IAG's Keys to Success in Life Insurance

Snapshot of a Successful Life Company
Does Size Matter?

Industrial Alliance Insurance and Financial Services
CIBC World Markets Frontenac Institutional Investor Conference
Quebec City, September 18, 2003
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Does Size Matter?
CIBC World Markets
Frontenac Institutional Investor Conference
2
Key Success Factors of a Life Company
n Sound business strategy
n Good financial strength
n Strong operational efficiency
Which lead to strong growth and
high and consistent profits
Does Size Matter?
3
Excel in one functional skill
Build dominant positions in chosen markets
Stake out position less vulnerable to
head-to-head competition
Exploit industry changes
Develop permanent competitive advantages
Sound Business Strategy
Impact of size
-
-
4
Good Financial Strength
Strong asset quality
Adequate actuarial reserves
Proven risk management
Capacity to raise long-term capital
High ratings
Impact of size
-
-
-
Does Size Matter?
5
Strong Operational Efficiency
Cost-efficient
Competitive and up-to-date technology
Performance-driven environment
Well-developed people system
Impact of size
-
-
6
Industry Characteristics
n Products No differentiation
n Growth potential Moderate for insurance products
High for wealth management
n Distribution Distributors have significant power in
consumer purchasing decisions
n Fixed costs Represent a small proportion of the
cost structure (beyond a certain critical
mass, relatively few economies of scale)
Conclusion: Distribution is the key
Does Size Matter?
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Industry Characteristics
Claims
53%
Compensation
19%
Expenses
14%
Profit and
taxes (incl. IIT)
14%
Distribution of the Price of an Individual Insurance Policy
Example of a UL level cost of insurance policy
Expenses are not a key differentiating factor
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Does Size Matter?
9
Key Elements of IAGs Business Strategy
1. Excel in one functional skill: Distribution (underpins strategy)
2. Build dominant positions in chosen markets
3. Stake out a position that is less vulnerable to head-to-head
attacks from competitors
4. Exploit industry changes (forward-looking management)
5. Develop permanent competitive advantages
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1. Excel in One Functional Skill: Distribution
n The key paradigm of the life insurance industry: life
insurance is a product that is sold to consumers,
not a product that is bought by consumers
n Success is therefore achieved through distribution
IAGs strategy
Serve all the needs of a segment of distributors, captive or
independent, where our global offering can make a difference
Does Size Matter?
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1. Excel in One Functional Skill: Distribution
Insurance
brokers
64%
Securities
brokers
9%
Other
2%
Exclusive
agents
25%
Insurance
brokers
59%
Exclusive
agents
41%
Exclusive Insurance Securities Mutual funds
agents brokers dealers planners
1,280 Over 12,000 Over 300 Over 1,000 (new)
IAGs Key Strength: Manage Large and Multi-Channel Networks
Individual Insurance
H1 2003 sales: $61.3 million
Individual Annuities
H1 2003 sales: $365.1 million
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2. Build Dominant Positions in Chosen Markets
Individual Insurance Segregated Funds
Top 5
2002
Sales Premiums Net sales Assets
1 Sun/Clarica Sun/Clarica Great-West Great-West
2 IAG Great-West Sun/Clarica Manulife
3 Manulife Manulife IAG Maritime
4 Great-West IAG TD Bank Sun/Clarica
5 Transamerica Maritime Manulife IAG
IAG market
share
1 12.9% 6.9% 14.4% 7.3%
Among the top 5 providers in each line of business
in which we choose to operate
IAG: Key Player in the Retail Insurance and Annuity Markets
1
2002 figures, except for seg fund assets (June 30, 2003)
Sources: CLHIA, LIMRA, IFIC, Investor Economics and Beyond 20/20
Does Size Matter?
13
Current Price Pressures
2. Build Dominant Positions in Chosen Markets
n Not a new element
n Usually only lasts for a very short period
n If pressure is maintained for a longer period, there are only
two possible outcomes for each company:
n Move back towards more disciplined pricing
n Lose margins
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3. Stake Out a Position That is Less Vulnerable
to Head-to-Head Attacks From Competitors
IAG Avoids Competing on Price Only
n Develop a smart product mix
n IAG is not a single product company
n Rely on a loyal sales force
n Exclusive career agents and dedicated brokers
n More concentrated in the family market (less crowded),
while pursuing development in the high-income market
n Stand out with:
n New complementary products: RESPs, hedge funds
n Original sales concepts: new insured annuities
n Innovative features: critical illness refund
Does Size Matter?
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Take Advantage of Convergence in Distribution
n Stock brokers 74% have a life license
n Mutual fund agents 60% have a life license
n Life agents 65% have a mutual funds license
4. Exploit Industry Changes
And many agents have more than two licenses
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Year Company Sector
2001 Concorde Mutual fund dealer
2002 ISL-Lafferty Securities broker
2002 BNP (Canada) Securities broker
2002/03 FundEX (75%) Mutual fund dealer
2002 Leduc Securities broker
2003 Global Allocation Mutual fund dealer
2003 Co-operators MF Mutual fund manufacturer
IAGs Wealth Management Strategy: Recent Acquisitions
Aimed at Enhancing Distribution
4. Exploit Industry Changes
Total purchase price: less than $14 million
1,000 new brokers and some $4.5 billion in AUA
Does Size Matter?
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5. Develop Permanent Competitive Advantages
n We help our distributors grow their business,
attract new agents and improve their head office
n No key decision is made without their input
n We focus on distributors for which our support
can make a difference
IAG Focuses on Distribution
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Does Size Matter?
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Strong asset quality
Adequate actuarial reserves
Proven risk management
Capacity to raise long-term capital
High ratings
Impact of size
-
-
-
20
Prudent Long-Term Management Approach
n Strong asset quality
n Everyone agrees that IAG has a high, above-average
quality of assets
n Adequate actuarial reserves
n Compares favorably to peers on any criteria (PADs, EmV)
n Conservative seg fund reserving: highest standard at CTE 80
n Proven risk management
n Conservatively-designed seg fund guarantee
n Optimal/limited use of reinsurance: not used to front-end profits
Does Size Matter?
21
Capacity to Raise Long-Term Capital
Successful Issue of Innovative Tier 1 (IATS)
on July 4, 2003
n Issue of $150 million
n Permanent capital now accounts for 87% of total capital
n Securities carry an annual yield of 5.714%
n Represents a spread of 120 basis points over 10-year
Canada bonds
n IATS spread is only 15 basis points higher than Sun Life,
Manulife and Great-West
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High Ratings
Rating agency Rating Level Trend First rating
Standard & Poors A+ 4/21 Stable 1995
1
DBRS IC-2 2/5 Stable 2000
A.M. Best A (Excellent) 3/16 Stable 1995
1
Originally from CBRS
n A+ rating from S&P, similar to that of 3 out of the 5 largest
Canadian banks
n Rating influence on ability to attract new business
n Very low for retail and group insurance businesses
n Somewhat important for large Group Pensions accounts
Does Size Matter?
23
24
Cost-efficient
Competitive and up-to-date technology
Performance-driven environment
Well-developed people system
Impact of size
-
-

