.
3
The successful integration of Allianz was
compliance, risk assessment and management,
an excellent example of ING Canada’s ability
as well as human resources and succession
to grow through strategic, well-managed
planning. We introduced new guiding principles
acquisitions. Allianz contributed greatly in 2005
for governance, especially in the context of
to ING Canada’s overall results and to positioning
our relationship with our majority shareholder,
it for further organic growth in the future.
and continued to independently assess
Shareholders Have Been Rewarded
our obligations to shareholders. We continued
We attracted tremendous support from investors
to implement procedures to further our
in our fi rst full year as a public company.
commitment to fully meet our expanded public
Directors’ performance to ensure we fully meet
This constitutes a strong vote of confi dence
disclosure requirements.
for the Company and the strategic direction of
management and the Board of Directors. The
An Exciting Year
Board is responsible for the supervision and
It was a busy and exciting year for ING Canada’s
guidance of management, with the objective of
Directors, senior management and staff. On behalf
enhancing value for shareholders and ensuring
of the Board and the shareholders we represent,
the Company’s long-term growth and viability.
I would like to extend our thanks and appreciation
In 2005, ING Canada clearly demonstrated to
to the entire ING Canada team for another
shareholders its commitment to creating
excellent year. I would also like to offer our thanks
measurable, sustainable value.
and warm wishes to Michael Mackenzie, who is
retiring from the Board of Directors after ten years
With its new status as a publicly
of distinguished service. Mr. Mackenzie’s insight
traded company, the structure and
responsibilities of ING Canada’s Board
and committees expanded.
Active Oversight Remains a Priority
The Board of Directors is actively involved,
directly and through its committees, in overseeing
all aspects of ING Canada’s operations. As a
member of one of the world’s largest and best-
known public fi nancial services companies, ING
Canada already maintained before its initial public
offering in 2004 a long history of meeting and
exceeding best practices in corporate governance.
With its new status as a publicly traded company,
the structure and responsibilities of ING Canada’s
Board and committees expanded.
Over the past year, the Board was actively
involved in guiding the overall strategic plans
and breadth of experience have been of great
benefi t to ING Canada, and his wise counsel will
be missed. I would also like to offer thanks and
congratulations to Mark Tullis, who has joined the
senior management team and will leave the Board
of Directors at the year’s annual general meeting.
Mr. Tullis is succeeding Senior Vice-President and
Chief Financial Offi cer Mike Cunningham, who
has elected to retire. To Mr. Cunningham we also
offer our sincere thanks and best wishes.
We look forward to continuing to work closely
with the management team as ING Canada
furthers its commitment to provide shareholders
and customers alike with the best possible value
in Canada’s property and casualty industry.
of the Company while also continuing to bring
Yves Brouillette
independent oversight to key corporate functions
Chairman
such as fi nancial analysis and reporting,
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4
President and
CEO’s Message
Outperformance Builds a
Solid Foundation for Growth
2005 was another strong year for ING Canada, one
in which the Company achieved excellent results
and positioned itself for continued growth in the
Canadian property and casualty insurance industry.
Once again, ING Canada attained levels of
performance above the industry average, with a
return on equity in 2005 of 31.6%, a 9.2% growth
in direct premiums written and a 25.2% increase
in net income over 2004 to $781.8 million.
Our strong results in 2005 stemmed from
another successful acquisition and our superior
skills in pricing, underwriting, claims and asset
management. We continue to capitalize and
build upon our position as the largest provider
of property and casualty insurance in Canada.
The single greatest contributor to our growth in
2005 was Allianz Canada, which we acquired
late in 2004. The contribution of Allianz to our
earnings was even better than expected, and is
refl ected throughout the results detailed on the
following pages.
With eleven acquisitions over seventeen years, we
have proven that we can successfully integrate
strategic acquisitions. Through these acquisitions
we have gained experience and knowledge and
become better at the integration process, making
it another of our core competencies. We have
also built our internal strengths and our ability
to achieve solid growth into the future.
Profi tability in 2005 was driven by
our investment and underwriting
performance.
Profi tability in 2005 was driven by our investment
and underwriting performance. In automobile
insurance, cost containment measures introduced
by provincial governments over the past two
to three years have been successful. In home
insurance, our results were impacted by signifi cant
weather-related losses in Alberta, Ontario, and
Quebec. Meanwhile, results in commercial lines
were affected by a move toward lower premiums
while at the same time costs associated with
settling claims continued to rise. Our underwriting
expertise allows us to adapt to such changes in the
marketplace while continuing to deliver superior
results and value.
With a large network of underwriting and claims
staff across the country, our scale provides us with
a better understanding of local market conditions
and the particular needs of individual clients. We
have the skills and expertise to offer a better value
proposition to our clients, with the appropriate
products at the right price backed by “customer-
centric” service.
We understand that our success is linked
with that of our broker partners.
Distribution Is Key
In 2005, we continued to launch new initiatives
to strengthen our relationships with brokers
and improve their ability to serve customers.
We understand that our success is linked with that
of our broker partners. Last year we implemented
new technology to make brokers’ operations
more effi cient and increase their ease of doing
business with us. We expanded our already
extensive broker training offerings with new
products and small business training programs.
And we increased our efforts to conduct joint
marketing with brokers, helping them leverage
our internationally recognized brand.
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ING Canada Inc.
5
The Allianz acquisition brought to our organization
As with underwriting, our size and scale advantage
a wealth of talented insurance professionals who
is extended to clients in claims management. Our
have further improved the extent of our market
presence throughout Canada allowed us to make
knowledge and expertise. We also gained from
further improvements to claims handling last
Allianz’s two broker networks, Canada Brokerlink
year, building on one of the best service levels of
and Grey Power. Added to our existing Equisure
our industry offered through our Client Service
Financial Network, these new channels will be
Guarantee. With this Guarantee, we commit to
major drivers of future growth.
make meaningful contact with a customer within
30 minutes of them calling us so as to provide
assistance and advice in case of emergency. If
not, we will issue a cheque to the customer in an
amount equal to their annual premium up to a
maximum of $1000.
We ask customers what they like about
us and how we can do better, and we
act on their feedback with innovative
new products and services.
At the same time, through belairdirect, we
continued to make substantial investments in
technology to better serve those customers who
choose to do business with us over the Internet.
Our goal is to grow belairdirect into “the”
web insurer in Canada.
We’re Customer-centric
Being customer-centric means working hard to
anticipate and understand customers’ needs and
fi nding new ways to exceed their expectations.
Through research of our customers and brokers,
we track our performance and seek new ways to
grow and improve. We ask customers what they
like about us and how we can do better, and we act
on their feedback with innovative new products
and services. An example last year was the
introduction in Ontario of our Responsible Driver
Guarantee, which allows automobile insurance
customers one at-fault accident, with no impact on
their insurance premiums or driving record with us.
“ Our history of growth and profi tability
above the industry average demonstrates
our ability to withstand industry cycles.”
Claude Dussault
President & CEO
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6
Our claims management profi ciency, customer
In 2006 our scale, skill at core
focus and fi nancial strength mean we are there
competencies and fi nancial strength
for Canadians during major disasters, such as
last summer’s violent storms. In these cases of
multiple, serious losses we are able to call in extra
claims staff, emergency specialists and outside
adjusters to address damage immediately and help
customers recover as quickly as possible.
Our success has in turn allowed us to increase
our commitment to Canadian communities,
through sponsorship of major events like the
ING Ottawa Marathon and the work of the ING
Foundation, which focuses on youth initiatives.
