2008 Financial Report
Who we are
We are the leading provider of property and casualty (P&C) insurance in
Canada, insuring more than four million individuals and businesses through
our insurance subsidiaries. With an estimated 11% market share, we are
the largest private sector provider of P&C insurance in Ontario, Québec,
Alberta and Nova Scotia. We distribute insurance through brokers under
the Intact Insurance, Grey Power and Canada Brokerlink brands, and
direct-to-consumers through belairdirect.
We also manage our own investment portfolio with approximately
$6.6 billion in invested assets.
Financial highlights
(in millions of Canadian dollars, except as noted)
2008
2007
2006
2005
2004
Consolidated performance
Written insured risks (thousands)
Direct premiums written (excluding pools)
Net premiums earned
Net claims and general expenses
Combined ratio (excluding MYA)
Interest and dividend income, net of expenses
Net gains on invested assets and other gains
Corporate and distribution income
Income before income taxes
Eff ective tax rate
Net operating income
Net income
Earnings per share ($)
Average number of shares outstanding
Book value per share ($)
Return on equity
4,601.5
4,145.5
4,039.4
3,972.4
97.1%
328.8
(288.0)
15.6
123.6
(3.8)%
360.7
128.2
1.05
122.0
21.96
4.4%
4,679.9
4,108.6
3,932.0
3,723.2
95.2%
344.8
73.6
44.3
671.6
24.3%
457.0
508.3
4.01
126.7
25.48
15.4%
4,565.1
3,993.6
3,826.6
3,422.8
89.4%
321.3
193.5
33.4
952.0
30.9%
530.5
658.1
4.92
133.7
25.58
20.8%
4,417.9
3,905.9
3,840.2
3,302.5
86.0%
307.5
223.5
22.3
1,091.0
28.3%
612.3
781.8
5.85
133.5
21.63
31.6%
3,857.6
3,501.4
3,364.6
2,894.6
86.0%
249.1
132.4
4.3
855.8
27.1%
532.3
624.2
6.51
95.8
15.40
40.9%
Direct premiums written
by business line
(exluding pools)
Direct premiums written
by distribution channel
(excluding pools)
Investment asset mix
(% of fair value)
Personal auto
Personal property
Commercial non-auto
Commercial auto
49.6%
23.0%
19.7%
7.7%
Brokers
belairdirect
Affiliated distribution
network brokerages
79.0%
12.1%
8.9%
Fixed income securities
Preferred shares
Common shares
Cash and cash equivalents
Short-term notes
Other
53.2%
18.4%
12.0%
7.7%
4.4%
4.3%
Management’s discussion and analysis
tAble OF CONteNtS
2
Introduction
Section 1 – ING Canada
3 1.1 Overview of the business
4 1.2 Critical capabilities
5 1.3 Key performance indicators
Section 2 – Outlook
6 2.1
Canadian property and casualty insurance industry
outlook – next 12 months
Section 3 – Overview of consolidated performance
7 3.1 Consolidated financial results
8 3.2 Explanation of consolidated financial results
11 3.3 Subsequent events
11 3.4 Underwriting income
12 3.5
13 3.6
Interest and dividend income, net of expenses
Gains and losses on invested assets
and other gains
15 3.7 Net operating income
16 3.8 Selected quarterly information
17 3.9 Seasonality of the business
17 3.10 Selected annual information
Section 4 – Personal lines
18 4.1 Financial results
19 4.2 Explanation of financial results
Section 5 – Commercial lines
20 5.1 Financial results
21 5.2 Explanation of financial results
Section 6 – Corporate and distribution
22 6.1 Financial results
22 6.2 Explanation of financial results
Section 7 – Financial condition
23 7.1 Balance sheet highlights
24 7.2 Portfolio of invested assets
28 7.3 Claims liabilities
29 7.4 Reinsurance
30 7.5 Shareholders’ equity
30 7.6 Liquidity and capital resources
32 7.7 Contractual obligations
32 7.8 Off-balance sheet arrangement
Section 8 – Accounting and disclosure matters
Internal controls over financial reporting
33 8.1 Disclosure controls and procedures
33 8.2
33 8.3 Critical accounting estimates and assumptions
37 8.4
Impact of new accounting standards
37 8.5 Future accounting changes not yet applied
Section 9 – Risk management
38 9.1 Risk management principles and responsibilities
41 9.2 Operational risk management
42 9.3 Corporate governance and compliance
42 9.4
Industry standards
Section 10 – Other matters
10.1 Related-party transactions
43
43 10.2
Cautionary note regarding forward-looking statements
Section 11 – Additional information
ING C ANA DA I NC. 2008 A NN U AL REPORT
1
Management’s discussion and analysis
(in millions of Canadian dollars, except as noted)
Introduction
March 27, 2009
The following Management’s Discussion and Analysis (“MD&A”), which was approved by the Board of Directors for the year
ended December 31, 2008, is intended to enable the reader to assess the Company’s results of operations and financial conditions
for the three- and 12-month periods ended December 31, 2008, compared to the corresponding periods in 2007. It should be read
in conjunction with the Company’s Audited Consolidated Annual Financial Statements and accompanying notes for the full year
ended December 31, 2008.
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,
general expenses and claims ratios as well as other performance measures including and excluding the market yield adjustment
(“MYA”) to claims liabilities. These measures are defined in the Company’s glossary which is posted on the ING Canada web site
at www.ingcanada.com. Click on “Investor Relations” and “Glossary” on the left navigation bar.
Forward-looking statements
This document contains forward-looking statements that involve risks and uncertainties. The Company’s actual results could differ materially from
these forward-looking statements as a result of various factors, including those discussed hereinafter or in the Company’s 2008 Annual Information
Form. Please read the cautionary note at the end of this document.
Certain totals, subtotals and percentages may not agree due to rounding. Additional information about ING Canada, including the
Annual Information Form, may be found online on SEDAR at www.sedar.com. A change column has been provided for convenience
showing the variation between the current period and the prior period. Not applicable (n/a) is used to indicate that the current and
prior year figures are not comparable or if the percentage change exceeds 1,000%.
Notes
• All references to direct premiums written in this MD&A exclude pools, unless otherwise noted.
• All references to “excess capital” in this MD&A include excess capital in the P&C insurance subsidiaries at 170% minimum capital test (“MCT”)
plus liquid assets in the holding company, unless otherwise indicated.
• “IIC”, “ING Canada”, “the Company,” “we” and “our” are terms used throughout the document to refer to ING Canada Inc. and its subsidiaries.
2
SeCtION 1 – ING Canada
1.1 Overview of the business
ING Canada (“IIC”) is the largest provider of automobile, home and business insurance in Canada insuring approximately four
million individuals and businesses across Canada. Overall, the Company has an approximate 11% market share and is the leading
private sector property and casualty (“P&C”) insurer in Ontario, Québec, Alberta and Nova Scotia. IIC distributes insurance
through brokers under Intact Insurance (formerly known as ING Insurance) and Grey Power, and direct-to-consumers through
belairdirect. As at December 31, 2008, IIC and its insurance subsidiaries had a $6.6 billion portfolio of invested assets, managed by
the Company’s investment management subsidiary.
Personal insurance
IIC is the largest personal auto and property insurer in Canada. The market as a whole is very fragmented – the top five P&C
insurers represent less than 40% of annual direct premiums written (“DPW”) in Canada. In automobile, the Company is more than
30% larger than the second largest P&C insurer in Canada and about 60% larger than the third ranking P&C insurer, based on the
most recently reported industry data for 2007 which includes both personal and commercial auto. In personal property, the gap is
even larger – IIC is approximately 45% larger than the second largest insurer and about 90% larger than the number three insurer
in the Canadian market. Though the Company holds the number one position in both segments of personal insurance, its estimated
market share is only 14% in automobile and 15% in property, demonstrating the growth potential of this segment of the business.
Commercial insurance
IIC is also one of the largest players in commercial insurance in Canada with a significant share of the small- to medium-size
commercial segment. These two segments make up approximately 90% of the Company’s commercial premiums. Small and medium-
sized commercial accounts are generally more profitable over time and market pricing is less competitive.
2008 Direct premiums written by province
tAble 1
Province
Ontario
% Alberta
% Québec
British
% Columbia
Nova
Scotia
%
%
Other
%
total
%
Automobile*
Personal
property
Commercial
non-auto
1,149.5
64.4%
561.5
67.7%
543.9
52.3%
14.6
6.2%
68.3
55.1%
37.0
28.0% 2,374.8
57.3%
310.9
17.4%
133.8
16.1%
294.4
28.3%
135.2 57.1%
33.9
27.4%
44.7
33.8%
952.9
23.0%
323.6
18.1%
134.3
16.2%
200.7
19.3%
87.1 36.8%
21.7
17.5%
50.4
38.2%
817.8
19.7%
Total
1,784.0 100.0%
829.6 100.0% 1,039.0 100.0%
236.9 100.0%
123.9 100.0%
132.1 100.0% 4,145.5 100.0%
% of
Total DPW
43%
20%
25%
6%
3%
3%
100%
* Includes personal and commercial automobile
Investment management
IIC actively manages its $6.6 billion portfolio of cash and invested assets to generate superior after-tax returns while balancing
capital preservation and risk. The mix of invested assets is as follows: 53% fixed income; 12% common shares; 19% preferred shares;
12% Canadian Treasury Bills and 4% in secured broker loans. The Company’s portfolio is more heavily concentrated in equities
compared to the average Canadian property and casualty insurer to maximize dividend income, which is non-taxable for financial
institutions in Canada. See section 7.2 for more information on the quality, asset mix, and performance of the Company’s portfolio
of invested assets.