Does Size Matter?
25
IAG is a Low-Cost Producer
n Our strategy favours policy count over size
n IAG sells over 100,000 individual life insurance policies a year
(17% market share in 2002)
n Top managements ability to penetrate to business
microlevels
n Culture: one sponsor for every dollar of expenses
n Quebec City is a cost-efficient location to operate
Cost-Efficient
We improve what we measure
26
Competitive and Up-To-Date Technology
n Invest in technology if strategic, important and profitable
n Close follower, except where we can make a difference
n Software at points-of-sale
n Customer relationship management (CRM) for agents
n Technology decision-making process is geared to meet
real needs and deliver benefits
n Job rotation for information system users and professionals
n Investments chosen by head of business unit (not head of IS)
Does Size Matter?
27
Focus on Achieving Long-Term Goals
n Performance-driven environment
n Managers responsible for both the top and the bottom line
n Demanding work place
n Systematically learn from mistakes
n Well-developed people system
n Focus on performance and motivation
n Low turnover rate: 5%
n Average length of service with the Company: 18 years
n Training programs: 3% of payroll
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And the Future...
Does Size Matter?
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And the Future...
n Beyond a certain critical mass, that IAG easily satisfies,
size is not a key success factor
n Sound business strategy matters more than size
n Excel in one functional skill: Distribution
n IAGs distribution strategy is what distinguishes it from
its competitors
Well-Nurtured Success Factors Lead
to Successful Results
IAG can be as successful in the future
as it has in the past
30
Does Size Matter?
CIBC World Markets
Frontenac Institutional Investor Conference

IAG's Keys to Success in Life Insurance

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Snapshot of a Successful Life Company

Does Size Matter?

Snapshot of a Successful Life Company

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