ING Canada Reports 2008 Third Quarter Results

TORONTO, Nov. 12, 2008 (Canada NewsWire via COMTEX) -- IIC | Quote | Chart | News | PowerRating -- << Operating income per share up 14.3% on improved underwriting results Net income impacted by financial market volatility Strong financial position with significant excess capital and no debt >>

ING Canada Inc. (TSX: IIC | Quote | Chart | News | PowerRating) reported net operating income of $106.4 million or $0.88 per share for the quarter ended September 30, 2008 up from $95.4 million or $0.77 per share recorded in the same quarter of last year on improved underwriting performance. Direct premiums written increased marginally in the quarter to $1,100.3 million, excluding industry pools, as the company remains committed to its disciplined approach to risk selection and pricing.

Despite improved operating performance, net income declined to $57.3 million or $0.47 per share down from $92.0 million or $0.74 per share, last year. The decline reflects $62.0 million of realized losses on investment associated with the turbulent financial market conditions.

CEO's comments

Charles Brindamour, President and CEO, commented:

"Our operating performance continues to improve with a significant increase in the profitability of our auto and commercial insurance activities during the quarter. This improvement resulted from numerous underwriting and pricing initiatives taken over the last twelve months to address the increased costs in claims in personal insurance, and our strategy to concentrate on the most profitable segments of commercial insurance.

"Our investment activities are generating substantial interest and dividend income with a 4.9% yield. During the quarter we reduced the impact of the volatility of the capital markets on our balance sheet by decreasing our common share portfolio by $260 million and reinvesting the proceeds in Canadian government treasury bills.

"We also exercised prudence in the management of our capital base by suspending for the time being our share repurchase plan after acquiring nearly 75% of the planned repurchases. Overall, our balance sheet is strong with approximately $500 million in excess capital and no debt. This positions us well among financial institutions and allows us to pursue our growth strategy."

Dividend and share buyback

ING Canada declared a quarterly dividend of 31 cents per share on its outstanding common shares. The dividend will be payable on December 31 to shareholders of record on December 15. Since announcing its normal course issuer bid in February, the company has acquired for cancellation as of September 30, 4.6 million shares for $176.0 million. In late September, given the extraordinary market volatility, the company suspended for the time being the purchase of shares. The decision reflects the company's prudent practices in managing its financial resources.

Recent events

On October 21st, Moody's Investors Services affirmed its long-term issuer rating of A3 to ING Canada and the insurance financial strength rating of Aa3 to its insurance subsidiaries with a stable outlook.

On November 3rd, the company announced that it was discontinuing its use of the debt rating services provided by Standard & Poor's. Upon the cessation of its coverage, S&P reaffirmed the A+ rating of ING Canada's primary insurance subsidiaries with a stable outlook.

Consolidated Highlights

<< ------------------------------------------------------------------------- In millions of dollars, except as otherwise 2008 2007 2008 2007 noted Q3 Q3 Change YTD YTD Change --------- --------- --------- --------- --------- --------- Direct Premiums Written 1,100.3 1,091.2 0.8% 3,177.3 3,147.3 1.0% Underwriting Income(1) 61.9 29.0 113.4% 106.1 120.8 (12.2)% Net Operating Income(2) 106.4 95.4 11.5% 285.8 340.7 (16.1)% Net Operating Income Per Share 0.88 0.77 14.3% 2.33 2.67 (12.7)% Net Income 57.3 92.0 (37.7)% 192.3 412.6 (53.4)% Net Income Per Share ($) Basic and Diluted 0.47 0.74 (36.5)% 1.57 3.24 (51.5)% Return on Equity - last 12 months 9.5% 16.0% (6.5)pts Combined Ratio (excluding MYA) 94.0% 97.1% (3.1)pts 96.5% 95.9% 0.6 pts ------------------------------------------------------------------------- (1) Underwriting income is defined as underwriting income excluding market yield adjustment (MYA) (2) Net operating income is defined as the sum of underwriting income, interest and dividend income and corporate income after tax >>

Current Outlook

The profitability of the industry will continue to be under pressure as a result of increases in claims and weaker capital market conditions.

The increase in claims costs in auto insurance in Ontario and Alberta as well as the water-related damages in home insurance will lead to premium increases in personal insurance.

The unprecedented volatility and instability of the capital markets will likely result in additional investment losses for the industry and a reduction of its excess capital position.

The Canadian economy is weakening under the pressures of the global financial crisis and reduced commodity prices. However, the property and casualty insurance industry tends to be less sensitive to economic slowdown than many other sectors.

ING Canada is well-positioned to continue to outperform the property and casualty industry in the current environment due to its significant scale, pricing and underwriting discipline, prudent investment management and its strong financial position.