We are making our presence in Canadian
communities better known, while simultaneously
growing our reputation and stature in the
insurance marketplace.
On the Horizon
Looking ahead to the challenges and opportunities
in 2006 and beyond, we are committed to continue
to grow at a rate greater than the industry average
and to exceed average industry return on equity
levels by at least 500 basis points (5%).
Our history of growth and profi tability above
the industry average demonstrates our ability to
withstand industry cycles. And our fl exibility as
a public company and increased access to capital
position us well for additional acquisitions,
should appropriate opportunities arise.
In automobile insurance, our industry has made
signifi cant improvements in recent years by
working collaboratively with regulators and other
stakeholders to curb factors contributing to
claims infl ation while also ensuring customers
have adequate coverage. With the success of these
will continue to be what allow ING
Canada to outperform our industry.
Home insurance has historically been counted on
mainly for fi re and theft protection, and has been
priced accordingly. More and more now, however,
home insurance is used for protection against the
elements. Stringent health and environmental
standards have made water damage repairs more
costly, while at the same time many people invest
more in the contents and structure of their home.
Similar changes in risks and values have appeared
in commercial insurance. Our broker partners play
a key role in advising customers on how to make
sure they have appropriate coverage.
In 2006 our scale, skill at core competencies and
fi nancial strength will continue to be what allow
ING Canada to outperform our industry. We
continue to grow, as a leader in our industry and as
an organization. In keeping with our recent growth
and future plans, 2006 will see 1,700 of our staff
brought together at a new head offi ce facility in
Toronto and another 800 employees consolidated
at our location in St. Hyacinthe, Quebec.
I would like to thank all of our staff for their
dedication and commitment to achieving our
ambitious goals. I also wish to thank our
customers, brokers and shareholders for their
continued confi dence in our ability to meet
their needs.
reforms, automobile insurance premiums have
been reduced. We must now encourage regulators
Claude Dussault
President & CEO
and governments to remain diligent, so that
improvements which have stabilized costs remain
in place.
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ING Canada Inc.
7
Off to a Great Start
Our First Year
2005 was our fi rst full year as a public company
following our initial public offering and listing on
the Toronto Stock Exchange on December 15, 2004.
The year was highlighted by excellent fi nancial
results, attributable in part to the smooth
integration of Allianz Canada and a signifi cant
fi nancial contribution from this recent acquisition.
We also continued our efforts to extend a track
record of industry outperformance across all
stages of the business cycle.
Allianz immediately became an important
contributor to our results.
These efforts put the customer fi rst and include
enhancement and expansion of distribution,
creation of a differentiated product and service
offering and increasing use of technology to
make doing business easier for policyholders
and distributors.
The Allianz Acquisition Has Been a Winner
Allianz of Canada was purchased in December
2004 and immediately became an important
contributor to our results, generating underwriting
income of $49 million in 2005. This company was
quickly integrated into our existing operations,
business retention levels tracked our assumptions
and healthy market conditions generally resulted
in better than expected earnings.
We welcomed over 1,000 new employees to ING
and our subsidiaries from Allianz, and beginning
in March, we renewed more than 347,000 Allianz
policies on our systems in 2005.
The policy renewal and integration process has
been substantially completed.
As well as bringing new talent and clients to
ING, Allianz brought additional distribution,
including the Canada Brokerlink and Grey Power
networks. These channels are now part of a new
Affi liated Distribution Network comprising 141
offi ces and approximately 1,700 staff located
throughout Canada.
centre:
Jim Stone
Broker, Canada
Brokerlink, with
CBL customers
Lloyd & Amy Sabas
“ The My Home product puts ING on the
cutting edge. No other company offers
such a unique service. What a great way
to protect our clients! Once again, ING
leads the way.”
Jim Stone
Broker, Canada Brokerlink, Alberta
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8
The Customer Is King
As we’ve done many times before in the
Leveraging our core competencies of pricing,
face of nature’s fury, we assembled staff from
underwriting and claims management, we will
across Canada in the case of the Alberta
continue in 2006 to differentiate our value
storms, to respond immediately to the many
proposition.
people impacted.
This will include expanded Internet capabilities
Despite occasionally calling on others, we handled
at direct distributor belairdirect and enhanced
97% of all claims in 2005 through our in-house
customer service to homeowners through roll-
team of over 1,750 claims personnel. Many of
out of Property Rely, a network of preferred
these claims involved our preferred provider
contractors and suppliers similar to our Auto Rely
network, enabling us to resolve things quickly and
network of preferred auto body shops.
cost-effectively. Approximately one-half of our
automobile policy claimants took advantage of
our Auto Rely network of preferred body shops
resulting in expedited service and reduced costs.
94% of our claimants
were satisfi ed with the claims process
and the payments they received.
Our focus on the customer extended to our
commercial clients with expansion in 2005 of our
small business “AcceL” offering and an improved
service proposition to brokers. Results in Ontario
were particularly encouraging with insured risks
up more than 10%.
left to right:
Jeff Martens
Claims Representative,
Alberta
Doug Lepan
Commercial
Account Executive,
Canada Brokerlink,
Alberta
As always, customer centricity means being
there when we’re needed most. We paid out over
$2 billion in total auto, property and commercial
claims in 2005 including settlement of more than
12,700 claims following torrential rain in the
Greater Toronto Area and punishing hail and rain
in Alberta last summer.
“ ING is about helping people. We sell
a promise, and work hard to keep
that promise.”
Jeff Martens
Claims Representative, Alberta
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ING Canada Inc.
9
We know the little things count too, like having
Leveraging statistics is a key to success
the tow truck bring a rental car on weekends and
in our business.
evenings when an accident leaves a client without
wheels, a service we began piloting in Montreal
and Ottawa during the year.
Customer satisfaction surveys during the
year indicated that 94% of our claimants were
satisfi ed with the claims process and the
payments they received.
Technology Is Our Friend
We spent $109 million or 2.8% of direct written
premiums on information technology last
year including $64 million on new initiatives.
Signifi cant developments in 2005 included:
Taming the Business Cycle
Property and casualty (P&C) insurance is
a cyclical business, fl uctuating between “hard”
markets characterized by higher premium rates
and “soft” markets refl ecting aggressive pricing
and inadequate returns on capital.
For example, a hard auto market was in effect
during 1998-2002 pushed by claims infl ation
resulting from rising health care costs and
systemic fraud. This gave rise beginning in 2003
to regulatory reforms in Atlantic Canada,
Ontario and Alberta that took costs out of the
• Adoption of Allianz’ claims management system.
system and choked infl ation. Meaningful
This was an added benefi t of the acquisition as
premium rate reductions and a softening of
we were already looking at alternatives to our
the market have followed, although competition
existing system. The new system is improving
has remained rational.
workfl ows, increasing productivity and ensuring
consistency in claims handling. This is of no
small consequence considering the costs of
settling and adjusting claims totalled $2.2 billion
The resulting premium swings tend to cause
concern to policyholders, shareholders, regulators
and legislators and to us as well.
or roughly 65% of our total expenses in 2005.
While cycles tend to play out over fi ve to seven
• Leveraging statistics is a key to success in our
years creating volatility in the medium term, the
business. Enhancements to our Data Warehouse
industry has actually tended toward stability over
made it easier for our claims people and under-
longer periods. During the past thirty years, for
writers in the fi eld to access and make practical
example, the industry’s return on equity averaged
use of the industry’s largest proprietary database.
roughly 10% over this entire period as well as
• A commitment to making belairdirect the
Internet insurer of choice through an improved
value proposition, expanded functionality and
closer integration of our web site and call centre.
during each decade within this timeframe.
