Helping people
ING Insurance and ING Direct teamed up in 2006 to become a Premier Partner of Canada’s National Speed Skating team,
which brought home no fewer than 12 Olympic medals from Turin that year. ING’s $2 million, six-year sponsorship is helping
elite Canadian skaters like Denny Morrison, a 2006 World Championship medallist, make Canada the top speed skating nation
in the world. With a track record of excellent customer service and high-value products, ING is committed to matching the
outstanding dedication, high level of performance and great achievements of our skaters.
Turning promises into
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ING Canada Inc.
700 University Avenue, Toronto, Ontario M5G 0A1 www.ingcanada.com
ING Canada Inc.
2006 annual report
ActionsSucceed
ING Canada Inc. 81
Shareholder Information
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
Annual Meeting
The Annual Meeting will be held on:
Date: May 16, 2007
2:00 p.m. ET
Time:
Juliette-Lassonde Arts Center
Place:
1705 Saint-Antoine Street
Saint-Hyacinthe, Québec J2S 9E2
Institutional investors, security analysts and others who may
want additional financial 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:
Gilles Gratton
Director, Corporate Communications
416-217-7206
gilles.gratton@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 intéressés 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 15, 2007
May 16, 2007
August 8, 2007
November 7, 2007
Dividend Payment Dates
(Subject to approval by the Board of Directors)
March 30, 2007
June 29, 2007
September 28, 2007
December 31, 2007
Dividend Record Dates
(Subject to approval by the Board of Directors)
March 15, 2007
June 15, 2007
September 14, 2007
December 14, 2007
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 visiting the Investor Relations
section of the www.ingcanada.com web site.
Auditors
Ernst & Young LLP
Corporate Profile
Our Strategy
ING Canada is the largest provider of property and casualty
We intend to leverage the advantages of scale to achieve
insurance in Canada, through the ING Novex, Nordic,
sophisticated pricing, consistently profitable underwriting
Trafalgar, Belair and ING Insurance companies. We provide
and cost-effective and timely claims management.
automobile, property and liability insurance to individuals
Fundamental to our strategy is a customer-centric
and small to medium-sized businesses across Canada. An
commitment to product innovation, multi-channel access and
investment management subsidiary manages the invested
ease of doing business for policyholders and brokers alike.
assets of our insurance subsidiaries.
Asset management will continue as an internal core
We enjoy leading positions in all markets where we operate
competency focused on achieving superior after-tax returns.
including Ontario, Québec and Alberta, our three largest markets.
Personal automobile insurance accounts for approximately
50% of our business while personal property comprises
Our Priorities
Our priorities are to:
roughly 20% and commercial insurance about 30%.
•
introduce improved technologies and services to make
Our Goals
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%) and to achieve annual organic growth on
average 300 basis points (3%) higher-than-market over the
long term.
doing business easier and less costly;
• reduce claims costs and improve the quality of our service
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.
Contents
1 Financial Highlights
2 Chairman’s Message
3 President and CEO’s
Message
6 Accelerating the Pace
of Organic Growth
13 Management’s Discussion
and Analysis
48 Financial Statements
Front Cover
51 Notes to Financial
Statements
78 Board of Directors
79 Senior Management
80 Corporate Information
81 Shareholder Information
Madeleine Daigneault, owner and founder of Andrée Chocolats, master
chocolatiers since 1940 and a long term ING commercial insurance client.
Except as otherwise indicated, all trademarks referred to herein are owned or licensed by the
ING Canada companies.
ING Canada Inc.
1
On October 18, 2006, ING
Canada celebrated its head
offi ce consolidation and
relocation to 700 University
Avenue in downtown Toronto,
bringing together over 1,300
employees from across the city.
Our new premises comprise
more than six fl oors totalling
over 380,000 square feet.
Financial Highlights
Combined Ratio*
%
4
.
9
8
%
0
.
6
8
%
0
.
6
8
Direct Premiums
Written ($ millions)
0
9
9
,
3
5
0
9
,
3
6
7
5
,
3
Return on Equity
%
9
.
0
4
%
6
.
1
3
%
8
.
0
2
Net Income
($ millions)
2
8
7
8
5
6
4
2
6
04 05
06
04
05 06
04 05 06
04 05 06
(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
2006
$ 3,990
$ 3,827
$ 4,406
$
658
$ 3,421
0
$
0.0%
59.1%
30.3%
89.4%
20.8%
2005
$ 3,905
$ 3,840
$ 4,446
$
782
$ 2,893
127
$
4.2%
56.3%
29.7%
86.0%
31.6%
2004
$ 3,576
$ 3,365
$ 3,781
$
624
$ 2,060
256
$
11.1%
56.6%
29.4%
86.0%
40.9%
* 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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22
Reputation
Chairman’s Message
Chairman’s Message
overall customer experience, as evidenced by the launch of
a new loyalty program, several major new service initiatives
In 2006, a year of great activity and considerable
and the introduction of unique value-added insurance
competition within the Canadian property and casualty
products. Although the year was not without its challenges,
insurance industry, ING Canada once again delivered solid
as Chairman of the Board, I am pleased to report that the
fi nancial results. The Board of Directors continued to play
company again generated strong earnings and delivered
an active and signifi cant part in their complementary roles
outstanding value for its shareholders.
of representing shareholders and advising and supporting
A lot has happened in the two short years since ING
the management team on issues related to the company’s
Canada became a public company. The business environment
performance and long term growth strategy.
is much more complex as a result of emerging trends and
The company’s overall success, however, is a direct
continually evolving rules and regulatory issues. Insurance
refl ection of the excellent job that the management team did
markets have become more heavily regulated as a result
in effectively executing the business strategy. They were
of increased government intervention. At the same time,
instrumental in proactively fostering the conditions necessary
investors have become more sophisticated and expect much
for growth and further enhancing the ING brand. Key to our
more from corporate leaders in their role as overseers of
results this year was our continued focus on improving the
company performance. And shareholders have progressively
become more active and vocal in their demands to boards for
increased levels of accountability, responsibility, compliance
and corporate governance.
Directly, and through effective use of its committees, the
Board began incorporating best practices of good corporate
governance long before it became fashionable or necessary for
companies to do so. The Board has been equally vigilant of its
ability to assess risk and deal with confl ict of interest and product
suitability issues to maintain shareholder confi dence. We take
a great deal of pride not only in creating and overseeing rules
and policies regarding disclosure, openness and transparency
but also in establishing a culture of honesty, fairness and ethical
business practices that resonates through senior management to
the entire organization. In essence, good corporate governance
is the fabric that holds the company together and provides a
framework for the Board in our guidance of management and
our responsibility to create value for our shareholders.
The Board’s strict adherence at all times to principles of
good corporate governance is also at the very foundation
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ING Canada Inc.
ING Canada Inc.
33
of the company. As a member of ING Group, one of the
world’s largest and most respected public fi nancial services
President and CEO’s Message
President and CEO’s Message
companies, ING Canada has a long history of meeting best
ING Canada experienced another solid year of growth
practices in corporate governance that were in force long
and profi tability in 2006 thanks to our ongoing emphasis
before we became a public company, including compliance,
on meeting customers’ needs and leveraging our core
risk management and disclosure. As a result of ING Groep’s
competencies of disciplined underwriting and pricing. The
current 70% ownership of ING Canada, we have inherited
company continued to demonstrate its ability to provide
and expanded upon many of the principles that best guide the
outstanding value to shareholders, achieving net income of
Board in its principal role of enhancing shareholder value.
$658.1 million and a return on equity (ROE) of 20.8%.
At the heart of our approach to corporate governance
Our solid growth in a competitive market is a refl ection of
and strong oversight is the independence and composition
our strong brand attributes and the enhanced value proposition
of the outstanding group of distinguished professionals
provided by a number of innovative new products and
that make up the Board. Equally important are the rich and
services. Our insurance businesses continue to perform well,
diverse backgrounds and experience they bring from senior
benefi ting from our scale advantage in claims management
management positions within and outside the fi nancial
and strong investment performance. We believe our ongoing
services industry. Their different perspectives have proven
efforts to make ING Canada a bottom-up company driven
invaluable throughout the year in evaluating every decision
by client needs will continue to deliver superior results and
based on helping the company grow and the best long term
further solidify our position as Canada’s leading property and
interests of all our shareholders.
casualty (P&C) insurance provider.
I would like to thank my fellow Board members for their
Both the pricing and regulatory environment remained
dedication, hard work and outstanding service to shareholders
relatively stable in 2006. We achieved organic growth
throughout the year. Their contributions have been inestimable
evidenced by an increase in the number of written insured
and I look forward to their guidance and expert advice
risks in personal lines, both in auto and property. Personal
throughout 2007. On behalf of all Board members, I want
lines were also positively infl uenced by stable claims costs.
to thank the management team at ING Canada and all 6,500
Commercial lines continued to perform well despite a more
employees across Canada for their outstanding work and
competitive market, as volumes declined by only 1% while
extend our sincere appreciation for their contribution to our
our combined ratio improved and remained at historically
solid fi nancial results and commitment to outperformance.
low levels.
Yves Brouillette
Chairman
Creating a sustainable, superior ROE gap relative to
the industry is one of our key goals; it provides the means
to reinvest in the growth of our customer base and, by
extension, maximize value for our shareholders. A second
major objective is the strengthening of our market position
by exceeding the annual organic growth rate of the Canadian
P&C insurance industry by at least 300 basis points (3%) over
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44
Relationships
the long term. Furthermore, we intend to generate additional
of our business. Not only does this make good business
growth by leveraging our expertise in making and integrating
sense but it is also a prerequisite to generating higher earnings
value-creating acquisitions.
and increased returns for our shareholders. We believe that the
In 2006, we completed the relocation of over 1,300 ING
interests of shareholders and customers are closely aligned, and
Canada employees to our new head offi ce in downtown
that shareholders’ interests are best served when customers are
Toronto. As a result of this consolidation, we now have the
at the core of a company’s culture.
space to acquire the talent necessary to support our growth
Our intent is to provide customers with a unique value-
objectives and secure the future of our company. We have also
added experience that sets us apart from our competitors,
created an exciting and dynamic environment that makes it
which can be seen in the innovative products and services we
easier for our staff to work together, exchange ideas and build
launched during the year. Each new offering such as “Zero
on one another’s successes to meet or exceed the expectations
Deductible,” “We’ll Take Your Word For It,” identity theft
of our customers.
protection and our new client statement have at their core one
2007 will see a continuation of our efforts to make
or more of our key brand attributes of treating customers fairly,
customer-centricity not just a way of doing business but a
delivering on our promises, and making it easier to do business
deeply rooted, long term mindset that permeates every aspect
with us. They are an integral part of building meaningful long
term relationships and promoting greater loyalty among our
customers. It was in this spirit that we launched our Aeroplan
program in September, rewarding customers for their loyalty.
ING Canada continues to invest heavily in the broker
channel to help brokers grow their business and better serve
their customers. In 2007, we will further develop our partnership
through the continued rollout of QUEST, an enhanced package
of value-added services including technology, marketing, sales
training and fi nancing that can be customized to help brokers
get more out of their relationship with us. We believe that
providing this additional value to brokers will be instrumental
in helping us to achieve our growth objectives while also
refl ecting our continued commitment to their success and the
development of this important distribution channel.
Focusing on customers also means providing them with
choices as to how they deal with us. In addition to those who
seek the advice of a trusted independent insurance broker,
our direct insurance distributor belairdirect provides a self-
serve option to customers who prefer the convenience of
making purchases directly by telephone or over the Internet.
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ING Canada Inc.
ING Canada Inc.
55
We also offer personal and commercial insurance products
managing the sale of insurance products and services through
and services to individuals and businesses through our own
independent brokers across the country.
Affi liated Distribution Network, which includes Canada
We expect industry top-line growth in 2007 will continue
Brokerlink, Grey Power and Equisure.
to remain below historical levels, but that underwriting
Our continued success has provided us with the opportunity
results should continue
to exceed historical returns.
to improve the quality of life in the communities in which
Existing automobile insurance systems have been effective
we operate. The ING Foundation, through its Chances for
at containing and stabilizing claims costs, and current low
Children programs, continued to support causes and charitable
claims frequency will either increase or lead to premium
organizations throughout 2006 that inspire inventiveness and
reductions. Sustainability of the cost containment measures
independence in Canada’s youth, and empower young people
as well as potential rate reductions will continue to be critical
to achieve their full potential. ING Canada also supports
to our performance. Commercial insurance markets remain
communities through sponsorship of events and organizations
competitive and, although prices are continuing to soften,
that we feel best refl ect our culture, values and spirit of innovation
returns are expected to be above historical levels.
such as the ING Canada Ottawa Marathon and our role as a
We continue to work closely with governments to adopt
Premier Partner of Canada’s National Speed Skating team.
a more risk-based approach to insurance regulation and to
To be successful, it is essential to have a corporate culture
promote a more open, market-driven environment, which we
that promotes our shared vision. Once again ING Canada
believe will encourage more competition, greater innovation
employees have risen to the challenge and demonstrated
and result in better outcomes for customers.
the ability and desire to offer our customers a unique and
Our ongoing commitment to disciplined underwriting
exceptional experience. I would like to thank all our employees
and pricing together with signifi cant scale advantages and
for their dedication and contributions throughout the year. I
a track record of growth, profi tability and outperformance
would also like to acknowledge the outstanding work of our
enhances our ability to withstand industry cycles and achieve
broker-partners and thank them for their continued support.
our targeted returns.
On behalf of ING Canada, I would like to offer a special
To our shareholders, we appreciate your confi dence and
thanks and warm wishes to Don Lough and Jacques Valotaire,
will continue with our efforts to provide you with superior
who are retiring after many years of outstanding service and
industry returns year after year. Our strong fi nancial condition
huge contributions to the development of the company. I
and history of profi table growth position us well for continued
would also like to congratulate Charles Brindamour and
success in 2007.
Derek Iles on their recent appointments, Charles to the newly
created position of Chief Operating Offi cer and Derek as
President, ING Insurance. Charles will be responsible for
our insurance operations across the country, and will use
his considerable talents and knowledge of the industry to
execute our core strategy. Derek brings a successful track
record in broker relations to his expanded responsibilities in
Claude Dussault
President & CEO
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66
Growth
Accelerating the Pace of Organic Growth
Accelerating the Pace of Organic Growth
Integral to our goal of achieving superior growth through
ING Canada has grown almost twice as fast as the Canadian
property and casualty (P&C) industry over the past 10 years in
the course of extending a successful track record of acquiring
and integrating companies.
multiple distribution channels is a commitment to fi nding
new and innovative means of providing clients greater value
for products and services they want and a superior claims
experience in the event of misfortune.
And while acquisitions are expected to play a signifi cant
Innovation = Customer Value
Innovation = Customer Value
role in generating growth in the years ahead, as the fragmented
P&C industry further consolidates, we also continue to
recognize the ongoing importance of having a sustainable
platform for growth independent of acquisitions.
We are more focused than ever on serving new and
Consumers insure their cars and homes to protect their assets
and for the peace of mind protection brings. Businesses do
the same to protect themselves from the risks they face.
But all products – and insurance companies, aren’t
existing customers and providing clients with value-added
the same.
and innovative products.
In fact, we have set out to exceed the Canadian P&C
industry’s annual organic growth rate in direct premiums
written by at least 300 basis points (3%) on average, per year,
over the long term. We say “over the long term” given the
vagaries and pressures of the market from year to year and the
need to continually exercise fi nancial discipline even if doing
so limits growth in the short term.
We continually ask customers what they want and actively
listen to what they have to say. In response, we regularly seek
to create new products and services designed to address both
identifi ed concerns as well as opportunities to give clients
greater value for their money.
For example, many direct insurance buyers shop around
for coverage, and more would likely do so if the job was a bit
easier. We heard you. Shoppers can now, upon obtaining a car
insurance quote online from belairdirect at belairdirect.com,
choose to compare it with up to fi ve quotes of the competition,
within seconds.
But wait, there’s more! We’ve highlighted on the following
pages some additional new products and services that give
customers what they actually want and are prepared to pay for.
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ING Canada Inc.
ING Canada Inc.
77
Maurice Pagé is a good driver who had a bad day, and an at-fault car accident. Lucky for him, he was covered under belairdirect’s
Maurice Pagé is a good driver who had a bad day, and an at-fault car accident. Lucky for him, he was covered under
Crash-Proof Policy and
belairdirect’s Crash-Proof Policy and
not his wallet, as a deductible
$0 Deductible Offer so his good driver insurance rates and driving record will remain intact. And he just picked up his car and not his wallet, as a deductible
$0 Deductible Offer so his good driver insurance rates and driving record will remain intact. And he just picked up his car and
able to get back on the
payment wasn’t required. By having his vehicle repaired at Garage M & E Richard Inc., an Auto Rely Network member, Mr. Pagé was able to get back on the
payment wasn’t required. By having his vehicle repaired at Garage M & E Richard Inc., an Auto Rely Network member, Mr. Pagé was
rd (left) and David’s father,
road quickly with the added satisfaction of knowing we stand behind and guarantee his repairs. He’s shown here with David Richard (left) and David’s father,
road quickly with the added satisfaction of knowing we stand behind and guarantee his repairs. He’s shown here with David Richa
Marcel Richard (right). Marcel and David are the second and third generation members of the family business, established in 1950.0.
Marcel Richard (right). Marcel and David are the second and third generation members of the family business, established in 195
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88
Advantages
For Drivers
For Drivers
For Individuals
For Individuals
For good drivers who have a bad day, coverage under our
A proliferation of credit cards, PINS and passwords together
Responsible Driver Guarantee or Crash-Proof Policy will
with widespread use of increasingly sophisticated technology
preserve their good driving record. The fi rst at-fault accident
puts many of us at greater risk of identity theft. Our myname
has no impact on any claims-free discount in effect; should
Identity Theft Assistance Plus product provides a total
a client of ours have a second accident, it’s the fi rst in our
solution to the problem, including 24/7 assistance, access to
eyes. And, best of all, this coverage comes at no cost for
experienced lawyers and up to $25,000 in reimbursement of
accident-free customers who have been with us for fi ve years
expenses incurred in setting things right, with no deductible.
or longer.
For drivers who don’t want to dip into their pockets to
For Aeroplan Members
For Aeroplan Members
“pay again” on top of their premium when having to fi le a
claim, we now offer a no deductible policy.
And for those fortunate customers who may have received
nothing more in return for their premium than a good night’s
sleep, and for practically everyone who pays a personal
insurance premium, we now offer Aeroplan Miles on home
and auto policy purchases and renewals.
®Aeroplan is a Registered Trademark
of Aeroplan Limited Partnership.
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ING Canada Inc.
ING Canada Inc.
99
s been in Mr. Bellerose’s family
Alain Bellerose and Carole Robitaille had just about completed meticulous renovations to their circa 1870 heritage home that has been in Mr. Bellerose’s family
Alain Bellerose and Carole Robitaille had just about completed meticulous renovations to their circa 1870 heritage home that ha
re and subsequent water damage. ING promptly dispatched Property Rely Network member Construction
since 1920, when it was substantially damaged by fire and subsequent water damage. ING promptly dispatched Property Rely Network member Construction
since 1920, when it was substantially damaged by fi
ve our contractor carry out
Mario Rainville Inc. to the site to make emergency repairs. This initial work went so well, the homeowners readily agreed to have our contractor carry out
Mario Rainville Inc. to the site to make emergency repairs. This initial work went so well, the homeowners readily agreed to ha
the extensive and complete restoration of their property. Ms. Robitaille and Mr. Bellerose are shown here in their new kitchen with ING fi
the extensive and complete restoration of their property. Ms. Robitaille and Mr. Bellerose are shown here in their new kitchen
eld claims adjuster
with ING field claims adjuster
André Moquin (left) and Mr. Rainville (right).
André Moquin (left) and Mr. Rainville (right).
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1010
Value
Serving Customers Better
Serving Customers Better
For Commercial Insurance Customers
For Commercial Insurance Customers
In reality, we are ultimately in the business of getting things
We are one of the country’s largest underwriters of
fi xed and back to normal in the event our customers need
commercial insurance with an emphasis on serving small to
to make a claim. We believe that the timeliness, ease and
medium-sized businesses across Canada.
fairness with which this takes place are what truly defi ne the
We offer a full suite of ING Edge product solutions for
insurance promise and set companies apart.
businesses across a variety of industries, and importantly, we
Our 24/7 Claims Service Guarantee means we will get
have stepped up our efforts to help clients prevent and mitigate
started on a claim right away. If a claimant isn’t speaking to
losses. More than 30 ING Canada loss control representatives
a representative who can immediately help them within 30
made approximately 9,500 client visits during 2006, helping
minutes of calling us to report a new claim, we will write a
to keep costs and premiums down.
cheque for the policyholder’s annual premium, up to $1,000.
Our claims advantage is enjoyed as well by commercial
Canada’s largest claims team of over 1,750 individuals
customers who also have access to Duoline and our
across the country allows us to offer this Guarantee and
Rely Network of auto body and property professionals.
provide faster service to our insureds.
We understand convenience and speed are important to
our customers. That’s why we launched our Duoline service.
It provides for a smooth three-way conference between the
customer, the ING Canada adjuster and the broker when
dealing with a claim.
And we believe our customers, no hassles, no kidding.
With We’ll Take Your Word For It, we’ll pay collision claims
based on the client’s version of events with deductibles and
claim details confi rmed on the spot.
Use of our Rely Network of carefully selected auto
collision shops and property restoration contractors means
fast, priority service and ING Canada guarantees the repairs!
®®
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ING Canada Inc.
ING Canada Inc.