Operating Highlights

<< - Net operating income, which is defined as the sum of underwriting income, interest and dividend income and corporate income after tax, increased 11.5% to $106.4 million during the quarter but decreased 16.1% to $285.8 million for the first nine months mainly as a result of the impact of the severe winter and spring storms. - Direct premiums written reached $1,100.3 million during the quarter, a 0.8% increase over the same quarter of last year. The slow pace of growth reflects our continued pricing discipline in both personal and commercial lines. In home and auto insurance, higher average amounts insured and higher rates more than compensated for the decline in the number of risks insured. In commercial insurance premiums declined slightly, as competitive pressures continue, despite a 1.6% increase in the number of risks insured. For the first nine months of the year, total direct premiums written increased by 1.0%. - Underwriting income, excluding the market yield adjustment, improved significantly during the quarter to reach $61.9 million. The combined ratio improved 3.1 percentage points to 94.0% with underwriting income rising substantially in all lines of business, except personal property. Personal auto insurance results improved by $22.4 million during the quarter with a combined ratio of 90.8% reflecting the impact of premiums increases and better current accident year results. Personal property insurance continued to be impacted by excessive rain and seasonal storms in Quebec and Ontario and sustained an underwriting loss of $27.6 million with a combined ratio of 112.2%. Our commercial insurance business posted a solid performance with a combined ratio of 85.3% and an underwriting income of $40.4 million, up from $23.2 million. The increased profitability in commercial insurance reflects an improved current year experience as well as more favourable prior year claims development. For the first nine months of the year, underwriting income declined 12.2% to $106.1 million due to the severe storms that took place both during the winter and spring months. The combined ratio for the first nine months was 96.5%. - Interest and dividend income, net of expenses decreased slightly to $83.1 million as a result of the share buyback program. For the first nine months of the year, interest and dividend income amounted to $250.5 million compared to $258.4 million the year before. Investments - Net losses on invested assets, excluding held-for-trading debt securities, totalled $62.0 million, up from $9.5 million last year. The turbulence of the financial markets and the disposition of $259.5 million of common shares held in our investment portfolio resulted in realized losses of $41.4 million. Impairments to both equity and debt securities were down 47% to $15.1 million. For the year to date, we realized a loss of $122.2 million compared to a gain of $113.4 million during the corresponding period of last year. >>

Analyst Estimates

The average estimate of earnings per share and operating earnings per share for the third quarter among the analysts that follow the company were $0.85 and $0.86 respectively.

Conference Call

ING Canada will host a conference call to review its earnings results later this morning at 10:00 a.m. ET. To listen to the call via live audio webcast and to view the presentation slides and supplementary financial information, visit our website at www.ingcanada.com and click on "Investor Relations".

The conference call is also available by dialling 416 915-5763 or 1-800-814-4941 (toll-free in North America). Please call ten minutes before the start of the call.

A replay of the call will be available at 12:30 p.m. ET today through 11:59 p.m. ET on November 20. To listen to the replay, call 416 640-1917 or 1-877-289-8525 (toll-free in North America). The passcode is 21287153 followed by the number sign. A transcript of the call will also be available on ING Canada's website.

About ING Canada

ING Canada offers automobile, property and liability insurance to individuals and businesses through its insurance subsidiaries. It is the largest provider of property and casualty insurance in the country with more than $4 billion in direct premiums written. The company's investment subsidiary manages a portfolio of approximately $7 billion, comprised mainly of high quality Canadian securities.

<< Management's Discussion and Analysis For the third quarter ended September 30, 2008 Table of contents Section 1 - ING Canada............................................... 3 Section 2 - Canadian property and casualty insurance industry outlook.................................................... 4 Section 3 - Overview of consolidated performance..................... 5 Section 4 - Personal lines........................................... 13 Section 5 - Commercial lines......................................... 15 Section 6 - Corporate and distribution............................... 16 Section 7 - Financial condition...................................... 18 Section 8 - Accounting and disclosure matters........................ 21 Section 9 - Risk management.......................................... 23 Section 10 - Other matters........................................... 23 >>

November 11, 2008

The following Management's Discussion and Analysis ("MD&A"), which was approved by the Board of Directors for the quarter ended September 30, 2008, is intended to enable the reader to assess the company's results of operations and financial conditions for the three- and nine-month periods ended September 30, 2008, compared to the corresponding periods in 2007. It should be read in conjunction with the company's Unaudited Interim Consolidated Financial Statements and accompanying notes, as well as the MD&A and the Consolidated Financial Statements in the company's 2007 Annual Report.

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 2007 Annual Information Form. Please read the cautionary note in section 10.2 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. - "ING", "ING Canada" and "the company" are terms used throughout the document to refer to ING Canada Inc. and its subsidiaries. Section 1 - ING Canada 1.1 Overview of the business >>

ING Canada is the largest provider of property and casualty ("P&C") insurance in Canada offering automobile, property and liability insurance to approximately four million individuals and businesses across Canada. Overall, the company has an approximate 11% market share and is the leading private sector P&C insurer in Ontario, Quebec, Alberta and Nova Scotia. ING Canada distributes insurance through brokers under ING Insurance and Grey Power, and direct-to-consumers through belairdirect. ING Canada's investment management subsidiary manages the invested assets of the company and its insurance subsidiaries.