ING C ANA DA I NC. 2008 A NN U AL REPORT
3
Management’s discussion and analysis
(in millions of Canadian dollars, except as noted)
1.2 Critical capabilities
IIC has several critical capabilities which enable it to sustain a performance advantage over other P&C insurers in Canada.
These critical capabilities are described in the table below.
Significant scale advantage
The key benefit of scale is IIC’s uniquely comprehensive database of customer and claims information that
allows early identification of trends in claims and enables the Company to more accurately model the risk
of each policy. IIC also uses its scale to negotiate preferred terms with suppliers, priority service on repairs,
quality guarantees on workmanship and lower material costs.
Underwriting discipline/
pricing sophistication
The Company has superior underwriting expertise and proprietary scoring models used to price risks.
These models are continuously refined to create a substantial advantage in the market. Scale, underwriting
and pricing sophistication also allow the Company to identify certain segments of the market which are
more profitable than others. The Company’s objective is to establish pricing that 1) will continue to attract
new business; 2) is fair for the customer; and 3) is profitable.
expertise in claims
management
Product innovation
More than 97% of IIC’s claims are handled in-house. By managing claims in-house, claims are settled faster
and less expensively, and a more consistent service experience is created for the customer.
IIC is continuously developing new products to attract and retain customers. IIC has a history of product
innovations such as its Claims Service Guarantee and Responsible Driver Guarantee which reflect the
Company’s customer-driven strategy. IIC has also worked aggressively to expand its customer loss
prevention services in commercial lines. The Company conducted more than 10,500 site visits in 2008 and
more than 4,000 building appraisals.
Proven acquisition strategy
IIC has been the most active in the industry’s consolidation with 11 successful acquisitions in 20 years.
The Company’s strategy is three-fold:
• acquire businesses that fit existing business lines;
• integrate those businesses into the Company’s technology infrastructure;
• increase the profitability of the acquired book of business through pricing, underwriting expertise
and claims.
Solid investment returns
IIC’s investment strategy is to generate solid after-tax returns while preserving capital and diversifying risk.
The Company’s $6.6 billion portfolio (including cash) is comprised primarily of Canadian securities, including
high-quality fixed income securities and Canadian Treasury Bills, as well as common shares of large-cap
companies and preferred shares that pay dividends.
Diverse business portfolio
The Company benefits from diversity in its geographic mix, product mix and multi-channel distribution.
The diversity of the portfolio provides some insulation from the cyclicality of the industry.
broker relationships
The broker channel represents nearly 80% of annual direct premiums written. IIC has more than 1,800
broker relationships in 3,300 locations across Canada for customers that prefer the highly-personalized,
community-based service that insurance brokers provide. IIC provides a variety of services including
technology, sales training and financing to brokers to enable them to continue to grow and expand
their businesses.
4
1.3 Key performance indicators
IIC’s key performance indicators are defined in the table below. The following key performance indicators are considered non-GAAP
measures. Non-GAAP measures do not have any standardized meaning prescribed by GAAP and may not be comparable to similar
measures used by other companies in our industry.
Growth
Direct premiums written: The total premiums from the primary insured in respect of insurance
underwritten by an insurer during a specified 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).
Profitability
Net underwriting income: The difference between net premiums earned and the sum of net claims
incurred, commissions, premium taxes and general expenses.
Market-based yield: This yield is calculated using the interest and dividend income for the period
excluding realized gains and losses divided by the average invested assets calculated monthly including
cash equivalents but excluding cash balances.
Performance and execution
Claims ratio: Claims incurred, net of reinsurance, during a defined period and expressed as a percentage
of net premiums earned for the same period.
Capital management
expense ratio: Underwriting expenses including commissions, premium taxes and all general and
administrative expenses, incurred in operating the business during a defined 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 100.0%
indicates a profitable underwriting result. A combined ratio over 100.0% indicates an unprofitable
underwriting 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. The average shareholders’ equity is the mean of
shareholders’ equity at the beginning and end of the period. Shareholders’ equity includes accumulated
other comprehensive income (AOCI). We compare our ROE against that of the industry, when available.
book value per share: Represents the shareholders’ equity at the end of the year divided by the number
of outstanding common shares at the same date.
Minimum Capital test (MCt): Represents the ratio of available capital to required capital. The regulatory
minimum required capital is 150%.
ING C ANA DA I NC. 2008 A NN U AL REPORT
5
Management’s discussion and analysis
(in millions of Canadian dollars, except as noted)
SeCtION 2 – Outlook
2.1 Canadian property and casualty insurance industry outlook – next 12 months
IIC is well-positioned to continue to outperform the P&C insurance industry in the current environment due to its significant scale,
pricing and underwriting discipline, prudent investment and capital management practices, and strong financial position.
Pricing and claims
environment
(12-month outlook)
economic conditions
P&C insurance industry
IIC’s response
• Premiums in personal lines will likely rise in
2009 due to cost pressures in Ontario and
Alberta and increases in water-related
property losses
• In Ontario, industry personal auto rates are
rising in response to higher accident benefit and
bodily injury (AB/BI) claims
• Cost pressures in Ontario will likely be
addressed as part of the ongoing five-year
review of the Insurance Act
• The Alberta Insurance Rate Board approved a
5.0% rate increase on mandatory personal auto
insurance effective in November 2008
• Signs have emerged that suggest prices may
firm up for commercial insurance in 2009
• Pricing strategies demonstrate commitment to
sustaining appropriate underwriting margins
• Proactive in addressing claims trends
• Focusing on innovation, supply chain
management and efficiency in claims
• Taking robust actions in home insurance in
pricing, segmentation and claims to build a
sustainable competitive advantage
• Differentiating ‘AcceL’, our small business
commercial offering from others on the market
• Ready to exploit growth opportunities
• Overall, P&C insurance industry results are not
significantly correlated with economic cycles
• Demand for P&C insurance is relatively inelastic;
home, auto and business insurance are generally
considered a non-discretionary purchase
• Expenses are largely variable – broker
commissions and premium taxes fluctuate with
premium growth and claims ratio experience
• Lower expected investment yield could increase
premiums across the industry
• IIC’s underwriting and pricing segmentation
strategies include several variables that enable
the Company to better identify and price risks
that are more likely to be affected by adverse
economic conditions
• Strong capital base and financial flexibility
are also significant advantages in a weak
economic environment
• Focus on identifying opportunities to maximize
quality growth
Capital markets
• Prolonged capital market weakness in 2008
• Financial position is strong with $427.5 million
resulted in investment losses, higher borrowing
costs and diminished excess capital levels
across the industry
• Pressure on the industry’s capital will likely
continue through 2009
in excess capital and no debt
• MCT of 205%, 5.1 points higher than at the end
of the third quarter of 2008
• $6.6 billion cash and investment portfolio is
largely Canadian with minimal US exposure and
includes no leveraged investments
• Changes in the asset mix and cautious approach
towards reinvestment resulted
in a strengthening of the balance sheet
• Lower excess capital levels in the industry could
create opportunities for IIC to consolidate
in the Canadian market and points to higher
premiums in 2009
6
SeCtION 3 – Overview of consolidated performance
Fourth quarter highlights
• Strong financial position with MCT of 205%; a 5.1 point improvement over the third quarter
•
Overall combined ratio of 98.9% versus 93.2% in the fourth quarter of 2007 reflects higher claims associated with severe storms
and a decrease in favourable prior year claims development in personal lines, which offset strong commercial underwriting results
• Net loss in the fourth quarter reflects common equity impairments caused by prolonged capital market weakness
2008 Full year highlights
• Strong balance sheet with $427.5 million of excess capital at year end and no debt
•
Overall combined ratio of 97.1% with healthy combined ratios in all lines of business, except personal property which was
impacted by severe storms
• Excluding catastrophe claims, underwriting income improved slightly
• Lower net earnings reflect realized investment losses and impairments related to global capital market decline
3.1 Consolidated financial results
tAble 2 – COmPONENTS OF NET INCOmE
Direct premiums written
Underwriting income (excluding mYA)
Combined ratio (excluding mYA)
Interest and dividend income,
net of expenses (table 8)
(Losses) gains on invested assets and
other gains (table 9)
Income (loss) before income taxes
Income tax (benefit) expense
Effective income tax rate
Net income (loss)
Net operating income (table 12)
Earnings per share (“EPS”) –
basic and diluted (dollars)
Net operating income per share (dollars)
Return on equity (“ROE”) for the
last 12 months
Book value per share (dollars)
Q4 2008
Q4 2007
Change
2008
2007
Change
968.2
11.0
98.9%
961.3
68.2
93.2%
0.7%
(83.9)%
5.7 pts
4,145.5
117.0
97.1%
4,108.6
189.1
95.2%
0.9%
(38.1)%
1.9 pts
78.3
86.5
(9.5)%
328.8
344.8
(4.6)%
(152.2)
(108.2)
(44.1)
40.7%
(64.1)
75.1
(0.53)
0.63
4.4%
21.96
(3.3)
132.6
36.8
27.8%
95.8
116.4
n/a
(181.6)%
(219.8)%
12.9 pts
(166.9)%
(35.5)%
(288.0)
123.6
(4.6)
(3.8)%
128.2
360.7
73.6
671.6
163.3
24.3%
508.3
457.0
(491.3)%
(81.6)%
(102.8)%
(28.1) pts
(74.8)%
(21.1)%
0.77
0.93
(168.8)%
(32.3)%
1.05
2.96
4.01
3.61
(73.8)%
(18.0)%
15.4%
25.48
(11.0) pts
(13.8)%
ING C ANA DA I NC. 2008 A NN U AL REPORT
7
Management’s discussion and analysis
(in millions of Canadian dollars, except as noted)
3.2 explanation of consolidated financial results
tAble 3 – ChANGES IN PRE-TAx OPERATING INCOmE (YEAR-OvER -YEAR)
Pre-tax operating income, as reported in 2007
Change in favourable prior year claims development
Changes in current accident year from:
Underwriting income
Losses from catastrophes
Results from Facility Association
Change in underwriting income excluding MYA
Change in interest and dividend income, net of expenses
Change in corporate and distribution
Pre-tax operating income, as reported in 2008
Q4 2008
156.6
(10.2)
(34.4)
(11.9)
(0.7)
(57.2)
(8.2)
0.1
91.3
Pre-tax operating income is a non-GAAP measure. Catastrophe claims are defined as a single event resulting in $5.0 million or more in aggregate claims.