1111
ne handmade chocolates
Madeleine Daigneault or “Madame Andrée” as she’s known locally, is the owner and founder of Andrée Chocolats, a purveyor of fine handmade chocolates
Madeleine Daigneault or “Madame Andrée” as she’s known locally, is the owner and founder of Andrée Chocolats, a purveyor of fi
since 1940. She’s shown here with Michel Hadd, the confi
since 1940. She’s shown here with Michel Hadd, the
confiseur
seur who prepares the various chocolate fi
llings for hand dipping. Andrée Chocolats is one of many
who prepares the various chocolate fillings for hand dipping. Andrée Chocolats is one of many
ecting our emphasis on small to medium-sized commercial insurance clients.
small businesses across Canada that we insure reflecting our emphasis on small to medium-sized commercial insurance clients.
small businesses across Canada that we insure refl
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1212
Promises
A Virtuous Cycle
A Virtuous Cycle
ING Canada in the Community
ING Canada in the Community
We believe a commitment to innovative, value-added products
Our business of caring about and for customers extends to the
represents an important link in a virtuous cycle by which
greater community at large in which we conduct business.
profi table companies create the means to invest in product
Through the ING Foundation, we continued in 2006 to
innovation, driving superior organic growth in satisfi ed
support sustainable programs and activities that improve the
customers, generating increased earnings and shareholder
quality of life and unlock the potential of Canadian youth.
value in turn, which results in the continuing ability to invest
We contributed fi nancially to the organizations that our
in the value proposition.
employees support or in which they volunteer their time.
driving superior organic growth
driving superior organic growth
with the help of the ING Foundation, once again celebrated
Youth in Motion’s “Top 20 Under 20”, which was launched
and rewarded the inspirational leadership and achievements
of 20 individuals aged 10 to 19. Our support of this program
enhances the personal and professional development of these
young people through a leadership summit and a unique
invest in value proposition
invest in value proposition
mentoring program.
generates increased earnings
generates increased earnings
increasing shareholder value
increasing shareholder value
We continued to support innovative, therapeutic programs
for sick children such as Dr. Clown.
Our annual United Way efforts paid off again in 2006,
enabling us to make a donation of $1 million to their
network of agencies and programs thanks to the generosity
of our employees and corporate contributions.
We also partnered with UNICEF Canada to support
the ING Chances for Children initiative and contribute to
achieving the goal of giving 50,000 children in developing
countries access to education by the end of 2007.
Our main sponsorship activity, the ING Ottawa Marathon,
continued to grow this year. Nearly 30,000 participants took
part in a variety of events, a 50% increase since we became a
partner in this event three years ago. Thanks to the ING Run
for Something Better, running clubs across Canada were able
to open their doors to underprivileged kids.
And we became a proud Premier Partner of Canada’s
National Speed Skating team in 2006, a team which won a
dozen Olympic medals in Turin, Italy that year.
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ING Canada Inc.
13
Management’s Discussion and Analysis
March 2, 2007
The following Management’s 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 at the end
of this document.
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 claims ratios. These terms are defi ned
in section 1.4 of this document and in the Annual Information Form.
This document contains forward-looking statements that involve risks and uncertainties. Our actual results could
differ materially from these forward-looking statements as a result of various factors, including those discussed
Charles Brindamour
Chief Operating
below or in our Annual Information Form. Please read the cautionary note in section 6.2 of this document. Certain
totals, subtotals and percentages may not agree due to rounding. Additional information about ING Canada,
Offi cer
including the Annual Information Form, may be found online on SEDAR at www.sedar.com.
Table of Contents
Overview
Recent Developments
Section 1 – Corporate Information
1.1 Who is ING Canada?
1.2 Goals and Strategies
1.3 Industry Outlook
1.4 Key Performance Indicators
Section 2 – 2006 Performance Review
2.1 Results from Operations
2.2 Performance by Operating Groups
2.3 Summary of Quarterly Results
2.4 Selected Annual Information
2.5 Fourth Quarter 2006 Overview
Section 3 – Financial Condition
3.1 Balance Sheet Analysis
3.2 Liquidity and Capital Resources
3.3 Contractual Obligations
3.4 Off Balance Sheet Arrangements
14
15
15
15
16
17
18
21
23
24
24
25
31
34
34
Section 4 – Accounting and Disclosure Matters
4.1 Disclosure Controls and Procedures
4.2 Internal Control over Financial Reporting
4.3 Critical Accounting Estimates and Assumptions
4.4 Impact of New Accounting Standards
35
35
35
38
Section 5 – Risk Management
5.1 Risk Management Principles and Responsibilities 40
5.2 Operational Risk Management
5.3 Corporate Governance and Compliance
5.4 Industry Standards
Section 6 – Other Matters
6.1 Related Party Transactions
6.2 Cautionary Note Regarding
Forward-Looking Statements
42
42
43
44
45
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14
Overview
Return on equity
Net income for the year ended December 31, 2006 was $658.1 million, down 15.8% from the exceptional
for the year was
performance of 2005. The drop in net income was driven by lower underwriting income and lower realized
20.8% and the
book value per
share increased
18.3% to $25.58
from $21.63
Personal lines,
both auto and
property, fi nished
the year strongly
with direct
investment gains. Return on equity for the year was 20.8% and the book value per share increased 18.3% to
$25.58 from $21.63 a year ago. Direct premiums written gained momentum in the second half of the year,
resulting in 2.7% growth year over year after excluding pools and AGR (defi ned in Section 2.1).
• The 2.7% increase in direct premiums written was driven by a 3.3% increase in the number of written insured
risks. Personal lines, both auto and property, fi nished the year strongly with direct premiums written growing
5.8% versus 2005 after excluding pools.
• Underwriting results were driven by a combined ratio of 89.4% for the year, 3.4 points higher than in 2005,
due primarily to lower favourable prior year claims development. Also impacting underwriting results
were lower losses from catastrophes in 2006, in both commercial and personal lines. Current accident
year results were lower due partly to the impact of lower automobile rates on earned premiums and higher
premiums written
general expenses.
growing 5.8%
versus 2005 after
excluding pools
• Pre-tax realized investment and other gains totalled $193.5 million, down from $223.5 million in 2005 due
primarily to lower net gains on bonds caused by lower turnover levels and market conditions during much of
the year.
The following table presents the major changes in income before income taxes.
Table 1
(in millions of dollars)
2005 Income before income taxes
Favourable prior year claims development
Current accident year:
Catastrophes
Facility Association
Other
Net underwriting income
Net realized investment and other gains
Other
2006 Income before income taxes
(107.7 )
20.5
(4.5 )
(42.2 )
1,090.9
(133.9 )
(30.0 )
25.0
952.0
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Recent Developments
The Company
• On February 15, 2007, the Company announced its intention to repurchase for cancellation up to $500 million of
ING Canada Inc.
15
announced its
intention to
repurchase up to
$500 million of its
common shares
its common shares through a substantial issuer bid, by way of a modifi ed Dutch auction (the Offer). ING Groep,
N.V. (ING Groep), ING Canada’s majority shareholder, has informed ING Canada of its intent to submit
common shares suffi cient to maintain its holding at 70%. Under a modifi ed Dutch auction, shareholders who
choose to accept the bid will have an opportunity to tender their shares at a price they select within a price
range established by the Company. This range has been set at a share price not less than $51.00 and not more
than $59.00. Alternatively, shareholders may submit a proportionate tender enabling them to maintain their
current proportionate share ownership following completion of the auction. The purchase price payable by
ING Canada for shares purchased will be the lowest price within the range that will allow it to purchase shares
up to the auction limit determined in accordance with the terms of the bid. A circular containing the full details
of the issuer bid and procedures for tendering shares has been fi led with the appropriate Canadian securities
regulators on SEDAR at www.sedar.com.
• On February 15, 2007, the Company also announced an increase in its quarterly dividend of 2.0 cents to
27.0 cents per share on its outstanding common shares.
• On February 16, 2007, the Autorité des marchés fi nanciers (“AMF”), the regulatory and oversight body for
Québec’s fi nancial sector, announced that Equisure Financial Network Inc. (“Equisure”), a subsidiary of the
Company, has complied with all commitments undertaken by the Company under an agreement reached
in December 2005. The AMF and Equisure have further agreed on the improvements that need to be made
to the corporate structures of the property and casualty (P&C) brokerages covered by the agreement; these
structures meet the AMF’s requirement and comply with current legislation.
Section 1 – Corporate Information
1.1 Who is ING Canada?
ING Canada is the country’s leading provider of property and casualty insurance. We offer automobile,
property and liability insurance to individuals and businesses through a number of insurance subsidiaries.
Consumers may purchase our products through a national network of independent brokers, affi liated brokers
and directly, over the Internet or through call centres. ING Canada’s common shares are listed on the Toronto
Stock Exchange (TSX: IIC).
ING Canada’s main subsidiaries include ING Insurance Company of Canada, Belair Insurance Company Inc.,
The Nordic Insurance Company of Canada, ING Novex Insurance Company of Canada, Trafalgar Insurance
Company of Canada (hereinafter P&C companies or subsidiaries), ING Investment Management, Inc., Equisure
Financial Network Inc., Canada Brokerlink Inc. and Grey Power Insurance Brokers Inc.
1.2 Goals and Strategies
Our strategy continues to be to leverage our scale and core competencies in underwriting, pricing and claims
and to provide our distributors and policyholders with a superior service and product proposition, leading to
sustainable industry outperformance in organic growth and return on equity. Acquisitions enabling us to increase
our market share in existing product lines within existing geographies are an important aspect of our strategy.
Asset management will continue as a core competency focused on achieving superior after-tax returns.
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16
Long-term
goals
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%).
To exceed the annual organic growth rate in direct
premiums written of the Canadian property and
casualty industry by at least 300 basis points (3%)
over the long term.
Key
strategies
Leverage our size and scale:
Pricing and underwriting
Strengthen our market position through organic
growth:
• Enhance sophisticated pricing strategies based
on a large proprietary experience database
Strengthen our relationship with brokers
• Make it easier to do business with us
• Focus on economic value drivers and proprietary
tools to exploit market ineffi ciencies
• Assist brokers in growing their business through
marketing, training and acquisitions support
• Maintain a disciplined risk selection process
Offer increased value to customers
• Provide improved data access and training to
•
underwriting staff
Introduce new, innovative products that improve
our value proposition
Expense management
Expand multi-channel distribution network
•
•
Implement world class
management and
technology in claims management
increase
supply chain
the use of
Improve
through
effi ciencies
processes throughout the Company
common
•
Independent brokers
• Affi liated Distribution Network
• Direct sales in Ontario and Québec
• Maintain strong in-house claims expertise to
deliver effi ciency and cost savings
•
Increase use of preferred provider networks
Achievement of our strategy is not feasible without the active participation of our employees. To be successful,
it is essential to have a winning performance culture that promotes our shared vision. In this respect,
ING Canada’s strategy includes the attraction, retention and development of employees who are able to rise to the
challenge and demonstrate an ability and desire to offer our customers a unique and exceptional experience. The
Company’s past and future success is dependent on their dedication and contributions throughout the years.
1.3 Industry Outlook
Several key factors will affect the P&C insurance industry over the coming 12 months.
Underwriting
•
Industry growth and underwriting income: We expect the industry’s top-line growth rate to be below
results should
exceed historical
returns
historical levels, and underwriting results should exceed historical returns.
• Claims costs in automobile insurance: The existing automobile insurance systems have been effective at
containing and stabilizing claims costs. Furthermore, automobile claims frequency remains low and we believe
frequency will either increase or continued low frequency will lead to premium reductions. Sustainability of the
cost containment measures, as well as potential rate reductions, will continue to be key performance drivers.
• 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.
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ING Canada Inc.
17
• Non-residential construction cost: Non-residential construction cost increases are putting pressure on
commercial insurance underwriting margins. We continue to work with our brokers to ensure our commercial
customers retain suffi cient coverage.
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.
1.4 Key Performance Indicators
The fi nancial numbers used to determine the indicators below are determined in accordance with GAAP but
the ratios are considered non-GAAP measures. 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.
Technical terms are defi ned below and in the Annual Information Form.
Growth
Profi tability
Direct premiums written: The total premiums from the
primary insured in respect of insurance underwritten by an
insurer during a specifi ed period.
Written insured risks: 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).
Net underwriting income: The difference between net
premiums earned and the sum of net claims incurred,
commissions, premium taxes and general expenses; a key
profi tability measure.
Average pre-tax yield: This yield is calculated using
the investment income of the P&C companies for the
period excluding realized gains and losses divided
by the average invested assets of the P&C companies
calculated monthly including cash equivalents but
excluding cash balances.
Performance and execution
Capital management
Claims ratio: Claims and loss adjustment expenses incurred,
net of reinsurance, during a defi ned period and expressed as a
percentage of net premiums earned for the same period.
including
Expense ratio: Underwriting expenses
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 premiums earned for the same period. Components
of the expense ratio (commissions, premium taxes and
general expenses) are individual ratios expressed as a
percentage of net premiums earned.
Combined ratio: 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.
Return on equity (ROE): Represents our net income
for the 12 months ended on the date indicated divided
by the average shareholders’ equity over the same
12 month period. Net income and shareholders’ equity
are determined in accordance with GAAP. We compare
our ROE against that of the industry, when available,
as reported by the Offi ce of the Superintendent of
Financial Institutions.
Book value per share: Represents shareholders’ equity at
the end of the year divided by the number of outstanding
common shares at the same date.
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18
Written insured
risks (thousands)
+ 3.3%
1
.
5
6
5
,
4
9
.
7
1
4
,
4
05
06
The number of
written insured
risks grew, driven
by solid growth in
the second half
of the year
Section 2 – 2006 Performance Review
2.1 Results from Operations
Table 2
(in millions of dollars, except as otherwise noted)
Written insured risks (thousands)
Direct premiums written
Underwriting:
Net premiums earned
Net incurred losses and general expenses
Net underwriting income
Combined ratio
Investment income
Net realized investment and other gains
Corporate and distribution
Income before income taxes
Income taxes
Effective income tax rate
Net income
EPS – basic and diluted (dollars)
Return on equity
Book value per share (dollars)
Year ending December 31 Increase
2005 (decrease)
2006
4,565.1
3,990.4
4,417.9
3,904.9
3.3 %
2.2 %
3,826.6
3,422.8
3,840.2
3,302.5
403.8
89.4 %
294.8
193.5
59.9
952.0
293.9
30.9 %
658.1
4.92
20.8 %
25.58
537.7
86.0 %
300.7
223.5
29.0
1,090.9
309.1
28.3 %
781.8
5.85
31.6 %
21.63
(0.4 ) %
3.6 %
(24.9 ) %
3.4 pts
(2.0 ) %
(13.4 ) %
106.6 %
(12.7 ) %
(4.9 ) %
2.6 pts
(15.8 ) %
(15.9 ) %
(10.8 )pts
18.3 %
The number of written insured risks grew 3.3% during the year, driven by solid growth in the second half of the
year. Personal lines, particularly auto insurance, drove this growth while the number of commercial lines risks
was slightly down year over year.
Direct premiums written after excluding pools, increased 2.2% compared to 2005, and 2.7% if we also exclude
premiums related to the AGR business, which initially formed part of the Allianz acquisition and was re-transferred to
the vendor effective September 30, 2005. Written premium rate reductions averaged 2.4% for the year.
Net premiums earned lagged the growth in direct premiums written as the recent growth in written premiums has
not yet fully impacted net premiums earned. Net premium rate reductions averaged 2.9% for the year.
Net Incurred Losses and General Expenses
Table 3
(in millions of dollars, except as otherwise noted)
Net incurred losses:
Favourable prior year claims development
Catastrophes
Current year claims
Total
Commissions, net
Premium taxes, net
General expenses, net
Total
Combined ratio
Year ending December 31 Increase
2005 (decrease)
2006
(169.9 )
59.2
2,371.9
2,261.2
674.5
132.3
354.8
(277.6 )
79.7
2,359.6
2,161.7
674.2
133.7
332.9
3,422.8
89.4 %
3,302.5
86.0 %
(38.8 ) %
(25.7 ) %
0.5 %
4.6 %
–
(1.0 ) %
6.6 %
3.6 %
3.4 pts
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ING Canada Inc.
19
Net Incurred Losses
Prior year claims development for the year remained favourable by $169.9 million (4.9% of opening reserves)
compared to $277.6 million (7.9% of opening reserves) in 2005. The 2006 favourable development came mainly
from automobile in the amount of $167.8 million (including $19.8 million from pools) which is $90.6 million
less favourable than the prior year. The remaining favourable development came from commercial other in
the amount of $25.9 million, which is $11.9 million less favourable than 2005. Conversely, we experienced
$23.8 million of unfavourable development in personal property, compared to $18.6 million in 2005.
Table 4
Losses from catastrophes
(in millions of dollars)
Personal line of business
Commercial line of business
Total direct claims
Ceded, net of reinstatement premium
Total
Year ending December 31 Increase
2005 (decrease)
2006
49.5
9.7
59.2
–
59.2
131.8
40.9
172.7
(93.0 )
79.7
(82.3 )
(31.2 )
(113.5 )
93.0
(20.5 )
Catastrophes are defi ned as individual events resulting in net claims incurred which are expected to be
Losses from
catastrophes were
$5 million or more. In 2006, catastrophes consisted mainly of personal property damage due to ice and wind
storms which hit most of the country. There were no reinsurance claims made for catastrophes incurred in 2006
$20.5 million
as all losses were within our retention limits. In 2005, the Company incurred several storm-related catastrophe
lower in 2006 as
compared to 2005
claims that were ceded to reinsurers and a large commercial loss was incurred in Québec which resulted in a
substantial reinsurance claim. Notwithstanding, losses from catastrophes were $20.5 million lower in 2006 as
compared to 2005.
Current year claims for the year were reasonably stable compared to 2005. Although weather conditions were
generally mild in our main markets, there were several ice and wind storms which did not qualify as catastrophes
but still caused signifi cant damage.
General Expenses
Commissions and premium taxes were stable.
General expenses increased during the year due to higher marketing expenses and lower fees from the service
carrier operated on behalf of the Facility Association.
Industry pools consist of the so-called residual market as well as risk-sharing pools (RSP) in Alberta, Ontario, Québec
and New Brunswick. These pools are managed by the Facility Association except the Québec RSP. Transfers in and
out of these pools on balance had no signifi cant impact on underwriting income for the current accident year.
Investment Income
Table 5
(in millions of dollars, except as otherwise noted)
Year ending December 31 Increase
2005 (decrease)
2006
Interest income
Dividend income
Investment expenses and other
Total
170.4
147.0
(22.6 )
294.8
203.6
117.0
(19.9 )
300.7
(16.3 ) %
25.6 %
13.6 %
(2.0 ) %
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20
The main source of interest income is bonds. While there was no signifi cant change in the yield year over year,
a portion of the portfolio was sold and reinvested in equities. As a result, interest income on bonds decreased for
the year. Also, the Company received a non-recurring interest payment in 2005 of $14.5 million.
Dividend income increased in 2006 consistent with the higher level of equity investments.
Average pre-tax yield on invested assets was 4.9% for 2006 and 4.8% in 2005.
Net Realized Investment and Other Gains
Table 6
(in millions of dollars, except as otherwise noted)
Realized gains on the sale of:
Fixed income securities
Equities
Impairments
Losses on derivatives
Realized gains on the sale of other assets
Total before income taxes
After income taxes
Unrealized gains at end of period
Change in unrealized gains in the year
Year ending December 31 Increase
2005 (decrease)
2006
23.8
193.4
(20.4 )
(14.5 )
11.2
193.5
127.5
201.3
(102.9 )
87.9
137.2
(10.5 )
–
8.9
223.5
169.4
304.2
62.0
(72.9 ) %
41.0 %
94.3 %
n/a
25.8 %
(13.4 ) %
(25.0 ) %
n/a
n/a
During the year, total net realized investment and other gains decreased due to the following developments:
• Net gains on bonds were lower due to lower turnover levels and market conditions during much of the year.
• Gains on the sale of common shares were higher because of favourable market conditions and an increased
amount of equity investments.
•
Impairments increased as the Company wrote down a higher number of investments in 2006 due to
market performance.
• Derivative fi nancial instruments are marked to market for accounting purposes whereas investments are
generally carried at cost, including the investments that are related to some derivatives (“related investments”).
For the year, the related investments generated gains of $4.2 million and unrealized gains increased by
$11.3 million, whereas the derivatives associated with these investments had losses of $16.3 million included
in the $14.5 million loss on derivatives shown in the table above.
• Other assets sold in the year include various properties which generated most of the gain in 2006.
In 2005, the Company transferred and sold its mutual fund business for a gain of $2.5 million in a
non-recurring transaction.
Interest Expense
The Company fully
repaid its debt
in 2006
Interest expense substantially decreased in 2006 as the Company fully repaid its debt during Q3 06.
Income Taxes
The tax rate was higher in 2006 than in 2005 primarily because of the impact of future tax rate changes, and a
2005 tax recovery from losses not previously recorded.
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Net Income and Earnings per Share
These items are down primarily due to lower underwriting income, which is mostly attributable to lower
ING Canada Inc.
21
favourable prior year claims development.
Return on Equity
Return on equity was 20.8% in 2006 compared to 31.6% in 2005 due to a combination of lower earnings and an
increasing equity base.
2.2 Performance by Operating Groups
The Company’s core business activity is P&C insurance underwriting which is further divided in two lines of business:
personal and commercial lines. Investment income is generated on the investment portfolio held by the Company’s
P&C subsidiaries and has been reviewed earlier. Net realized investment and other gains have also been reviewed
earlier. Finally, the corporate and distribution group includes the results of the Company’s distribution operations,
investment income at the holding company as well as other items not allocated to any other group.
Underwriting –
Personal Insurance
Direct premiums
written
+ 5.7%
5
.
7
0
8
,
2
9
.
6
5
6
,
2
Underwriting – Personal Insurance
Table 7
(in millions of dollars, except as otherwise noted)
Written insured risks (thousands):
Automobile
Property
Total
Direct premiums written:
Automobile
Property
Total
Net premiums earned:
Automobile
Property
Total
Net underwriting income (loss):
Automobile
Property
05
06
Total
Ratios
Claims ratio
Commissions ratio
Premium taxes ratio
General expense ratio
Combined ratio
Year ending December 31 Increase
2005 (decrease)
2006
2,440.1
1,637.5
2,335.9
1,591.5
4,077.6
3,927.4
1,966.0
841.5
1,877.0
779.9
2,807.5
2,656.9
1,911.2
785.4
1,946.9
733.8
2,696.6
2,680.7
242.5
(0.3 )
242.2
411.5
(29.4 )
382.1
62.5 %
16.3 %
3.4 %
8.9 %
91.1 %
57.8 %
16.2 %
3.4 %
8.3 %
85.7 %
4.5 %
2.9 %
3.8 %
4.7 %
7.9 %
5.7 %
(1.8 ) %
7.0 %
0.6 %
(41.1 ) %
(99.0 ) %
(36.6 ) %
4.7 pts
0.1 pt
–
0.6 pt
5.3 pts
Direct premiums written in both automobile and personal property showed solid growth for the year, driven
by increases in the number of written insured risks and the average amount insured. Rates on average increased
slightly in personal property while they decreased in automobile. Pools had no signifi cant impact on annual
growth rates.