<< Section 2 - Canadian property and casualty insurance industry outlook ------------------------------------------------------------------------- P&C industry ING Canada's response ------------------------------------------------------------------------- Pricing and - Increases in claims in personal - Pricing strategies claims auto in Ontario and Alberta demonstrate commitment environment will likely lead to premium to sustaining (12-month increases appropriate outlook) underwriting margins - Proactive in addressing - In Ontario, industry claims trends personal auto rate are - Focusing on innovation, starting to rise as expected, supply chain management in response to higher and efficiency in accident benefit & bodily claims injury ("AB/BI") - Taking robust actions - The Alberta Insurance Rate in home insurance in Board approved a 5.0% rate pricing, segmentation increase on mandatory personal and claims to build a auto insurance effective in sustainable competitive November 2008 advantage - Increases in water-related - Reducing Insurance-to- damages could drive higher Value gap in property personal property premiums lines - Commercial insurance has - Differentiating remained competitive, 'AcceL', ING's small particularly on large accounts business commercial offering from others on the market - Ready to exploit growth opportunities ------------------------------------------------------------------------- Economic - Overall, P&C industry results - Focusing on strong conditions are not greatly correlated execution in core with economic cycles underwriting business - Demand for P&C insurance is - Enhancing our risk relatively inelastic; personal selection model that auto insurance is mandatory puts emphasis on and property insurance is financial stability, a required on mortgaged factor that will give properties us even greater - The expense base for P&C advantage in a weak insurance companies is largely economy variable - Identifying opportunities to maximize quality growth ------------------------------------------------------------------------- Capital - Capital markets have - Financial position is Markets experienced intense strong with $502 volatility and instability million(1) in excess in recent months, which have capital and no debt resulted in investment losses, - $6.8 billion investment higher borrowing costs and portfolio is largely diminished excess capital Canadian with minimal position in the industry US exposure and includes no leveraged structured investments - Reduced balance sheet volatility through changes in the portfolio mix and by taking a cautious approach toward share repurchases - Lower excess capital levels in the industry could create more opportunities for ING to consolidate in the Canadian market ------------------------------------------------------------------------- (1) Assumes Minimum Capital Test ("MCT") of 170% >>

We expect the P&C industry will face continued pressure as a result of higher claims and weaker capital market conditions. However, ING Canada is well-positioned to continue to outperform the P&C industry in the current environment due to our significant scale, pricing and underwriting discipline, prudent investment and capital management practices, and strong financial position.

<< Section 3 - Overview of consolidated performance Third quarter highlights - Net operating income per share increased 14.3% driven by robust underwriting income - Combined ratio improved by 3.1 percentage points to 94.0% - Net earnings impacted by capital market volatility and our actions to reduce equity portfolio - Financial position is strong with significant excess capital and no debt Consolidated financial results Table 1 - Components of net income (in millions of dollars, except as otherwise YTD YTD noted) Q3-2008 Q3-2007 Change 2008 2007 Change ------------------------------------------------------------------------- Direct premiums written (excluding pools) 1,100.3 1,091.2 0.8% 3,177.3 3,147.3 1.0% Underwriting income (excluding MYA) 61.9 29.0 113.4% 106.1 120.8 (12.2)% Combined ratio (excluding MYA) 94.0% 97.1% (3.1)pts 96.5% 95.9% 0.6 pts Interest and dividend income, net of expenses (table 7) 83.1 84.7 (1.9)% 250.5 258.4 (3.1)% (Losses) gains on invested assets and other gains (table 8) (81.3) (2.8) n/a (135.8) 76.8 (276.8)% Income before income taxes 68.7 116.8 (41.2)% 231.7 539.1 (57.0)% Income tax expense 11.4 24.8 (54.0)% 39.4 126.5 (68.9)% Effective income tax rate 16.7% 21.2% (4.5)pts 17.0% 23.5% (6.5)pts Net income 57.3 92.0 (37.7)% 192.3 412.6 (53.4)% Net operating income (table 17) 106.4 95.4 11.5% 285.8 340.7 (16.1)% ------------------------------------------------------------------------- ------------------------------------------------------------------------- Earnings per share ("EPS") - basic and diluted (dollars) 0.47 0.74 (36.5)% 1.57 3.24 (51.5)% Net operating income per share (dollars) 0.88 0.77 14.3% 2.33 2.67 (12.7)% ------------------------------------------------------------------------- ------------------------------------------------------------------------- Return on equity ("ROE") for the last 12 months 9.5% 16.0% (6.5)pts Book value per share (dollars) 24.15 25.70 (1.55) ------------------------------------------------------------------------- ------------------------------------------------------------------------- 3.1 Explanation of consolidated financial results Table 2 - Changes in pre-tax operating income (year-over-year) (in millions of dollars, except as otherwise noted) Q3-2008 YTD 2008 ------------------------------------------------------------------------- Pre-tax operating income, as reported in 2007 119.9 421.7 Change in favourable prior year claims development 32.4 56.8 Changes in current accident year from: Underwriting income 9.2 (8.1) Losses from catastrophes (3.8) (55.9) Results from Facility Association (5.1) (7.7) Change in underwriting income excluding MYA 32.7 (14.9) Change in interest and dividend income, net of expenses (1.6) (7.9) Change in corporate and distribution (8.3) (28.8) Pre-tax operating income, as reported in 2008 142.7 370.1 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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 3 - Changes in income before income taxes (year-over-year) (in millions of dollars, except as otherwise noted) Q3-2008 YTD 2008 ------------------------------------------------------------------------- Income before income taxes, as reported in 2007 116.8 539.1 Change in net gains on invested assets and other gains excluding held for trading ("HFT") debt securities (table 8) (52.5) (235.6) Change in pre-tax operating income (table 2) 22.8 (51.6) Change in market yield effect (table 9) (18.4) (20.2) Income before income taxes, as reported in 2008 68.7 231.7 Income tax (11.4) (39.4) Net income as reported in 2008 57.3 192.3 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >>

Third quarter 2008

Operating performance was strong in the third quarter, driven by a $32.7 million increase in underwriting income and a 3.1 point improvement in the combined ratio to 94.0%. The increase in underwriting income was due to pricing and underwriting discipline in both personal and commercial lines, strong operational execution and the high quality of the portfolio. The pace of direct premiums written growth has been more modest in recent quarters reflecting our commitment to sustaining appropriate underwriting margins through pricing discipline.