tAble 4 – ChANGES IN INCOmE BEFORE INCOmE TAxES (YEAR-OvER -YEAR)
Income before income taxes, as reported in 2007
Change in net gains on invested assets and other gains excluding held for
trading (“HFT”) debt securities (table 9)
Change in pre-tax operating income (table 3)
Change in market yield effect (table 10)
Income (loss) before income taxes, as reported in 2008
Income tax
Net income (loss) as reported in 2008
Q4 2008
132.6
(175.2)
(65.3)
(0.3)
(108.2)
44.1
(64.1)
2008
578.2
46.6
(36.6)
(73.7)
(8.4)
(72.1)
(16.0)
(28.7)
461.4
2008
671.6
(410.9)
(116.7)
(20.4)
123.6
4.6
128.2
Fourth quarter 2008
The significant decline of the stock market in 2008 resulted in $185.8 million of common equity impairments in the fourth quarter,
leading to a net loss. The magnitude of the impairments reflects management’s assessment of the impact of the deep and prolonged
decline of the Canadian stock market on the value of the Company’s common equity portfolio. See table 9 for a discussion of net
gains and losses on invested assets.
In light of current capital market conditions, management also took further actions which resulted in a strengthening of the
balance sheet including a reduction of the common share portfolio of $249 million. The proceeds of the asset dispositions as well
as dividend and interest income received in the fourth quarter were reinvested in Canada Treasury Bills. Canada Treasury Bills now
represent approximately 12% of the $6.6 billion cash and investment portfolio. These actions benefited our MCT capital ratio as
equity and debt markets continued to deteriorate in late 2008. Despite turbulent capital market conditions, our financial position
is strong with no debt, $427.5 million in excess capital and an MCT ratio of 205%, 5.1 points higher than at the end of the third
quarter. IIC also has an untapped committed $150 million credit line.
We continue to manage our $6.6 billion cash and investment portfolio prudently and have no leveraged investments. The equity
portfolio is 100% Canadian, including common and preferred shares of high-quality, dividend-paying Canadian companies.
Approximately 89% of the preferred share portfolio is top-rated at either P1 or P2 and more than 97% of the fixed income portfolio
is rated ‘A’ or better.
8
Lower net operating income and an increase in the combined ratio to 98.9% reflect the impact of severe storms and lower favourable
prior year development in personal lines. Severe wind, rain and snow storms in late 2008 had an adverse effect on personal property
underwriting performance in the quarter, resulting in a combined ratio of 114.1% in that line of business. The combined ratio in
personal auto was 102.9% in the fourth quarter reflecting a decrease in favourable prior year development, which normally fluctuates
from quarter to quarter, and higher claims severity.
Commercial underwriting income increased year-over-year for the third quarter in a row with combined ratios of 91.6% in
commercial auto and 73.2% in commercial non-auto. Higher underwriting income was driven by a lower overall current year loss
ratio and more favourable prior year claims development. Pricing discipline, strong operational execution and the high quality of
the book of business are reflected in consistent year-over-year increases in commercial underwriting results in 2008.
In total, direct premiums written were up slightly in the fourth quarter, reflecting our disciplined pricing strategy and commitment
to maintaining adequate margins, though it has resulted in a slower pace of premium growth in the short-term. The effectiveness of
our strategy is demonstrated through our combined ratio performance compared to the Canadian P&C insurance industry. For the
first nine months of 2008, our combined ratio of 96.5% was trending 2.7 points lower than the industry average of 99.2%. During the
same time period, we outperformed industry loss ratios in every line of business except personal property.
Personal and commercial insurance premiums are likely to rise over the next 12 months across the industry. Cost pressures in
personal property and auto insurance as well as increases in water-related property losses will likely lead to higher premiums this
year. With lower excess capital levels and higher loss ratios across the industry, some signs have emerged that suggest the commercial
pricing environment will become less aggressive in 2009 and premiums may start to rise, reversing the trend over the last couple of
years. With industry returns and capital levels at a low point in the cycle, conditions are more conducive to industry consolidation
and point to higher premiums overall.
Direct premiums written
(in millions)
Combined ratio
(excluding MYA, %)
Net income (loss)
(in millions)
$1,200
$1,000
$800
$600
$400
$200
$0
$913.6
$955.6
$961.3
$968.2
Q4
2005
Q4
2006
Q4
2007
Q4
2008
120%
100%
80%
60%
40%
20%
0%
93.6%
93.2%
98.9%
86.9%
Q4
2005
Q4
2006
Q4
2007
Q4
2008
$250
$200
$150
$100
$50
$0
$-50
$-100
$-150
$-200
$196.9
$146.0
$50.9
$109.4
$101.8
$7.6
$95.8
$116.4
($20.6)
($64.1)
$75.1
($139.2)
Q4
2005
Q4
2006
Q4
2007
Q4
2008
Net operating income (excluding MYA)
Net gains on invested assets, other gains and
market yield adjustment (after tax)
250
200
150
100
50
0
-50
-100
-150
-200
250
200
150
100
50
0
-50
-100
-150
-200
ING C ANA DA I NC. 2008 A NN U AL REPORT
9
Management’s discussion and analysis
(in millions of Canadian dollars, except as noted)
Full year 2008
Direct premiums written increased by 0.9% overall as we maintained pricing discipline in both personal and commercial lines
in a competitive environment. Rates in personal lines are being adjusted to reflect higher material and labour costs and higher
water-related property claims. Commercial underwriting results remained very healthy with combined ratios below 90% due to our
pricing discipline and portfolio shift toward smaller accounts that are more profitable than larger accounts.
The decrease in net operating income mainly reflects lower underwriting income due to severe storms. Overall, underwriting income
decreased to $117.0 million compared to $189.1 million in 2007, reflecting a $73.7 million year-over-year increase in catastrophe
claims in 2008 which affected both personal property and personal auto results. Notwithstanding significantly higher weather-related
claims in 2008, the overall combined ratio was 97.1%, a moderate increase of 1.9 points.
In Central Canada, we experienced near-record snowfall and severe hail, rain and wind storms in 2008. Despite the storms, personal
auto underwriting income was $84.7 million with a healthy combined ratio of 95.9%, a slight increase of 1.4 points compared to
2007. Overall, personal auto current accident year results were relatively stable in 2008. Personal property underwriting performance
was most impacted by seasonal storms, resulting in a loss of $120.7 million with a combined ratio of 113.6%, largely reflecting
catastrophe claims.
Commercial underwriting income was strong in 2008, increasing 58.9% year-over-year due to more favourable prior year claims
development. The combined ratio in commercial auto was 87.2% and commercial non-auto was 85.3%.
Overall, net income decreased to $128.2 million, down from $508.3 million in 2007. The decrease reflects lower operating income,
as well as realized common equity investment losses and impairments associated with the weak capital market environment. Refer to
table 11 for more information on unrealized gains and losses on available-for-sale (“AFS”) securities.