Why do cycles occur and what is ING doing
to manage within them?
Cycles take place principally as a result of:
• supply-driven pricing and ineffi cient
capital management;
• the time lag between pricing and
confi rmation of costs;
• legislative and regulatory processes
that tend to increase cycle amplitude.
Paul Martin
Broker, KRG
Insurance Brokers Inc.
Member, ING
Ontario Broker
Advisory Council
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10
left to right:
Geneviève Cyrenne
belairdirect
Call Centre
Team Leader,
Quebec
Caroline Turgeon
belairdirect
Call Centre,
Quebec
Rita Roy
belairdirect
Call Centre,
Quebec
Supply-driven Pricing
Effi cient capital management is a priority at
The Canadian P&C industry has historically had
ING Canada. And this priority is closely aligned
few opportunities to deploy capital outside its
with the discipline we must demonstrate as a
ongoing activities, capital which has tended to
public company. The issuance of publicly traded
grow primarily through earnings.
shares additionally provides an acquisition
As a result, excess capital generated in hard
markets tends to end up increasing competition
for business, leading to inadequate pricing and
creating soft markets.
currency which can be used to facilitate industry
consolidation and market stabilization. Finally, as
a well capitalized company, we are better able to
weather cyclical swings in the market.
“ A stimulating environment with
a young and dynamic team.”
Caroline Turgeon
belairdirect Call Centre, Quebec
belairdirect
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ING Canada Inc.
11
Lag Between Pricing and Cost Confi rmation
ING has made a commitment of time and
While policies issued are typically for a one-year
resources to actively engage governments
term, the basis on which pricing is determined, the
and regulators in a dialogue.
time involved in designing and selling a product
and the prolonged periods involved in settling
a claim can span fi ve years or more.
Pricing is based on actual experience over
the preceding three to fi ve years. Automobile
insurance rates need to be fi led, the product has
to be sold, premiums earned and claims made.
Bodily injury claims in particular, can take
prolonged periods of time to fully settle. This
can result in inadequate pricing that doesn’t
fully consider the longer term costs of
doing business.
ING leverages the industry’s largest
proprietary client database and
Regulatory and Legislative Intervention
We believe free, open markets that foster
competition, product innovation and effi cient
capital management work best in making
insurance coverage affordable and accessible
for consumers. Automobile insurance is a
compulsory product, the costs and pricing of
which are not always fully or widely understood.
Regulatory and legislative intervention has
a tendency to amplify cyclical swings by
occasionally overreacting to consumer concerns
that can be better dealt with by competitive
market forces.
actuarial staff to “stay ahead of the
ING has made a commitment of time and
curve” and avoid major pricing swings
resources to actively engage governments and
regulators in a dialogue and collaborate to
achieve a more effective regulatory model that:
• addresses product availability and affordability
at the macro level;
• maintains a competitive environment driven
by effi cient capital management and effective
risk management.
and inadequate reserve levels.
ING leverages the industry’s largest proprietary
client database and actuarial staff to “stay ahead
of the curve” and avoid major pricing swings
and inadequate reserve levels. Although we’re
not immune to rapid changes in claims infl ation,
increased fraud and other negative trends, we have
often been able to mitigate the impact relative to
the industry’s overall experience. For example,
over the past 11 years, which includes the diffi cult
1998 – 2002 period when the industry suffered
heavy underwriting losses in Ontario, ING was
able to generate a return on equity that was
some 750 basis points (7.5%) greater than the
industry result.
Lisette Dagher
IT, Helpdesk
Coordinator,
Quebec
Gary Lemaire
IT, Systems
Analyst,
Quebec
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12
Caring by Sharing
We also support the communities in which
At ING Canada we believe success is something
our employees live and work. Our United Way
that’s shared, that investments in our youth and
employee matching program was once again
communities yield high returns and that there are
a great success. Thanks to the generous
initiatives worth sponsoring by one of the world’s
contributions of our employees, we were able
strongest brands.
to present this charity with a gift of $955,000.
At ING Canada we believe success
is something that’s shared.
Through the ING Foundation, we continued to
establish partnerships with community-based
organizations that deliver meaningful and
sustainable programs aimed at improving the
quality of life for Canadian youth.
Our two main sponsorships, the Montreal Bike
Fest and the ING Ottawa Marathon were big hits,
attracting some 30,000 cyclists and more than
26,000 participants respectively. The Women in
Insurance Cancer Crusade was just one of many
benefi ciaries of the ING Ottawa Marathon, using
the event to raise more than $16,000.
And we expect to do more in 2006.
Our signature program, Youth in Motion’s
“Top 20 Under 20” celebrated the inspirational
achievements and leadership of twenty individuals
aged 10 to 19. The program supports the personal
and professional development of these youth
through a leadership summit and a unique
mentoring program.
We have become a Premier Partner of Canada’s
national speed skating teams, and we will actively
participate in the ING Chances for Children
program, a global initiative in partnership with
UNICEF aimed at raising funds to help give
50,000 children in developing countries access
to education by the end of 2007.
left to right:
Louise Fournier
Consultant,
Communications,
Quebec
Stephanie Dotto
Top 20 Under 20
Recipient,
Quebec
“ING’s support of the Youth in Motion’s
Top 20 Under 20 program has helped
me and the other winners experience an
extraordinary opportunity to broaden our
horizons, have the benefi ts of a mentor
in our area of interest and help maximize
our potential.”
Stephanie Dotto
Top 20 Under 20 Recipient, Quebec
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ING Canada Inc.
13
MANAGEMENT’S DISCUSSION AND ANALYSIS
March 3, 2006
The following discussion and analysis of our fi nancial condition and results of operations should
be read in conjunction with our audited consolidated fi nancial statements and accompanying notes
thereto in our Annual Report and our Annual Information Form available at www.sedar.com.
The Company uses both generally accepted accounting principles (GAAP) and certain non-GAAP
measures to assess performance. Non-GAAP measures do not have any standardized meaning
prescribed by GAAP and are unlikely to be comparable to any similar measures presented by other
companies. ING Canada analyzes performance based on underwriting ratios such as combined,
expense and loss ratios. These terms are de fi ned in the glossary of terms found on the Investor
Relations section of our web site at www.ingcanada.com and appear with a footnote description
whenever the term fi rst appears in the management’s discussion and analysis.
Certain totals, subtotals and percentages may not agree due to rounding.
Current Outlook
Several key factors will affect the property and casualty (“P&C”) insurance industry in 2006.
• Stable claims costs in automobile insurance: Automobile insurance reforms adopted by various
provinces over the last two years continued to be effective in 2005 at containing and stabilizing claims
costs. Product availability and affordability have accordingly been restored. Sustainability of these
cost containment measures as well as potential rate reductions will continue to be the key performance
drivers in 2006.
Industry returns
• Low frequency of automobile claims: Automobile claims frequency remains low and we believe
in automobile
insurance in
2006 are likely
to exceed
historical levels.
frequency will either increase or continued low frequency will lead to premium reductions in 2006.
Nevertheless, barring unexpected developments, industry returns in automobile insurance in 2006
are likely to exceed historical levels.
• Commercial insurance competition: Commercial insurance continues to be competitive; prices are
softening but continue to yield returns above historical levels. We remain disciplined in pricing and
underwriting and committed to superior service to our brokers and commercial customers.
