The Future of Bancassurance

Rebuilding Confidence

International Insurance Society Annual Seminar

June 07, 2010

Oscar Zimmerman
SVP & Managing Director, Corporate Insurance
The Bank of Nova Scotia
Agenda

• Bancassurance
• Customer Needs
• Opportunities
• Challenges

• Scotiabank Strategy
• Key Success Factors
• Operational Results
• Closing
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Definition
BANCASSURANCE

Distribution of any insurance product through Bank channels

Products - Bank Owned Insurer Products – Other Insurers

BANK

Branch Officers Insurance Agents External Sales Forces

Telemarketing Internet Mailing

BANK CLIENTS

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Types of Products
BANCASSURANCE

• Risk Protection
• Life and health insurance Creditor Insurance

• Automobile and home insurance Optional Insurance

• Wealth Accumulation
Universal Life
• Savings with an insurance component

• Accumulation and payout annuities Annuities

• Pensions
4
Retail Banking Products
CUSTOMER NEEDS

• Choice
• Simple, easy to understand and purchase
• Convenience
• Service
• Trust the “promise to pay”
• Price competitive
Bancassurers are uniquely positioned to offer
an integrated value proposition to meet
customer needs at various life stages.

5
Life Stages
CUSTOMER NEEDS

Typical Changes in Life Stage

New Established
Family Family
• Buy Home • Save for
• Acquire Goods Education
Pre-
Couple • Protect Income • Reduce Debt
Retirement
• Buy Home • Plan to Retire
• Start Saving • Accumulate
• Acquire Goods • Plan Estate

Single Retired
Independent
• Buy Car • Disburse
• Plan to retire
• First Job Savings
• Buy home
• Start Saving • Plan estate • Plan Estate

It is easier to cross sell insurance to existing relationships

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How Does Bancassurance Help Retail Banks?
RETAIL BANK OPPORTUNITY

• Protects credit insurance

• Improves loyalty and cost utilization
• Additional fee income boosts shareholder ROE
• Insurance risk taking is less correlated to the credit cycle
• Approved borrowers tend to be better insurance risks

7
Cultural Differences Between Financial Sectors
BANCASSURANCE CHALLENGES

BANKING INSURANCE

Consumer Brand Distributor Brand Closing the Cultural Gaps

Transactions
Sales &  Protect Bank Reputation
Relationship-based

Fixed cost Variable cost  Focus on Retail

Mortality,  Understand and manage

Liquidity, credit
& financial risk morbidity, property insurance risk volatility
management & financial risk
management  Enhance ROE with stable
Short Term Long Term recurring income
Focus Focus

Deconsolidated Deconsolidated
capital ratio test capital ratio test

Chief Risk Officer Appointed Actuary

(CRO) (AA)
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Regulatory Framework
BANCASSURANCE CHALLENGES

• Bank and Insurance sectors separately regulated

• Outdated regulations

• Limits of regulatory restrictions

• International insurance regulation vary

9
Strength of Canada & Canadian Financial System
SCOTIABANK STRATEGY

• Strong Canadian Financial System

• Sound Canadian Banking System
• World Economic Forum

Relative bank share price performance

30 Data to May 3, 2010
25
20
5-Year CAGR
15
10-Year CAGR
10
5
0
-5
-10
-15
-20
-25
Canada Australia U.S. Switzerland U.K.* Japan*

* As of April 30, 2010.

Source: Bloomberg; Scotia Capital.

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Scotiabank Around The World

SCOTIABANK STRATEGY

• 14.6 million customer in some 50 countries

• 68,000 employees worldwide (32,000 in Canada)

• Personal, Commercial, Corporate and Investment Banking

• 2700 + Branches and Offices, 5800 ABMs

• Diversified Business Lines: Canadian Banking, International

Banking, Scotia Capital

• Market Cap. Circa $50 billion, USD (Top 25)

• Tier 1 capital ratio 11.2%, S & P AA-

• Net Income 2009 Full Year $C3.5 billion ROE 16.7%

2010 Half Year $C2.1 billion ROE 18.7%
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Top Tier ROE Versus Global Peer Group
SCOTIABANK STRATEGY