Return on equity (“ROe”)
ROE for the 12-month period ended December 31, 2008 was 4.4%, compared to 15.4% at December 31, 2007. The decrease reflects
lower operating income in 2008, as well as a net loss on invested assets compared to a gain in 2007. See section 3.6 for a discussion
of net gains and losses on invested assets.
book value
Book value per share decreased to $21.96 in the fourth quarter from $25.48 in the same quarter last year. The change reflects an
increase in the accumulated other comprehensive loss as capital market valuations declined sharply in 2008, as well as the impact
of share repurchases made under the normal course issuer bid announced on February 20, 2008.
Normal course issuer bid (“NCIb”)
IIC announced its NCIB in February 2008 to buy back up to 6.2 million shares over the following 12 months. At year end, the
NCIB was 73.4% complete with approximately 4.6 million shares repurchased at an average price of $38.53. ING Groep N.V.
(“ING Groep”) participated in the NCIB to maintain its proportionate share ownership at 70%. The NCIB was suspended in
September 2008 and no further shares were repurchased in 2008 or in January or February of 2009.
Direct premiums written
(in millions)
Combined ratio
(excluding MYA, %)
Net income (loss)
(in millions)
$3,905.9
$3,993.6
$4,108.6
$4,145.5
2005
2006
2007
2008
100%
80%
60%
40%
20%
0%
86.0%
89.4%
95.2%
97.1%
$1,000
$750
$500
$250
$0
$-250
$781.8
$612.3
$658.1
$530.5
$169.5
$127.6
$508.3
$457.0
$51.3
$128.2
$360.7
($232.5)
2005
2006
2007
2008
2005
2006
2007
2008
Net operating income (excluding MYA)
Net gains on invested assets, other gains and
market yield adjustment (after tax)
1000
750
500
250
0
-250
1000
750
500
250
0
-250
$5,000
$4,000
$3,000
$2,000
$1,000
$0
10
3.3 Subsequent events
ING Canada shares become widely held
On February 19, 2009, ING Groep completed the sale of its entire 70% ownership of IIC via the sale of 36,183,480 of the Company’s
common shares to a number of institutional investors through a private placement and the sale of 47,757,920 common shares
pursuant to a “bought deal” secondary public offering. The special share owned by ING Groep was immediately converted into one
common share that was also disposed of through the secondary offering.
On the same date, the Company and ING Groep entered into an Amended and Restated Co-operation and Transition Services
Agreement which governs among other things the transition of reinsurance and advisory and management services, including
risk management, human resources, internal audit and information technology, over a period of up to twenty-four months. IIC
management has already begun to transfer these services to other providers and does not expect a material financial impact
as a result.
transition to new brand
IIC announced on February 23, 2009 that ING Insurance Company of Canada will be renamed Intact Insurance Company.
The holding company will be renamed Intact Financial Corporation upon approval by the Company’s shareholders at the Annual
and Special Meeting of Shareholders on May 13, 2009. The holding company will continue to operate as ING Canada Inc. until
the new name is approved.
Dividend increase
On February 23, 2009, the Company announced that its Board of Directors increased the quarterly dividend by 3.2%, or one cent,
to 32 cents per share on its outstanding common shares. The dividend will be payable on March 31 to shareholders of record on
March 16. The decision reflects IIC’s objective of returning value to shareholders, the strength of the Company’s financial position
and quality of operating earnings.
3.4 Underwriting income
tAble 5 – NET PREmIUmS EARNED, CLAImS AND GENERAL ExPENSES
Net premiums earned
Net claims
Current year claims
Current year catastrophes
(Favourable) prior year claims development
Total net claims
Commissions, net
Premium taxes, net
General expenses, net
Total underwriting expenses
Total underwriting income (excluding mYA)
tAble 6 – UNDERwRITING RATIOS (Ex CLUDING mYA)
Q4 2008
Q4 2007
Change
2008
2007
Change
1,019.2
1,004.7
1.4%
4,039.4
3,932.0
2.7%
743.8
21.6
(52.2)
713.2
150.2
35.4
109.5
295.1
11.0
703.7
9.7
(62.4)
651.0
146.3
35.0
104.2
285.5
68.2
5.7%
122.7%
(16.3)%
9.6%
2.7%
1.1%
5.1%
3.4%
(83.9)%
2,790.4
114.8
(148.9)
2,756.3
577.3
140.4
448.4
1,166.1
117.0
2,665.2
41.1
(102.3)
2,604.0
583.1
136.9
418.9
1,138.9
189.1
4.7%
179.3%
45.6%
5.8%
(1.0)%
2.6%
7.0%
2.4%
(38.1)%
Claims ratio
Expense ratio
Combined ratio
Q4 2008
Q4 2007
Change
2008
2007
Change
70.0%
28.9%
98.9%
64.8%
28.4%
93.2%
5.2 pts
0.5 pts
5.7 pts
68.2%
28.9%
97.1%
66.2%
29.0%
95.2%
2.0 pts
(0.1) pts
1.9 pts
ING C ANA DA I NC. 2008 A NN U AL REPORT
11
Management’s discussion and analysis
(in millions of Canadian dollars, except as noted)
tAble 7 – ANNUALIzED RATE OF FAvOURABLE PRIOR YEAR CLAImS DEvELOPmENT
(annualized rate, excluding MYA)
Q4 2008
Q4 2007
2008
2007
(Favourable) unfavourable prior year
claims development as a % of opening reserves
(5.6)%
(7.0)%
(4.0)%
(2.9)%
Favourable prior year claims development
(as a % of opening reserves)
Favourable prior year claims development
Excluding MYA, favourable prior year claims development was $52.2 million in the
fourth quarter, 5.6% of opening reserves on an annualized basis, and $148.9 million or
4.0% of opening reserves in 2008.
7.9%
4.9%
4.0%
2.9%
Prior year claims development can fluctuate from quarter to quarter and therefore,
should be evaluated over longer periods of time. The historical rate of favourable prior
year claims development as a percentage of opening claims has been approximately 3%
– 4% per year over the long term, but has varied from year to year and between quarters.
2005
2006
2007
2008
Industry pools
In the fourth quarter, transfers in and out of industry pools, including the Facility
Association, increased pre-tax underwriting income in personal auto by $18.4 million
year-over-year, excluding MYA.
10%
8%
6%
4%
2%
0%
3.5
Interest and dividend income, net of expenses
tAble 8
Q4 2008
Q4 2007
Change
2008
2007
Change
Interest income
Dividend income
Interest and dividend income, before expenses
Expenses
Interest and dividend income, net of expenses
46.9
35.3
82.2
(3.9)
78.3
50.9
40.4
91.3
(4.8)
86.5
(7.9)%
(12.6)%
(10.0)%
0.9
(9.5)%
Market-based yield
5.1%
5.1%
(0.0) pts
187.9
157.3
345.2
(16.4)
328.8
5.0%
197.7
166.5
364.2
(19.4)
344.8
(5.0)%
(5.5)%
(5.2)%
3.0
(4.6)%
5.1%
(0.1) pts
The decline in interest income (before expenses) in the fourth quarter and in
2008 reflects capital management initiatives, including the share buyback program
(“NCIB”) announced in February 2008, as well as an increase in investments in
Canada Treasury Bills.
The decline in dividend income in the fourth quarter and in 2008 principally reflects
the reduction of our common share portfolios in the last half of 2008, lower trading
activities in these portfolios and the impact of capital management initiatives.
The market-based yield is a non-GAAP measure defined as total pre-tax dividend and
interest income (before expenses) divided by the average fair values of equity and debt
securities held during the reporting period. The market-based yield was 5.1% in the
fourth quarter unchanged from 5.1% in the same quarter of last year. This measure may
not be comparable to other companies since it is a non-GAAP measure.
Market-based yield
(%)
4.7%
4.8%
5.1%
5.0%
2005
2006
2007
2008
6%
5%
4%
3%
2%
1%
0%
12
3.6 Gains and losses on invested assets and other gains
tAble 9
Debt securities
Gains (losses) on AFS securities
Losses on derivatives
Impairments
Losses on debt securities and
related derivatives
Equity securities
(Losses) gains, net of derivatives
Impairments
Gains on embedded derivatives
Q4 2008
Q4 2007
Change
2008
2007
Change
1.8
(6.6)
–
2.9
(8.0)
(8.1)
(1.1)
1.4
8.1
0.2
(17.4)
(10.9)
(1.9)
(4.0)
(37.3)
2.1
(13.4)
26.4
(4.8)
(13.2)
8.4
(28.1)
(43.2)
15.1
(24.4)
(185.8)
20.8
9.2
(34.6)
19.6
(33.6)
(151.2)
1.2
(74.6)
(250.5)
36.8
147.4
(47.7)
38.1
(222.0)
(202.8)
(1.3)
(Losses) gains on equity securities and
related derivatives
(189.4)
(5.8)
(183.6)
(288.3)
137.8
(426.1)
Total (losses) gains excluding HFT
debt securities
Gains (losses) on HFT debt securities (1)
Total (losses) gains, before income taxes
(194.2)
42.0
(152.2)
(19.0)
15.7
(3.3)
(175.2)
26.3
(148.9)
(316.4)
28.4
(288.0)
94.6
(21.0)
73.6
(411.0)
49.4
(361.6)
(1) The gains (losses) on hFT debt securities are offset by a mYA to claims liabilities, with an objective of a minimal impact to net income. The difference between the
mYA and the gains and losses on hFT debt securities is referred to as the “market yield effect” in this mD&A. See table 10.