Underwriting income rose substantially in all lines of business, except personal property which was impacted by excessive rain and other seasonal storms in Ontario and Quebec. In personal auto, the combined ratio improved by 3.9 percentage points to a healthy 90.8% reflecting lower current year claims. We have been adjusting our premiums in personal lines to reflect higher material and labour costs and higher water-related property claims. These premium adjustments are flowing through to higher net earned premiums as existing policies renew and new policies are written.

Commercial lines continued to deliver robust underwriting income with combined ratios of 88.4% in commercial non-auto and 77.9% in commercial auto. The 74.1% increase in commercial underwriting income reflects our successful strategy to concentrate in the small and medium-size commercial segments, as well as effective claims and expense management. In addition, commercial underwriting results benefited from more favourable prior year claims development.

Despite turbulent capital market conditions, our financial position is strong with no debt, significant excess capital and an MCT ratio of 199.9%. On the investment side, we continue to manage our $6.8 billion portfolio prudently and have no leveraged structured investments. The equity portfolio is 100.0% Canadian, including common and preferred shares of high-quality, dividend-paying Canadian companies. Approximately 90.0% of the preferred share portfolio is top-rated at either P1 or P2 and more than 95.0% of the fixed income portfolio is rated 'A' or better.

In the current environment, we took proactive steps to reduce balance sheet volatility by decreasing our common share portfolio by $259.5 million providing additional insulation through this period of financial market uncertainty. The proceeds of the asset dispositions were largely reinvested in Canadian government treasury bills. In total, we recognized a $62.0 million net loss on invested assets excluding held-for-trading bonds in the third quarter, reflecting the sharp decline in market valuations, the reduction of the common share portfolio and $15.1 million in impairments.

Overall, net operating income per share increased 14.3% on strong underwriting performance, but earnings per share decreased by 36.5% to $0.47 reflecting the impact of capital market turbulence.

Year-to-date 2008

Direct premiums written increased by 1.0% overall as we maintained pricing discipline in both personal and commercial lines. Rates in personal lines are being adjusted to reflect higher material and labour costs and higher water-related property claims. The commercial business has remained robust due to our pricing discipline and portfolio shift toward smaller accounts that are more profitable compared to larger commercial accounts. Our pricing strategies demonstrate commitment to sustaining appropriate margins in our underwriting business, even if it results in slower organic growth in the near-term.

Underwriting income decreased to $106.1 million compared to $120.8 million in the first three quarters of 2007 mainly due to severe seasonal storms in Central Canada over the first nine months of 2008. The storms led to higher overall claims, including $87.3 million in catastrophe claims compared to $31.4 million in catastrophe claims over the same period in 2007. In Central Canada, we experienced near-record snowfall in the first quarter and severe hail, rain and wind storms over the last two quarters.

Current year results in personal auto improved slightly year-over-year despite the storms, leading to a combined ratio of 93.6% for the first three quarters; a slight improvement of 0.4 points year-over-year. Personal property underwriting performance was most impacted by the seasonal storms, resulting in a loss of $88.8 million year-to-date; a large portion of which was related to catastrophe claims. In commercial lines, underwriting income increased markedly year-over-year due to more favourable prior year claims development.

Overall, net income decreased to $192.3 million, down from $412.6 million in the first nine months of last year. The drop reflects lower operating income and recognized investment losses, mainly in the common share portfolio. Capital market volatility and the sale of a portion of the common share portfolio contributed to a realized loss on equity securities compared to a gain over the same period in 2007. In addition, at the beginning of 2008, we had an unrealized loss position in the investment portfolio versus a large unrealized gain position at the same point in 2007. Refer to table 8 for more information on unrealized gains and losses on AFS securities.

Return on equity

ROE for the 12-month period ending September 30, 2008 was 9.5% compared to 16.0% at September 30, 2007, reflecting lower net income explained above.

Book value

Book value per share decreased to $24.15 in the third quarter from $25.70 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")

ING Canada announced its NCIB in February 2008 to buy back up to 6.2 million shares over the following 12 months. At the end of September 2008, the NCIB was 73.4% complete with approximately 4.6 million shares repurchased at an average price of $38.53. ING Canada's majority shareholder, ING Groep N.V., has also participated in the NCIB to maintain its proportionate share ownership at 70%.

In light of extraordinary capital market volatility in the third quarter, we suspended for the time being the NCIB and consequently have not bought back any shares since mid September. This decision reflects the company's prudent capital management practices and is consistent with the Advisory published by the Office of the Superintendent of Financial Institutions (OSFI) on October 22, 2008.