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22
Net premiums earned in total were unchanged from 2005, despite overall growth in written premiums. In
The net
automobile, this is due to lower rates as well as assumed premiums from pools which were well below those of
underwriting
loss in personal
2005, while in personal property the difference is due to lower reinsurance premiums.
property was
The net underwriting loss in personal property was substantially eliminated through an increase in insured
amounts and other corrective measures. Lower loss frequency and higher net premiums earned resulted in
diminished losses. In personal auto, net underwriting income was down from 2005 due to lower favourable prior
year claims development and the effect of rate decreases.
substantially
eliminated
through an
increase in insured
amounts and
other corrective
measures
Underwriting – Commercial Insurance
Table 8
(in millions of dollars, except as otherwise noted)
Written insured risks (thousands):
Automobile
Other
Underwriting
– Commercial
Insurance
Combined ratio
Total
Direct premiums written:
Automobile
Other
%
6
.
6
8
%
7
.
5
8
Total
Net premiums earned:
Automobile
Other
Total
Net underwriting income:
Automobile
Other
Total
Ratios
Claims ratio
Commissions ratio
Premium taxes ratio
General expense ratio
05
06
Combined ratio
Year ending December 31 Increase
2005 (decrease)
2006
253.6
233.9
487.5
254.1
236.5
490.6
327.5
855.5
330.4
917.6
1,183.0
1,248.0
326.8
803.1
334.4
825.1
1,129.9
1,159.5
43.0
118.7
161.7
43.6
112.0
155.6
51.0 %
20.9 %
3.6 %
10.2 %
85.7 %
52.7 %
20.8 %
3.6 %
9.5 %
86.6 %
(0.2 ) %
(1.1 ) %
(0.6 ) %
(0.9 ) %
(6.7 ) %
(5.2 ) %
(2.3 ) %
(2.7 ) %
(2.6 ) %
(1.4 ) %
6.0 %
3.9 %
(1.7 ) pts
0.1 pt
–
0.7 pt
(0.9 ) pt
For commercial lines, written insured risks were slightly down from 2005 because of a very competitive market.
Direct premiums written after adjusting for AGR business declined by 3.7% in both lines of business and 4.7%
in commercial other. A shift to smaller accounts has negatively impacted average premium amounts, more so in
commercial other.
Net premiums earned showed declines consistent with those of written premiums in non-auto but increased in auto.
The combined
ratio in commercial
Net underwriting income was stable in commercial auto, while in commercial non-auto, net underwriting
lines improved
income increased due to lower net incurred losses.
slightly because of
lower overall net
Overall, the combined ratio in commercial lines improved slightly because of lower overall net incurred losses
incurred losses
in the year.
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ING Canada Inc.
23
Corporate and Distribution
Our corporate and distribution group primarily includes the results of our brokerage operations (Canada Brokerlink,
Grey Power and Equisure) and other expenses.
Table 9
(in millions of dollars, except as otherwise noted)
Year ending December 31 Increase
2005 (decrease)
2006
Investment income
Distribution income
Advisory fees and other income
Total revenues
Distribution expenses
Interest on debt
Other
Income before income taxes
28.3
100.0
7.5
135.8
71.1
5.3
(0.5 )
59.9
6.8
74.3
11.0
92.1
54.7
8.0
0.4
29.0
316.2 %
34.6 %
(31.8 ) %
47.4 %
30.0 %
(33.8 ) %
n/a
106.6 %
Investment income increased primarily from higher interest income on larger cash balances in the holding
company. Advisory fees are lower as the Company sold its mutual fund business in 2005. Distribution income
and expenses have increased along with growth in the distribution network.
2.3 Summary of Quarterly Results
Table 10
(in millions of dollars,
2006
2005
except as otherwise noted)
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Written insured
risks (thousands)
1,051.1 1,242.9 1,356.1
Direct premiums written 963.6 1,038.1 1,176.2
Total revenue
Underwriting income
Net income
Combined ratio (%)
EPS – basic/
897.9
821.9
1,095.8 1,080.2 1,096.7 1,133.8 1,111.6 1,123.3 1,112.3 1,098.8
114.9
158.5
88.1
914.9 1,012.7 1,195.2 1,312.1
905.0 1,006.5 1,171.4
812.5
179.8
223.6
81.2
126.3
196.9
86.9
165.6
205.9
82.7
116.7
202.8
87.7
62.3
109.4
93.6
95.9
156.8
89.9
79.9
185.9
91.5
diluted (dollars)
Favourable prior year
claims development
0.82
1.17
1.54
1.39
1.47
1.52
1.67
1.19
(24.3 )
(69.1 )
(39.5 )
(37.0 )
(49.0 )
(93.6 )
(66.6 )
(68.4 )
In general, the Company’s underwriting revenues are stable quarter to quarter but net incurred losses tend to
be higher in the fi rst and last quarters of the year, consistent with Canadian weather conditions. Consequently,
underwriting income will normally be higher in Q2 and Q3 and lower in the other quarters.
Table 11
Seasonal Indicator
Q1
Q2
Q3
Q4
2006
2005
2004
Four-year
average
2003
1.02
0.93
1.01
1.05
1.02
0.94
1.02
1.01
1.10
0.92
0.98
1.01
1.06
0.95
0.96
1.04
1.05
0.93
0.99
1.03
The seasonal indicator is a non-GAAP measure which represents the ratio of the quarterly combined ratio to the
annual combined ratio.
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24
2.4 Selected Annual Information
Table 12
(in millions of dollars, except as otherwise noted)
Year ending December 31
2006
2005
2004
Total revenue
Net underwriting income
Net income
EPS – basic (dollars)
diluted (dollars)
Annual dividends per common share (dollars)
Investments
Total assets
Debt outstanding
Total shareholders’ equity
4,406.4
403.8
658.1
4.92
4.92
1.00
7,241.9
10,377.3
–
3,420.8
4,446.1
537.7
781.8
5.85
5.85
0.65
6,721.0
9,926.5
127.0
2,892.6
3,780.9
470.0
624.2
6.51
6.49
–
6,285.1
9,663.1
256.2
2,059.6
Variances between 2006 and 2005 are analyzed in detail in this document. Variances between 2005 and 2004 were
driven by: (1) strong underwriting income, particularly in personal automobile, despite the impact of increased
catastrophe claims, most notably in personal property, (2) actual claims experience less than previously reserved
for, creating redundant reserves to the benefi t of earnings and (3) robust investment results.
2.5 Fourth Quarter 2006 Overview
Net income for the fourth quarter of 2006 was $109.4 million, down 44.4% from Q4 05’s exceptional
performance. The drop in net income was driven by lower underwriting income, lower realized investment
gains and higher income taxes. Direct premiums written totalled $963.6 million in the quarter, an increase of
4.6% over Q4 05 after excluding industry pools.
• The 4.6% increase in direct premiums was driven by a 3.8% increase in the number of written insured risks.
Personal lines experienced very strong direct premiums written growth of 9.2% for Q4 06 over Q4 05,
excluding pools, with good growth in both automobile and property lines.
• Underwriting results were driven by a combined ratio of 93.6% for the quarter, 6.7 points higher than the
same quarter of 2005. Catastrophe losses of $26.4 million compare to no catastrophes in Q4 05. Personal
property experienced higher non-catastrophe severity, particularly in Ontario. Lower favourable prior year
claims development from automobile pools resulted in lower underwriting results for personal auto. Despite
an average rate reduction of 4.6%, the current year loss ratio for personal auto improved slightly, driven by a
slight improvement in frequency. Commercial lines performed well in a softening market with an improved
combined ratio of 92.8%, 2.6 points below the previous year.
• Pre-tax realized investment and other gains totalled $15.3 million in the quarter, down from $67.2 million in
Q4 05 due mostly to lower trading volumes. Unrealized gains on investments increased $65.7 million in the
quarter to $201.3 million.
• The Q4 06 tax expense includes a number of adjustments that had the effect of increasing the effective tax rate
by 3.0%, or $5.1 million; Q4 06 to Q4 05 comparisons are also affected by $8.4 million of adjustments that
improved results in Q4 05.
A complete analysis of the fourth quarter results is available in the press release issued on February 15, 2007 in
the section Review of Q4 Performance.
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Section 3 – Financial Condition
3.1 Balance Sheet Analysis
Table 13 As at December 31
2005
(in millions of dollars)
2006
Book values
Cash and cash equivalents
Investments
125.9
7,241.9
341.1
6,720.9
Premiums and
other receivables
Reinsurers’ share of claims
liabilities and unearned
premiums
Deferred acquisition costs
Income taxes receivable
1,643.9
1,518.5
288.1
393.1
54.1
347.8
382.0
55.7
Other assets
302.9
274.2
Future income tax asset
112.2
141.1
Intangible assets and goodwill
215.2
145.2
Total assets
10,377.3
9,926.5
Payables and other liabilities
Unpaid claims and loss
adjustment expenses
Unearned premiums
Other liabilities
Debt outstanding
840.4
815.7
3,823.6
2,264.1
28.4
–
3,821.6
2,194.8
74.8
127.0
Total liabilities
6,956.5
7,033.9
ING Canada Inc.
25
Comments on change
Cash was invested in securities with terms
exceeding 90 days to improve returns
See below
Premiums written are either billed to brokers
or billed to policyholders directly. The increase
was due to volume increases during Q4 06
Lower amount of claims ceded to reinsurers
in 2006
Increased revenues in Q4 06
No signifi cant changes
The increase was mostly related to pension
plan related assets
Lower future tax rates have reduced the
value of tax assets
Acquisitions of brokers during 2006 generated
an increase in goodwill and intangible assets
Generally due to timing and increased
volume in Q4 06
See below
Due to increased volume in Q4 06
Debt was fully repaid during Q3 06
Shareholders’ equity
Total liabilities and
3,420.8
2,892.6
The increase was due primarily to net
earnings less dividends paid
shareholders’ equity
10,377.3
9,926.5
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26
Cash and
Cash and Investments
Investments
3.1%
11.4%
Table 14
(in millions of dollars,
As at December 31, 2006
As at December 31, 2005
Book value
Fair value
21.5%
19.8%
44.2%
% of Book Value
Cash, cash
equivalents,
short-term notes
over 90 days
Fixed income
securities
Preferred
Shares
Common shares
Miscellaneous
except as otherwise noted)
(BV) % of BV
(FV)
BV % of BV
FV
Cash and cash equivalents
125.9
Short-term notes over 90 days 713.5
3,258.8
Fixed income securities
57.2
Commercial mortgages
1,460.1
Preferred shares
Common shares
1,580.7
Other investments:
Loans to brokers
Equity investments
156.9
14.7
1.7 %
9.7 %
44.2 %
0.8 %
19.8 %
21.5 %
125.9
713.5
3,281.6
59.0
1,517.1
1,700.4
341.1
440.4
3,520.8
70.4
1,257.3
1,266.5
4.8 %
6.2 %
49.9 %
1.0 %
17.8 %
17.9 %
341.1
440.4
3,595.8
73.1
1,319.9
1,430.4
2.1 %
0.2 %
156.9
14.7
151.4
14.2
2.2 %
0.2 %
151.4
14.2
Total investments and cash 7,367.8
100.0 % 7,569.1
7,062.1
100.0 %
7,366.3
Unrealized gains (FV - BV)
201.3
304.2
The increase in total investments and cash resulted from cash provided by operating activities of $431 million
less dividend payments, debt repayment and acquisitions of brokerages and equipment.
During the year, the Company transferred approximately $200 million from its fi xed income portfolio to common
and preferred share portfolios in accordance with changes in investment policy. Increases in loans to brokers and
The Company
equity investments are related to expansion of the Company’s distribution network.
transferred
approximately
We have an investment policy that seeks to provide an attractive risk-return profi le over the medium to long term.
$200 million
In developing our investment policy, we take into account the current and expected condition of capital markets,
from its fi xed
income portfolio
to common
and preferred
share portfolios
in accordance
with changes in
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 support the various asset types, security
ratings and other material variables likely to affect 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,
investment policy
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
Our investment portfolio is managed on a total return basis. As such, realized gains and losses are important
portfolio is
managed on a
total return basis
and recurring components of the return on investments and of income but the timing of their realization is
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 specifi c business
sector are dampened.
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Specifi c focus is
The following table sets forth our exposure to the ten largest industrial sectors for our combined fi xed income
ING Canada Inc.
27
placed on the
management of
the portfolio to
optimize after-tax
total return
securities and preferred and common share portfolios as at December 31, 2006 and 2005. Specifi c focus is placed
on the management of the portfolio to optimize after-tax total return.
Table 15
(in millions of dollars, As at December 31, 2006 As at December 31, 2005
except as otherwise noted)
BV % of BV
BV % of BV
FV
FV
Banks
Diversifi ed fi nancial services
Insurance
Utilities
Oil and gas
Telecommunication services
Special purpose
Real estate
Media
Metals and mining
Total top ten sectors
Government
Other
1,563.9
765.2
458.7
428.9
345.8
313.1
231.8
225.3
136.2
95.2
4,564.1
1,999.6
678.2
21.6 % 1,643.1
789.3
10.6 %
492.1
6.3 %
454.5
5.9 %
331.7
4.8 %
313.8
4.3 %
232.6
3.2 %
244.3
3.1 %
141.4
1.9 %
94.1
1.3 %
63.0 %
27.6 %
9.4 %
4,736.9
2,011.3
695.0
827.8
701.2
361.2
449.7
274.1
286.9
252.3
248.8
121.6
70.1
3,593.7
2,043.5
1,083.8
12.3 %
10.4 %
5.4 %
6.7 %
4.1 %
4.3 %
3.8 %
3.7 %
1.8 %
1.0 %
53.5 %
30.4 %
16.1 %
895.2
734.3
392.3
482.1
300.4
284.7
257.8
274.2
121.3
79.2
3,821.4
2,091.5
1,112.3
Total investment assets
7,241.9
100.0 % 7,443.2
6,721.0
100.0 %
7,025.2
The Company uses derivative fi nancial instruments for hedging purposes and to modify the risk profi le of the
investment portfolio as long as the resulting exposures are within investment policy guidelines.
Beginning in 2006,
we expanded
our investment
Beginning in 2006, we expanded our 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 of the
options to include
bond portfolio moved from 6.3 years at December 31, 2005 to 4.5 years at December 31, 2006. This reduction
investment grade
international
more closely aligns our investment duration with the duration of our liabilities.
bonds
As at December 31, 2006, 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 $35.8 million of securities with a rating below investment grade were
included in the fi xed income and preferred share portfolios at December 31, 2006, compared to $16.1 million as
at December 31, 2005.
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28
Fixed Income
The following table sets forth our fi xed income portfolio by credit quality as at December 31, 2006 and 2005.
Securities
0.1%
5.7%
24.6%
14.0%
55.6%
% of Book Value
AAA
AA
A
BBB
B
Exposure to
preferred shares
contributes
positively to
the overall
after-tax return
of the investment
Table 16
(in millions of dollars, As at December 31, 2006 As at December 31, 2005
except as otherwise noted)
BV % of BV
BV % of BV
FV
FV
Fixed income securities
AAA
AA
A
BBB
B
1,812.9
457.0
801.0
184.5
3.4
55.6 %
14.0 %
24.6 %
5.7 %
0.1 %
1,815.7
466.1
811.2
186.1
2.5
1,588.6
788.7
988.7
150.8
4.0
45.1 %
22.4 %
28.1 %
4.3 %
0.1 %
1,595.2
820.0
1,027.4
150.3
2.9
Total
3,258.8
100.0 % 3,281.6
3,520.8
100.0 %
3,595.8
Exposure to preferred shares contributes positively to the overall after-tax return of the investment portfolio. Our
continuing profi tability allows for material exposure to preferred shares in our investment portfolio and enables
us to realize the benefi t of receiving preferred share dividends on a tax-free basis. The following table sets forth
our preferred share portfolio by credit quality as at December 31, 2006 and 2005.
Table 17
(in millions of dollars As at December 31, 2006 As at December 31, 2005
except as otherwise noted)
BV % of BV
BV % of BV
FV
FV
Preferred shares
P1
P2
P3
P4
P5
portfolio
Total
719.4
566.0
142.2
21.4
11.1
49.3 %
38.8 %
9.7 %
1.4 %
0.8 %
749.5
584.5
149.2
19.9
14.0
574.8
508.6
161.8
0.4
11.7
45.7 %
40.5 %
12.9 %
–
0.9 %
604.7
528.2
172.1
0.4
14.5
1,460.1
100.0 %
1,517.1
1,257.3
100.0 %
1,319.9
Common equity exposure focuses primarily on high-dividend equities. We seek enhanced returns by identifying
and investing in shares likely to pay increased dividends or special dividends. We undertake extensive analysis
of investment opportunities to identify special dividend candidates. Similar evaluations are conducted to assess
investments most likely to increase dividends. We also manage the equity portfolios to achieve additional dividend
payments. Through active management, we seek incremental dividend income versus a static portfolio.
The results of our common equity strategies generally depend on overall equity market trends. Accordingly,
many factors outside of our control affect the aggregate increases or decreases in the equity portfolios. We
seek to select investments that will provide incremental value in excess of our benchmarks. Unforeseen events
affecting specifi c companies, industries or sectors can have signifi cant detrimental impact on the return profi le
of the equity investments.
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ING Canada Inc.
29
Unpaid Claims and Loss Adjustment Expenses
Claims liabilities, which are measured using accepted actuarial practice, take into account the time value of
money and provisions for adverse deviation. Changes in these estimates will affect the valuation of the claims
liabilities. Discount rates were consistent with those used at year-end 2005 (2006: 4.64%; 2005: 4.63%). The
provisions for adverse deviation were also set on a consistent basis with those used at year-end 2005. The claims
liabilities used in the table below are taken from the fi nancial statements, are discounted and include a provision
for adverse deviation. The cumulative payments are not discounted and do not include a provision for adverse
deviation. The net effect of the discount rates and the provisions for adverse deviation is that booked claims
liabilities are slightly higher than undiscounted best estimates (by approximately 2.4% at year-end 2006 and
2.0% at year-end 2005). We have taken the positive claims development for both the current and prior accident
years into account in arriving at our best estimate of claims liabilities.
The following table shows the development of the claims liabilities for the 10 most recent accident years,
with subsequent development during the periods. The original reserve estimates are re-evaluated quarterly for
redundancy or defi ciency. This re-evaluation is based on actual payments in full or partial settlement of claims as
well as on current estimates of claims liabilities for claims still open or claims still unreported.
Table 18
(in millions of
dollars, except as
otherwise noted)
Original reserve
Development
Accident Year
1996
Total 2005 2004 2003 2002 2001 2000 1999 1998 1997 & –
1,118.8 1,117.7 973.2 838.6 729.0 655.5 587.0 548.1 557.2 1,121.2
during Q4 06
(24.3 )
(10.0 )
(2.9 )
(3.2 )
(6.0 )
(4.3 )
1.5
0.1
1.0
(0.8 )
0.1
As a % of
original reserve
(0.9 ) %
(0.3 ) %
(0.3 ) %
(0.7 ) %
(0.6 ) %
0.2 %
0.0 %
0.2 %
(0.1 ) %
0.0 %
Development
during 2006
(169.9 )
(57.9 )
(50.5 )
(19.6 )
(14.4 )
(13.5 )
(2.8 )
(3.6 )
(1.5 )
(4.6 )
(1.5 )
As a % of
original reserve
(5.2 ) %
(4.5 ) %
(2.0 ) %
(1.7 ) %
(1.9 ) %
(0.4 ) %
(0.6 ) %
(0.3 ) %
(0.8 ) %
(0.1 ) %
Cumulative
development
(546.9 )
(57.9 ) (191.1 ) (174.6 )
(18.3 )
49.0
36.4
39.6
(8.4 ) (128.4 )
(93.2 )
As a % of
original reserve
(5.2 ) % (17.1 ) % (17.9 ) %
(2.2 ) %
6.7 %
5.6 %
6.7 %
(1.5 ) % (23.0 )%
(8.3 ) %
In general, the Company has experienced favourable claims development for most accident years. In the years
in which unfavourable claims development occurred, the overall P&C insurance industry had poor claims
development due to unexpected changes in automobile claim patterns, particularly in Ontario.
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30
Reinsurance
ING Canada’s goals related to ceded reinsurance are:
1. capital protection;
2. reduction in the volatility of results;
3. increase in underwriting capacity;
4. access to expertise of reinsurers.
At December 31, 2006, 13.2% (2005: 17.7%) of the reinsured claims liabilities were ceded to ING Re, an
affi liate. We also have reinsurance treaties with a number of unaffi liated reinsurers of which substantially all
meet our fi nancial strength rating requirements. The reinsurers chosen to participate in our program have a
minimum rating of A- from A.M. Best. The Standard & Poor’s rating and the fi nancial analysis performed by
our specialized reinsurance brokers are also considered. The treaties have a security review clause allowing
ING Canada to change a reinsurer during the term of the agreement if its rating falls below the minimum
required. Diversifi cation of reinsurers is analyzed and implemented to avoid too much concentration in a specifi c
reinsurance group.
The placement of ceded reinsurance is done almost exclusively on an excess of loss basis (per event or per risk)
as per practice, actuarial norms and regulatory guidelines. Under such programs, we consider that in order for a
contract to reduce exposure to risk, it must be structured to ensure that the reinsurer assumes signifi cant insurance
risk related to the underlying reinsured policies and it is reasonably possible that the reinsurer may realize a
signifi cant loss from the reinsurance. A measure of transfer of risk is the variability of the potential negative
impact of the reinsured losses on the reinsurer’s underwriting results. Further, our reinsurance treaties call for
timely reimbursement of ceded losses.