• Non-residential construction cost increases: Non-residential construction cost increases are putting
pressure on commercial insurance underwriting margins. We are working with our brokers to ensure
that our commercial customers retain suffi cient coverage.
• Lower industry growth rates but still strong underwriting profi ts: We expect the industry’s top-line
growth rate for the next 12 months to be below historical levels, and for the industry, underwriting
results to fall short of the favourable level experienced in 2005. That said, underwriting results in
2006 should exceed historical returns.
ING Canada, with its scale advantage, underwriting discipline and pricing sophistication is well
positioned to capitalize on the above conditions and continue to outperform the industry’s return
on equity for the foreseeable future. Our distinct product and service proposition delivered through
a multi-channel distribution network will be a key driver in fuelling organic growth.
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14
Challenges and Strategy
Our strategy continues to be to leverage our scale and core competencies in underwriting, pricing and
claims in providing our distributors and policyholders with a superior service and product proposition,
leading to sustainable organic growth and industry outperformance.
Longer-term, domestic acquisitions enabling us to increase our market share in existing product lines
within existing geographies is an important, complementary aspect of our strategy.
While 2005 extended the strong fi nancial performance we and the industry enjoyed in 2004, key factors
in determining future performance will include the ability of provincial reforms to continue to keep
costs in check and continuation of historically low levels of claims frequency.
Top-line growth will be a challenge in 2006 as premium rate reductions implemented in prior years
continue to work their way through the portfolio.
Legal and constitutional challenges to the caps on compensation for minor injuries enacted by various
provinces will be closely monitored. While claims frequency has remained at benign levels, we have
seen increased severity of claims in recent quarters, as water and wind damage seem to take a larger toll
than in the past. Also, non-residential construction costs are rising faster than premium rates, creating
some pressure on margins.
While premium growth will likely be constrained in 2006, we believe that we can continue to generate
meaningful increases in the number of risks insured during the year, an important measure of organic
growth. We expect organic growth will result from initiatives focused on improved technology,
making it easier to do business with us, and by increasing the value of our offerings through service
enhancements and product innovation.
We will also continue to use our sophisticated pricing and underwriting approach, together with our
strong in-house claims capability, to closely monitor the nature of losses incurred to ensure our products
provide for appropriate levels and types of coverage priced in accordance with the risks assumed.
Creating Value for Shareholders
As we did in 2004, we exceeded by a wide margin in 2005 our objective of outperforming the industry’s
return on equity (ROE) by at least 500 basis points (5%).
The 35.2% ROE achieved by our insurance subsidiaries in 2005 compared to a Canadian property
and casualty industry return of 17.0% for federally regulated P&C companies. During the period
1995 through 2005, the ROE of our insurance subsidiaries averaged 17.4%, exceeding the corresponding
industry average of 9.9% by 7.5 percentage points.
We believe this track record of consistent outperformance and value creation fundamentally speaks
to the advantages of scale and the importance of an underwriting culture and capability.
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ING Canada Inc.
15
ROE* Performance of our Insurance Subsidiaries
Compared to the P&C Insurance Industry
ING Canada
P&C Insurance Industry
ROE %
40
35
30
25
20
15
10
5
0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
* Excludes ROE of our non-insurance companies.
Source: Insurance Bureau of Canada; Offi ce of the Superintendent of Financial Institutions for 2005 industry ROE.
Company reports for ING Canada ROEs.
Overall Performance
Net Income
Net income for the year ended December 31, 2005 was $781.8 million, an increase of $157.6 million,
or 25.2%, from $624.2 million for the year ended December 31, 2004.
These results are driven by: (1) continued strong underwriting income, particularly in personal
Net income
for the year ended
Dec. 31, 2005 was
$781.8
million
an increase of
25.2%
from $624.2 million
for the year ended
automobile, despite the impact of increased catastrophe claims, most notably in personal property,
Dec. 31, 2004.
(2) actual claims experience being less than previously reserved for, creating redundant reserves to the
benefi t of earnings and (3) robust investment results.
The following table presents the major changes in net income for the year ended December 31, 2005
from the prior year.
Year ended December 31
(in millions of dollars)
2004 Net income
Prior year claims development (excluding pools)*
Allianz
Current accident year*
Industry pools*
Catastrophes*
Underwriting income
Investment income
Realized investment and other gains
Other
2005 Net income
* excluding Allianz
Jetse de Vries
Chief Operating
Offi cer,
Western Region
113.6
25.8
(54.0)
(8.0)
(33.1)
2005
$
624.2
44.3
32.9
77.5
2.9
$
781.8
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16
Shareholders’ Equity
Shareholders’ equity increased by $833.0 million, or 40.4%, to $2,892.6 million in 2005 compared
to $2,059.6 million at December 31, 2004. This increase refl ects net income of $781.8 million plus
$131.6 million in additional proceeds from our December 2004 initial public offering received in
January 2005 less $86.9 million in dividends ($0.65 per share) paid during the year.
The fi nancial data in the following tables was prepared using Canadian generally accepted accounting
principles (GAAP) and is taken from our consolidated fi nancial statements for the years ended
December 31, 2005, 2004 and 2003.
Year ended December 31
(in millions of dollars, except per share data)
Underwriting
Income
$537.7
$470.0
Direct premiums written
Total revenue
Underwriting income
Net income
Dividends per common share
Earnings per share (in dollars):
2004
2005
Basic
Diluted
As at December 31
Investments
Total assets
Debt outstanding
Total shareholders’ equity
2005
2004
2003
$ 3,904.9
$ 3,575.9
$ 3,443.8
4,446.1
3,780.9
3,015.4
537.7
781.8
0.65
5.85
5.85
470.0
624.2
0.0
6.51
6.49
51.7
150.5
0.0
1.61
1.61
2005
2004
$ 6,721.0
$ 6,285.1
9,926.5
9,663.1
127.0
256.2
2,892.6
2,059.6
Shareholders’
The following table shows selected non-GAAP fi nancial ratios and return on equity (ROE) data.
equity increased by
$833.0
million
or 40.4%, to
$2,892.6
million
in 2005.
Year ended December 31
Claims ratio (1)
Expense ratio (2)
Combined ratio (3)
ROE (4)
ROE of our P&C insurance subsidiaries (5)
2005
2004
2003
56.3%
56.6%
29.7%
29.4%
86.0%
86.0%
31.6%
40.9%
35.2%
39.6%
68.1%
30.0%
98.1%
16.5%
15.5%
(1) Claims and claims expenses incurred, net of reinsurance during a defi ned period and expressed as a percentage of
net premium earned for the same period. The fi nancial numbers used to determine these ratios are determined in
accordance with GAAP but the ratio is a non-GAAP measure.
(2) Expense including commissions, premium taxes and all general and administrative expenses, incurred in operating
the business during a defi ned period and expressed as a percentage of net earned premiums for the same period.
Components of the expense ratio - commissions, premium taxes and general expenses are individual ratios expressed
as a percentage of net earned premiums. The fi nancial numbers used to determine these ratios are determined in
accordance with GAAP but the ratio is a non-GAAP measure.
(3) The sum of the claims ratio and the expense ratio. A combined ratio below 100% indicates a profi table underwriting
result. A combined ratio over 100% indicates an unprofi table result. The fi nancial numbers that comprise the ratio are
determined in accordance with GAAP but the ratio is a non-GAAP measure.
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ING Canada Inc.