Standard & Poor's debt rating services

On November 3, 2008, we announced that we have discontinued debt rating services provided by Standard & Poor's. Upon the cessation of its coverage, S&P's reaffirmed the A+ rating of ING Canada's primary insurance subsidiaries. We are rated by three other rating agencies; therefore, we felt it was unnecessary to continue rating services with S&P's.

<< 3.2 Underwriting income Table 4 - Net premiums earned, claims and general expenses (in millions of dollars, except as otherwise YTD YTD noted) Q3-2008 Q3-2007 Change 2008 2007 Change ------------------------------------------------------------------------- Net premiums earned 1,032.3 994.0 3.9% 3,020.2 2,927.4 3.2% Net claims: Current year claims (excluding MYA) 717.7 692.8 3.6% 2,052.4 1,961.5 4.6% Current year catastrophes 20.4 16.6 3.8 87.3 31.4 55.9 (Favourable) prior year claims development (excluding MYA) (56.4) (24.0) (32.4) (96.7) (39.8) (56.9) Total net claims (excluding MYA) 681.7 685.4 (0.5)% 2,043.0 1,953.1 4.6% Commissions, net 142.6 135.6 5.2% 427.1 436.8 (2.2)% Premium taxes, net 35.8 34.3 4.4% 105.1 101.9 3.1% General expenses, net 110.3 109.7 0.5% 338.9 314.8 7.7% Total underwriting expenses 288.7 279.6 3.3% 871.1 853.5 2.1% Total underwriting income (excluding MYA) 61.9 29.0 113.4% 106.1 120.8 (12.2)% ------------------------------------------------------------------------- ------------------------------------------------------------------------- Table 5 - Underwriting ratios (excluding MYA) YTD YTD Q3-2008 Q3-2007 Change 2008 2007 Change ------------------------------------------------------------------------- Claims ratio 66.0% 69.0% (3.0)pts 67.7% 66.7% 1.0 pts Expense ratio 28.0% 28.1% (0.1)pts 28.8% 29.2% (0.4)pts Combined ratio 94.0% 97.1% (3.1)pts 96.5% 95.9% 0.6 pts ------------------------------------------------------------------------- ------------------------------------------------------------------------- Table 6 - Annualized rate of favourable prior year claims development YTD Full year (annualized rate, excluding MYA) Q3-2008 2008 2007 2006 ------------------------------------------------------------------------- (Favourable) unfavourable prior year claims development as a % of opening reserves (6.0)% (3.4)% (2.9)% (4.9)% ------------------------------------------------------------------------- ------------------------------------------------------------------------- >>

Favourable prior year claims development

Excluding MYA, favourable prior year claims development was $56.4 million in the third quarter, 6.0% of opening reserves on an annualized basis, and $96.7 million year-to-date, or 3.4% of opening reserves, annualized. The rate of development in the third quarter was higher than the long-term average of 3-4%, partly due to a change in estimates as explained on page 19.

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.

Industry pools

Industry pools consist of the "residual market" as well as risk-sharing pools ("RSP") in Alberta, Ontario, Quebec, New Brunswick and Nova Scotia. These pools are managed by the Facility Association except the Quebec RSP. In the third quarter, the net effect of transfers in and out of these pools, including the Facility Association, lowered year-over-year personal auto underwriting income by $7.0 million, excluding MYA. The negative impact from industry pools reflects a shift in the timing of risk ceding and other prior year reserve adjustments that benefited industry pool results in the third quarter of 2007.

<< 3.3 Interest and dividend income, net of expenses Table 7 (in millions of dollars, except as otherwise YTD YTD noted) Q3-2008 Q3-2007 Change 2008 2007 Change ------------------------------------------------------------------------- Interest income 47.0 48.9 (3.9)% 141.0 146.8 (4.0)% Dividend income 40.2 40.6 (1.0)% 121.9 126.2 (3.4)% Interest and dividend income, before expenses 87.2 89.5 (2.6)% 262.9 273.0 (3.7)% Expenses (4.1) (4.8) 0.7 (12.4) (14.6) 2.2 Interest and dividend income, net of expenses 83.1 84.7 (1.9)% 250.5 258.4 (3.1)% ------------------------------------------------------------------------- ------------------------------------------------------------------------- Market-based yield 4.9% 5.1% (0.2)pts ------------------------------------------------------------------------- ------------------------------------------------------------------------- >>

The decline in interest and dividend income (before expenses) in the third quarter and year-to-date reflects lower rates and the impact of capital management initiatives in 2008, including the share buyback program (NCIB) announced in February 2008.

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 4.9% in the third quarter, down 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.

<< 3.4 Gains and losses on invested assets and other gains Table 8 (in millions of dollars, except as otherwise YTD YTD noted) Q3-2008 Q3-2007 Change 2008 2007 Change ------------------------------------------------------------------------- Debt securities Losses on AFS securities (4.8) (3.6) (1.2) (1.6) (4.8) 3.2 (Losses) gains on derivatives (6.6) (10.8) 4.2 (10.8) 4.0 (14.8) Impairments (4.0) (27.9) 23.9 (10.9) (29.2) 18.3 Losses on debt securities and related derivatives (15.4) (42.3) 26.9 (23.3) (30.0) 6.7 ------------------------------------------------------------------------- Equity securities (Losses) gains, net of derivatives (41.4) 14.7 (56.1) (50.1) 137.9 (188.0) Impairments (11.1) (0.4) (10.7) (64.7) (13.0) (51.7) Gains on embedded derivatives 5.9 18.5 (12.6) 15.9 18.5 (2.6) (Losses) gains on equity securities and related derivatives (46.6) 32.8 (79.4) (98.9) 143.4 (242.3) ------------------------------------------------------------------------- Total (losses) gains excluding HFT debt securities (62.0) (9.5) (52.5) (122.2) 113.4 (235.6) (Losses) gains on HFT debt securities(1) (19.3) 6.7 (26.0) (13.6) (36.6) 23.0 Total (losses) gains, before income taxes (81.3) (2.8) (78.5) (135.8) 76.8 (212.6) ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) The (losses) gains 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 9. >>