In 2006, for multi-
In 2006, for multi-risk events or catastrophes, our retention was $25 million plus an average of 10% retention
risk events or
catastrophes, our
retention was
$25 million plus
an average of 10%
retention of the
exposure between
$25 million and
$600 million with
a reinsurance
coverage limit of
$1.25 billion
of the exposure between $25 million and $600 million with a reinsurance coverage limit of $1.25 billion.
The retention of all our treaties (including co-insurance and reinstatement premiums) is chosen such that a single
loss or event could not signifi cantly impact our annual loss ratio.
Although we attempt to limit the likelihood of a very large loss to a single reinsurer by spreading coverage across
many reinsurers, a single catastrophic event could generate a large loss for them. An earthquake, for example,
which reached our $1.25 billion reinsurance limit would result in a collective loss net of reinstatement premiums
of $1.1 billion to our reinsurers.
Following industry practice, our reinsurance recoverables with licensed Canadian reinsurers (December 31, 2006:
$229.3 million; December 31, 2005: $264.5 million) are generally unsecured because Canadian regulations require
these reinsurers to maintain minimum asset and capital balances in Canada to meet their Canadian obligations,
and claims liabilities take priority over the reinsurer’s subordinated creditors. Reinsurance recoverables with
non-licensed reinsurers are secured with cash, letters of credit and/or assets held in trust accounts.
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ING Canada Inc.
31
Share Capital
As of March 2, 2007, there were 133.7 million common shares and one Special Share issued and outstanding.
The Special Share is convertible into one common share. ING Groep holds 70% of the issued and outstanding
common shares and the Special Share.
Under the Company’s long-term incentive plan, certain employees were awarded performance units
(one performance unit equals one common share) as part of their compensation. The number of performance
units that will eventually vest at the end of the three-year performance cycle depends on the Company’s
three-year average return on equity compared with that of the Canadian P&C insurance industry. At the time of
payout, the Company intends to purchase shares in the market in an amount equal to the number of vested shares.
The Company re-estimates the number of performance units that are expected to vest at each reporting period.
The estimated total number of performance units was 545,274 units as at December 31, 2006.
3.2 Liquidity and Capital Resources
Liquidity Management
The purpose of liquidity management is to ensure there is suffi cient cash to meet all of our fi nancial commitments
and obligations as they fall due. We believe we have the fl exibility to obtain, from internal sources, the funds needed
to fulfi ll our cash requirements during the current fi nancial year and to satisfy regulatory capital requirements.
The liquidity requirements of our P&C insurance subsidiaries have historically been met primarily by funds
generated from operations, asset maturities and income and other returns received on investments. Cash provided
from these sources is used primarily for claims and loss adjustment expense payments and operating expenses.
Catastrophe claims, the timing and amount of which are inherently unpredictable, may create increased liquidity
requirements. Additional sources of cash fl ow include the sale of invested assets and fi nancing activities. As long
as we continue to grow and remain profi table, cash fl ows should continue to be available for investment. We
believe that our future liquidity needs will be met from all of the above sources.
Net cash fl ows are generally invested in marketable securities. We closely monitor the duration of these investments,
and investment purchases and sales may be executed with the objective of having adequate funds available to
satisfy our maturing liabilities if needed. As our investment strategy focuses on asset and liability durations, and
not specifi c cash fl ows, asset sales may be required to satisfy obligations and/or rebalance asset portfolios.
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32
Cash Flows and Liquidities
Table 19
(in millions of dollars, except as otherwise noted)
Infl ows (Outfl ows)
Cash provided by operating activities
Investing activities:
Business acquisitions
Purchases of equipment
Investments
Financing activities:
Dividends paid
Debt repayment
Capital issuance
Cash at the beginning of the year
Cash at the end of the year
Year ending December 31 Increase
2005 (decrease)
2006
430.9
637.4
(32.4 ) %
(65.2 )
(40.4 )
(279.8 )
(133.7 )
(127.0 )
–
341.1
125.9
(14.6 )
(45.7 )
(231.6 )
(86.9 )
(129.2 )
129.2
82.5
341.1
346.6 %
(11.6 ) %
20.8 %
53.9 %
(1.7 ) %
n/a
n/a
(63.1 ) %
The Company has the ability to generate signifi cant cash fl ows from its operations based on its high level of
profi tability and low capital expenditure requirements. Cash provided by operating activities was lower in
2006 as a result of lower net income. Business acquisitions consumed more cash as the Company expanded its
distribution network through the acquisition of brokerages and books of business. The increased cash outfl ow
related to other investments refl ects the increase in invested assets between 2005 and 2006. Dividends paid in
2006 were higher than in 2005 resulting in a higher cash outfl ow in 2006. In 2007, cash fl ows will be impacted
by the repurchase of shares described earlier and the increased dividend rate.
Capital Management
The Company has
The Company has ample capital to support business growth with our insurance subsidiaries having capital of
ample capital to
support business
growth with
our insurance
subsidiaries having
capital of
$695.5 million in excess of the minimum supervisory target of 150%, as calculated under the Minimum Capital
Test (MCT) at December 31, 2006 (2005: $718.0 million). Because we manage our companies as a group, we
report our combined capital position although we also ensure that each insurance company meets all regulatory
requirements including the MCT. Our insurance companies are parties to a participation agreement which
combines the underwriting results of all the companies with the outcome that each company has a proportion of
$695.5 million
underwriting results and the claims ratio and expense ratio are the same for each company.
in excess of
the minimum
supervisory target
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The following table presents the minimum capital test of our insurance subsidiaries with a total for
ING Canada Inc.
33
all companies.
Table 20
MCT – P&C Companies
(in millions of dollars except
as otherwise noted)
At December 31, 2006
Total capital available
Total capital required
Excess capital
MCT %
ING
ING Nordic Novex
Insurance Insurance
Belair Allianz Trafalgar
Ins Insurance Insurance Insurance
Total
282.0
[a] 1,073.7
104.8
554.5
[b]
519.2
[a] – [b]
177.2
193.6 % 207.1 % 341.2 % 269.0 %
[a] / [b]
966.8
466.8
500.0
49.3
14.4
34.9
–
–
–
–
–
61.7 2,433.5
18.2 1,158.7
43.5 1,274.8
338.8 % 210.0 %
34.4
695.5
Excess at 150%
242.0
266.7
27.6
124.8
At December 31, 2005
Total capital available
Total capital required
Excess capital
MCT %
233.4
[a] 1,028.7
82.6
546.6
[b]
482.1
[a] – [b]
150.8
188.2 % 263.9 % 302.2 % 282.6 % 188.4 % 298.5 % 215.8 %
[a] / [b]
51.9 2,354.0
17.4 1,090.6
34.5 1,263.3
342.1
181.6
160.5
654.9
248.2
406.7
43.0
14.2
28.7
Excess at 150%
208.8
282.6
21.6
109.5
69.7
25.8
718.0
At December 31, 2004
Total capital available
Total capital required
Excess capital
MCT %
168.1
[a] 1,054.5
74.7
595.6
[b]
458.9
[a] – [b]
93.4
177.1 % 208.6 % 230.1 % 224.9 % 184.6 % 190.2 % 188.8 %
[a] / [b]
33.7 2,006.1
17.7 1,062.7
943.4
16.0
267.5
144.9
122.6
449.1
215.3
233.8
33.1
14.4
18.7
Excess at 150%
161.1
126.1
11.5
56.0
50.2
7.1
412.1
The total amount of dividends available for payment from our subsidiaries during 2007 is $272.7 million plus
any 2007 earnings. This amount is calculated based on dividend restrictions under applicable insurance laws but
is subject to MCT limitations.
The Company
In 2006, the Board of Directors of the Company declared quarterly cash dividends of 25.0 cents per common
increased its
share for a total annual amount of $133.7 million. These dividends were paid on March 31, June 30,
quarterly dividend
by 2 cents
September 29, and December 29, 2006. On February 13, 2007, the Board of Directors increased the Company’s
quarterly dividend by 2.0 cents to 27.0 cents, an 8.0% increase. A quarterly cash dividend of 27.0 cents per
common share has been declared payable on March 30, 2007 to shareholders of record on March 15, 2007.
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34
As previously mentioned, the Company announced its intention to repurchase for cancellation up to $500 million
of its common shares through a substantial issuer bid. The Company plans to use existing liquid assets to pay for
the shares, without affecting its ability to meet other cash requirements. ING Canada is offering to purchase shares
because we believe that the purchase of shares represents an appropriate use of available cash on hand. The Offer
represents an opportunity for us to return up to $500 million of capital to shareholders who elect to tender, while at
the same time increasing the proportionate share ownership of shareholders who elect not to tender. Readers should
read the issue bid circular for more details on the reasons supporting the Company’s decision.
On September 20, 2005, ING Canada fi led a short-form base shelf prospectus and received fi nal receipt from
Canadian securities regulators the following day. This fi ling allows the Company to offer a total of up to
$1 billion in any combination of debt, preferred or common shares securities over a 25-month period.
Financing
The nature, size and timing of any fi nancings will depend on ING Canada’s assessment of its credit requirements
and general market conditions. If any securities covered by the base shelf prospectus are offered for sale, a
prospectus supplement containing specifi c information about the terms of these securities will be provided.
S&P affi rmed the fi nancial strength and long term counterparty credit rating of A+ for our P&C subsidiaries in
2006, while A.M. Best similarly affi rmed our fi nancial strength rating of A+.
Dominion Bond Rating Service assigned an A (low) rating to the long term senior unsecured debt of the Company
in 2006.
We have an uncommitted revolving credit facility of $50 million with The Royal Bank of Canada, which was
undrawn at December 31, 2006.
3.3 Contractual Obligations
Table 21
Payments due by period
(in millions of dollars)
Operating leases
Other long-term obligations
Total contractual obligations
Less than
1 year
63.2
32.8
96.0
Total
308.0
100.4
408.4
1-3
years
88.4
30.7
119.1
4-5
years
After
5 years
55.7
16.9
72.6
100.7
20.0
120.7
3.4 Off Balance Sheet Arrangements
The Company does not have any signifi cant off balance sheet arrangements not otherwise reported.
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ING Canada Inc.
35
Section 4 – Accounting and Disclosure Matters
4.1 Disclosure Controls and Procedures
ING Canada is committed to providing timely, accurate and balanced disclosure of all material information
about the Company and to providing fair and equal access to such information. The Company’s management is
responsible for establishing and maintaining the Company’s disclosure controls and procedures to ensure that
information used internally and disclosed externally is complete and reliable. Due to the inherent limitations in
all control systems, an evaluation of controls can provide only reasonable, not absolute assurance, that all control
issues and instances of fraud or error, if any, within the Company have been detected. The Company continues
to evolve and enhance its system of controls and procedures.
Management at the direction and under the supervision of the Chief Executive Offi cer and the Chief Financial
Offi cer of the Company have evaluated the effectiveness of the Company’s disclosure controls and procedures.
The evaluation was conducted in accordance with the requirements of Multilateral Instrument 52-109 of the
Canadian Securities Administrators. This evaluation confi rmed, subject to the inherent limitations noted above,
the effectiveness of the design and operation of disclosure controls and procedures as at December 31, 2006.
The Company’s management can therefore provide reasonable assurance that material information relating to
the Company and its subsidiaries is reported to it on a timely basis so that it may provide investors with complete
and reliable information.
4.2 Internal Control over Financial Reporting
Management has designed and is responsible for maintaining adequate internal control over fi nancial reporting
to provide reasonable assurance regarding the reliability of fi nancial reporting and the preparation of fi nancial
statements for external purposes in accordance with Canadian GAAP.
No changes were made or occurred in the Company’s internal control over fi nancial reporting during the year
ended December 31, 2006, that have materially affected, or are reasonably likely to materially affect, the
Company’s internal control over fi nancial reporting.
4.3 Critical Accounting Estimates and Assumptions
Our signifi cant accounting policies are disclosed in Note 2 to our audited consolidated fi nancial statements. The
preparation of our fi nancial statements in accordance with GAAP requires us to make estimates and assumptions
that affect the amounts reported in our fi nancial statements. These estimates and assumptions principally relate
to the establishment of reserves for policy liabilities, impairment of investment securities, goodwill, income
taxes and pensions and other post-employment benefi ts. As more information becomes known, these estimates
and assumptions could change and impact future results. The above noted estimates and assumptions regarding
reserves for policy liabilities will impact our underwriting results; goodwill will impact our underwriting and
corporate and distribution groups; impairment of securities will impact our net realized investment and other
gains. The most signifi cant estimates and assumptions we make in preparing our fi nancial statements are
described below. There were no signifi cant changes made to our assumptions over the past two years.
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36
Policy Liabilities
Policy liabilities consist of provisions for claims liabilities and premium liabilities, net of reinsurance. The provision
for policy liabilities is discounted to take into account the time value of money. It also includes a provision for
adverse deviation, as required by Canadian accepted actuarial practice. The appointed actuary of our P&C insurance
subsidiaries, using appropriate actuarial techniques, evaluates the adequacy of our policy liabilities.
Claims liabilities are maintained to cover our estimated ultimate amount to settle i) insured losses with respect
to reported and unreported claims incurred as of the end of each accounting period and ii) claims expenses. The
provision for claims liabilities is fi rst determined on a case-by-case basis as claims are reported and then reassessed
as additional information becomes known. The provision also considers future possible development of claims.
Such reserves do not represent an exact calculation of liability, but instead represent estimates developed using
projection techniques in accordance with Canadian accepted actuarial practice. The estimates used are related to
1) expectations of the ultimate cost of settlement and administration of claims based on our assessment of facts
and circumstances then known, 2) our review of historical settlement patterns, 3) estimates of trends in claims
severity and frequency and 4) legal theories of liability and other factors.
Variables in the reserve estimation process can be affected by both internal and external events, such as changes
in claims handling procedures, economic infl ation, legal trends and legislative changes. Many of these items
are not directly quantifi able, particularly on a prospective basis. Additionally, there may be signifi cant reporting
lags between the occurrence of the insured event and the time it is actually reported to the insurer. Reserve
estimates are refi ned in a systematic ongoing process as historical loss experience develops and additional claims
are reported and settled. Because the establishment of reserves is an inherently uncertain process involving
estimates, current provisions may not be suffi cient. Adjustments to reserves, both positive and negative, are
refl ected in the statement of income of the period in which such estimates are updated.
Premium liabilities are considered adequate when the unearned premiums reserve (after deducting any deferred
acquisition cost asset) is at least equal to the present value, at the balance sheet date, of cash fl ows of the claims,
expenses and taxes to be incurred after that date on account of the policies in force at that date or at an earlier
date. Deferred acquisition costs comprise commissions, premium taxes and expenses directly related to the
acquisition of premiums. They are deferred to the extent that they are recoverable from unearned premiums,
after considering the related anticipated claims, expenses and investment income in respect of these premiums.
Deferred acquisition costs are amortized on the same basis as the premiums are recognized in income.
A premium defi ciency would be recognized immediately by a charge to the statement of income as a reduction of
deferred acquisition costs to the extent that the unearned premiums reserve, plus anticipated investment income, is
not adequate to recover all deferred acquisition costs and related claims and expenses. If the premium defi ciency
was greater than unamortized deferred acquisition costs, a liability would be accrued for the excess defi ciency.
Reinsurance recoverables include amounts for expected recoveries related to claims liabilities as well as the
portion of the reinsurance premium which has not yet been earned. The cost of reinsurance is accounted for
over the terms of the underlying reinsured policies using assumptions consistent with those used to account for
the policies. Amounts recoverable from reinsurers are estimated in a manner consistent with claims and loss
adjustment expense reserves and are reported in our audited consolidated balance sheet. The ceding of insurance
does not discharge our primary liability to our insureds. An estimated allowance for doubtful accounts is
recorded on the basis of periodic evaluations of balances due from reinsurers, reinsurer solvency, management’s
experience and current economic conditions.
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ING Canada Inc.
37
Impairment of Invested Assets
We obtain values for actively traded securities from external pricing services. For private placements, commercial
mortgages and a small number of infrequently traded securities, quotes from brokers are obtained or values are
estimated using internally developed pricing models. These models are based on common valuation techniques and
require us to make assumptions regarding credit quality, liquidity and other factors that affect estimated values.
Impairment of investment securities results in a charge to earnings when a market decline in the value of an
investment to below cost is other-than-temporary. Our methodology to identify potential impairments requires
professional judgment and places particular emphasis on those securities with unrealized losses of 25% or
greater of the book value where that unrealized loss has been outstanding for more than six months. Members
of our investment and accounting departments meet quarterly to assess impairments and report quarterly to
the Investment Committee on important investments that are included on a “watch list”. Management assesses
which of these securities are other-than-temporarily impaired. Assessment factors include, but are not limited to,
the fi nancial condition and rating of the issuer of the security, any collateral held and the length of time the market
value of the security has been below cost. Any impairment is recognized when the assessment concludes that
there is objective evidence of impairment. Each quarter, any security with an unrealized loss that is determined to
have been other-than-temporarily impaired is written down to its expected recoverable amount, with the amount
of the write-down refl ected in our statement of income for that quarter. Previously impaired securities continue
to be monitored quarterly, with additional write-downs taken quarterly, if necessary. In 2006, we recorded
$20.4 million of impairments to recognize other-than-temporary declines in value.
There are inherent risks and uncertainties involved in making these judgments. Changes in circumstances and
critical assumptions such as a weak economy, a pronounced economic downturn or unforeseen events which
affect one or more companies or industry sectors could result in additional write-downs in future periods for
impairments that are deemed to be other-than-temporary.
Goodwill
Under GAAP, goodwill is not amortized but is tested annually for impairment of value on a reporting unit basis.
Management’s judgment is required to identify reporting units with similar economic characteristics and to select
an appropriate valuation model. In the P&C insurance industry and the P&C insurance brokerage industry, it is
common for companies to be acquired at a multiple of revenue or book value, adjusted for net assets other than
intangibles. A range of values used to evaluate the multiple is developed using discounted cash fl ow valuation
techniques. When the fair value of the reporting unit exceeds its carrying value, goodwill is considered not to
be impaired. When the carrying value of the reporting unit exceeds its fair value, the fair value of the goodwill
is compared with its carrying value to determine the amount of impairment, if any. When the carrying value of
goodwill exceeds the fair value of the goodwill, an impairment loss is recognized in the consolidated statements
of income in an amount equal to the excess.
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38
Income Taxes
Management exercises judgment in estimating the provision for income taxes. The Company is subject to
income tax laws in various jurisdictions where it operates. Various tax laws are potentially subject to different
interpretations by the taxpayer and the relevant tax authority. The provision for income taxes represents
management’s interpretation of the relevant tax laws and its estimate of current and future tax implications of
the transactions and events during the period. A future income tax asset or liability is determined for each timing
difference based on the future tax rates that are expected to be in effect and management’s assumptions regarding
the expected timing of the reversal of such temporary differences.
Pensions and Other Post-Employment Benefi ts
We sponsor a number of defi ned benefi ts and defi ned contribution plans providing pension and other benefi ts to
eligible employees after retirement. The pension plans provide benefi ts based on years of service, contributions
and average earnings at retirement. Due to the long-term nature of these plans, the calculation of benefi t expenses
and obligations depends on various assumptions such as discount rates, expected rates of return on assets, projected
salary increases, retirement age, mortality and termination rates. All assumptions are determined by management
and are reviewed annually by the actuaries. Actual experience that differs from the actuarial assumptions will
affect the amounts of benefi t obligation and expense. The weighted average assumptions used and the sensitivity
of key assumptions are presented in Note 12 to our consolidated fi nancial statements.
4.4 Impact of New Accounting Standards
Initial Adoption
The Company expanded the usage of derivatives in 2006 and consequently it now applies hedge accounting for
certain new hedging instruments as described in Note 2 to the consolidated fi nancial statements.
Financial Instruments, Comprehensive Income and Hedges
Effective January 1, 2007, we will apply the new provisions of the CICA handbook on accounting for fi nancial
instruments, including sections 3855 “Financial Instruments – Recognition and Measurement”, 3865 “Hedges”
and 1530 “Comprehensive income”.
The new provisions will affect our accounting for fi nancial instruments and hedges and will introduce a new
statement of comprehensive income and a new component of accumulated other comprehensive income within
shareholders’ equity. The comprehensive income will be composed of net income and the unrealized gains and
losses on available for sale securities, net of income taxes.
The standards require that all our fi nancial assets and liabilities be classifi ed as trading, available for sale, held to
maturity, or loans and receivables.
• For assets classifi ed as available for sale, the unrealized changes in market value will be refl ected in
other comprehensive income until the fi nancial asset is disposed of, or becomes impaired. A portion of
unrealized net gains as at January 1, 2007 will be accounted for as an opening adjustment to accumulated
other comprehensive income.
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ING Canada Inc.
39
• We will classify a portion of our investments that is supporting net claims liabilities, as held for trading,
under which the unrealized gains and losses are recognized in income. Such classifi cation will reduce income
statement volatility related to the changes in fair value of claims liabilities as described below. Other fi nancial
assets and liabilities, including all derivatives and embedded derivatives, will also be classifi ed as held for
trading according to the new standards. Unrealized net gains related to investments designated as held for
trading as at January 1, 2007 will be accounted for as an adjustment to retained earnings.
• The net claims liabilities will be discounted using a market rate instead of a book rate and an adjustement
to the amount of net claims liabilities as at January 1, 2007 will be recorded to retained earnings following
the change.
• Certain instruments will be classifi ed as loans and receivables or as held to maturity. We do not expect
that these classifi cations will have any signifi cant impact since these investments will continue to be
carried at amortized cost.
• For our insurance subsidiaries, the Offi ce of the Superintendent of Financial Institutions has imposed
certain restrictions under guideline D-10, on the classifi cation of assets as held for trading and we will
meet these requirements.
Accounting Changes
Effective January 1, 2007, we will apply the revised provisions of the CICA handbook section 1506 “Accounting
changes”. Accordingly, voluntary changes in accounting policies will be made only if they result in reliable and
more relevant information.