17
(4) Return on equity (ROE) is a non-GAAP measure which represents our net income for the twelve months ended on
the date indicated divided by the average shareholders’ equity over the same twelve-month period. Net income and
shareholders’ equity are determined in accordance with GAAP.
(5) Return on equity of our P&C insurance subsidiaries is a non-GAAP measure which represents net income of our
P&C insurance subsidiaries for the twelve months ended on the date indicated divided by the average shareholders’
equity of our P&C insurance subsidiaries over the same twelve-month period. Net income and shareholders’ equity
are determined in accordance with GAAP. Our P&C insurance subsidiaries consist of Belair Insurance Company Inc.,
ING Insurance Company of Canada, ING Novex Insurance Company of Canada, The Nordic Insurance Company of
Canada, along with our warranty company, Wellington Warranty Company Inc. After November 30, 2004, the results
of our P&C insurance subsidiaries consist of those results of the above-mentioned subsidiaries, as well as those of
the subsidiaries of Allianz: Allianz Insurance Company of Canada and Trafalgar Insurance Company of Canada.
Direct Premiums Written
Direct premiums written increased $329.0 million, or 9.2%, in 2005. Allianz contributed $423.5 million
more in direct premiums than last year. Results in 2004 included one month only of Allianz. Premium
growth was lower due to reduced premiums from industry pools of $104.2 million.
A key non-GAAP measure of our growth is written insured risks defi ned as the number of vehicles in
automobile insurance, the number of premises in personal property insurance and the number of policies
in commercial insurance (excluding commercial auto insurance).
The number of written insured risks increased 14.6% in 2005 over 2004. The increase excluding Allianz,
representing organic growth, was 3.4% in 2005.
Premium growth excluding Allianz was unable to keep pace with the growth in insured risks given
lower average premiums, largely due to rate reductions in personal automobile insurance averaging
7.5% for 2005.
A key non-GAAP
measure of our
growth is written
insured risks
defi ned as the
number of vehicles
in automobile
insurance, the
number of premises
in personal property
insurance and the
number of policies
in commercial
insurance (excluding
Revenue
commercial
auto insurance).
Revenue increased by $665.2 million, or 17.6%, to $4,446.1 million in 2005 compared to
$3,780.9 million in 2004.
The following table presents the major changes between 2004 and 2005.
Year ended December 31
(in millions of dollars)
Net premiums earned
Investment income
Realized investment and other gains
Commission and advisory fees
Increase in revenue
$
475.6
71.5
91.1
27.0
$
665.2
Net premiums earned increased by $475.6 million, or 14.1%, to $3,840.2 million in 2005 from
$3,364.6 million in 2004. Allianz accounted for practically all of this increase, or $461.2 million
in 2005. Lower earned premiums from industry pools (3.6%) and earned premium rate reductions
averaging 6.9% in personal automobile insurance reduced earned premium growth in 2005.
Debbie
Coull-Cicchini
Chief Operating
Offi cer,
Ontario Region
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18
Investment income was $338.5 million in 2005, an increase of $71.5 million, or 26.8%, from
the $267.0 million reported in 2004. Growth in invested assets from the Allianz acquisition of
$1,061.5 million and retained profi ts of $694.9 million in the last year were the main contributing
factors to higher investment income.
Net unrealized
Realized investment gains in the equity and fi xed income portfolios increased revenue by $91.1 million
gains of
$304.3
million
at year-end 2005,
however, were
$62.1
million
greater than
last year.
for 2005. Net unrealized gains of $304.3 million at year-end 2005, however, were $62.1 million
greater than last year. The growth in realized gains comes primarily from $53.3 million in fi xed income
securities resulting from a repositioning of the portfolio to improve the effi ciency of managing fi xed
income securities. The increase in our gains on common stock of $31.4 million refl ects $19.0 million
of gains from the sale of seed capital in ING mutual funds.
Commission and advisory fees increased by $27.0 million in 2005. The increase is related entirely
to the addition of Canada Brokerlink, part of the Allianz acquisition.
Underwriting Income
Underwriting income (the difference between net premiums earned and the sum of net claims incurred,
commissions, premium taxes and general expenses) increased by $67.7 million to $537.7 million
in 2005 yielding a claims ratio of 56.3% which is 0.3 percentage point lower than last year. The
improvement in the claims ratio was offset by an equal increase in the expense ratio, resulting in
a combined ratio of 86.0% for both 2005 and 2004.
The increase in underwriting income was due to:
Year ended December 31
(in millions of dollars)
Prior year claims development excluding items below:
$
Allianz acquisition
Catastrophes*
Industry pools*
Current accident year*
Total
* excludes Allianz
173.5
39.4
(50.5)
(12.2)
(82.5)
$
67.7
Personal automobile continued to be the biggest contributor to underwriting income, accounting for
$411.5 million in income in 2005 (2004: $292.0 million). The combined ratio for personal automobile
decreased from 82.9% in 2004 to 78.8% in 2005. The personal automobile portfolio, including Allianz
but excluding pools, benefi ted from favourable claims development of $161.2 million in 2005, primarily
the result of automobile reforms and continued low frequency, which offset the decrease in underwriting
results from industry pools.
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ING Canada Inc.
19
Personal
Industry pools consist of the so-called “residual market” as well as risk-sharing pools (RSP) in Alberta,
automobile
Ontario, Quebec and New Brunswick. These pools are managed by the Facility Association except for
continued to be
the biggest
contributor to
underwriting
income,
accounting for
$411.5
million
in income
the Quebec RSP. During 2005, the premiums transferred to us decreased in the residual market and
transfers both to and from the RSP increased, primarily in Alberta. Transfers in and out of these pools
including Allianz during the year, on balance, resulted in $8.1 million less underwriting income from
pools in 2005 than we had in 2004. These transfers also reduced the amount of our reported net written
premiums and eventually the net earned premiums.
Signifi cant Transactions
Initial Public Offering
in 2005.
The Company completed an IPO on December 15, 2004, pursuant to the fi ling of a prospectus dated
December 9, 2004. As a result of the offering, 34.9 million common shares were issued at $26.00 per
share for proceeds of $858.5 million net of underwriters’ fees and other expenses. Pursuant to the
underwriter’s agreement for the prospectus, an over-allotment option was granted and then exercised
subsequent to December 31, 2004 upon which 5.2 million additional common shares were issued and
net proceeds were received of $129.2 million. ING Groep remains the controlling shareholder with
70% of the shares issued and outstanding.
Acquisition of Allianz
The Company entered into a share and loan purchase agreement dated October 7, 2004 with Allianz
AG and Allianz of America Inc. to acquire most of Allianz’ operations in Canada. Included in the
acquisition were two insurance companies; Allianz Insurance Company of Canada and Trafalgar
Insurance Company of Canada as well as a network of insurance brokerages; Canada Brokerlink, which
sells the products of P&C insurance companies to individuals and small to medium-sized businesses.
The acquired operations have been integrated as planned (see note 19 of the accompanying audited
consolidated fi nancial statements).
The transaction was recorded with an effective date of November 30, 2004 and was completed
December 8, 2004. The results of Allianz for the month of December 2004 have been included in the
Company’s consolidated statements of income for the year ended December 31, 2004. In 2005 Allianz
contributed direct premiums written of $483.3 million (2004: $59.8 million), net premiums earned of
$511.3 million (2004: $50.1 million) and underwriting income of $49.4 million (2004: $10.0 million).