Fourth quarter 2008
The loss on invested assets in the fourth quarter was largely due to $185.8 million of common share impairments reflecting the deep
and prolonged decline of the stock market, particularly in the fourth quarter of 2008. The impairment process for common equities
includes a review of all common shares, particularly focusing on those trading below book value for six months or more and more
than 25% below book value at year end. Management applies judgment based upon a review of each issuer’s financial condition,
considering various factors including latest financial results and cash flows, changes in credit ratings, capital structure or dividend
payouts as well as security analysts’ recommendations. Management also takes into account the length of time the security has been
below book and the significance of the unrealized loss. The stock market decline in late 2008 and the level of uncertainty around
the timing of a market recovery, led management to give significant weight to the general market downturn in the judgment process.
If such weighting had not been given to the capital market environment, it is estimated that common share impairments would have
been approximately $60 million. Impairments do not impact excess capital or the MCT ratio.
Preferred shares and debt securities were not impaired. Preferred shares are generally only impaired if the issuer is significantly
downgraded, stops paying dividends, or declares bankruptcy. Despite a decline in the value of these securities, after careful review,
management determined that there was no objective evidence at the time of assessment which suggested the Company would not
receive the contractual cash flows from these securities, which include either dividends or interest payments. Management uses third
party credit ratings as well as other public information in its analysis of the quality of debt securities and preferred shares.
Gains on embedded derivatives are similar to last year at $20.8 million. These gains are driven by the decline in value of perpetual
preferred shares.
Full year 2008
The decline of common share market values made up the majority of the $316.4 million pre-tax loss on invested assets, excluding
held-for-trading bonds. In the last half of the year, management also took certain actions which effectively strengthened the balance
sheet, including a significant reduction of the common share portfolio. The proceeds from these transactions were reinvested in
Canada Treasury Bills, which now represent approximately 12% of the $6.6 billion cash and investment portfolio.
ING C ANA DA I NC. 2008 A NN U AL REPORT
13
Management’s discussion and analysis
(in millions of Canadian dollars, except as noted)
Held-for-trading debt securities and market yield adjustment
tAble 10 – mARKET YIELD EFFECT
(Negative) positive impact of MYA
Net gains (losses) on HFT debt securities
Market yield effect
Q4 2008
Q4 2007
Change
(47.3)
42.0
(5.3)
(20.7)
15.7
(5.0)
(26.6)
26.3
(0.3)
2008
(50.0)
28.4
(21.6)
2007
Change
19.8
(21.0)
(1.2)
(69.8)
49.4
(20.4)
Claims liabilities are discounted at the estimated market yield of the assets backing these liabilities. The MYA to claims liabilities is
offset by gains and losses on HFT debt securities with the objective that these items offset each other with a minimal overall impact
to income. The difference between the MYA and the gains and losses on HFT debt securities is referred to as the “market yield
effect” in this MD&A.
The interest rate fluctuations during the year, particularly the increasing gap between short-term and long-term rates, as well as
significant capital market fluctuations have been challenging in terms of matching the gains and losses on HFT debt securities
and the MYA. During the fourth quarter, the Company improved the calculation of the market yield estimate, in particular to
better match the scattered duration of liabilities. The calculation previously used a blended rate for all durations which proved
inappropriate under current economic conditions. Without this improvement, the unfavourable market yield effect in the fourth
quarter would have been greater by $24.4 million.
Unrealized gains and losses on available-for-sale securities
tAble 11
Debt securities
Common shares
Preferred shares
Loans and equity investments
Total net unrealized loss position
Dec. 31,
2008
Sept. 30,
2008
June 30,
2008
March 31,
2008
Dec. 31,
2007
30.4
(133.8)
(522.5)
(6.9)
(632.8)
(16.3)
(125.3)
(272.1)
(3.8)
(417.5)
3.2
(43.1)
(215.5)
(3.6)
(259.0)
40.7
(71.2)
(175.8)
(2.5)
(208.8)
2.6
(36.9)
(141.0)
(0.9)
(176.2)
As at
Sept. 30,
2007
(13.8)
47.8
(64.5)
–
(30.5)
At the end of December 2008, the Company had $632.8 million in unrealized losses on invested assets compared to $417.5 million
at the end of the third quarter. The increase in the unrealized loss position reflects a sharp decline in common and preferred share
market values. To illustrate the market decline, the S&P/TSX Composite Index was down 24% in the quarter and the preferred
share index was down 14%. In 2008, the S&P/TSX Composite Index was down 35% and the preferred share index was down 22%
compared to the same periods in 2007. The market values of preferred shares were impacted by the widening of credit spreads
as well as the recent number of new preferred shares issues in late 2008 which increased market supply of preferred shares at higher
rates. Since preferred shares are typically held long term, unrealized gains and losses are generally not realized, unless they need
to be impaired. Gains and losses in the common share portfolio are likely to be realized on an ongoing basis reflecting the active
trading strategy in the high-dividend yield common share portfolio.
In determining the fair values of invested assets, we rely mainly on quoted market prices. There are no invested assets in the AFS or
HFT categories which are not quoted on an active market, except for a very limited amount of fixed income private placements that
we hold. Some of these assets, particularly preferred shares and BBB bonds have less trading liquidity, but their fair values are readily
available from public market sources.
The debt security portfolios are relatively unchanged and they include approximately $293.8 million of Treasury Bills with
maturities greater than 90 days, purchased with proceeds from the sale of equities. The portfolios have net unrealized gains of
$30.4 million at December 31, 2008 due to the overall reduction of risk-free interest rates and the significant weight of government
bonds in the portfolio. During the fourth quarter, the Company reduced its position in BBB rated bonds by 20% approximately,
leaving only $102.4 million of bonds rated lower than A (low). The quality of the debt securities in our portfolio remains strong
with 97.1% rated A or better. There have been no defaults on any of the bonds in the portfolio.
14
Other comprehensive loss
The change in unrealized losses on AFS securities and dispositions of AFS securities resulted in another comprehensive loss (“OCI”)
of $162.0 million (after-tax) in the fourth quarter. Most of the unrealized losses incurred during the year are tax deductible and will
allow the Company to claim a significant tax reimbursement in its tax return.
3.7 Net operating income
tAble 12 – COmPONENTS OF NET OPERATING INCOmE
Net underwriting income (excluding mYA)
Interest and dividend income (table 8)
Corporate and distribution income (table 21)
Tax impact
Net operating income (excluding mYA)
Q4 2008
Q4 2007
Change
2008
2007
Change
11.0
78.3
2.0
(16.2)
75.1
68.2
86.5
1.9
(40.2)
116.4
(83.9)%
(9.5)%
5.3%
(59.7)%
(35.5)%
117.0
328.8
15.6
(100.7)
360.7
189.1
344.8
44.3
(121.2)
457.0
(38.1)%
(4.6)%
(64.8)%
(16.9)%
(21.1)%
Net operating income for the fourth quarter and full year decreased due to lower underwriting results and a decrease in dividend and
interest income. The decline in underwriting income was mainly due to higher catastrophe claims and other claims associated with
severe seasonal storms in 2008.
tAble 13 – RECONCILIATION TO NET INCOmE
Net income (loss)
Add losses (deduct gains) before
HFT debt securities (table 9)
Add market yield effect (table 10)
Tax impact
Net operating income (excluding mYA)
Average outstanding shares (millions)
Net operating income per share (dollars)
Q4 2008
Q4 2007
Change
(64.1)
95.8
(166.9)%
194.2 1
5.3
(60.3)
75.1
119.9
0.63
9.0
5.0
(3.4)
116.4
124.5
0.93
175.2
0.3
(56.9)
(35.5)%
(4.6)
(0.31)
2008
128.2
316.4
21.6
(105.5)
360.7
122.0
2.96
2007
Change
508.3
(74.8)%
(94.6)
1.2
42.1
457.0
126.7
3.61
411.0
20.4
(147.6)
(21.1)%
(4.7)
(0.65)
Operating income (net and pre-tax) and net operating income per share are non-GAAP measures. Net operating income is defined as
net income excluding the MYA and net gains on invested assets and other gains, after tax. Pre-tax operating income is defined as net
operating income before income taxes. Net operating income per share is equal to net operating income for the period divided by the
average outstanding number of shares for the same period. These measures are used by management and financial analysts to assess
the Company’s performance; however, they may not be comparable to similar metrics published by other companies.