Variability in Variable Interest Entities
Effective January 1, 2007, we will apply the Emerging Issues Committee (EIC) Abstract No. 163, “Determining
the Variability to be Considered in Applying AcG15”. This EIC provides additional clarifi cation on how to
analyze and consolidate variable interest entities. The impact is not expected to be signifi cant on our consolidated
fi nancial statements.
Harmonization of Canadian GAAP to International Financial Reporting Standards
In 2005, the Accounting Standards Board fi nalized its strategic plan for fi nancial reporting in Canada whereby
Canadian GAAP will converge with International Financial Reporting Standards over a fi ve-year period. After
this transitional period, Canadian GAAP will cease to exist as a separate, distinct basis of fi nancial reporting. The
Company will continue to monitor the changes resulting from this transition.
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40
Section 5 – Risk Management
5.1 Risk Management Principles and Responsibilities
Effective risk management rests on identifying, understanding and communicating all risks the Company is
exposed to in the course of its operations. In order to make sound decisions, both strategically and operationally,
management must have continual, direct access to the most timely and accurate information possible. Either directly
or through its committees, the Board of Directors ensures that Company management has put appropriate risk
management programs in place. The Board, directly and in particular through the Audit and Risk Review Committee
(“Audit Commitee”), oversees such risk management programs, procedures and controls and in this regard,
receives periodic reports from among others, the Risk Management Department, the Chief Actuary, the internal
auditors and the independent auditors. A summary of the risks the Company is exposed to and the process for
managing them is outlined below.
Product Design and Pricing Risk
Product design and pricing risk is the risk that the established price is or becomes insuffi cient to ensure an
adequate return for shareholders as compared to the Company’s profi tability objectives. This risk may be due to
an inadequate assessment of market needs, a poor estimate of the future experience of several factors, as well
as the introduction of new products that could adversely impact the future behaviour of policyholders. The risk
is primarily managed by regularly analyzing the pricing adequacy of company products as compared to recent
experience. The pricing assumptions are revised as needed and/or the various options offered by the reinsurance
market are utilized.
Underwriting Risk
Underwriting risk is the risk of fi nancial loss resulting from the selection of risks to be insured and management
of contract clauses. Unfavourable results in these areas can lead to deviations from the estimates based on the
actuarial assumptions. The Company has adopted policies which specify the Company’s retention limits. Once
the retention limits have been reached, the Company turns to reinsurance to cover the excess risk.
Insolvency Risk
Insolvency risk is the risk that the Company will not be able to meet the demands of future claims as they arise.
The regulatory authorities closely monitor the solvency of insurance companies by requiring them to comply with
strict solvency standards based on the risk assumed by each company with respect to asset composition, liability
composition, and the matching between these two components. The Company is required to submit regular reports to
the regulatory authorities regarding its solvency, and publish its solvency ratio every quarter. The minimum solvency
ratio targeted by the Company is 175%, which is much higher than the regulatory authorities’ requirement. To measure
the degree to which the Company is able to meet regulatory solvency requirements, the appointed actuary must present
an annual report to the Audit Committee and management on the Company’s current and future solvency.
Reinsurance Risk
Even though the Company relies on reinsurance to manage the underwriting risk, reinsurance does not release
the Company from its primary commitments to its policyholders. Therefore, the Company is exposed to the
credit risk associated with the amounts ceded to reinsurers. The Company assesses the fi nancial soundness of the
reinsurers before signing any reinsurance treaties and monitors their situation on a regular basis.
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ING Canada Inc.
41
Interest Rate and Equity Market Fluctuations
Movements in short-term and long-term interest rates, as well as fl uctuations in the value of equity securities,
affect the level and timing of recognition of gains and losses on securities we hold, and cause changes in realized
and unrealized gains and losses. Generally, our investment income will be reduced during sustained periods of
lower interest rates and will likely result in unrealized gains in the value of fi xed income securities we continue
to hold, as well as realized gains to the extent the relevant securities are sold. During periods of rising interest
rates, the market value of our existing fi xed income securities will generally decrease and our realized gains on
fi xed income securities will likely be reduced or result in realized losses.
General economic conditions, political conditions and many other factors can also adversely affect the stock
markets and, consequently, the value of the equity securities we own.
Credit Risk
Credit risk is the possibility that counterparties may not be able to meet payment obligations when they become
due. A counterparty is any person or entity from which cash or other forms of consideration are expected to
extinguish a liability or obligation to us. Our credit risk exposure is concentrated primarily in our fi xed income
and preferred share investment portfolios and, to a lesser extent, in our reinsurance recoverables.
Our risk management strategy and investment policy is to invest in debt instruments of high credit quality issuers
and to limit the amount of credit exposure with respect to any one issuer by imposing fi xed income portfolio
limits on individual corporate issuers based upon credit quality.
Foreign Exchange Risk
Foreign exchange risk is the possibility that changes in exchange rates produce an unintended effect on earnings
and equity when measured in domestic currency. This risk is largest when assets backing liabilities are payable
in one currency and are invested in fi nancial instruments of another currency. Although we are exposed to some
foreign exchange risk arising from investment in some U.S. dollar denominated assets, our general policy is to
minimize foreign currency exposure. We mitigate foreign exchange rate risk by buying or selling successive
monthly foreign exchange forward contracts.
Derivatives
We use certain derivatives to mitigate certain of the above mentioned risks and we use other derivatives for trading
purposes. Our use of derivatives exposes us to a number of risks, including replacement cost (credit) risk and
interest rate and equity market fl uctuations. The replacement cost risk for any derivative transaction is generated
by the potential for the counterparty to default on its contractual obligations when one or more transactions
have a positive market value to us. Therefore, replacement cost risk related to derivatives is represented by the
positive fair value of the instruments and is normally a small fraction of the contract’s notional amount. Trading
derivatives exposes us to additional interest rate and equity market fl uctuations. We manage replacement cost
risk and interest rate and equity market fl uctuation related to derivatives in accordance with our risk management
policies specifi ed above.
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42
5.2 Operational Risk Management
We believe that managing operational risks related to our business activities signifi cantly reduces losses resulting
from failed processes, procedures or controls, inadequate systems, human errors, fraud or external events such
as natural disasters. To manage this risk, we follow a specifi c framework that is composed of four major steps:
identifi cation, measurement, monitoring and mitigation. The scope of operational risk management covers
the security of people, assets and information as well as the continuity of our operations and recovery of our
technology during a crisis.
For early detection
For early detection and clear insight of our key operational risks, we periodically perform Risk & Control Self-
and clear insight
of our key
operational risks,
we periodically
perform Risk
& Control Self-
Assessments of our critical functions with the collaboration of management. We also monitor and measure our
risks on an ongoing basis through key risk indicators which enable management to proactively initiate effective
actions. ING Canada has also developed clear incident reporting channels within the organization to systematically
report, manage and monitor operational incidents leading to fi nancial losses or reputation damage. Ongoing
training and exercises provided to all employees also contribute to increase the operational risk awareness culture
Assessments of our
within the organization and minimize the occurrence of incidents.
critical functions
In order to maintain the integrity and continuity of our operations in the event of a crisis, ING Canada has
developed personalized alert and mobilization procedures as well as communication protocols. For example,
emergency action plans, business continuity plans, business recovery plans, major health crisis plans, building
evacuation plans and crisis communication plans have all been defi ned and are tested on an ongoing basis.
The implementation of the overall operational risk management program relies on management. In addition,
the Operational Risk Management department assists in monitoring the operational risk processes and ensuring
that appropriate actions are taken when necessary. The Operational Risk Management department reports to the
Risk Management Committee which is composed of executive members appointed by the Board of Directors.
It is the Committee that has the oversight responsibility for operational risk management and governance within
the organization. Finally, to ensure transparency, the Committee provides regular updates of its operations to the
Senior Management Committee, the Audit Committee and the Board of Directors.
5.3 Corporate Governance and Compliance
ING Canada
ING Canada believes that good corporate governance and compliance with all legal and regulatory requirements
believes that
good corporate
governance
and compliance
with all legal
and regulatory
requirements
are essential
for maintaining
investor confi dence
are essential for maintaining investor confi dence. Legal and regulatory compliance risk arises from non-compliance
with the laws, regulations or guidelines applicable to the Company as well as the risk of loss resulting from non-
fulfi lment of a contract. ING Canada is subject to strict regulatory requirements and detailed monitoring of its
operations in all provinces or territories where it conducts business, either directly or through its subsidiaries.
ING Canada’s corporate governance and compliance program is built on the following foundations:
a) ING Canada’s Board of Directors and its Committees are structured in accordance with sound corporate
governance standards. Directors are presented with signifi cant information in all areas of the Company’s
operations to enable them to effectively supervise the Company’s management, business objectives and risks.
b) Disclosure controls and processes have been put into place so that relevant information is obtained and
communicated to senior management and directors of the Board to ensure that the Company meets its
disclosure obligations and to protect the confi dentiality of information. A decision making process is also in
place to facilitate timely and accurate public disclosure.
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ING Canada Inc.
43
c) Effective corporate governance is dependent on strong corporate compliance structures and processes. To this
end, ING Canada has established an enterprise-wide Compliance Policy and framework including procedures
and policies necessary to ensure adherence to laws, regulations and related obligations. Compliance activities
include identifi cation, mitigation and monitoring of compliance/reputation risks, as well as communication,
education, and activities to promote a culture of compliance and ethical business conduct.
d) The Board of Directors and the Audit Committee of ING Canada, as well as that of its subsidiaries, periodically
receives reports on all lawsuits, whether they be in the normal course of business, where the contesting of
certain claims appears normal, or outside the normal course of business. To manage this risk, the Company
has specialized resources in its Legal Department as well as experts outside the Company, and provisions are
taken when deemed necessary.
While senior management has ultimate responsibility for compliance, compliance is a responsibility that each individual
employee shares. This responsibility is clearly set out in ING Canada’s Business Principles and Code of Conduct.
5.4 Industry Standards
ING Canada is committed to maintaining its reputation as a corporation with integrity and ethical business
conduct that extends to how we treat our customers. In this regard, ING Canada is currently working with the
Insurance Bureau of Canada (IBC) in reviewing the principles set out in IBC’s Standards of Sound Marketplace
Practice (Standards), which includes concepts such as information disclosure, timely and fair settlement of
claims, adequate systems of complaint handling, and knowledgeable intermediaries.
ING Canada has subscribed to the underlying principles of the Standards for many years and already has practices
in place to ensure appropriate levels of consumer service. Operational and compliance teams are reviewing the
Standards to see what gaps, if any, exist and how ING Canada can enhance its practices. This self-regulation
effort is in addition to the Code of Consumer Rights and Responsibilities already adopted by ING Canada.
An additional best practices initiative is the CCIR/CISRO’s (our regulators) three principle-based
recommendations designed to promote customer confi dence in the insurance industry (i.e. priority of client’s
interest, disclosure of confl icts or potential confl icts of interest, and product suitability). ING Canada is
working with the insurance industry to determine best practices.
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44
Section 6 – Other Matters
6.1 Related Party Transactions
We have ongoing transactions with related parties, consisting mostly of:
(1) management and advisory services;
(2) ING Groep and affi liated companies;
(3) reinsurance by an affi liated company; and
(4) fi nancing.
These transactions are carried out in the normal course of operations and are measured at the amount of
consideration paid or received as established and agreed by the related parties. We believe that such exchange
amounts approximate fair value.
In addition, we have related party transactions with investees accounted for as long-term investments. These
transactions consist primarily of loans and commission expenses.
Notes 1 and 8 to the accompanying consolidated fi nancial statements provide additional information on related
party transactions.
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ING Canada Inc.
45
6.2 Cautionary Note Regarding Forward-Looking Statements
Certain statements in this report about our current and future plans, expectations and intentions, results, levels
of activity, performance, goals or achievements or any other future events or developments are forward-looking
statements. The words “may”, “will”, “would”, “should”, “could”, “expects”, “plans”, “intends”, “anticipates”,
“believes”, “estimates”, “predicts”, “likely” or “potential” or the negative or other variations of these words or
other similar words or phrases identify such forward-looking statements.
Forward-looking statements are based on estimates and assumptions made by us based on our experience and view
of historical trends, current conditions and expected future developments, as well as other factors that we believe
are appropriate in the circumstances. Many factors could cause our actual results, performance or achievements
or future events or developments to differ materially from the forward-looking statements. These factors include,
without limitation, the following: our ability to implement our strategy or operate our business as we expect; our
ability to accurately assess the risks associated with the insurance policies that we write; unfavourable capital market
developments or other factors which could affect our investments; the cyclical nature of the P&C insurance industry;
our ability to accurately predict future claims frequency; government regulations; litigation and regulatory actions;
periodic negative publicity regarding the insurance industry; intense competition; our reliance on brokers and third
parties to sell our products; our ability to successfully pursue our acquisition strategy; the signifi cant infl uence of ING
Groep; our participation in the Facility Association (a mandatory pooling arrangement among all industry participants);
terrorist attacks and ensuing events; the occurrence of catastrophic events; our ability to maintain our fi nancial strength
ratings; our ability to alleviate risk through reinsurance; our ability to successfully manage credit risk; our reliance
on information technology and telecommunications systems; our dependence on key employees; general economic,
fi nancial and political conditions; our dependence on the results of operations of our subsidiaries; the limited trading
history of our common shares; the accuracy of analyst earnings estimates or the consensus fi gure based upon such
estimates; the volatility of the stock market and other factors affecting our share price; and future sales of a substantial
number of our common shares. These factors should be considered carefully, and readers should not place undue
reliance on our forward-looking statements. We have no intention and accept no responsibility to update or revise any
forward-looking statements as a result of new information, future events or otherwise, except as required by law.
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46
Management’s Responsibility for Financial Reporting
Management is responsible for the preparation and presentation of the consolidated fi nancial statements of ING
Canada Inc. and its subsidiaries, collectively known as “the Company”. This responsibility includes selecting
appropriate accounting policies and making estimates and informed judgments based on the anticipated impact
of current transactions, events and trends, consistent with Canadian generally accepted accounting principles.
In meeting its responsibility for the reliability of consolidated fi nancial statements, the Company maintains and
relies on a comprehensive system of internal control comprising organizational procedural controls and internal
accounting controls. The Company’s system of internal control includes the communication of policies and of
the Company’s Code of Conduct, comprehensive business planning, proper segregation of duties, delegation of
authority for transactions and personal accountability, selection and training of personnel, safeguarding of assets
and maintenance of records. The Company’s internal auditors review and evaluate the system of internal control.
The Company’s Board of Directors, acting through the Audit and Risk Review Committee, which is composed
entirely of Directors, who are neither offi cers nor employees of the Company, oversees management’s
responsibility for the design and operation of effective fi nancial reporting and internal control systems, the
preparation and presentation of fi nancial information and the management of risk areas.
The Audit and Risk Review Committee conducts such review and inquiry of management and the internal and
external auditors as it deems necessary to establish that the Company employs an appropriate system of internal
control, adheres to legislative and regulatory requirements and applies the Company’s Code of Conduct. The
internal and external auditors, as well as the Actuary, have full and unrestricted access to the Audit and Risk
Review Committee, with and without the presence of management.
Pursuant to the Insurance Companies Act of Canada or to the Insurance Act (“Québec”) (“the Acts”), the
Actuary, who is a member of management, is appointed by the Board of Directors. The Actuary is responsible for
discharging the various actuarial responsibilities required by the Acts and conducts a valuation of policy liabilities,
in accordance with Canadian generally accepted actuarial standards, reporting his results to management and the
Audit and Risk Review Committee.
The Offi ce of the Superintendent of Financial Institutions Canada for the federally regulated property and casualty
(“P&C”) subsidiaries and l’Autorité des marchés fi nanciers for the Québec regulated P&C subsidiary make such
examinations and inquiries into the affairs of the P&C subsidiaries as deemed necessary.
The Company’s external auditors, Ernst & Young LLP, Chartered Accountants, are appointed by the shareholders
to conduct an independent audit of the consolidated fi nancial statements of the Company and meet separately
with both management and the Audit and Risk Review Committee to discuss the results of their audit, fi nancial
reporting and related matters. The auditors’ report to shareholders appears on page 47.
February 13, 2007
Claude Dussault
Mark A. Tullis
President and Chief Executive Offi cer
Chief Financial Offi cer
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ING Canada Inc.
47
Auditors’ Report
To: the Shareholders of ING Canada Inc.
We have audited the consolidated balance sheets of ING Canada Inc. (the “Company”) as at December 31, 2006
and 2005 and the consolidated statements of income, changes in shareholders’ equity and cash fl ows for the years
then ended. These fi nancial statements are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these fi nancial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards
require that we plan and perform an audit to obtain reasonable assurance whether the fi nancial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the fi nancial statements. An audit also includes assessing the accounting principles used and
signifi cant estimates made by management, as well as evaluating the overall fi nancial statement presentation.
In our opinion, these consolidated fi nancial statements present fairly, in all material respects, the fi nancial position
of the Company as at December 31, 2006 and 2005 and the results of its operations and its cash fl ows for the
years then ended in accordance with Canadian generally accepted accounting principles.
Toronto, Canada
February 13, 2007
Ernst & Young LLP
Chartered Accountants
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48
Consolidated Balance Sheets
(in thousands of dollars)
As at December 31
2006
2005
125,954 $
Assets
Cash and cash equivalents (note 3)
Investments (note 4)
Accrued investment income
Premium and other receivables
Due from affi liated companies (note 8)
Reinsurers’ share of unpaid claims and loss adjustment expenses (notes 6 and 7 )
Reinsurers’ share of unearned premiums (notes 6 and 7)
Deferred acquisition costs
Income taxes receivable
Other assets (note 11)
Long-term investments (note 13)
Future income tax asset (note 9)
Intangible assets (note 10)
Goodwill (note 10)
$
341,138
7,241,938 6,720,965
50,100
1,643,933 1,518,511
230
4,252
330,519
270,369
17,279
17,683
381,992
393,137
55,684
54,134
182,119
203,176
41,587
44,401
141,101
112,187
36,948
66,294
108,362
148,743
51,068
$ 10,377,269 $ 9,926,535
$
840,410 $
–
23,984
815,674
2,968
67,705
3,823,539 3,821,609
2,264,118 2,194,837
4,129
4,463
127,000
–
6,956,514 7,033,922
1,183,846 1,183,846
89,713
2,143,375 1,619,054
93,534
3,420,755 2,892,613
$ 10,377,269 $ 9,926,535
Liabilities
Payables and other liabilities
Due to affi liated companies (note 8)
Income taxes payable
Unpaid claims and loss adjustment expenses (note 6)
Unearned premiums (note 6)
Unearned reinsurance commissions
Debt outstanding (note 14)
Shareholders’ equity
Share capital (note 15)
Contributed surplus
Retained earnings
See accompanying notes to consolidated fi nancial statements
On behalf of the Board:
Claude Dussault
Director
Ivan Duvar
Director
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Consolidated Statements of Income
For the years ended December 31
ING Canada Inc.
49
(in thousands of dollars except for per share amounts)
Direct premiums written
Net premiums written
Revenue
Net premiums earned
Investment income (note 13)
Net realized investment and other gains
Commissions and advisory fees
Expenses
Claims and loss adjustment expenses
Commissions (note 8)
Premium taxes
General expenses
Interest
Income before income taxes
Income taxes (note 9)
Net income
Earnings per share, basic and diluted
2006
2005
$ 3,990,419 $ 3,904,901
$ 3,895,493 $ 3,754,937
$ 3,826,614 $ 3,840,176
338,493
223,471
43,928
351,186
193,532
35,044
4,406,376 4,446,068
2,261,169 2,161,755
646,344
133,704
405,349
612,331
132,335
443,225
3,449,060 3,347,152
5,309
7,963
952,007 1,090,953
293,954
309,170
$
658,053 $
781,783
$
4.92 $
5.85
Basic and diluted average number of common shares (in thousands)
133,732
133,546
See accompanying notes to consolidated fi nancial statements
Consolidated Statements of Changes in Shareholders’ Equity
For the years ended December 31
(in thousands of dollars)
Share capital
Balance, beginning of year
Common shares issued (note 15)
Share issuance costs, net of income taxes
Balance, end of year
Contributed surplus
Balance, beginning of year
Stock-based compensation (note 15)
Balance, end of year
Retained earnings
Balance, beginning of year
Net income
Dividends paid
Other
Balance, end of year
Total shareholders’ equity
See accompanying notes to consolidated fi nancial statements
2006
2005
$ 1,183,846 $ 1,052,290
136,032
(4,476 )
–
–
1,183,846 1,183,846
89,713
3,821
93,534
83,336
6,377
89,713
1,619,054
658,053
(133,732 )
–
923,983
781,783
(86,926 )
214
2,143,375 1,619,054
$ 3,420,755 $ 2,892,613
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50
Consolidated Statements of Cash Flows
(in thousands of dollars)
For the years ended December 31
2005
2006
Operating activities
Net income
Adjustments to determine cash provided by operating activities:
Unearned premiums and unpaid claims and loss adjustment expenses, net
Net realized investment and other gains
Deferred acquisition costs, net
Future income taxes
Amortization
Decrease in loan provision
Other
Changes in other operating assets and liabilities
Cash provided by operating activities (note 16)
Investing activities
Proceeds from sale of investments
Purchase of investments
Purchase of brokerages and books of business, net (note 17)
Proceeds from sale and leaseback of properties
Purchase of property and equipment and other
Cash used in investing activities
Financing activities
Dividends paid
Proceeds from common shares issuance
Debt repayment (note 14)
Share issuance costs
Cash used in fi nancing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
$
658,053 $
781,783
130,957
(193,532 )
(10,811 )
19,869
8,577
(457 )
1,455
(183,173 )
(129,910 )
(223,471 )
(669 )
9,572
38,249
(5,660 )
4,659
162,893
430,938
637,446
16,581,242 12,509,278
(16,891,010 ) (12,740,836 )
(14,646 )
–
(45,651 )
(65,152 )
29,977
(40,447 )
(385,390 )
(291,855 )
(133,732 )
–
(127,000 )
–
(86,926 )
136,032
(129,230 )
(6,802 )
(260,732 )
(86,926 )
(215,184 )
341,138
258,665
82,473
Cash and cash equivalents, end of year
$
125,954 $
341,138
See accompanying notes to consolidated fi nancial statements
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ING Canada Inc.