The “AGR Business”, related to insurance coverage of industrial risks for large Canadian companies
and multi-national clients of Allianz AG, was not part of the acquisition as it was subject to a 100%
quota share agreement with Allianz Global Risks Rüchversicherungs AG pending the re-transfer of
this business to the Canadian branch of Allianz Global Risks US Insurance Company (“AGR”) in
September 2005.
Consequently, the AGR business had no net impact on the consolidated statement of income
of the Company.
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20
Summary of Quarterly Results
(in millions of dollars,
except per share data)
Direct premiums
2005
2004
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
written
$ 905.0 $ 1,006.5 $ 1,171.4 $ 821.9 $ 883.0 $ 921.6 $ 1,043.4 $ 727.8
Total revenues
1,111.6
1,123.3
1,112.3
1,098.8
1,004.7
919.7
900.9
955.6
Underwriting
income
126.3
116.7
179.8
114.9
118.4
133.7
174.5
43.4
Income before
income taxes
269.3
269.3
323.6
228.6
229.7
217.1
238.6
170.4
Net income
196.9
202.8
223.6
158.5
173.1
163.6
172.3
115.1
Combined ratio
Seasonal indicator (1)
Earnings per share
Basic
Diluted
Earnings per
adjusted share (2)
Basic pro-forma
Diluted pro-forma
86.9
1.01
1.47
1.47
87.7
1.02
1.52
1.52
81.2
0.94
1.67
1.67
88.1
1.02
1.19
1.19
86.7
1.01
1.69
1.67
83.9
0.98
1.75
1.75
78.9
0.92
1.84
1.84
94.7
1.10
1.23
1.23
1.47
1.47
1.52
1.52
1.67
1.67
1.19
1.19
1.35
1.29
1.27
1.22
1.34
1.29
0.90
0.86
(1) The seasonal indicator is a non-GAAP measure which represents the ratio of the quarterly combined ratio to the
annual combined ratio. Historically, the seasonal indicator pattern shows that Q2 is the lowest loss quarter and Q1
is the highest loss quarter.
(2) To facilitate comparison between performance in 2004 and 2005, management calculated basic earnings per adjusted
share, a non-GAAP measure, on a pro-forma basis as if the 128.5 million common shares outstanding after our
reorganization and completion of the initial public offering were outstanding at the beginning of each of the quarters
prior to 2005, and calculates diluted earnings per adjusted share as if the 133.7 million common shares, the difference
being the shares issued in January 2005 as part of the over-allotment granted to the underwriters, had been outstanding
during each of the quarters prior to 2005. Net income used for the pro-forma earnings per adjusted share calculations
has not been adjusted for interest income and expense that would have been realized by the Company from investing
the net proceeds of the initial public offering and reducing the debt outstanding.
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ING Canada Inc.
21
Segmented Information
We report our results on the basis of fi ve segments consisting of the three segments of our property and
casualty (P&C) insurance business (personal insurance, commercial insurance and the investment results
of our P&C insurance subsidiaries), corporate and other, and realized investment and other gains.
The following table presents selected information on our business segments.
Year ended December 31
(in millions of dollars)
Underwriting
Income
Personal insurance
Revenue
Net premiums earned
Personal insurance
$382.1
Commercial insurance
$339.2
Total net premiums earned
Investments
Total P&C insurance
2004
2005
Corporate and other
Realized investment and other gains
Commercial insurance
Total revenue
$155.6
Income before income taxes
$130.8
Underwriting income
Personal insurance
Commercial insurance
2004
2005
Total underwriting income
Investments
Total P&C insurance
Corporate and other
Realized investment and other gains
2005
2004
2003
$ 2,680.7
$ 2,343.5
$ 1,828.7
1,159.5
1,021.1
932.2
3,840.2
3,364.6
2,760.9
323.2
256.7
208.8
$ 4,163.4
$ 3,621.3
$ 2,969.7
59.2
223.5
27.2
132.4
13.6
32.1
$ 4,446.1
$ 3,780.9
$ 3,015.4
$ 382.1
$ 339.2
$
(35.5)
155.6
537.7
300.7
130.8
470.0
247.0
87.2
51.7
200.5
$ 838.4
$ 717.0
$ 252.2
29.0
223.5
6.4
132.4
(57.3)
32.1
Total income before income taxes
$ 1,090.9
$ 855.8
$ 227.0
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22
Personal Insurance
The following table presents the direct premiums written and underwriting income of our personal
insurance segment.
Year ended December 31
(in millions of dollars)
Direct premiums written:
Personal automobile
Personal property
Total direct premiums written
Net premiums earned
Expenses:
2005
2004
2003
$ 1,877.0
$ 1,714.2
$ 1,724.0
779.9
701.0
624.1
$ 2,656.9
$ 2,415.2
$ 2,348.1
$ 2,680.7
$ 2,343.5
$ 1,828.7
Claims and loss adjustment expenses
1,550.5
1,375.5
1,342.8
Commissions
Premium taxes
General expenses
Total expenses
Underwriting income
Direct premiums
Ratios:
written in
Claims ratio
personal automobile
Commissions ratio
insurance refl ect
an average
rate reduction
of approximately
7.5%
in 2005.
Premium taxes ratio
General expense ratio
Combined ratio
Direct Premiums Written
433.2
91.8
223.0
380.0
80.1
168.7
299.8
69.2
152.4
2,298.5
2,004.3
1,864.2
$ 382.1
$ 339.2
$
(35.5)
57.8%
58.7%
16.2%
16.2%
73.4%
16.4%
3.4%
8.3%
3.4%
7.2%
3.8%
8.3%
85.7%
85.5%
101.9%
Direct premiums written increased by $241.7 million, or 10.0%, in 2005. Allianz accounted for a 13.5%
increase in 2005. Lower year-over-year premiums from industry automobile pools, excluding Allianz,
reduced premium growth by 4.3% in 2005.
The number of written insured risks for personal property increased by 10.7% in 2005. The growth in
insured risks, excluding Allianz, representing organic growth was 2.7% in 2005.
The number of written insured risks for personal auto increased by 19.2% in 2005. The growth in insured
risks, excluding Allianz, representing organic growth was 4.8% in 2005. Direct premiums written in
personal automobile insurance refl ect an average rate reduction of approximately 7.5% in 2005.
For the personal insurance segment the number of written insured risks increased by 15.6% in 2005.
The growth in insured risks, excluding Allianz, representing organic growth, was 3.9% in 2005.
Net Premiums Earned
Net premiums earned increased by $337.2 million, or 14.4%, in 2005. Allianz accounted for a 15.0%
increase, or all of the improvement in 2005. Lower year-over-year earned premiums from industry
automobile pools reduced premium growth by 3.6% in 2005 while premium rate reductions in personal
automobile further reduced premium growth by 6.9% during the year.
Alan Blair
Chief Operating
Offi cer,
Atlantic Region
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ING Canada Inc.
23
Underwriting Income
Underwriting income from the personal insurance segment increased by $43.0 million in 2005 despite
an increase in the combined ratio of 0.2 percentage points compared to 2004. The personal insurance
segment increased by $374.8 million in 2004 compared to 2003 due to an improvement in the
combined ratio of personal automobile from 105.9% to 82.9% arising from the impact of rate increases,
automobile reforms and reduced frequency.
Underwriting income from the personal property decreased by $76.6 million in 2005 on an increase
in the combined ratio of 11.5 percentage points. Catastrophes occurring in Q2 05 and Q3 05 reduced
underwriting income by $36.3 million and class actions reduced underwriting income by $14.7 million
in Q4 05. These events increased the combined ratio by 6.3 percentage points. We saw increased storm
activity in 2005 and an increase in our retention of individual catastrophe exposure from $5.0 million
in 2004 to $17.5 million in 2005 which negatively impacted results.