Changes in the definition of net operating income and underwriting measures
Since the first quarter of 2008, the MYA to claims liabilities is excluded from net operating income and underwriting measures discussed in this
MD&A. The MYA reflects the impact of changes in the discount rate applied to the Company’s claims liabilities based on the market-based yield of the
underlying assets. The MYA can fluctuate substantially from quarter to quarter as market yields vary. Therefore the MYA has been excluded from net
operating income and underwriting measures which focus on core operating performance. The MYA is matched with gains and losses on HFT debt
securities, which are also excluded from net operating income. The objective is that these two items offset each other with a minimal overall impact
to income (see table 10). The difference between the MYA and the gains and losses on HFT debt securities is referred to as the “market yield effect”
in this MD&A.
ING C ANA DA I NC. 2008 A NN U AL REPORT
15
Management’s discussion and analysis
(in millions of Canadian dollars, except as noted)
3.8 Selected quarterly information
tAble 14
Written insured risks (thousands)
Direct premiums written
Total revenues
Net premiums earned
(Favourable) unfavourable prior year
Q4 2008 Q3 2008 Q2 2008 Q1 2008 Q4 2007 Q3 2007 Q2 2007 Q1 2007
Q4 2006
1,034.3 1,240.7
968.2 1,100.3
956.0 1,045.8
1,019.2 1,032.3
1,380.6
1,216.7
1,065.4
996.1
945.8
860.3
1,064.5
991.8
1,056.7
961.3
1,096.8
1,004.7
1,273.1
1,091.2
1,091.3
994.0
1,399.7
1,209.8
1,152.2
976.7
950.4
846.3
1,099.6
956.7
1,051.1
955.6
1,095.8
979.6
claims development
(19.3)
(62.7)
(70.3)
38.4
(45.4)
(20.7)
(37.6)
(12.2)
(24.3)
(Favourable) unfavourable prior year
claims development (excluding mYA)
Net underwriting income (loss)
(including mYA)
Net underwriting income
(excluding mYA)
Combined ratio (%)
(including mYA)
Combined ratio (%)
(excluding mYA)
Net operating income
(excluding mYA)
Net (loss) income
EPS – basic/diluted (dollars)
(52.2)
(56.4)
(41.2)
0.9
(62.4)
(24.0)
(5.2)
(10.7)
(24.3)
(36.3)
69.1
74.9
(40.7)
47.5
28.7
92.3
40.3
62.3
11.0
61.9
43.4
0.7
68.2
29.0
53.1
38.7
62.3
103.6%
93.3%
92.5%
104.1%
95.3%
97.1%
90.6%
95.8%
93.6%
98.9%
94.0%
95.6%
99.9%
93.2%
97.1%
94.6%
96.0%
93.6%
75.1
(64.1)
(0.53)
106.3
57.3
0.47
109.3
112.0
0.91
70.2
23.0
0.19
116.4
95.8
0.77
95.5
92.0
0.74
132.5
194.3
1.56
112.8
126.2
0.95
101.8
109.4
0.82
16
3.9 Seasonality of the business
The property and casualty insurance business is seasonal in nature. While underwriting revenues are generally stable from quarter
to quarter, underwriting income is typically higher in the second and third quarters of each year. This is driven by lower combined
ratios in those periods, which is reflected in the seasonal index below. The seasonal indicator is a non-GAAP measure which
represents the ratio of the quarterly combined ratio to the annual combined ratio, excluding the MYA.
tAble 15 – SEASONAL INDICATOR
Q1
Q2
Q3
Q4
3.10 Selected annual information
tAble 16
Total revenue
Net underwriting income (excluding mYA)
Net income
EPS – basic and diluted (dollars)
Annual dividends per common share
Invested assets
Total assets
Total shareholders’ equity
2008
1.03
0.98
0.97
1.02
2007
1.01
0.99
1.02
0.98
2006
1.02
0.93
1.01
1.05
2005
1.02
0.94
1.02
1.01
Four-year
average
1.02
0.96
1.00
1.02
2008
2007
2006
4,131.7
117.0
128.2
1.05
1.24
6,108.9
9,773.4
2,632.6
4,439.9
189.1
508.3
4.01
1.08
7,237.8
10,389.7
3,172.1
4,406.4
403.8
658.1
4.92
1.00
7,241.9
10,377.3
3,420.8
Financial performance between 2008 and 2007 is analyzed in detail in this document. In 2007, net income was higher than in 2008
due to the following main factors: 1) higher underwriting income and 2) robust results from the Company’s investment portfolio.
IIC has two segments: 1) Underwriting and 2) Corporate and distribution. P&C insurance is divided into two lines of business:
personal and commercial lines. Corporate and distribution includes income from the Company’s affiliated distribution network,
as well as other corporate items.
ING C ANA DA I NC. 2008 A NN U AL REPORT
17
Q4 2008
Q4 2007
Change
2008
2007
Change
528.7
385.6
914.3
452.5
226.6
679.1
520.6
227.9
748.5
(14.8)
(32.0)
(46.8)
(30.7)
(77.5)
541.5
394.6
936.1
453.1
215.3
668.4
515.2
217.6
732.8
21.1
4.7
25.8
(13.1)
12.7
(2.4)%
(2.3)%
(2.3)%
(0.1)%
5.2%
1.6%
1.0%
4.7%
2.1%
(170.1)%
(780.9)%
(281.4)%
(17.6)
(90.2)
2,449.3
1,654.4
4,103.7
2,057.0
952.9
3,009.9
2,067.5
891.3
2,958.8
84.7
(120.7)
(36.0)
(32.4)
(68.4)
2,514.4
1,676.1
4,190.5
2,057.7
904.4
2,962.1
2,008.0
837.0
2,845.0
(2.6)%
(1.3)%
(2.1)%
0.0%
5.4%
1.6%
3.0%
6.5%
4.0%
111.4
(18.7)
92.7
12.6
105.3
(24.0)%
(545.5)%
(138.8)%
(45.0)
(173.7)
Q4 2008
Q4 2007
Change
2008
2007
Change
78.5%
24.4%
102.9%
80.7%
33.4%
114.1%
79.2%
27.1%
106.3%
72.1%
23.8%
95.9%
64.7%
33.2%
97.9%
69.9%
26.6%
96.5%
6.4 pts
0.6 pts
7.0 pts
16.0 pts
0.2 pts
16.2 pts
9.3 pts
0.5 pts
9.8 pts
71.2%
24.7%
95.9%
80.2%
33.4%
113.6%
73.9%
27.3%
101.2%
69.8%
24.7%
94.5%
68.6%
33.6%
102.2%
69.4%
27.3%
96.7%
1.4 pts
0.0 pts
1.4 pts
11.6 pts
(0.2) pts
11.4 pts
4.5 pts
0.0 pts
4.5 pts
Management’s discussion and analysis
(in millions of Canadian dollars, except as noted)
SeCtION 4 – Personal lines
4.1 Financial results
tAble 17
Written insured risks (thousands)
Automobile
Property
Total
Direct premiums written
Automobile
Property
Total
Net premiums earned
Automobile
Property
Total
Net underwriting income (loss) (excluding mYA)
Automobile
Property
Total
Market yield adjustment
Net underwriting income (loss) (including mYA)
tAble 18 – UNDERwRITING RATIOS
Personal auto
Claims ratio (excluding mYA)
Expense ratio
Combined ratio (excluding mYA)
Personal property
Claims ratio (excluding mYA)
Expense ratio
Combined ratio (excluding mYA)
Personal lines – total
Claims ratio (excluding mYA)
Expense ratio
Combined ratio (excluding mYA)
18
4.2 explanation of financial results
Fourth quarter 2008
In personal auto, direct premiums written were down slightly in the fourth quarter as rate increases resulted in a decrease in
written insured risks. Underwriting results in personal auto decreased year-over-year due to lower favourable prior year claims
development, which normally fluctuates from quarter to quarter, and higher claims severity. Rates in personal auto have been
increasing particularly in certain geographic regions to reflect an increase in claims experience.
In personal property, direct premiums written were up 5.2% due to increases in insured amounts and higher rates. Overall,
personal property sustained an underwriting loss of $32.0 million reflecting higher current year claims associated with severe storms
in Ontario and Québec in the fourth quarter. We have been increasing direct written rates and enhancing our pricing segmentation
to reflect an increase in water-related property claims. In addition, we are adjusting insured values to ensure that higher material
costs and labour rates are factored into our premiums and our customers retain adequate coverage.
Full year 2008
In personal auto, direct premiums written were flat in 2008 reflecting the competitive impact of raising rates on unit growth in
the near-term, as well as the run-off of a large group agreement in the first half of 2008. The group agreement was large in terms of
the number of policies but had a low average premium and margin. In 2008, current accident year results in personal auto were
relatively stable, despite severe snow, hail and excessive rain in Central Canada. Personal auto generated underwriting income of
$84.7 million in 2008 versus $111.4 million in 2007 with a healthy combined ratio of 95.9%.