51
Notes to Consolidated Financial Statements
(in thousands of dollars)
1. Status of the Company
ING Canada Inc. (the “Company’’) was incorporated under the Canada Business Corporations Act. The
Company has investments in wholly-owned subsidiaries which operate principally in the Canadian property
and casualty (“P&C”) insurance market. The Company’s signifi cant subsidiaries are ING Insurance Company
of Canada, Belair Insurance Company Inc., The Nordic Insurance Company of Canada (as amalgamated with
Allianz Insurance Company of Canada on April 1, 2006), ING Novex Insurance Company of Canada, Trafalgar
Insurance Company of Canada, Equisure Financial Network Inc., Canada Brokerlink Inc. and Grey Power
Insurance Inc.
ING Groep N.V. (“ING Groep”) both as the owner of 70% of the Company’s outstanding common shares and the
Special Share (note 15) and as a party to the Co-Operation Agreement (the “Agreement”) has substantial infl uence
over the ongoing business and operation of the Company. The Agreement provides, among other things, that for
so long as ING Groep holds not less than one-third of the Company’s outstanding common shares, the Company
may not carry out certain corporate acts, including entering into business combinations with unaffi liated third
parties or making acquisitions or dispositions above certain monetary thresholds or changing the dividend policy
without the prior written approval of ING Groep.
2. Summary of signifi cant accounting policies
These consolidated fi nancial statements have been prepared in accordance with Canadian generally accepted
accounting principles (“GAAP”). The preparation of consolidated fi nancial statements in accordance with
Canadian GAAP requires management to make assumptions and estimates that affect the reported amounts of
assets and liabilities at the dates of the consolidated fi nancial statements, the reported amounts of revenue and
expenses for the years presented, as well as the disclosure of contingent assets and liabilities. These estimates are
subject to uncertainty. Signifi cant estimates include the determination of impairment losses (notes 10 and 16),
policy liabilities (note 6), income taxes (note 9), employee future benefi ts (note 12), stock-based compensation
(note 15), the allocation of the purchase price (note 17) and contingencies (note 19). Changes in estimates are
recorded in the accounting period in which these changes are determined.
Further, the accounting policies used to prepare the fi nancial statements of the Company’s regulated insurance
subsidiaries must also comply with the accounting requirements of their respective regulators. The signifi cant
accounting policies used in preparing these consolidated fi nancial statements, including those specifi ed by the
insurance regulators, are, in all material respects, in accordance with Canadian GAAP and are summarized
below. These policies have been consistently applied.
(a) Signifi cant accounting changes
Stock-based compensation
In 2005, as a result of the adoption of a long-term incentive plan for certain employees and a deferred share unit
plan for independent directors (note 15), the Company adopted the recommendations of the Canadian Institute of
Chartered Accountants’ (“CICA”) Handbook Section 3870, “Stock-Based Compensation and Other Stock-Based
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52
Payments”, which requires that stock-based compensation awards to non-employees, direct awards of stock, awards
that call for settlement in cash or other assets or stock appreciation right awards to employees be recognized on a
fair value basis as an expense. Under this policy, the fair value of the earned or awarded amounts is estimated on
the grant date and such amount is recorded as a compensation expense over the related vesting period, or the period
between the grant date to the date the employee becomes eligible to retire if shorter, with a corresponding increase
to contributed surplus for those awards granted to employees and to liabilities for directors.
Rate regulation
In 2005, the Company implemented the disclosure and presentation requirements contained in the CICA’s
Accounting Guideline 19 “Disclosures by Entities Subject to Rate Regulation”. The objective of this guideline is
to ensure that users of the fi nancial statements of entities providing services or products for which customer rates
are established, or subject to approval, by a regulator or a governing body empowered by statute or contract to
set rates, are better informed about the existence, nature and effects of all forms of rate regulation. The guideline
requires companies to disclose general information useful to an understanding of the nature and economic
effects of rate regulation (note 18) and, if applicable, specifi c information when rate regulation has affected the
accounting for a transaction or event.
Cash and cash equivalents
In 2005, the Company changed its defi nition of cash equivalents in order to align itself with prevailing disclosure
practices. The Company now defi nes cash equivalents as highly liquid investments that are readily convertible
into a known amount of cash, are subject to an insignifi cant risk of changes in value and have a maturity date
of three months or less from the date of acquisition. Previously, cash equivalents were defi ned in reference to a
maturity date of three months or less from the consolidated balance sheet dates. The change had no impact on
the Company’s consolidated statements of income but resulted in a reclassifi cation of $274,740 between cash
equivalents and investments in the 2005 opening balances. Cash equivalents are carried at amortized cost, which
approximates fair value.
(b) Basis of consolidation
The Company consolidates the fi nancial statements of all subsidiary companies and eliminates on consolidation all
signifi cant inter-company balances and transactions. The equity method is used to account for investments over which
the Company exerts signifi cant infl uence. Gains and losses on sales of these investments are included in income
when recognized, while expected losses on “other-than-temporary” impairments are recognized immediately.
(c) Investments and investment income
Short-term notes with a maturity of more than three months from the date of acquisition are carried at amortized
cost which approximates fair value and are amortized on an effective yield basis.
Fixed income securities are recorded at amortized cost, providing for the amortization of premiums and discounts
in the consolidated statements of income on an effective yield basis. Shares and trust units are recorded at cost.
Loans are presented net of an allowance for loan losses.
The book value of an investment is written down and the write down is refl ected in the consolidated statements
of income when there is evidence of an “other-than-temporary” decline in the value of an investment. To assess
impairments, management reviews available current information for investments with fair values below their
book values to ascertain whether the book values are expected to be recovered. For investments in equity and
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ING Canada Inc.
53
fi xed income securities, management evaluates whether the decline in fair value of these securities is other than
temporary. For mortgage loans and other loans, management assesses expected future cash fl ows and, where
necessary, the net realizable amounts of assets provided as collateral.
Interest income is recognized as earned and dividends are recognized on the ex-dividend date. Gains and losses
on disposition are recorded in the consolidated statements of income when investments are sold and are calculated
based on average cost.
(d) Derivative fi nancial instruments
Derivative fi nancial instruments are used for risk management (“non-trading”) purposes and for trading purposes.
Currency swaps and forwards, and certain total return swaps are held for non-trading purposes to mitigate foreign
exchange and market risks. Interest rate futures, options and swaps and certain total return swaps are held for
trading purposes.
The Company applies hedge accounting, for certain new hedging instruments, when requirements of the CICA
Handbook Accounting Guideline AcG–13 “Hedging Relationship” are met.
For derivative fi nancial instruments held for non-trading purposes where hedge accounting is applied, the
accounting policy is as follows:
(i) The Company formally documents all relationships between hedging instruments and hedged items, as well
as its risk management objective and strategy for undertaking its hedge transactions. The Company also
formally assesses, both at inception and on an ongoing basis, whether the derivative fi nancial instruments that
are used in hedging transactions are effective in offsetting changes in fair values of hedged items.
(ii) Hedge accounting is discontinued prospectively when the derivative fi nancial instrument no longer qualifi es as
an effective hedge or the derivative is terminated or sold. The fair value of the derivative fi nancial instrument
is then accounted for and the related gain or loss is deferred to be included in the consolidated statements of
income during the periods in which the hedged item affects earnings. Should the hedged item cease to exist,
the gains or losses deferred until then are immediately charged to income.
(iii) Currency swaps used to manage exchange risk related to certain investments in U.S. dollars are accounted for
using hedge accounting. These derivative fi nancial instruments are recognized at cost and foreign exchange
gains and losses related to the hedged items are not recognized until they are settled.
For derivative fi nancial instruments held for non-trading purposes where hedge accounting is not applied and for
derivative fi nancial instruments held for trading purposes, the instruments are recognized at their fair value, with
changes in the fair value refl ected in the consolidated statements of income during the period in which they arise.
The fair value of derivative fi nancial instruments is based on the quoted market value at the consolidated
balance sheet closing dates. In the absence of this information for a given instrument, different valuation models
recognized by fi nancial markets are used to estimate such fair value.
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54
(e) Revenue recognition
Premiums written are deferred as unearned premiums and recognized as revenue, net of reinsurance, on a pro rata
basis over the terms of the underlying policies, usually twelve months and no longer than twenty-four months.
Commissions and advisory fees are recorded on an accrued basis.
(f) Foreign currency translation
Assets, liabilities, revenue and expenses arising from a foreign currency transaction are translated into Canadian
dollars using the exchange rate prevailing at the date of the transaction. Monetary items denominated in a foreign
currency are adjusted to refl ect the exchange rate at December 31 and the foreign currency adjustments are
refl ected in the consolidated statements of income. Realized gains and losses on foreign currency transactions
are recognized in the consolidated statements of income at the transaction date.
(g) Policy liabilities
Policy liabilities consist of unearned premiums and unpaid claims and loss adjustment expenses. The appointed
actuary, using appropriate actuarial techniques, evaluates the adequacy of policy liabilities.
Unpaid claims and loss adjustment expenses are fi rst determined on a case-by-case basis as claims are reported
and then reassessed as additional information becomes known. Included in unpaid claims and loss adjustment
expenses is a provision to account for the future development of these claims, including claims incurred but not
reported, as well as a provision for adverse deviations, as required by accepted actuarial practice in Canada.
Unpaid claims and loss adjustment expenses are discounted to take into account the time value of money.
In estimating unpaid claims and loss adjustment expenses, standard actuarial techniques are used. These techniques
are based on historical loss development factors and payment patterns. They require the use of assumptions such
as loss and payment development factors, future rates of claims frequency and severity, infl ation, reinsurance
recoveries, expenses, changes in the legal environment, changes in the regulatory environment and other matters,
taking into consideration the circumstances of the Company and the nature of the insurance policies.
Unearned premiums are calculated on a pro rata basis, from the unexpired portion of the premiums written. The
unearned premiums estimate is validated through standard actuarial techniques to ensure that these premiums are
suffi cient to cover the estimated future costs of servicing these policies and related claims.
(h) Deferred acquisition costs
Deferred acquisition costs comprise commissions, premium taxes and expenses directly related to the acquisition
of premiums. They are deferred to the extent that they are recoverable from unearned premiums, after considering
the related anticipated claims, expenses and investment income in respect of these premiums. They are amortized
on the same basis as the premiums are recognized in the consolidated statements of income.
(i) Reinsurance
The Company presents third party reinsurance balances in the consolidated balance sheets on a gross basis to
indicate the extent of credit risk related to third party reinsurance and its obligations to policyholders and on a net
basis in the consolidated statements of income. The estimates for the reinsurers’ share of unpaid claims and loss
adjustment expenses are presented as an asset and are determined on a basis consistent with the related unpaid
claims and loss adjustment expenses.
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(j) Property and equipment
Property and equipment are carried at cost less accumulated amortization. Amortization rates are established
to depreciate the cost of the assets over their estimated useful lives. Amortization methods and rates are
ING Canada Inc.
55
shown below.
Buildings
Computer equipment
Furniture and equipment
Leasehold improvements
(k) Employee future benefi ts
Method
Rate or term
Declining balance
Straight-line
Declining balance
and straight-line
Straight-line
3% – 8%
30 – 36 months
20%
60 months
Terms of related leases
For defi ned benefi t pension and other retirement plans, the accrued benefi t obligations, net of the fair value of
plan assets and unamortized items, are accrued. The unamortized items are the past service costs, the transitional
asset/obligation, the transitional valuation allowance and the net actuarial gains or losses. To match costs and
services, these items are amortized on a straight-line basis over the expected average remaining service lifetime
(“EARSL”) of active members expected to receive benefi ts under the plans. Changes in the valuation allowance
are not deferred.
For each plan, the Company has adopted the following policies:
(i) The actuarial determination of the accrued obligations for pensions and other retirement benefi ts uses the projected
benefi t method based on services provided by employees and management’s best estimate assumptions.
(ii) For the purpose of calculating the expected return on plan assets, plan assets are valued at fair value.
(iii) Only gains or losses in excess of 10% of the greater of the accrued benefi t obligations or the fair value of plan
assets are amortized over the EARSL.
(iv) Past service costs arising from plan amendments are amortized on a straight-line basis over the EARSL.
(v) The Company amortizes the transitional asset/obligation arising from the adoption on January 1, 2000 of
the CICA Handbook Section 3461 using the prospective application method on a straight-line basis over the
EARSL as of January 1, 2000.
(vi) When the restructuring of a benefi t plan gives rise to both a curtailment and a settlement of obligations, the
curtailment is accounted for prior to the settlement.
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56
(l) Income taxes
The Company provides for income taxes using the liability method of tax allocation. Under this method, the
income tax expense is calculated based on income tax laws and rates substantively enacted as at the consolidated
balance sheet dates. The income tax expense is comprised of two components: current income taxes and future
income taxes. Current income taxes are amounts expected to be payable or recoverable as a result of operations
in the current year. Future income taxes arise from changes during the year in cumulative temporary differences
between the accounting book values of assets and liabilities and their respective tax bases. A future income tax
asset is recognized to the extent that future realization of the tax benefi t is more likely than not.
(m) Goodwill and intangible assets
The excess of the purchase price over the fair value of the underlying net tangible assets is initially allocated
to intangible assets, as appropriate, and the residual to goodwill. An intangible asset is recognized apart from
goodwill when it results from contractual or other legal rights or when it is capable of being separated or divided
from the acquired enterprise and sold, transferred, licensed, rented, or exchanged. Finite life intangible assets are
amortized to the consolidated statements of income over their useful lives whereas infi nite life intangible assets
and goodwill are not subject to amortization. Goodwill is tested annually for impairment of value on a reporting
unit basis. Judgment is required to identify reporting units with similar economic characteristics and to select a
valuation model. Accordingly, the Company assesses the book value of its net assets on this basis. Impairment,
if any, identifi ed through this assessment is charged to the consolidated statements of income as a result of a
reduction in the book value of the goodwill.
(n) Earnings per share
Earnings per share are computed by dividing net income available to common shareholders by the weighted
average number of common shares outstanding for the period. Diluted earnings per share refl ect the potential
dilution that could occur if the holders of securities or contracts entitling them to obtain common shares in
exchange for their securities or contracts exercised their right to obtain common shares.
(o) Future accounting changes
i) Financial instruments, comprehensive income and hedges
Effective January 1, 2007, the Company will apply, on a retrospective basis without restatement, the new
provisions of the CICA handbook on accounting for fi nancial instruments, including sections 3855 “Financial
Instruments – Recognition and Measurement”, 3865 “Hedges” and 1530 “Comprehensive income”.
The new provisions will affect the accounting for fi nancial instruments and hedges and will introduce a new
consolidated statement of comprehensive income and a new component of accumulated other comprehensive
income within shareholders’ equity. The comprehensive income will be composed of the net income and the
unrealized gains and losses on available for sale securities, net of income taxes.
The standards require that all the fi nancial assets and liabilities be classifi ed as available for sale, held for
trading, held to maturity or loans and receivables.
• For assets classifi ed as available for sale, the unrealized changes in market value will be refl ected in other
comprehensive income until the fi nancial asset is disposed of, or has become impaired. Unrealized net
gains related to assets designated as available for sale as at January 1, 2007, will be accounted for as an
adjustment in accumulated other comprehensive income.
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ING Canada Inc.
57
• To reduce consolidated income statements volatility, the Company intends to classify a portion of its
investments that is supporting net claims liabilities, as held for trading, under which the unrealized
gains and losses are recognized in income. Other fi nancial assets and liabilities, including all derivatives
and embedded derivatives, will also be classifi ed as held for trading according to the new standards.
Unrealized net gains related to assets and liabilities designated as held for trading as at January 1, 2007,
will be accounted for as an adjustment to retained earnings. For the Company’s insurance subsidiaries, the
Superintendent of Financial Institutions, Canada (“OSFI”) has imposed certain restrictions, as per OSFI
guideline D-10, on the classifi cation of assets and liabilities as held for trading. The classifi cation as held
for trading for the insurance subsidiaries’ assets and liabilities will meet OSFI requirements.
• Most of the fi nancial assets will be classifi ed as available for sale or held for trading. These fi nancial assets
were previously recorded at cost. Consequently, the net claims liabilities will be discounted using a market
rate instead of a book rate. An amount of net claims liabilities as at January 1, 2007, will be accounted for
as an adjustment to retained earnings following the change in discounting rate.
• Certain investments will be classifi ed as loans and receivables or as held to maturity. The Company
does not expect that these classifi cations will have any signifi cant impact on the consolidated fi nancial
statements since the assets will continue to be carried at amortized cost.
The Company is determining the tax consequences, if any, and the impact on the consolidated fi nancial
statements once these changes are adopted.
ii) Accounting changes
Effective January 1, 2007, the Company will apply the revised provisions of the CICA handbook section
1506 “Accounting changes”. Accordingly, voluntary changes in accounting policies will be made only if they
result in reliable and more relevant information.
iii) Variability in variable interest entities
Effective January 1, 2007, the Company will apply the Emerging Issues Committee (“EIC”) Abstract.
No. 163, “Determining the Variability to be Considered in Applying AcG-15”. This EIC provides additional
clarifi cation on how to analyze and consolidate variable interest entities. The impact is not expected to be
signifi cant on the Company’s consolidated fi nancial statements.
3. Cash and cash equivalents
At December 31, 2006, a portion of cash and cash equivalents was cash equivalents for an amount of
$145,419 (2005 – $492,207). Cash and cash equivalents are presented net of bank overdrafts in the
consolidated balance sheets.
4. Investments
The Company has an investment policy and applies the prudent person approach to investment management.
Management monitors compliance with that policy. The majority of the investment portfolio is invested in well-
established, active and liquid markets. For most investments, fair value 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.
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58
Tables 4.1 and 4.2 summarize the Company’s investments. Fixed income securities and preferred shares are
classifi ed by investment grade and type of issuer.
Table 4.1
2006
Short-term notes
Fixed income securities (a)
Investment grade (b)
Government and
government-guaranteed
Corporate
Asset-backed
Below investment grade (b)
Total fi xed income securities
Mortgage loans
Preferred shares (c)
Investment grade
Below investment grade
Total preferred shares
Common shares (d)
Other investments (e)
Book value Fair value
Gross
Gross
unrealized unrealized
losses
gains
$
713,475 $
713,475 $
– $
–
1,953,220 1,964,995
993,104 1,004,933
309,190
309,054
2,517
3,390
3,258,768 3,281,635
58,956
57,218
32,454
1,427,654 1,483,127
34,005
1,460,108 1,517,132
1,580,740 1,700,438
171,629
171,629
15,837
13,812
990
–
30,639
1,738
64,671
2,996
67,667
170,629
–
Table 4.2
2005
$ 7,241,938 $ 7,443,265 $
270,673 $
Book value Fair value
Gross Gross
unrealized unrealized
losses
gains
– $
–
$
440,435 $
440,435 $
Short-term notes
Fixed income securities (a)
Investment grade (b)
Government and government-guaranteed 2,043,548 2,091,519
1,147,059 1,173,535
Corporate
327,780
Asset-backed
2,950
3,520,764 3,595,784
73,108
326,174
3,983
70,347
Below investment grade (b)
Total fi xed income securities
Mortgage loans
Preferred shares (c)
Investment grade
Below investment grade
Total preferred shares
Common shares (d)
Other investments (e)
12,149
1,245,117 1,304,977
14,905
1,257,266 1,319,882
1,266,550 1,430,440
165,603
165,603
52,545
29,565
2,910
–
85,020
2,761
65,306
2,796
68,102
183,641
–
$ 6,720,965 $ 7,025,252 $
339,524 $
4,062
1,983
854
873
7,772
–
9,198
1,445
10,643
50,931
–
69,346
4,574
3,089
1,304
1,033
10,000
–
5,446
40
5,486
19,751
–
35,237
(a) Fixed income securities include private placements. The book value of the private placements was $92,194 at
December 31, 2006 (2005 – $31,618) and their fair value was $92,818 at December 31, 2006 (2005 - $30,081).
(b) The Company uses Dominion Bond Rating Services (“DBRS”) and Standard & Poor’s (“S&P”) to rate fi xed
income securities. Fixed income securities with a rating equal to or above BBB- are classifi ed as investment
grade and other rated fi xed income securities are classifi ed as below investment grade.
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ING Canada Inc.
59
(c) The Company uses DBRS and S&P to rate preferred shares. Preferred shares with a rating equal to or above P3 low
are classifi ed as investment grade and other rated preferred shares are classifi ed as below investment grade.
(d) The common shares category includes common shares as well as mutual fund and income trust units.
(e) Other investments include loans and strategic investments.
The Company has investments in certain common shares and income trust units pursuant to a market neutral
strategy. The objective of this strategy, which consists of having both long and short equity positions, is to
maximize the value added from active portfolio management. Long and short positions are accounted for at cost.
Long positions are included in investments. Short positions are presented as other liabilities.
Table 4.3 summarizes the Company’s long and short positions pursuant to the market neutral strategy.
Table 4.3
Long positions
Short positions
2006
2005
Book value Fair value Book value Fair value
$
55,254 $
57,093
62,332 $
62,289
30,401 $
30,233
34,180
34,220
The Company provides collateral for securities borrowed and delivered pursuant to the sale of short securities.
At December 31, 2006, the book value of the collateral was $60,878 (2005 – $32,041).
Tables 4.4 and 4.5 have been prepared on the basis of the scheduled maturities of the underlying instruments.
Table 4.4
2006
One year One year
Over No specifi c
or less to fi ve years fi ve years maturity
Total
$
Short-term notes
Fixed income securities
Mortgage loans
Preferred shares
Common shares
Other investments
– $
– $
713,475 $
371,943 1,485,490 1,401,335
53,208
4,010
164,576
–
80,453
713,475
– $
– 3,258,768
57,218
–
262,199 1,017,492 1,460,108
– 1,580,740 1,580,740
171,629
31,028
–
15,841
–
17,858
42,290
Table 4.5
2005
$ 1,119,117 $ 1,783,727 $ 1,709,834 $ 2,629,260 $ 7,241,938
One year One year
Over No specifi c
or less to fi ve years fi ve years maturity
Total
$
Short-term notes
Fixed income securities
Mortgage loans
Preferred shares
Common shares
Other investments
– $
440,435 $
– $
164,476 1,161,040 2,195,248
4,209
63,465
136,032
265,068
–
76,508
2,673
11,672
–
17,147
– $
440,435
– 3,520,764
70,347
–
844,494 1,257,266
– 1,266,550 1,266,550
165,603
22,605
49,343
$
636,403 $ 1,437,045 $ 2,513,868 $ 2,133,649 $ 6,720,965
Credit risk
Credit risk is the risk that one party to a fi nancial instrument will fail to discharge an obligation and cause the
Company to incur a fi nancial loss. Credit risk mostly arises from investments in fi xed income securities and
preferred shares.