Underwriting income from personal automobile increased by $119.5 million in 2005 along with a
reduction in the combined ratio of 4.1 percentage points. Frequency in 2005 was lower than in 2004.
The current accident year loss ratio, defi ned as claims and claims expenses incurred during the current
year excluding all other claims and claims expenses related to prior years incurred during the calendar
year expressed as a percentage of net premium earned, is very similar in 2005 to that of 2004 even
though the earned premium has decreased. Favourable claims development contributed $161.2 million
of the annual increase in personal automobile underwriting income.
Our personal insurance expense ratio was 27.9% for 2005 compared to 26.8% in 2004.
The commission ratio was 16.2% for both 2005 and 2004. Lower profi t-sharing commissions led to a
0.2 percentage point decrease which offset an increase in regular and pool commissions. Profi t-sharing
commissions were $83.9 million for 2005 (2004: $78.0 million).
The general expense ratio increased by 1.1 percentage points from 7.2% in 2004 to 8.3% in 2005 due
to lower fees from the service carrier operated on behalf of the Facility Association of $20.0 million,
Allianz transition expenses of $6.3 million, and increased expenses, primarily marketing and incentive
compensation of $3.7 million.
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24
Commercial Insurance
The following table presents the direct premiums written and underwriting income of our commercial
insurance segment.
Year ended December 31
(in millions of dollars)
Direct premiums written:
Commercial automobile
Commercial other
Total direct premiums written
Net premiums earned
Expenses:
Claims and loss adjustment expenses
Commissions
Premium taxes
General expenses
Total expenses
Underwriting income
Ratios:
Claims ratio
Commissions ratio
Premium taxes ratio
General expense ratio
Combined ratio
Direct Premiums Written
2005
2004
2003
$ 330.4
$ 301.0
$ 291.0
917.6
859.7
804.7
$ 1,248.0
$ 1,160.7
$ 1,095.7
$ 1,159.5
$ 1,021.1
$ 932.2
611.2
241.0
41.9
109.8
1,003.9
530.0
232.6
36.7
91.0
890.3
538.1
182.5
34.0
90.4
845.0
$ 155.6
$ 130.8
$
87.2
52.7%
51.9%
20.8%
22.8%
57.7%
19.6%
3.6%
9.5%
3.6%
8.9%
3.6%
9.7%
86.6%
87.2%
90.6%
Direct premiums written increased by $84.9 million, or 7.4%, in 2005 excluding the AGR business
(see note 6 to the audited consolidated fi nancial statements). Allianz accounted for growth of 8.2%.
The number of insured risks remained the same as in 2004 after excluding Allianz and the sale of
books of business.
Underwriting income
Net Premiums Earned
from commercial
Net premiums earned increased by $138.4 million, or 13.6%, in 2005. Allianz accounted for the
insurance increased
$24.8
million
in 2005.
majority (12.1%) of this increase.
Underwriting Income
Underwriting income from commercial insurance increased $24.8 million in 2005 on a decrease in
the combined ratio of 0.6 percentage points. Favourable claims development of $66.5 million more than
offset the impact from catastrophes of $17.4 million and higher severity in the current accident year.
Our commercial insurance expense ratio was 33.9% in 2005 compared to 35.3% in 2004. A decrease
of 2.0 percentage points in the commission ratio was due to lower profi t-sharing commissions of
1.5 percentage points and higher ceded commissions of 0.5 percentage points.
The general expense ratio increased by 0.6 percentage points from 8.9% in 2004 to 9.5% in 2005
due to increased expenses of $3.4 million and Allianz’s transition expenses of $3.1 million.
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ING Canada Inc.
25
Investment Income
The following table presents the results of our investment segment.
Year ended December 31
(in millions of dollars)
Interest income
Dividend income
Other
2005
2004
2003
$ 203.6
$ 154.9
$ 109.1
117.0
2.7
98.7
3.1
94.5
5.2
Investment income from P&C subsidiaries
$ 323.3
$ 256.7
$ 208.8
Investment expenses
Investment income from P&C subsidiaries
(22.5)
(9.7)
(8.3)
before income taxes
$ 300.8
$ 247.0
$ 200.5
Investment income increased by $66.6 million, or 25.9%, to $323.3 million in 2005. Interest income of
$14.5 million related to the 2001 Portfolio Purchase is included in the 2005 results. (The 2001 Portfolio
Purchase refers to an agreement entered into with Zurich Insurance Company to acquire its personal and
small and medium-size commercial business and, in turn, sell our large size commercial lines business.)
Investment income in 2004 is higher than in 2003 due to the transfer of investments of $665.0 million
from reinsurers related to a 100% quota-share treaty commuted as at January 1, 2004.
Average pre-tax yield was 5.1% for 2005 compared to 5.3% in 2004. These yields exclude realized
investment gains and losses and interest income related to the 2001 Portfolio Purchase.
Investment expenses totalled $22.5 million in 2005 compared to $9.7 million in 2004. This growth is
due to increased assets from the Allianz acquisition and an increase in asset management charges as
of January 1, 2005 to better refl ect current market costs. These charges of $18.8 million are paid to our
in-house investment operations. An equivalent amount is reported as a negative expense in the corporate
and other segment with both entries eliminated on consolidation of the fi nancial statements.
Corporate and Other
The following table presents the results of our corporate and other segment including the results of our
brokerage operations (Canada Brokerlink and Equisure), our investment management company and
inter-company eliminations, primarily commissions and general expenses.
Year ended December 31
(in millions of dollars)
Investment income
Commission and advisory fees
Revenue
Commissions
General expenses
Interest on debt
Expenses
$
$
2005
15.3
43.9
59.2
(27.9)
50.0
8.0
30.1
2004
10.3
16.9
27.2
1.8
7.3
11.7
20.8
$
2003
5.1
8.4
13.5
27.9
30.5
12.6
70.9
Income before income taxes
$
29.1
$
6.4
$
(57.4)
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26
Corporate and other revenue increased $32.0 million in 2005. The increase in 2005 was due largely to
commission income from Canada Brokerlink (part of the Allianz acquisition) of $25.7 million, increased
revenue from Equisure of $1.8 million and increased interest income of $4.6 million.
Commission expenses were lower, however, due to non-recurring commissions of ($4.3) million in
2004. Higher brokerage commissions earned from our insurance companies of $26.0 million in 2005
were offset in the commission expenses of this segment. Commission in 2003 included $25.8 million
related to the 2001 Portfolio Purchase.
Higher general expenses of $42.7 million in 2005 were due mostly to Canada Brokerlink expenses.
General expenses in 2003 included $16.0 million related to the 2001 Portfolio Purchase.
Realized Investment and Other Gains
The following table presents realized investment and other gains (losses).
Realized investment
and other gains
$223.5
$132.4
Year ended December 31
(in millions of dollars)
Realized investment and other gains (losses)
Fixed income
Preferred shares
Common shares
Other
Total
2004
2005
After-tax total
2005
2004
2003
$
87.9
$
34.6
$
(4.8)
131.5
8.9
(6.3)
100.1
4.0
36.2
24.4
(3.2)
(25.3)
$ 223.5
$ 132.4
$ 169.4
$
91.9
$
$
32.1
6.5
After-tax Total
Realized investment and other gains increased by $91.1 million in 2005 on the strength of $53.3 million
$169.4
in fi xed income portfolio gains. Share gains include gains from the sale of seed capital in ING mutual
funds in 2005 of $19.0 million, which offset higher impairment charges of $3.6 million. Other includes
$91.9
gains of $8.9 million in 2005 on the sale of books of business aggregating $6.4 million and a gain of
$2.5 million on the transfer and sale of mutual funds.