Third quarter

Capital market conditions worsened in the third quarter, dramatically affecting debt and equity market valuations. In light of these circumstances, we took actions to reduce balance sheet volatility by decreasing our common share portfolio by $259.5 million. The proceeds were largely reinvested in Canadian government treasury bills. As a result of the asset dispositions, we recognized losses of $22.7 million on the common shares.

Capital market volatility and the reduction of the common share portfolio led to a total of $41.4 million in realized net equity losses in the third quarter, compared to $14.7 million in gains on equities in the same quarter of 2007. We also incurred $11.1 million in equity impairments and $4.0 million in debt impairments; both reflecting weak capital market conditions that have persisted for more than a year. Overall, we recorded a loss on invested assets of $62.0 million excluding held-for-trading bonds, compared to a $9.5 million loss in the same quarter of 2007.

Year-to-date

Though every sector has been impacted by global capital market conditions, the financial sector has been most significantly affected. Our investment portfolio is more exposed to the financial sector due to our equity portfolio strategy that is designed to capture higher dividends which are non-taxable for financial institutions. The combination of higher exposure to financials, an active trading strategy in the common share portfolio and a sharp decline in market valuations over the last year are reflected in recognized losses on equity securities of $98.9 million in 2008 year-to-date, compared to a gain of $143.4 million in the same period last year. We also began 2008 with an unrealized loss position compared to an unrealized gain position at the beginning of 2007. Further, we incurred $64.7 million in equity impairments and $10.9 million debt impairments in the first three quarters of 2008. The decline of common share market values makes up the majority of the $122.2 million loss on invested assets, excluding held-for-trading bonds.

<< Held-for-trading debt securities and market yield adjustment Table 9 - Market yield effect (in millions of dollars, except as otherwise YTD YTD noted) Q3-2008 Q3-2007 Change 2008 2007 Change ------------------------------------------------------------------------- Positive (negative) impact of MYA 7.3 (0.3) 7.6 (2.7) 40.5 (43.2) Net (losses) gains on HFT debt securities (19.3) 6.7 (26.0) (13.6) (36.6) 23.0 Market yield effect (12.0) 6.4 (18.4) (16.3) 3.9 (20.2) ------------------------------------------------------------------------- ------------------------------------------------------------------------- >>

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. Claims liabilities are discounted at the estimated market yield of the assets backing these liabilities.

In the third quarter, capital market conditions resulted in a $12 million negative market yield effect. We match the weighted duration of the liabilities and HFT assets, and this process works well under normal conditions. In the third quarter, long-term yields increased significantly more than short-term yields, resulting in the mismatch.

<< Unrealized gains and losses on available for sale securities Table 10 (in millions of dollars, As at except as ----------------------------------------------------------- otherwise September June March December September June noted) 30, 2008 30, 2008 31, 2008 31, 2007 30, 2007 30, 2007 ------------------------------------------------------------------------- Debt securities (16.3) 3.2 40.7 2.6 (13.8) (24.3) Common shares (129.1) (46.7) (73.7) (37.8) 47.8 81.9 Preferred shares (272.1) (215.5) (175.8) (141.0) (64.5) (49.3) Total net unrealized (loss) gain position at September 30 (417.5) (259.0) (208.8) (176.2) (30.5) 8.3 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >>

As of the end of September 2008, the company had $417.5 million in unrealized losses on invested assets compared to $259.0 million at the end of the second quarter. The increase in the unrealized loss position reflects a sharp decline in common share market values in the third quarter as well as the widening of credit spreads and interest rate increases which adversely impacted the market value of preferred shares and bonds. Since the preferred shares are typically held long term, the unrealized gains and losses would generally not be realized. Gains and losses in the common share portfolio are likely to be realized on an ongoing basis reflecting the trading strategy in the high-dividend yield common share portfolio.

Recognition of an unrealized loss

Common shares are impaired if the current market value drops significantly below the book value, and if management believes that the value is unlikely to recover in the near- to mid-term. This is determined by an assessment of information available at the time. Preferred shares are generally only impaired if the issuer stops paying dividends, declares bankruptcy or shows other signs of significant deterioration in the financial health of its underlying business.

Other comprehensive income

Unrealized losses on AFS securities and dispositions of AFS securities resulted in negative other comprehensive income ("OCI") of $117.2 million in the third quarter. Lower market values of our common and preferred shares, which are classified as AFS, reflect less favourable market conditions in 2008.