In personal property, higher average insured amounts and higher rates resulted in a 5.4% increase in direct premiums written.
Overall, personal property sustained an underwriting loss of $120.7 million compared to a loss of $18.7 million in 2007. 2008 results
were negatively affected by higher claims associated with severe snow, hail, rain and wind storms in Central Canada, compared to
significantly lower levels of precipitation in the same region over the comparable period of 2007. Actions are being taken to build
strength and sustainable advantage in home insurance through claims innovation, segmentation and better management of water
losses, which now make up approximately 40% of personal property claims.
Personal lines – written insured risks
(in thousands)
Personal lines – direct premiums written
(in millions)
Personal lines – combined ratio
(excluding MYA, %)
5,000
4,000
3,000
2,000
1,000
0
3,927.5
1,591.5
4,077.5
1,637.4
4,190.5
1,676.1
4,103.7
1,654.4
2,336.0
2,440.1
2,514.4
2,449.3
2005
2006
2007
2008
Personal property
Personal auto
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0
$2,962.1
$904.4
$3,009.9
$952.9
$2,057.7
$2,057.0
5000
$2,657.1
$779.9
4000
$2,810.7
$841.5
3000
$1,877.2
$1,969.2
2000
1000
0
2005
2006
2007
2008
Personal property
Personal auto
120%
100%
80%
60%
40%
20%
0%
3500
104.0%
3000
100.0%
87.3%
78.8%
2500
113.6%
102.2%
95.9%
94.5%
2000
1500
1000
500
0
2005
2006
2007
2008
Personal property
Personal auto
120
100
80
60
40
20
0
120
100
80
60
40
20
0
ING C ANA DA I NC. 2008 A NN U AL REPORT
19
Q4 2008
Q4 2007
Change
2008
2007
Change
63.0
57.0
120.0
77.2
211.9
289.1
80.1
190.7
270.8
6.8
51.0
57.8
(16.6)
41.2
62.8
57.7
120.5
81.7
211.3
293.0
80.7
191.1
271.8
0.1
42.2
42.3
(7.6)
34.7
0.3%
(1.2)%
(0.4)%
(5.5)%
0.3%
(1.3)%
(0.7)%
(0.2)%
(0.4)%
n/a
20.9%
36.6%
(9.0)
6.5
263.8
234.0
497.8
317.8
817.8
1,135.6
318.9
761.8
1,080.7
40.8
112.2
153.0
(17.6)
135.4
255.8
233.5
489.3
321.2
825.3
1,146.5
320.2
766.9
1,087.1
20.1
76.2
96.3
7.2
103.5
3.1%
0.2%
1.7%
(1.1)%
(0.9)%
(1.0)%
(0.4)%
(0.7)%
(0.6)%
103.0%
47.2%
58.9%
(24.8)
31.9
Q4 2008
Q4 2007
Change
2008
2007
Change
63.9%
27.7%
91.6%
36.4%
36.8%
73.2%
44.5%
34.2%
78.7%
72.7%
27.2%
99.9%
42.0%
35.9%
77.9%
51.1%
33.3%
84.4%
(8.8) pts
0.5 pts
(8.3) pts
(5.6) pts
0.9 pts
(4.7) pts
(6.6) pts
0.9 pts
(5.7) pts
59.9%
27.3%
87.2%
49.7%
35.6%
85.3%
52.7%
33.2%
85.9%
66.0%
27.7%
93.7%
54.5%
35.6%
90.1%
57.9%
33.2%
91.1%
(6.1) pts
(0.4) pts
(6.5) pts
(4.8) pts
0.0 pts
(4.8) pts
(5.2) pts
0.0 pts
(5.2) pts
Management’s discussion and analysis
(in millions of Canadian dollars, except as noted)
SeCtION 5 – Commercial lines
5.1 Financial results
tAble 19
Written insured risks (thousands)
Automobile
Non-auto
Total
Direct premiums written
Automobile
Non-auto
Total
Net premiums earned
Automobile
Non-auto
Total
Net underwriting income (excluding mYA)
Automobile
Non-auto
Total
Market yield adjustment
Net underwriting income (including mYA)
tAble 20 – UNDERwRITING RATIOS
Commercial auto
Claims ratio (excluding mYA)
Expense ratio
Combined ratio (excluding mYA)
Commercial non-auto
Claims ratio (excluding mYA)
Expense ratio
Combined ratio (excluding mYA)
Commercial lines – total
Claims ratio (excluding mYA)
Expense ratio
Combined ratio (excluding mYA)
20
5.2 explanation of financial results
Fourth quarter 2008
Direct premiums written in commercial lines were down slightly year-over-year reflecting lower average premiums and a small
decrease in units. The portfolio continues to shift toward small- and medium-sized commercial accounts which are more profitable.
Though the commercial market remained competitive in 2008, our commercial units remained stable as we maintained pricing
discipline with only low single-digit rate decreases.
Commercial underwriting income increased by 36.6% year-over-year, with a combined ratio of 78.7% in the fourth quarter. The
combined ratio for commercial auto was 91.6% and commercial non-auto was 73.2%, demonstrating strong execution of our
targeted strategy in both commercial lines and commitment to maintaining a high-quality portfolio. 2008 results improved slightly
year-over-year overall and favourable prior year claims development increased compared to the same quarter last year.
Full year 2008
Direct premiums written in commercial lines were down 1.0% reflecting the dynamics discussed above. In all lines of business,
our priority is to price policies appropriately to maintain adequate margins. Underwriting income in commercial lines improved
by $56.7 million in 2008 with an overall combined ratio of 85.9%, notwithstanding $18.5 million in catastrophe claims associated
with seasonal storms in 2008. The increase in commercial underwriting income mainly reflects more favourable prior year
claims development.
Commercial lines – written insured risks
(in thousands)
Commercial lines – direct premiums written
(in millions)
Commercial lines – combined ratio
(excluding MYA, %)
600
500
400
300
200
100
0
490.8
236.4
487.5
233.9
489.3
233.5
497.8
234.0
254.4
253.6
255.8
263.8
2005
2006
2007
2008
Commercial non-auto
Commercial auto
$1,500
$1,250
$1,000
$750
$500
$250
$0
$1,182.9
$855.4
$1,146.5
$825.3
$1,135.6
$817.8
600
$1,248.8
$917.6
500
400
300
200
$331.2
100
$327.5
$321.2
$317.8
0
2005
2006
2007
2008
Commercial non-auto
Commercial auto
100%
1500
87.0% 86.4% 86.9% 85.2%
93.7%
90.1% 87.2%85.3%
80%
60%
40%
20%
0%
1250
1000
750
500
250
0
2005
2006
2007
2008
Commercial non-auto
Commercial auto
100
80
60
40
20
0
ING C ANA DA I NC. 2008 A NN U AL REPORT
21
Management’s discussion and analysis
(in millions of Canadian dollars, except as noted)
SeCtION 6 – Corporate and distribution
6.1 Financial results
Our corporate and distribution segment primarily includes the results of the Company’s affiliated distribution network
(Canada Brokerlink, Grey Power and Equisure), and other activities.
tAble 21 – CORPORATE AND DISTRIBUTION INCOmE
Distribution income
Distribution expenses
Distribution earnings
Corporate income (loss), net
Corporate and distribution income
before income taxes
6.2 explanation of financial results
Q4 2008
Q4 2007
Change
26.9
21.4
5.5
(3.6)
(23.8)%
(8.9)%
(81.8)%
(127.8)%
2008
92.4
79.1
13.3
2.3
2007
Change
102.9
85.3
17.6
26.7
(10.2)%
(7.3)%
(24.4)%
(91.4)%
1.9
5.3%
15.6
44.3
(64.8)%
20.5
19.5
1.0
1.0
2.0
2008 full year corporate and distribution income decreased by $28.7 million due to the release of a $28 million provision in 2007
that was related to a prior year divestiture which became redundant. Distribution results were lower as higher combined ratios
negatively impacted the profitability of the distribution network.
Corporate and distribution –
income before income taxes (in millions)
$50
$40
$30
$20
$10
$0
$44.3
$33.4
$22.3
$15.6
2005
2006
2007
2008
22
SeCtION 7 – Financial condition
7.1 balance sheet highlights
The table below shows the significant balance sheet items as reported on December 31, 2008 and December 31, 2007.
tAble 22
Cash and cash equivalents
Invested assets
Debt securities
Equity securities
Loans and equity investments
Total invested assets
Premiums receivable
Deferred acquisition costs and reinsurance assets
Income tax receivable
Future income tax asset
Intangible assets and goodwill
Other assets
Total assets
Claims liabilities
Unearned premiums
Other liabilities
Income taxes payable
Total liabilities
Shareholders’ equity
Book value per share (dollars)
As at
December 31,
2008
December 31,
2007
510.4
3,832.5
2,015.1
261.3
6,108.9
1,469.4
606.6
221.0
54.2
217.8
585.1
9,773.4
4,064.9
2,366.8
701.7
7.4
7,140.8
2,632.6
21.96
8.1
3,886.7
3,140.3
210.8
7,237.8
1,440.8
653.1
168.4
68.7
221.7
591.1
10,389.7
3,989.0
2,333.5
862.6
32.5
7,217.6
3,172.1
25.48
Invested assets and cash and cash equivalents, decreased by $626.6 million notwithstanding cash flows generated from operations
of $619.7 million. This was mostly due to the decline in common and preferred share values in 2008 compared to 2007 in line with
the general market declines in 2008. In addition, the Company paid $176.0 million toward the NCIB in the first nine months of 2008.