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60
The Company’s investment policy requires that, at the time of the investment, fi xed income securities have a
minimum credit rating of BBB and preferred shares have a minimum credit rating of P3. Management monitors
subsequent credit rating changes on a regular basis. Investments in any entity or group of related entities are
limited to 5% of the Company’s assets.
Liquidity risk
Liquidity risk is the risk that an entity will encounter diffi culty in raising funds to meet cash fl ow commitments
associated with fi nancial instruments. To manage its cash fl ow requirements, the Company maintains a portion
of its invested assets in liquid securities.
Interest rate risk
Interest rate risk is the risk that a movement in interest rates will have an adverse effect on the fi nancial condition
of the Company, which happens when interest rates increase on the market.
The weighted average interest rate based on book values as at December 31, 2006 was 4.62% (2005 – 4.87%)
for fi xed income securities, 7.41% (2005 – 7.28%) for mortgage loans and 5.19% (2005 – 5.08%) for preferred
shares with a maturity date.
Securities lending
The Company participates in a securities lending program managed by the Company’s custodian, a major
Canadian fi nancial institution, whereby the Company lends securities it owns to other fi nancial institutions to
allow them to meet delivery commitments. Government securities with an estimated fair value of 105% of the
fair value of the securities loaned are received as collateral from the Canadian fi nancial institution.
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ING Canada Inc.
61
5. Derivative fi nancial instruments
Table 5.1 summarizes the fair value of the derivative fi nancial instruments used by the Company. Positive fair
values are recorded as other assets (note 11) and negative fair values are recorded as other liabilities.
Table 5.1
2006
2005
Positive Negative
fair value fair value Net fair value fair value Net
Positive Negative
Held for non-trading purposes
Where hedge accounting is applied
Currency swaps
Where hedge accounting is not applied
Foreign exchange contracts
$
– $ 824 $ (824 ) $
– $
– $
–
Currency forwards purchased
Currency forwards sold
Currency swaps
11
–
1,057
–
33
–
11
(33 )
86
– 1,057 3,003
–
– 2,964 (2,964 )
(18 )
18
–
86
– 3,003
–
–
Total return swaps
Held for trading purposes
Interest rate contracts
Options purchased
Options written
Swaps
Total return swaps
284
–
– 284
(69 )
69
116 456 (340 )
117
–
117
–
–
–
–
–
–
–
–
–
–
–
–
$ 1,585 $ 4,346 $ (2,761 ) $ 3,089 $
18 $ 3,071
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62
Tables 5.2 and 5.3 summarize the notional amounts of the derivative fi nancial instruments used by the Company
by term of maturity.
Table 5.2
Held for non-trading purposes
Where hedge accounting is applied
Currency swaps
Where hedge accounting is not applied
Foreign exchange contracts
Currency forwards purchased
Currency forwards sold
Currency swaps
Total return swaps
Held for trading purposes
Interest rate contracts
Options purchased
Options written
Swaps
Futures bought
Futures sold
Total return swaps
2006
One year One year to Over fi ve
or less fi ve years
years
Total
$
– $
– $
51,391 $
51,391
8,837
25,348
–
422,936
–
–
1,289
–
–
–
3,771
–
8,837
25,348
5,060
422,936
442,280
360,081
58,295
43,517
219,087
23,318
–
–
159,500
–
–
60,044
–
–
–
–
–
–
442,280
360,081
217,795
43,517
219,087
83,362
$ 1,603,699 $
220,833 $
55,162 $ 1,879,694
Table 5.3
2005
Held for non-trading purposes
Where hedge accounting is applied
Currency swaps
Where hedge accounting is not applied
Foreign exchange contracts
Currency forwards purchased
Currency forwards sold
Currency swaps
Total return swaps
Held for trading purposes
Interest rate contracts
Options purchased
Options written
Swaps
Futures bought
Futures sold
Total return swaps
One year One year to Over fi ve
or less fi ve years
years
Total
$
– $
– $
– $
–
5,922
28,605
4,320
–
–
–
1,718
–
–
–
8,504
–
5,922
28,605
14,542
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
$
38,847 $
1,718 $
8,504 $
49,069
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ING Canada Inc.
63
Foreign exchange rate risk
Foreign exchange rate risk is the risk that the value of a foreign-denominated fi nancial instrument will fl uctuate
as a result of changes in foreign exchange rates. The Company mitigates foreign exchange rate risk by buying
or selling successive monthly foreign exchange forward contracts. Foreign exchange forward contracts are
commitments to buy or sell foreign currencies for delivery at a specifi ed date in the future at a fi xed rate. Forwards
are transacted in over-the-counter markets.
Cash fl ow risk
Cash fl ow risk is the risk that future cash fl ows associated with a monetary fi nancial instrument will fl uctuate
in amount. The Company mitigates cash fl ow risk by entering into foreign exchange swaps, whereby foreign-
denominated principal and fi xed interest receipts are sold in exchange for Canadian dollars. These swaps are
transacted in over-the-counter markets.
Credit risk
The credit risk for derivative fi nancial instruments is limited to their positive fair value, which is
substantially lower than their notional amount. The Company mitigates credit risk by diversifying
exposure to any single counterparty.
Market risk
Market risk is the risk of losses arising from movements in market prices. The Company mitigates market risk
by entering into total return swaps, whereby the return of a basket of securities is sold in exchange for interest
receipts. These total return swaps are transacted in over-the-counter markets.
6. Policy liabilities
Policy liabilities are established to refl ect the estimate of the full amount of all liabilities associated with the
insurance policies at the consolidated balance sheet dates, including claims incurred but not reported. The ultimate
cost of these liabilities will vary from the best estimate made for a variety of reasons, including additional
information with respect to the facts and circumstances of the claims incurred. Table 6.1 presents the unpaid
claims and loss adjustment expenses.
Table 6.1
Unpaid claims and loss
adjustment expenses
Auto: liability
Auto: personal accident
Auto: other
Property
Liability
Other
2006
Direct (a)
Ceded (b)
2005
Direct (a) Ceded (b)
$ 1,638,439 $
703,729
107,669
582,583
786,325
4,794
29,579 $ 1,754,126 $
717,743
21,334
86,594
208
504,521
87,710
754,257
130,344
4,368
1,194
42,401
29,557
1,124
136,948
119,636
853
$ 3,823,539 $
270,369 $ 3,821,609 $
330,519
(a) Direct unpaid claims and loss adjustment expenses is shown as unpaid claims and loss adjustment expenses
in the consolidated balance sheets.
(b) Ceded unpaid claims are referred to as reinsurers’ share of unpaid claims and loss adjustment expenses in the
consolidated balance sheets.
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64
Unpaid claims and loss adjustment expenses were reduced, on a net basis, by $341,981 at December 31, 2006
(2005 – $336,760) to take into account the time value of money using a rate of 4.64% (2005 – 4.63%) on
underlying claims settlement patterns. The provision for adverse deviations increased unpaid claims and loss
adjustment expenses, on a net basis, by $426,286 at December 31, 2006 (2005 – $407,933).
Table 6.2 presents the unearned premiums.
Table 6.2
Unearned premiums
Auto: liability
Auto: personal accident
Auto: other
Property
Liability
Other
2006
2005
Direct (c)
Ceded (d) Direct (c) Ceded (d)
$
597,583 $
194,266
538,738
757,825
152,861
22,845
713 $
59
35
3,631
3,024
10,221
572,700 $
186,665
520,354
730,386
158,876
25,856
647
60
7
3,680
3,238
9,647
$ 2,264,118 $
17,683 $ 2,194,837 $
17,279
(c) Direct unearned premiums is shown as unearned premiums in the consolidated balance sheets.
(d) Ceded unearned premiums are referred to as reinsurers’ share of unearned premiums in the consolidated
balance sheets.
There was no premium defi ciency at the consolidated balance sheet dates. The Company estimates that the fair
value of unpaid claims and loss adjustment expenses, as well as the fair value of unearned premiums, approximate
their book values.
Interest rate sensitivity
Since the time value of money is considered when determining the unpaid claims and loss adjustment expenses
estimate, an increase or decrease in the discount rate would result in a decrease or increase in unpaid claims and
loss adjustment expenses, respectively. Consequently, a 1% change in the discount rate would have an impact of
$77,750 on the fair value of unpaid claims and loss adjustment expenses at December 31, 2006 (2005 – $67,535).
Structured settlements
The Company enters into annuity agreements with various Canadian life insurance companies to provide for
fi xed and recurring payments to claimants. Under such arrangements, the Company’s liability to its claimants
is substantially transferred, although the Company remains exposed to credit risk to the extent to which the life
insurers fail to fulfi l their obligations. This risk is managed by acquiring annuities from highly rated Canadian life
insurance companies. At December 31, 2006, none of the life insurers from which the Company had purchased
annuities was in default and no provision for credit risk was required. A measure of the credit risk exposure is the
unrecorded original purchase price of $323,909 (2005 – $290,966) for the annuities.
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ING Canada Inc.
65
7. Reinsurance
In the ordinary course of business, the Company reinsures certain risks with other reinsurers to limit its maximum
loss in the event of catastrophes or other major losses. For single risk events, net retention for property and
liability in 2006 was generally $5,000 (2005 – $2,500) and $7,000 (2005 – $2,500), respectively; in a number
of cases, like special classes of business or types of risks, the retention would be lower through specifi c treaties
or the use of facultative reinsurance. In 2006, for multi-risk events or catastrophes, retention is $25,000 with a
reinsurance coverage limit of $1,250,000. The Company retains overall 10% of the exposure between $25,000
and $600,000. For 2005, retention was $17,500 with a coverage limit of $1,200,000 and an average of 10%
retention of the exposure between $25,000 and $600,000.
Reinsurance contracts do not relieve the Company from its obligations towards policyholders. Failure of reinsurers
to honour their obligations could result in losses to the Company. Thus, the Company evaluates the fi nancial
condition of its reinsurers and monitors concentrations of credit risk to minimize its exposure to signifi cant losses
from reinsurers’ insolvencies. Substantially, all reinsurers are required to have a minimum credit rating of A- at
inception of the treaty. Rating agencies used are A.M. Best and S&P. The Company also requires that most of
its treaties have a security review clause allowing the Company to replace a reinsurer during the treaty period
should the reinsurer’s credit rating fall below the level acceptable to the Company. Management concluded that
the Company was not exposed to signifi cant loss from reinsurers for potentially uncollectible reinsurance as at
the consolidated balance sheet dates.
Furthermore, the Company is the assigned benefi ciary of collateral consisting of cash, trust accounts and letters
of credit totaling $79,163 at December 31, 2006 (2005 – $98,376) as guarantee from unlicensed reinsurers. These
amounts include $54,103 (2005 – $74,252) from an affi liated reinsurer. This collateral is held in support of policy
liabilities of $58,768 at December 31, 2006 (2005 – $83,289) and could be used should these reinsurers be unable
to meet their obligations.
Table 7.1 presents the impact of reinsurance on the consolidated statements of income.
Table 7.1
2006
2005
Ceded
To affi liates
Total To affi liates
Premiums earned
Claims and loss adjustment expenses
Commissions expense
$
17,654 $
7,384
–
94,521 $
15,037
13,492
48,707 $
80,641
–
Ceded
Total
210,962
264,926
24,169
Loss (income) before income taxes
$
10,270 $
65,992 $
(31,934 ) $
(78,133 )
8. Related party transactions
The Company enters into related party transactions with the controlling shareholder, ING Groep, and with
entities that are subject to common control or are the managed parties of a common managing party (“common
management”). These transactions consist of reinsurance, management and advisory expenses, fi nancing
charges, as well as advisory fees income. These transactions are carried out in the normal course of operations.
Accordingly, they are measured at the amount of consideration paid or received, as established and agreed to by
the related parties and are settled on a regular basis.
The impact of reinsurance ceded to entities that are subject to common control or management on the consolidated
statements of income is shown in table 7.1 above.
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66
Table 8.1 summarizes the other types of transactions with entities that are subject to common control or
management for the years ended December 31, 2006 and 2005.
Table 8.1
Advisory fees income
Management and advisory expenses
Interest expense
$
2006
629 $
16,557
5,309
2005
5,992
17,885
7,963
Table 8.2 summarizes the Company’s balances with entities that are subject to common control or management.
Table 8.2
Reinsurance receivable
Interest and other payables
$
2006
4,252 $
–
2005
230
2,968
The Company enters into transactions with investees presented as long-term investments. Signifi cant balances
and transactions with these investees consist of loans, which are classifi ed as investments, of $62,985
as at December 31, 2006 (2005 – $63,386) and commissions expense of $31,594 for the year ended
December 31, 2006 (2005 – $27,860).
9. Income taxes
Table 9.1 presents the income tax expense.
Table 9.1
Current
Future
Income tax expense
2006
2005
$
274,085 $
19,869
300,883
8,287
$
293,954 $
309,170
Table 9.2 explains the difference, expressed in percentage terms, between the income tax expense and the amount
that would have been computed if the federal and provincial statutory tax rates had been applied to income before
income taxes.
Table 9.2
Income tax expense calculated at statutory tax rates
Increase (decrease) in income tax rates resulting from:
Non-taxable dividend income
Non-deductible expenses
Non-taxable portion of capital gains
Impact of tax rate changes
Other
Effective income tax rate
2006
%
34.5
(4.3 )
0.3
(0.2 )
0.6
–
30.9
2005
%
34.5
(3.6 )
0.4
(1.1 )
(0.2 )
(1.7 )
28.3
The consolidated statements of income contain items that are non-taxable or non-deductible for income tax purposes,
which cause the income tax expense to differ from what it would have been if based on statutory tax rates.
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ING Canada Inc.
67
The most signifi cant components of the future income tax balances are the following:
Table 9.3
Future income tax asset
Difference between accounting loss reserves and tax loss reserves
Difference between the market value and book value of investments
Losses available for carryforward
Property and equipment
Deferred expenses for tax purposes
$
2006
2005
58,593 $
68,082
5,502
8,164
60,352
61,043
71,641
7,520
13,988
70,047
Total future income tax asset
$
200,693 $
224,239
Future income tax liability
Deferred gains and losses on specifi ed debt obligations
Pension and other retirement benefi ts
Other
Total future income tax liability
Net future income tax asset
57,159
16,438
14,909
88,506
63,745
11,291
8,102
83,138
$
112,187 $
141,101
In 2005, the Company fully recognized a tax recovery on losses realized from the sale of investments in ING
mutual fund units.
The Company recognized a future tax asset for all of its unused non-capital losses as at December 31, 2006
and 2005.
At December 31, 2006, the Company had allowable capital losses of $33,018 (2005 – $33,510), which had not
been recognized when computing the future tax asset. These losses, which have no expiry date, can be used to
reduce future taxable capital gains.
10. Goodwill and intangible assets
Table 10.1 shows the change in goodwill during the year.
Table 10.1
Goodwill arising from former long-term investments
now consolidated (note 13)
Goodwill purchased (note 17)
Goodwill disposed (note 17)
Increase in goodwill during the year
Table 10.2 shows the components of intangible assets.
Table 10.2
Cost
Accumulated amortization
Book value
2006
2005
$
– $
41,122
741
$
40,381 $
5,471
12,023
248
17,246
2006
2005
$
76,493 $
(10,199 )
41,107
(4,159 )
$
66,294 $
36,948
The Company performs an annual impairment testing of goodwill. No impairment was identifi ed in either 2006
or 2005. Impairments are non-cash in nature and they do not affect the Company’s liquidity or ability to discharge
its liabilities.
The intangible assets represent customer relationships and the rights to offer renewals. They are amortized on a
straight-line basis over ten years.
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68
11. Other assets
Table 11.1 summarizes the major components of other assets.
Table 11.1
Property and equipment (table 11.2)
Prepaid pension asset (note 12)
Prepaids
Other
$
2006
94,268 $
92,966
11,321
4,621
2005
92,847
80,801
3,352
5,119
$
203,176 $
182,119
Table 11.2 shows the major categories of the Company’s property and equipment.
Table 11.2
2006
2005
Land
Buildings
Computer equipment
Furniture and equipment
Leasehold improvements
12. Employee future benefi ts
Accumulated Book
Accumulated
Book
Cost amortization
value
Cost amortization
value
$ 316 $
– $ 4,940
– $ 316 $ 4,940 $
699 (352 ) 347 37,183 (13,357 ) 23,826
109,257 (57,941 ) 51,316 86,417 (51,493 ) 34,924
50,524 (27,854 ) 22,670 43,380 (24,647 ) 18,733
28,258 (8,639 ) 19,619 18,228 (7,804 ) 10,424
$ 189,054 $ (94,786 ) $ 94,268 $ 190,148 $ (97,301 ) $ 92,847
The Company has several defi ned benefi t pension plans, as well as a number of defi ned contribution pension plans
resulting from the acquisition of Allianz. For the defi ned benefi t plans, the measurement date is December 31
and the latest actuarial valuations were performed as of December 31, 2005. The next actuarial valuations will be
performed as of December 31, 2008.
The Company has several other retirement plans offering life insurance and health benefi ts to retirees, which are
closed to active employees.
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ING Canada Inc.
69
Table 12.1 presents the changes in the benefi t obligation and the fair values of plan assets and reconciles the
plans’ funded status with the net prepaid asset (accrued liability).
Table 12.1
2006
2005
2006
2005
Pension plans
Other plans
Change in benefi t obligation
Benefi t obligation at beginning of year
Current service cost
$
Interest cost on benefi t obligation
Past service cost
Employee contributions
Actuarial losses
Benefi ts paid
Transfer
(435,674 ) $
(20,856 )
(22,655 )
–
(4,785 )
(49,836 )
18,667
–
(352,523 ) $
(16,060 )
(21,993 )
(273 )
(4,290 )
(54,750 )
16,190
(1,975 )
(15,967 ) $
–
(761 )
–
–
(94 )
973
–
(22,408 )
–
(814 )
6,370
–
(1,798 )
708
1,975
Benefi t obligation at end of year
$
(515,139 ) $
(435,674 ) $
(15,849 ) $
(15,967 )
Change in fair value of plan assets
Fair value of plan assets at
beginning of year
Actual return on plan assets
Employer contributions
Employee contributions
Benefi ts paid
$
496,058 $
63,941
11,794
4,785
(18,667 )
440,496 $
60,604
6,858
4,290
(16,190 )
Fair value of plan assets at end of year
$
557,911 $
496,058 $
– $
–
973
–
(973 )
– $
–
–
708
–
(708 )
–
Funded status
Excess (defi cit) of fair value of plan assets
over benefi t obligation at end of year $
Unrecognized transitional (asset) obligation
Unrecognized past service costs
Unrecognized net actuarial losses
Valuation allowance
42,772 $
(52,632 )
1,732
83,387
(1,568 )
60,384 $
(63,157 )
1,983
63,807
(1,879 )
(15,849 ) $
901
(5,520 )
4,130
–
(15,967 )
1,009
(5,945 )
4,303
–
Net prepaid asset (accrued liability)
at end of year
Presented as
Other assets (note 11)
Other liabilities
Net prepaid asset (accrued liability)
at end of year
$
73,691 $
61,138 $
(16,338 ) $
(16,600 )
$
92,966 $
(19,275 )
80,801 $
(19,663 )
– $
(16,338 )
–
(16,600 )
$
73,691 $
61,138 $
(16,338 ) $
(16,600 )
Included in the benefi t obligation and fair value of plan assets are the following amounts in respect of plans that
are not fully funded.
Table 12.2
Benefi t obligation
Fair value of plan assets
Defi cit
2006
2005
2006
2005
Pension plans
Other plans
$
(189,875 ) $
138,900
(149,855 ) $
107,406
(15,849 ) $
–
(15,967 )
–
$
(50,975 ) $
(42,449 ) $
(15,849 ) $
(15,967 )
At December 31, 2006, 40.6% (2005 – 53%) of the defi ned benefi t pension plans’ assets were held in equity
securities, 57.9% (2005 – 45%) in fi xed income securities and 1.5% (2005 – 2%) in other investments.
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70
Table 12.3 provides details of the components of the accrued benefi t expense (income) before adjustments to
recognize the long-term nature of employee future benefi t costs, as well as reconciliation with the accrued benefi t
expense (income).
Table 12.3
Accrued benefi t (income) expense
Current service cost
Interest cost on benefi t obligation
Past service costs
Actual return on plan assets
Net actuarial losses
Accrued benefi t (income) expense before
adjustments to recognize the long-term
nature of employee future benefi t costs
Excess of actual return over expected
return on plan assets for the year
2006
2005
2006
2005
Pension plans
Other plans
$
20,856 $
22,655
–
(63,941 )
49,836
16,060 $
21,993
273
(60,604 )
54,750
– $
761
–
–
94
–
814
(6,370 )
–
1,798
$
29,406 $
32,472 $
855 $
(3,758 )
Amortization of past service cost
Amortization of transitional (asset) obligation
Amortization of net actuarial losses
Past service costs arising during the year
Net actuarial losses arising during
the year (table 12.4)
Amortization of valuation allowance
Change in valuation allowance
28,016
251
(10,525 )
2,240
–
28,846
251
(10,525 )
824
(273 )
(49,836 )
(279 )
(32 )
(54,750 )
(279 )
200
Accrued benefi t (income) expense
$
(759 ) $
(3,234 ) $
–
(425 )
108
267
–
(94 )
–
–
711 $
–
(425 )
108
161
6,370
(1,798 )
–
–
658
Table 12.4 lists the components of the net actuarial losses arising from pension and other plans.