<< 3.5 Selected quarterly information Table 11 (in millions of dollars, except as otherwise noted) Q3-08 Q2-08 Q1-08 Q4-07 Q3-07 Q2-07 ------------------------------------------------------------------------- Written insured risks (thousands) 1,240.7 1,380.6 945.8 1,056.7 1,273.1 1,399.7 Direct premiums written (excluding pools) 1,100.3 1,216.7 860.3 961.3 1,091.2 1,209.8 Total revenues 1,045.8 1,065.4 1,064.5 1,096.8 1,091.3 1,152.2 Net premiums earned 1,032.3 996.1 991.8 1,004.7 994.0 976.7 (Favourable) unfavourable prior year claims development (62.7) (70.3) 38.4 (45.4) (20.7) (37.6) (Favourable) unfavourable prior year claims development (excluding MYA) (56.4) (41.2) 0.9 (62.4) (24.0) (5.2) Net underwriting income (loss) (including MYA) 69.1 74.9 (40.7) 47.5 28.7 92.3 Net underwriting income (excluding MYA) 61.9 43.4 0.7 68.2 29.0 53.1 Combined ratio (%) (including MYA) 93.3% 92.5% 104.1% 95.3% 97.1% 90.6% Combined ratio (%) (excluding MYA) 94.0% 95.6% 99.9% 93.2% 97.1% 94.6% Net operating income (excluding MYA) 106.4 109.5 70.2 116.4 95.5 132.5 Net income 57.3 112.0 23.0 95.8 92.0 194.3 EPS-basic/diluted (dollars) 0.47 0.91 0.19 0.77 0.74 1.56 Net operating income per share (dollars) (excluding MYA) 0.88 0.89 0.56 0.93 0.77 1.06 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Table 11 (in millions of dollars, except as otherwise noted) Q1-07 Q4-06 Q3-06 ------------------------------------------- Written insured risks (thousands) 950.4 1,051.1 1,242.9 Direct premiums written (excluding pools) 846.3 955.6 1,059.1 Total revenues 1,099.6 1,095.8 1,080.2 Net premiums earned 956.7 979.6 954.5 (Favourable) unfavourable prior year claims development (12.2) (24.3) (69.1) (Favourable) unfavourable prior year claims development (excluding MYA) (10.7) (24.3) (69.1) Net underwriting income (loss) (including MYA) 40.3 62.3 95.9 Net underwriting income (excluding MYA) 38.7 62.3 95.9 Combined ratio (%) (including MYA) 95.8% 93.6% 89.9% Combined ratio (%) (excluding MYA) 96.0% 93.6% 89.9% Net operating income (excluding MYA) 112.8 101.8 132.3 Net income 126.2 109.4 156.8 EPS-basic/diluted (dollars) 0.95 0.82 1.17 Net operating income per share (dollars) (excluding MYA) 0.84 0.76 0.99 ------------------------------------------- ------------------------------------------- >>

Seasonality of property and casualty insurance

Property and casualty insurance is seasonal in nature. Underwriting revenues are generally stable from quarter to quarter; however, combined ratios are typically lower in the second and third quarters of each year due to seasonal weather conditions.

ING Canada 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.

<< Section 4 - Personal lines 4.1 Financial results Table 12 (in millions of dollars, except as YTD YTD otherwise noted) Q3-2008 Q3-2007 Change 2008 2007 Change ------------------------------------------------------------------------- Written insured risks (thousands) Automobile 659.0 681.1 (3.2)% 1,920.6 1,972.9 (2.7)% Property 464.6 476.7 (2.5)% 1,268.8 1,281.5 (1.0)% Total 1,123.6 1,157.8 (3.0)% 3,189.4 3,254.4 (2.0)% Direct premiums written (excluding pools) Automobile 564.4 565.6 (0.2)% 1,604.5 1,604.6 - Property 270.7 258.7 4.6% 726.3 689.2 5.4% Total 835.1 824.3 1.3% 2,330.8 2,293.8 1.6% Net premiums earned Automobile 531.2 505.9 5.0% 1,546.9 1,492.7 3.6% Property 226.8 213.5 6.2% 663.3 619.4 7.1% Total 758.0 719.4 5.4% 2,210.2 2,112.1 4.6% Net underwriting income (loss) (excluding MYA) Automobile 49.0 26.6 84.2% 99.6 90.2 10.4% Property (27.6) (20.8) 32.7% (88.8) (23.3) 281.1% Total (excluding MYA) 21.4 5.8 269.0% 10.8 66.9 (83.9)% Market yield adjustment 4.6 (0.2) 4.8 (1.7) 25.7 (27.4) Net underwriting income (including MYA) 26.0 5.6 20.4 9.1 92.6 (83.5) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Table 13 - Underwriting ratios (in millions of dollars, except as YTD YTD otherwise noted) Q3-2008 Q3-2007 Change 2008 2007 Change ------------------------------------------------------------------------- Personal auto Claims ratio (excluding MYA) 66.8% 70.6% (3.8) pts 68.8% 69.0% (0.2) pts Expense ratio 24.0% 24.1% (0.1) pts 24.8% 25.0% (0.2) pts Combined ratio (excluding MYA) 90.8% 94.7% (3.9) pts 93.6% 94.0% (0.4) pts Personal property Claims ratio (excluding MYA) 79.8% 77.1% 2.7 pts 80.0% 69.9% 10.1 pts Expense ratio 32.4% 32.6% (0.2) pts 33.4% 33.8% (0.4) pts Combined ratio (excluding MYA) 112.2% 109.7% 2.5 pts 113.4% 103.7% 9.7 pts Personal lines - total Claims ratio (excluding MYA) 70.7% 72.5% (1.8) pts 72.1% 69.2% 2.9 pts Expense ratio 26.5% 26.7% (0.2) pts 27.4% 27.6% (0.2) pts Combined ratio (excluding MYA) 97.2% 99.2% (2.0) pts 99.5% 96.8% 2.7 pts ------------------------------------------------------------------------- ------------------------------------------------------------------------- >>