Premiums receivables were higher than prior year, consistent with higher direct premiums written.
Deferred acquisition costs and reinsurance assets were lower in 2008 due to reinsurance assets which decreased due to higher
treaty retention which reduced recoverable case reserves.
Income taxes receivable were higher due to the impact of lower investment market values which generated tax loss carry-backs to
prior tax years.
Claims liabilities and unearned premiums were slightly higher when compared to 2007 due to a greater number of policies in force.
Note 6 to the Audited Consolidated Financial Statements provides a reconciliation of the changes in claims liabilities and unearned
premiums.
Other liabilities decreased compared to December 31, 2007 mainly due to the decrease in the fair value of the derivatives embedded
in the Company’s preferred shares, and the decrease in the accruals related to contingent profit commission.
Shareholders’ equity was reduced as a result of the increased unrealized loss position included in AOCI as at December 31, 2008
as well as the NCIB that occurred during the year.
ING C ANA DA I NC. 2008 A NN U AL REPORT
23
Management’s discussion and analysis
(in millions of Canadian dollars, except as noted)
7.2 Portfolio of invested assets
The Company’s portfolio of invested assets is managed by Intact Investment Management Inc. (formerly known as
ING Investment Management, Inc.), which is a wholly-owned subsidiary of the Company. The assets are managed by Intact
Investment Management Inc. in accordance with the IIC investment policy.
IIC has an investment policy that seeks to provide an attractive risk-return profile over the medium to long term. The investment
policy takes into account the current and expected condition of capital markets, the historic return profiles of various asset classes
and the variability of those returns over time, the availability of assets, diversification needs and benefits, regulatory capital required
to support the various asset types, security ratings and other material variables likely to affect the overall performance of the
Company’s portfolio of invested assets. The overall risk profile of the portfolio is designed to balance the investment portfolio return
needed to satisfy the Company’s liabilities while optimizing the investment opportunities available in the marketplace. Management
monitors and enforces compliance with the investment policy.
Mix of investment portfolio
tAble 23
Cash and cash equivalents
Short-term notes
Fixed income securities
Preferred shares
Common shares
Loans to brokers
Equity investments
As at December 31, 2008
As at December 31, 2007
FV
% of FV
FV
% of FV
510.4
293.8
3,538.7
1,220.1
795.0
271.5
19.0
7.7%
4.4%
53.2%
18.4%
12.0%
4.1%
0.2%
8.1
18.9
3,867.8
1,430.8
1,709.5
188.2
22.6
0.1%
0.3%
53.4%
19.7%
23.6%
2.6%
0.3%
Total invested assets and cash
6,648.5
100.0%
7,245.9
100.0%
The majority of the Company’s portfolio is invested in high-quality Canadian securities that are actively traded. The fair value for
most invested assets is based on quoted bid prices. In cases where an active market does not exist, the estimated fair values are based
on recent transactions or current market prices for similar securities. In 2008, the value of invested assets declined reflecting the
significant declines in capital markets during the year.
Fixed income securities
The Company invests in highly-rated fixed income securities mainly including corporate bonds and government bonds. The fixed
income portfolio is mostly Canadian with 18.4% foreign content. Approximately 97% of the fixed income portfolio is rated ‘A’
or better. The Company did not have any direct investments in asset-backed commercial paper, collateralized debt obligations,
hedge funds, monolines or U.S. mortgage loans as at the end of 2008. The Company had no exposure to leveraged capital notes in
structured investment vehicles, directly or through the use of derivatives as at December 31, 2008 (December 2007 – $19.8 million).
The Company has $285.0 million in asset-backed securities including mostly Canadian credit card loans and commercial
mortgage-backed securities.
Common shares
Common equity exposure is focused primarily on high dividend-paying Canadian equities. The Company seeks enhanced returns
by identifying and investing in shares that are likely to pay increased dividends or pay special dividends. Management undertakes
intensive analysis of investment opportunities to identify special dividend candidates. Similar evaluations are conducted to assess
securities most likely to increase dividends. In addition, the equity portfolios are actively managed to achieve additional dividend
payments to maximize dividend income throughout the year.
24
Preferred shares
The Company’s investment portfolio includes a large percentage of preferred shares to achieve its objective of maximizing dividend
income, which is generally deductible in the calculation of taxable income. The preferred share portfolio is not actively managed and
preferred shares are generally held until they are called. Consequently, the Company’s net income is impacted only when preferred
shares are impaired, or when the shares are called or sold. The preferred share portfolio is comprised entirely of Canadian securities
with a significant portion of the portfolio invested in securities top-rated at either P1 or P2.
Derivatives
The Company uses derivative financial instruments for hedging purposes and to modify the risk profile of the portfolio of invested
assets as long as the resulting exposures are within investment policy guidelines.
Cash and cash equivalents
In the latter half of 2008, to reduce exposure to volatile capital markets, the Company altered its asset-mix and strengthened the
balance sheet by reinvesting the proceeds from the sale of common shares and interest and dividend income in Canada Treasury
bills which by year end totalled $776.9 million, of which $483.1 million mature in less than 90 days and are included in cash
and cash equivalents.
Credit ratings
As at December 31, 2008, the weighted average rating of the Company’s fixed income portfolio was AA+ and the weighted
average rating of its preferred share portfolio was P2, equivalent to a rating of BBB+ (ratings are by Standard & Poor’s (“S&P”)
or Dominion Bond Rating Services). Approximately $1.0 million of securities with a rating below investment grade were included
in the fixed income and preferred share portfolios at December 31, 2008, compared to $38.3 million as at December 31, 2007.
Sector exposures
The following shows the Company’s total exposure to the largest industrial sectors.
tAble 24
Banks, insurance and diversified financial services
Government
Utilities
Other
Total invested assets
Sector exposures
(% of fair value)
Banks, insurance
and diversified
financial services
Government
Utilities
Other
42.8%
40.0%
3.4%
13.8%
As at December 31, 2008
As at December 31, 2007
FV
% of FV
FV
% of FV
2,631.4
2,452.5
206.9
847.3
6,138.1
42.8%
40.0%
3.4%
13.8%
100.0%
2,873.4
1,727.6
472.8
2,164.0
7,237.8
39.7%
23.9%
6.5%
29.9%
100.0%
ING C ANA DA I NC. 2008 A NN U AL REPORT
25
Management’s discussion and analysis
(in millions of Canadian dollars, except as noted)
The Company has higher exposure to banks, insurance companies and diversified financial services companies than its benchmark
of P&C insurers reflecting IIC’s strategy to maximize non-taxable dividend income through investments in preferred shares and
active management of its common share portfolio. Though the Company’s preferred share strategy continued to generate significant
incremental dividend income in 2008, the continued widening of credit spreads in the year and the significant increase in the
number of preferred issues towards the end of 2008 resulted in declines in the fair value of the preferred share portfolio.
Sector exposures by asset class
The following table shows sector exposures by asset class as a percentage of total cash and invested assets as at December 31, 2008.
tAble 25
Energy
Materials
Industrials
Technology
Telecom
Consumer Disc.
Staples
Healthcare
Financial
Utilities
Government
Total
Bonds and short
positions
Preferred
shares
Common
shares
2%
–
2%
–
1%
1%
–
–
23%
3%
68%
3%
–
–
–
7%
2%
2%
–
80%
6%
n/a
21%
4%
5%
–
11%
10%
4%
3%
36%
6%
n/a
total
5%
–
2%
–
3%
2%
1%
0%
36%
4%
47%
100%
100%
100%
100%
S&P/TSX
Weighting
27.4%
17.6%
6.1%
3.3%
6.0%
4.7%
3.4%
0.4%
29.2%
1.9%
n/a
100%
Investment portfolio credit quality
The following table includes the credit quality of the fixed income portfolio as at December 31, 2008 and 2007.
As at December 31, 2008
As at December 31, 2007
FV
% of FV
FV
% of FV
2,101.9
583.3
751.1
102.4
–
–
–
3,538.7
59.4%
16.5%
21.2% 8
2.9%
–
–
–
100.0%
2,025.8
821.7
51.9
148.7
5.8
10.9
3.0
3,867.8
52.4%
21.2%
22.0%
3.8%
0.2%
0.3%
0.1%
100.0%
tAble 26
Fixed income securities
AAA
AA
A
BBB
BB