2009 Return on Equity (Reported)

Canada U.S. International

Scotia 16.7% Wells Fargo 9.9% Credit Suisse 18.3%

Royal 11.9 US Bancorp 8.2 BBVA 16.0

Commonwealth
BMO 9.9 JPMorgan 6.0 Bank 15.8
of Australia

Bank of
CIBC 9.4 n/m Deutsche 14.6
America

TD 8.4 Citibank n/m HSBC 5.1

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Global Priorities
SCOTIABANK STRATEGY

• Sustainable revenue growth

• Capital management
• Leadership
• Prudent risk management and appetite
• Efficiency and expense management

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Scotiabank Mission
SCOTIABANK STRATEGY

To be the best at helping customers become financially

better off by finding relevant solutions to meet their
unique needs.

Four Cornerstone Strategy

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Bancassurance Strategy
SCOTIABANK STRATEGY

• Focus on helping customers protect their assets

• Leverage Bank distribution and servicing capabilities,
financial strength and brand awareness

• Assume retail insurance risks

• Assume 3rd party reinsurance risks that are less
correlated with traditional bank risk

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Insurance Footprint
SCOTIABANK STRATEGY

Direct Writing Subsidiaries Insurance Brokerages

Canada (L & H) Canada
Dominican Republic (L & H) Chile
El Salvador (L & H / P & C) Costa Rica
Jamaica (L & H) Dominican Republic
Trinidad (L & H) Puerto Rico

Reinsurance Subsidiary Insurance Fee Income

Barbados (L & H / P & C) Caribbean
Central America
Joint Venture Mexico
El Salvador (Auto) Peru

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 Key Success Factors in Bancassurance
KEY SUCCESS FACTORS

• Identify profit zone in retail value chain

• Integrated sales processes
• Sales Management
• Optimize corporate structure and risk taking business model
• Manage adverse earnings volatility

Teamworkisiscritical
Teamwork criticalto
tostrategy
strategyexecution
execution

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Identify Profit Zone in the Retail Value Chain
KEY SUCCESS FACTORS

Retail Banking Retail Consumers

Products Protection Needs

Retail Banking Sales &

Service Platforms

Value Proposition Differs By Customer Segment

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Integrated Sales Processes
KEY SUCCESS FACTORS

Simple
Simple Streamlined
Streamlined Systematicsales
Systematic sales
productportfolio
product portfolio salesprocess
sales process management
management
Leverage
Leverage
Information
Lowproduct
Low product Comprehensive
Comprehensive
Information
Technology
Technology
complexity
complexity salessupport
sales support Systemsand
and
Systems
CustomerData
Customer Data

Attractive
Attractive IntegratedSales
Integrated Sales
Bundledsales
Bundled sales
packaging
packaging Management
Management

RigorousMarket
Rigorous Market
Simplified
Simplified Systematicsales
Systematic sales
conduct
conduct
underwriting
underwriting guidance
guidance compliance
compliance

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 Sales Management
KEY SUCCESS FACTORS

• Measurable bank channel sales targets

• Appropriate incentives impacting bonus compensation

• Fully automated and simple sales process

• Provide continuous product and sales training

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Optimize Business Model
KEY SUCCESS FACTORS

Decision Criteria: Choices:

• Local Market Structure
• Insurer Financial Strength
• Regulatory Environment
• Retained Risk Appetite
• Management Capacity
• Underwriting Subsidiary
• Pure Distribution
• Distribution/Reinsurance
• Joint Venture

• Speed to Market

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Manage Adverse Earnings Volatility
KEY SUCCESS FACTORS

• Insurance Oversight Committee

• External Appointed Actuaries for Subsidiaries

• Follow Canadian Insurance Prudential Standards

• Pre-Approval of limits for catastrophic events

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Operational Results

•Protect Bank Reputation

•Focus on Retail

•Understand and manage insurance risk

•Enhanced ROE, Stable Recurring Income

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Closing Observations

• Insurance profits held firm during financial crisis

• Bank colleagues were very appreciative

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 Thank You

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