Table 12.4
2006
2005
Pension plans Other plans Pension plans Other plans
Actuarial gains (losses) arising from the:
Decrease in the discount rate used to
measure the benefi t obligation
$
Experience
Decrease in the rate of compensation
increase used to measure
the benefi t obligation
– $
(30,236 )
– $
–
(64,735 ) $
–
(1,460 )
–
–
–
9,985
–
Increase in the health care cost trend rate
used to measure the benefi t obligation
Change in mortality table
Change in withdrawal/retirement
–
(8,600 )
(11,000 )
$
(49,836) $
(94 )
–
–
(94 ) $
–
–
–
(338 )
–
–
(54,750 ) $
(1,798 )
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ING Canada Inc.
71
The cost recognized for the defi ned contribution plans, as well as the employer contributions, were $1,600 in 2006
(2005 – $2,202).
Table 12.5 summarizes the key weighted average assumptions used for the measurement of the benefi t obligations and
benefi t expense (income).
Table 12.5
2006
2005
2006
2005
Defi ned benefi t plans
Other plans
To determine benefi t obligations at end of year
Discount rate
Rate of increase in future compensation
To determine benefi t expense (income) for the year
Discount rate
Rate of increase in future compensation
Expected long-term rate of return on plan assets
5.0 %
3.5 %
5.0 %
3.5 %
7.25 %
5.0 %
3.5 %
6.0 %
4.0 %
7.25 %
5.0 %
n/a
5.0 %
n/a
n/a
5.0 %
n/a
6.0 %
n/a
n/a
The weighted average of the assumed health care cost trend rate for 2007 used to measure the expected cost of benefi ts
covered by the plans is 9%, declining by 1% per year for each of the next four years.
Table 12.6 shows the impact of a 1% increase and decrease in the health care cost trend rate on the other plans’ benefi t
obligation and on the service and interest cost.
Table 12.6
2006
2005
Increase (decrease) in benefi t obligation
Increase (decrease) in the service
and interest cost
13. Long-term investments
1% increase 1% decrease 1% increase
1% decrease
$
1,411 $
(1,628 ) $
1,391 $
(1,606 )
66
(78 )
71
(82 )
The Company has investments in companies in which it has signifi cant infl uence. These investments are referred
to as long-term investments and are recorded using the equity method. Under this method, the Company records its
share in the net income of long-term investments, computed by the consolidation method. Net income from long-term
investments is included in investment income in the consolidated statements of income.
Table 13.1
2006
Opening
balance
Increase
(decrease )
Income Dividends
Closing
balance
P&C insurance brokerages $
41,587 $
357 $
8,831 $
(6,374 ) $
44,401
Table 13.2
Opening
balance
P&C insurance brokerages $
48,108 $
2005
Increase
(decrease )(a)
(8,239 ) $
Income Dividends
Closing
balance
8,428 $
(6,710 ) $
41,587
(a) In 2005, the Company acquired a controlling interest in several P&C insurance brokerages in which it
previously had signifi cant infl uence. As a result of these acquisitions, the investments in P&C insurance
brokerages, which were previously classifi ed as long-term investments, are now consolidated.
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72
14. Debt outstanding
The Company has an uncommitted revolving credit facility in the amount of $50,000, which may be drawn as primary
loans at the prime rate or as bankers’ acceptances at the bankers’ acceptance rate. In 2005, the Company had an
outstanding loan of $127,000 with ING Verzekeringen, N.V., which was bearing interest at a rate of 6.27%. This loan
was repaid fully in 2006.
15. Share capital
Table 15.1 summarizes the Company’s share capital.
Table 15.1
Classes
of shares
Common
Class A (a)
Special (b)
Authorized
(shares )
Unlimited
Unlimited
One
2006
Issued and
outstanding
2005
Issued and
Authorized outstanding
(shares) Amount
(shares)
(shares) Amount
133,732,000 $ 1,183,846 Unlimited 133,732,000 $ 1,183,846
–
– Unlimited
–
One
–
–
1
–
1
$ 1,183,846
$ 1,183,846
(a) Issued and outstanding Class A shares would rank both with regards to dividends and return on capital in
priority to the common shares.
(b) The Special Share is convertible into one common share. The benefi cial owner of the Special Share is entitled to
nominate and elect a certain number of directors to the Board and request the Board to appoint the Chief Executive
Offi cer, as determined by the number of common shares that the holder of the Special Share benefi cially owns.
In January 2005, pursuant to the underwriters’ agreement in relation to the initial public offering, the underwriters
exercised the over-allotment option granted to them. The option called for the purchase of up to 5,232,000
additional common shares at the offering price within thirty days from the date of the IPO and was exercised in
full in January 2005, generating net proceeds of $129,230 and increasing share capital by $131,556 after tax.
Stock-based compensation
A long-term incentive plan (LTIP) was implemented for certain employees commencing in 2005. Under this
plan, these employees are awarded performance units as a portion of their compensation. Each award vests and
pays out at the end of a three-year performance cycle. The actual award varies based on a performance target
by comparing the Company’s three-year average return on equity relative to that of the Canadian property and
casualty insurance industry. The actual award may only be in common shares restricted for transfer. Accordingly,
this type of compensation is recognized as an expense with a corresponding increase to contributed surplus. The
Company re-estimates the number of performance units that are expected to vest at each reporting period. As at
December 31, 2006, the estimate is 181,574 units for the 2006-2008 performance cycle with a per unit fair value
at grant date of 36 dollars and 79 cents and 363,700 units for the 2005-2007 performance cycle with a per unit
fair value at grant date of 26 dollars and 30 cents. At the time of the payout, the Company intends to purchase
common shares in the market in an amount equal to the number of vested units.
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ING Canada Inc.
73
Since July 1, 2006, employees who are not eligible for the LTIP are entitled to make contributions in accordance
with a voluntary employee share purchase plan (ESPP). Under the ESPP, eligible employees can contribute up to
10% of their base earnings through payroll deduction. As an incentive for participation in the plan, the Company
will contribute an amount corresponding to 50% of the employee contribution. The common shares are bought
on the market by an independent broker each month and are held by a custodian on behalf of the employees.
The common shares bought with the Company’s contributions vest upon continued employment for a period of
twelve months. During the year, 68,405 common shares were purchased by the independent broker on behalf of
the employees under the ESPP. From those shares, 22,892 are unvested on December 31, 2006.
Members of the Company’s Board of Directors who are not offi cers or employees of the Company or its affi liates
receive part of their annual retainer in the form of deferred share units (“DSU”) and may elect to receive the
balance of their retainer in the form of DSU or cash. A DSU represents an amount owed by the Company to the
directors and has the same value as one share of the Company at the date of the grant. These DSU may not be
paid out until such time that the director leaves the Board. Payment may be in cash or common shares of the
Company, at the option of the directors. Accordingly, director compensation is recognized both as an expense
and a liability.
The amount charged to compensation expense for these plans was $4,146 for the year ended December 31,
2006, (2005 – $6,447). The expense for the LTIP and DSU is based on the fair value of the awards at the dates of
the grants and represents management’s estimate of the payout by reference to the achievement of an expected
performance target. The Company’s contributions under the ESPP are accrued when payable and are expensed
over the vesting period of the unvested common shares.
16. Supplemental cash fl ow information
Table 16.1 presents supplemental cash fl ow information.
Table 16.1
Income taxes paid
Interest paid on debt outstanding
Amortization of:
Property and equipment
Intangible assets
Net premiums on fi xed income securities
Investment impairment
Increase (decrease) in cash and cash equivalents
due to changes in other operating assets and liabilities:
Premium and other receivables
Income taxes
Other assets
Payables and other liabilities
2006
2005
$
316,369 $
7,963
385,956
7,963
19,556
6,039
(17,018 )
20,437
18,121
3,854
16,274
10,470
(129,040 )
(42,284 )
(19,607 )
7,758
100,513
(86,160 )
3,514
145,026
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74
17. Acquisitions and divestitures
Acquisitions of businesses are accounted for using the purchase method. This involves allocating the purchase
price paid for a business to the assets acquired, including identifi able intangible assets and the liabilities assumed,
based on their fair values at the date of acquisition. Any excess is then recorded as goodwill.
On April 1, 2006 and October 31, 2006, respectively, the Company acquired 100% of the outstanding shares
of Grey Power Insurance Brokers Inc. (GPIB) and West & Associates Insurance Group Ltd. (West). These
enterprises operate in the corporate and distribution segment.
The Company’s subsidiaries by way of share or asset purchases, acquired or increased the ownership and
disposed of certain other businesses.
The results of the acquired companies since their respective acquisition date are included in the Company’s
consolidated statements of income.
The allocation of the purchase price was established as follows:
Table 17.1
GPIB
West
Other
Total 2006
2005
$
Goodwill
Intangible assets
Future income taxes
Net tangible assets (liabilities)
20,288 $
18,320
(6,007 )
85
8,378 $
3,981
(1,279 )
(923 )
11,715 $
13,073
(1,759 )
(720 )
40,381 $
35,374
(9,045 )
(1,558 )
11,775
3,858
(1,285 )
298
Net cash consideration paid $
32,686 $
10,157 $
22,309 $
65,152 $
14,646
The goodwill acquired is non deductible for tax purposes.
In 2006, the Company paid $14,884 (2005 – $13,962) of accrued integration cost primarily related to
discontinuance of information systems, redundant lease space and involuntary employee terminations.
Furthermore, the provision for redundant lease space was increased by $5,100 (2005 – nil) with a corresponding
charge in the current income.
18. Disclosures on rate regulation
The Company’s insurance subsidiaries are licensed under insurance legislation in each of the provinces and
territories in which they conduct business. Automobile insurance is a compulsory product and is subject to
different regulations across the provinces and territories in Canada, including those with respect to rate setting.
Rate setting mechanisms vary across the provinces and territories in Canada, but they generally fall under three
categories: “use and fi le”, “fi le and use” and “fi le and approve”. Under “use and fi le”, rates are fi led following
use. Under “fi le and use”, insurers fi le their rates with the relevant authorities and wait for a prescribed period of
time and then implement the proposed rates. Under “fi le and approve”, insurers must wait for specifi c approval
of fi led rates before they may be used.
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ING Canada Inc.
75
Table 18.1 lists the provincial authorities which regulate automobile insurance rates. Automobile direct written
premiums in these provinces totaled $2,253,362 in 2006 (2005 – $2,166,541) and represented approximately
98.3% (2005 – 98.2%) of direct automobile premiums written.
Table 18.1
Province
Rate fi ling
Regulatory authority
File and approve or fi le and use
Alberta
File and approve
Ontario
Use and fi le
Québec
File and approve
Nova Scotia
New Brunswick
File and approve
Prince Edward Island File and approve
File and approve
Newfoundland
Alberta Automobile Insurance Rate Board
Financial Services Commission of Ontario
L’Autorité des marchés fi nanciers
Nova Scotia Insurance Review Board
New Brunswick Insurance Board
Island Regulatory Appeals Commission
Board of Commissioners of Public Utilities
Relevant regulatory authorities may, in some circumstances, require retroactive rate adjustments, which could
result in a regulatory asset or liability. At December 31, 2006 and 2005, the Company had no signifi cant regulatory
asset or liability.
19. Contingencies
In the normal course of operations, various claims and legal proceedings are instituted against the Company.
Legal proceedings are often subject to numerous uncertainties and it is not possible to predict the outcome of
individual cases. In management’s opinion, the Company has made adequate provision for, or has adequate
insurance to cover all claims and legal proceedings. Consequently, any settlements reached should not have a
material adverse effect on the Company’s consolidated future operating results and fi nancial position.
20. Commitments and guarantees
Table 20.1 presents future minimum payments under long-term leases for premises and equipment.
Table 20.1
Year
2007
2008
2009
2010
2011
Thereafter
Amount
$
63,232
50,550
37,817
29,561
26,191
100,696
$
308,047
In the normal course of operations, the Company provides indemnifi cation agreements to directors and offi cers,
to the extent permitted by law, against certain claims made against them as a result of their services to the
Company. The Company has insurance coverage for these agreements.
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76
21. Segmented information
The Company’s core business activity is P&C insurance. P&C insurance segment includes two lines of business:
personal lines and commercial lines. Classes in personal lines include automobile and property. Classes in
commercial lines encompass primarily property, liability and automobile. The investment income consists of
managing the investment portfolio for the Company’s P&C insurance subsidiaries. Investment income is shown
net of investment expenses. Corporate and distribution segment includes the results of the Company’s broker
operations and long-term investments, non P&C investment income, intercompany eliminations consisting
primarily of commissions and general expenses with the Company’s P&C operations, as well as non-recurring
items, such as acquisitions, whose effects are not allocated to any other segment.
Table 21.1
Revenue
Net premiums earned
Personal insurance
Commercial insurance
Investment income
Total P&C insurance
Realized investment and other gains
Corporate and distribution
Total revenue
Income before income taxes
Underwriting income
Personal insurance
Commercial insurance
Investment income
Total P&C insurance
Net realized investment and other gains
Corporate and distribution
Total income before income taxes
Assets
P&C insurance (a)
Corporate and distribution (b)
Total assets
Increase of goodwill
P&C insurance
Corporate and distribution
Total increase in goodwill
(a) Includes goodwill of $74,411 at December 31, 2006 and 2005.
(b) Includes goodwill of $74,332 at December 31, 2006 (2005 – $33,951).
2006
2005
$ 2,696,709 $ 2,680,698
1,129,905 1,159,478
323,255
314,111
4,140,725 4,163,431
223,471
59,166
193,532
72,119
$ 4,406,376 $ 4,446,068
242,155
161,678
294,806
698,639
193,532
59,836
382,120
155,592
300,732
838,444
223,471
29,038
952,007 1,090,953
As at December 31
2005
2006
9,265,754 9,066,267
860,268
1,111,515
$ 10,377,269 $ 9,926,535
$
2006
– $
40,381
$
40,381 $
2005
–
17,246
17,246
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ING Canada Inc.
77
22. Fair value disclosure
The fair value of investments and short securities, derivative fi nancial instruments, policy liabilities and debt
outstanding are disclosed in notes 4, 5, 6 and 14, respectively. The fair value of other fi nancial assets and liabilities
approximates their book value due to their short-term nature.
23. Comparative fi gures
Certain comparative fi gures have been reclassifi ed to conform to the presentation adopted in the current year.
24. Subsequent event
On February 13, 2007, the Board of Directors approved a plan to repurchase for cancellation up to $500,000 of
the Company’s common shares. The repurchase will be through a substantial issuer bid, by way of a modifi ed
Dutch auction. ING Groep, the Company’s majority shareholder, has informed the Company of its intent to
submit common shares suffi cient to maintain its holding at 70%.
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7878
Leadership
ING Canada Board of Directors
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ING Canada Inc.
ING Canada Inc.
7979
Board of Directors
Board of Directors
1. Yves Brouillette (2), (3)
Chairman of the Board
5. Marcel Côté (2), (3)
President, SECOR Conseil
8. Eileen Mercier (1), (2)
Management Consultant
2. Claude Dussault (4)
President and Chief Executive
Offi cer of ING Canada
3. Carol Stephenson (3)
Dean, Richard Ivey School
of Business
4. Robert Normand (1)
Professional Director
6. Kathleen Murphy (4)
Chief Executive Offi cer
of US Wealth Management
ING Insurance Americas
7. Ivan E.H. Duvar (1), (2)
President and Chief Executive
Offi cer of MIJAC Inc.
(1) Audit and Risk Review Committee (2) Conduct Review and Corporate Governance Committee
(3) Human Resources Committee (4) Investment Committee
9. Paul Cantor (1), (3)
Chairman of Public Sector
Pension Investment Board
10. Louise Roy (3)
International Consultant
5
4
6
3
Robert W. Crispin (4)
Chairman and Chief
Executive Offi cer of ING
Investment Management LLC
David A. Wheat (4)
Executive Vice-President
and Chief Financial Offi cer
of ING Americas
7
9
2
8
10
1
Senior Management
Senior Management
Messrs. Crispin and Wheat not pictured
Claude Dussault
President and
Chief Executive Offi cer
Charles Brindamour
Chief Operating Offi cer
Claude Désilets
Chief Risk Offi cer
Mark Tullis
Chief Financial Offi cer
Françoise Guénette
Sr. Vice President
Corporate and Legal
Services, and Secretary
Derek Iles
President
ING Insurance
Debbie Coull-Cicchini
Sr. Vice President
Ontario
Jetse de Vries
Sr. Vice President
Western Canada
Louis Gagnon
Sr. Vice President
Québec
Alan Blair
Sr. Vice President
Atlantic Canada
Martin Beaulieu
Sr. Vice President
Personal Lines
Peter Weightman
Sr. Vice President
Commercial Lines
Denis Guertin
Sr. Vice President
belairdirect
For biographies of our Board of Directors and Executive Offi cers, please visit the Investor
Relations section of the www.ingcanada.com web site.
Roger Randall
Sr. Vice President
Affi liated Distribution
Networks
Louis Héroux
Sr. Vice President
Claims
Marc Pontbriand
Sr. Vice President and Chief
Information Offi cer
Rhonda Lawson
Sr. Vice President
Corporate Human Resources
Alister Campbell
Sr. Vice President
Planning and
Communications
Gilles Roy
Sr. Vice President
Risk Management
and Surety
Lilia Sham
Sr. Vice President
and Treasurer
Marc Provost
Sr. Vice President,
Managing Director and
Chief Investment Offi cer
ING Investment
Management
David Lincoln
Sr. Vice President
Corporate Audit Services
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80
Corporate Information
ING Canada Inc.
A holding company
ING Insurance Company of Canada
Provides personal and commercial insurance
products across Canada
Trafalgar Insurance Company of Canada
Specializes in serving the personal insurance
needs of those aged 50 plus in Alberta, Ontario
and the Atlantic provinces under the Grey Power
banner
Equisure Financial Network Inc.
A holding company having an interest
in a network of independent brokers
ING Novex Insurance Company of Canada
Provides personal auto and property protection
to employee groups, associations and affi nity groups
The Nordic Insurance Company of Canada
Provides personal auto and home insurance
in Ontario and services clients of the Alberta
and Ontario Facility Associations
700 University Avenue
Toronto, Ontario M5G 0A1
Tel: 416-341-1464
Belair Insurance Company Inc.
A direct distributor of personal auto
and home insurance
300-7101 Jean Talon Street East
Anjou, Québec H1M 3T6
Tel: 514-270-1700
Canada Brokerlink Inc.
A wholly-owned insurance broker
serving Ontario and Alberta
1300-321 6th Avenue SW
Calgary, Alberta T2P 4W7
Tel: 403-269-7961
ING Investment Management, Inc.
An investment counsel and portfolio
management company
700 University Avenue
Toronto, Ontario M5G 0A1
Tel: 416-341-1464
ING Wealth Management Inc.
A mutual fund dealer
700 University Avenue
Toronto, Ontario M5G 0A1
Tel: 416-217-7217
.
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ING Canada Inc. 81
Shareholder Information
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
Annual Meeting
The Annual Meeting will be held on:
Date: May 16, 2007
2:00 p.m. ET
Time:
Juliette-Lassonde Arts Center
Place:
1705 Saint-Antoine Street
Saint-Hyacinthe, Québec J2S 9E2
Institutional investors, security analysts and others who may
want additional financial 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:
Gilles Gratton
Director, Corporate Communications
416-217-7206
gilles.gratton@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 intéressés 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 15, 2007
May 16, 2007
August 8, 2007
November 7, 2007
Dividend Payment Dates
(Subject to approval by the Board of Directors)
March 30, 2007
June 29, 2007
September 28, 2007
December 31, 2007
Dividend Record Dates
(Subject to approval by the Board of Directors)
March 15, 2007
June 15, 2007
September 14, 2007
December 14, 2007
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 visiting the Investor Relations
section of the www.ingcanada.com web site.
Auditors
Ernst & Young LLP
Corporate Profile
Our Strategy
ING Canada is the largest provider of property and casualty
We intend to leverage the advantages of scale to achieve
insurance in Canada, through the ING Novex, Nordic,
sophisticated pricing, consistently profitable underwriting
Trafalgar, Belair and ING Insurance companies. We provide
and cost-effective and timely claims management.
automobile, property and liability insurance to individuals
Fundamental to our strategy is a customer-centric
and small to medium-sized businesses across Canada. An
commitment to product innovation, multi-channel access and
investment management subsidiary manages the invested
ease of doing business for policyholders and brokers alike.
assets of our insurance subsidiaries.
Asset management will continue as an internal core
We enjoy leading positions in all markets where we operate
competency focused on achieving superior after-tax returns.
including Ontario, Québec and Alberta, our three largest markets.
Personal automobile insurance accounts for approximately
50% of our business while personal property comprises
Our Priorities
Our priorities are to:
roughly 20% and commercial insurance about 30%.
•
introduce improved technologies and services to make
Our Goals
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%) and to achieve annual organic growth on
average 300 basis points (3%) higher-than-market over the
long term.
doing business easier and less costly;
• reduce claims costs and improve the quality of our service
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.
Contents
1 Financial Highlights
2 Chairman’s Message
3 President and CEO’s
Message
6 Accelerating the Pace
of Organic Growth
13 Management’s Discussion
and Analysis
48 Financial Statements
Front Cover
51 Notes to Financial
Statements
78 Board of Directors
79 Senior Management
80 Corporate Information
81 Shareholder Information
Madeleine Daigneault, owner and founder of Andrée Chocolats, master
chocolatiers since 1940 and a long term ING commercial insurance client.
Except as otherwise indicated, all trademarks referred to herein are owned or licensed by the
ING Canada companies.
Helping people
ING Insurance and ING Direct teamed up in 2006 to become a Premier Partner of Canada’s National Speed Skating team,
which brought home no fewer than 12 Olympic medals from Turin that year. ING’s $2 million, six-year sponsorship is helping
elite Canadian skaters like Denny Morrison, a 2006 World Championship medallist, make Canada the top speed skating nation
in the world. With a track record of excellent customer service and high-value products, ING is committed to matching the
outstanding dedication, high level of performance and great achievements of our skaters.
Turning promises into
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ING Canada Inc.
700 University Avenue, Toronto, Ontario M5G 0A1 www.ingcanada.com
ING Canada Inc.
2006 annual report
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