2004
2005
Balance Sheet Analysis
Premiums and Other Receivables
Premiums written are either billed to brokers or billed to policyholders directly. As at December 31, 2005,
premium receivables from brokers stood at $129.0 million and $1,120.0 million from policyholders. As
at December 31, 2004, premium receivables from brokers stood at $163.8 million and $1,076.0 million
from policyholders.
Other receivables comprised $195.0 million (2004: $202.8 million) from the Facility Association
and other industry pools, $31.3 million (2004: $137.3 million) from other insurers and $43.2 million
(2004: $62.5 million) from other.
Investments
We have an investment policy that seeks to provide an attractive risk-return profi le over the medium to
long term. In developing our investment policy, we take into account the current and expected condition
of capital markets, the historic return profi les of various asset classes and the variability of those returns
over time, the availability of assets, diversifi cation needs and benefi ts, regulatory capital required to
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ING Canada Inc.
27
support the various asset types, security ratings and other material variables likely to effect the overall
performance of our investment portfolio. The overall risk profi le of our investment portfolio is designed
to balance the investment return needs of our liabilities while optimizing the investment opportunities
available in the marketplace. Management monitors and enforces compliance with our investment
policy. The majority of our investment portfolio is invested in well-established, active and liquid
markets. Fair value for most investments is determined by reference to quoted market prices. In cases
where an active market does not exist, fair value is estimated by reference to recent transactions or
current market prices for similar investments.
Our investment portfolio is managed on a total return basis which views realized gains and losses as
important and recurring components of the return on investments and consequently of income, although
the timing of realizing gains or losses may be unpredictable. Our portfolio construction methodology
takes into account the availability and liquidity of potential investments. We also set constraints by
economic sector and by investment strategy to provide diversifi cation across industries. We believe this
diversifi cation of exposure across a range of business sectors provides positive investment benefi ts.
At the same time, economic diffi culties concentrated in a select business sector are dampened.
Due to potential tax ramifi cations of these strategies, specifi c focus is placed on the management of the
portfolio to optimize the after-tax total return.
Our investment objectives remain consistent with those in 2004. Beginning in 2006, we are expanding
the investment options to include investment grade international bonds and the use of derivatives to
support the management of the duration of our fi xed income portfolio. The duration has moved from
6.3 years at December 31, 2005 to 4.3 years at January 31, 2006. This more closely aligns our
investment duration with the duration of our liabilities. We do not intend to match exactly but will target
duration of 4.0 to 4.5 years. We have lowered the duration by trading the portfolio and through limited
use of derivatives. The relatively fl at yield curve has allowed us to reposition the portfolio with only
a modest drop in yield.
The following table presents our cash and invested assets as at December 31, 2005 and
December 31, 2004.
(in millions of dollars)
Book value (BV) % of BV Fair value
BV
% of BV
Fair value
As at December 31, 2005
As at December 31, 2004
Cash and cash equivalents $
341.1
4.8% $
341.1 $
82.5
1.3% $
82.5
Short-term notes
Fixed income securities(1)
Commercial mortgages
440.4
3,520.8
6.2%
49.9%
440.4
3,595.8
274.7
3,685.1
4.3%
57.9%
274.7
3,776.5
70.4
1.0%
73.1
78.7
1.2%
83.3
Preferred shares
Common shares(1)
Other investments
1,257.3
17.8%
1,319.9
1,069.6
16.8%
1,136.3
1,266.5
17.9%
1,430.4
165.6
2.4%
165.6
997.7
179.3
15.7%
1,077.2
2.8%
179.3
Total investments and cash $ 7,062.1
100.0% $ 7,366.3 $ 6,367.6
100.0% $ 6,609.8
(1) Fixed income securities and common shares include our seed capital investment in ING mutual funds, with
a book value of $155.0 million as at December 31, 2004. Due to the sale of our mutual fund operations, there were
no such investments as at December 31, 2005.
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28
Cash and cash equivalents and investments increased by $694.5 million, or 10.9%, to $7.06 billion in
2005. This increase results from higher income from operations, an interim settlement of $116.9 million
As at December 31,
from the 2001 Portfolio Purchase and the receipt of $173.5 million of investment funds transferred from
2005, the weighted
average rating of
our fi xed income
the Facility Association. These transferred funds are not needed by the association in the short term;
however, they will eventually be returned to the association to pay claims related to the funds.
portfolio was AA,
Other investments consisted of loans to brokers with a book value of $151.4 million as at December 31,
and the weighted
average rating of
our preferred share
portfolio was P2.
2005 ($156.3 million as at December 31, 2004), investments in brokerages with a book value of
$14.2 million as at December 31, 2005 ($13.4 million as at December 31, 2004) and other commercial
loans with a book value of nil as at December 31, 2005 ($9.6 million as at December 31, 2004).
The following table sets forth our exposure to the ten largest industrial sectors for our combined fi xed
income securities and preferred and common share portfolios as at December 31, 2005 and 2004.
(in millions of dollars)
As at December 31, 2005
As at December 31, 2004
BV % of BV Fair value
BV
% of BV
Fair value
Banks
$
827.8
12.3% $
895.2 $
636.2
10.1% $
674.1
Diversifi ed fi nancial
services
Utilities
Insurance
Telecommunication
services
Oil and gas
Special purpose
Real estate
Media
Food & drug retail
701.2
449.7
361.2
286.9
274.1
252.3
248.8
121.6
76.8
10.4%
734.3
1,326.3
21.1%
1,384.5
6.7%
5.4%
4.3%
4.1%
3.8%
3.7%
1.8%
1.1%
482.1
392.3
284.7
300.4
257.8
274.2
121.3
80.0
435.3
246.3
292.8
184.3
152.0
124.7
106.8
52.2
6.9%
3.9%
4.7%
2.9%
2.4%
2.0%
1.7%
0.8%
461.9
266.7
299.2
188.7
155.5
132.3
109.6
54.7
Total top ten sectors
$ 3,600.4
53.6% $ 3,822.2 $ 3,556.9
56.6% $ 3,727.2
Government
Other
2,043.5
30.4%
2,091.5
2,075.5
33.0%
2,124.7
1,077.1
16.0%
1,111.6
652.7
10.4%
675.4
Total investment assets
$ 6,721.0
100.0% $ 7,025.3 $ 6,285.1
100.0% $ 6,527.3
As at December 31, 2005, the weighted average rating of our fi xed income portfolio was AA and the
weighted average rating of our preferred share portfolio was P2 (ratings are by Standard & Poor’s
(“S&P”) or Dominion Bond Rating Services). Approximately $16.1 million of securities with a rating
below investment grade or not rated were included in the fi xed income and preferred share portfolios
at December 31, 2005, compared to $42.9 million as at December 31, 2004.
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ING Canada Inc.
29
The following graphs set forth our fi xed income portfolio by credit quality as at December 31, 2005
and 2004.
Fixed Income by Credit Quality
as at December 31, 2005
Fixed Income by Credit Quality
as at December 31, 2004
Carrying Value
BB
0.0%
BBB
4.3%
B
0.1%