4.2 Explanation of financial results

Third quarter 2008

In personal auto, direct premiums written growth was flat in the third quarter as rate increases were offset by a decline in written insured risks. We have been raising personal auto rates in Ontario over the last year in response to higher accident benefit and bodily injury claims in the province, negatively impacting our unit growth in the near term. Overall, current accident year results in personal auto improved slightly year-over-year despite severe hail storms in Alberta. Net underwriting income increased $22.4 million to $49.0 million and the combined ratio improved 3.9 percentage points to 90.8% in the third quarter.

In personal property, direct premiums written were up 4.6%, due to increases in insured amounts and higher rates. 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. Overall, personal property sustained an underwriting loss of $27.6 million reflecting higher property claims associated with excessive rain in Ontario and Quebec in the third quarter. Robust 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 40.0% of personal property claims.

Year-to-date 2008

In personal auto, direct premiums written were flat reflecting the near-term impact of higher premiums on unit growth in this segment as well as the run-off of a large group agreement. The group agreement was large in terms of the number of policies but had a low average premium and margin. In the first nine months of the year, current accident year results in personal auto were stable, despite severe snow, hail and excessive rain that hit Central Canada. Personal auto generated underwriting income of $99.6 million year-to-date versus $90.2 million in the same period last year as current year results improved.

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 $88.8 million reflecting higher claims caused by severe snow, hail, rain and wind storms in Central Canada in 2008, compared to significantly lower levels of precipitation in the same region over the comparable period of 2007.

<< Section 5 - Commercial lines 5.1 Financial results Table 14 (in millions of dollars, except as YTD YTD otherwise noted) Q3-2008 Q3-2007 Change 2008 2007 Change ------------------------------------------------------------------------- Written insured risks (thousands) Automobile 60.5 58.8 2.9% 200.8 193.0 4.0% Non-auto 56.7 56.5 0.4% 177.0 175.8 0.7% Total 117.2 115.3 1.6% 377.8 368.8 2.4% Direct premiums written (excluding pools) Automobile 72.8 72.5 0.4% 240.6 239.5 0.5% Non-auto 192.4 194.3 (1.0)% 605.8 614.0 (1.3)% Total 265.2 266.8 (0.6)% 846.4 853.5 (0.8)% Net premiums earned Automobile 80.8 80.4 0.5% 238.8 239.5 (0.3)% Non-auto 193.5 194.3 (0.4)% 571.1 575.7 (0.8)% Total 274.3 274.7 (0.1)% 809.9 815.2 (0.7)% Net underwriting income (excluding MYA) Automobile 17.9 9.4 90.4% 34.1 20.1 69.7% Non-auto 22.5 13.8 63.0% 61.1 34.0 79.7% Total (excluding MYA) 40.4 23.2 74.1% 95.2 54.1 76.0% Market yield adjustment 2.7 (0.1) 2.8 (1.0) 14.7 (15.7) Net underwriting income (including MYA) 43.1 23.1 20.0 94.2 68.8 25.4 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Table 15 - Underwriting ratios (in millions of dollars, except as YTD YTD otherwise noted) Q3-2008 Q3-2007 Change 2008 2007 Change ------------------------------------------------------------------------- Commercial auto Claims ratio (excluding MYA) 51.4% 61.8% (10.4) pts 58.6% 63.7% (5.1) pts Expense ratio 26.5% 26.6% (0.1) pts 27.1% 27.9% (0.8) pts Combined ratio (excluding MYA) 77.9% 88.4% (10.5) pts 85.7% 91.6% (5.9) pts Commercial non-auto Claims ratio (excluding MYA) 54.0% 58.6% (4.6) pts 54.1% 58.7% (4.6) pts Expense ratio 34.4% 34.3% 0.1 pts 35.2% 35.4% (0.2) pts Combined ratio (excluding MYA) 88.4% 92.9% (4.5) pts 89.3% 94.1% (4.8) pts Commercial lines - total Claims ratio (excluding MYA) 53.3% 59.5% (6.2) pts 55.4% 60.2% (4.8) pts Expense ratio 32.0% 32.0% - 32.9% 33.2% (0.3) pts Combined ratio (excluding MYA) 85.3% 91.5% (6.2) pts 88.3% 93.4% (5.1) pts ------------------------------------------------------------------------- ------------------------------------------------------------------------- >>

5.2 Explanation of financial results

Third quarter 2008

Direct premiums written in commercial lines were down slightly year-over-year reflecting good unit growth offset by lower average premiums. The decrease in the average premium reflects the shift in our portfolio toward small- and medium-sized commercial segments which are more profitable. Though the market remains highly competitive, our commercial units have continued to grow. At the s

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