ING Canada Reports 2007 Fourth Quarter and Year-end Results



    Solid underwriting performance but lower results from invested assets

    Quarterly dividend to increase by 14.8%

    TORONTO, Feb. 20 /CNW/ - ING Canada Inc. (TSX: IIC) reported net income
of $95.8 million or $0.77 per share for the quarter ended December 31, 2007
down from $109.4 million or $0.82 per share in the same quarter of 2006,
mainly due to lower results from invested assets. Net operating income
increased to $102.8 million or seven cents per share to $0.83. Direct premiums
written, excluding pools, increased slightly during the quarter to reach
$961.3 million.
    For the year 2007, net income was $508.3 million or $4.01 per share
compared to $658.1 million or $4.92 per share for the previous year. Net
operating income per share dropped 6.5% to $3.71 while direct premiums
written, excluding pools, reached $4,108.6 million, a 2.9% increase.

    CEO's comments

    Charles Brindamour, President and CEO, commented:
    "Our operating performance was solid during the last three months of the
year and outpaced our results of the previous quarter. Overall, our
underwriting income also improved year-over-year, excluding an increase to
claims liabilities to reflect lower market interest rates. Direct premiums
written were stable during the quarter as a result of our continued pricing
discipline. Our investment activities continue to generate substantial
interest and dividend income but recent unfavourable capital markets
conditions led to a net loss of $3.3 million on invested assets.
    "Despite a more challenging environment in 2007, our profitability for
the year remains strong with a net income of $508.3 million and a 15.4% return
on equity. As we move forward in 2008 we intend to continue creating
shareholder value through the effective deployment of our capital as reflected
by the 14.8% increase of our quarterly dividend and our planned share
repurchase."

    Dividend

    ING Canada also announced it will increase its quarterly dividend by 4.0
cents to 31.0 cents per share on its outstanding common shares. The dividend
will be payable on March 31 to shareholders of record on March 14.

    Recent Events

    ING Canada announced earlier today that it intends to proceed with a
normal course issuer bid to purchase for cancellation up to 6,223,638 common
shares during the next 12 months, representing five percent of the currently
outstanding common shares of the company. The actual number of common shares
which may be purchased and the timing of any such purchases will be determined
by the company. ING Canada majority shareholder, ING Groep, will be permitted
to participate in order to maintain its proportionate share ownership at 70%.
ING Canada has been advised that ING Groep intends to participate on a
proportionate basis.
    On February 8, the Court of Queen's Bench of Alberta rendered a decision
which resulted in the lifting of the $4,000 cap on pain and suffering awards
for minor injuries resulting from auto accidents. The decision has been
appealed by the Government of Alberta. Considerable uncertainty remains over
the ultimate outcome of   the court's decision. The December 31, 2007
financial statements include a provision for this item. Management continues
to assess the potential impact of the judgement on claims costs and premiums.
If the changing situation results in a reassessment of the provision, changes
will be recorded in future quarters.

    Outlook

    Management expects several key factors to affect the property and
casualty insurance industry over the coming twelve months.

    
    -   Both top-line growth and underwriting ratios for the property and
        casualty insurance industry will continue to trend back towards
        historical levels.

    -   The automobile insurance product has been favourable over the last
        36 months both from a consumer and a competitive point of view. The
        stable cost environment and the reforms adopted over the years have
        been effective in making the product more affordable and available to
        consumers. Accident benefit and bodily injury claims in Ontario have
        risen and the cap on pain and suffering awards for minor injuries has
        been challenged in Alberta. These developments will likely lead to
        premium increases.

    -   Increases in water-related damages caused by weather conditions and
        construction cost inflation could drive increases in industry
        premiums in personal property insurance.

    -   Commercial insurance continues to be competitive and increases in
        construction costs could put additional pressure on underwriting
        margins. We remain disciplined in pricing and underwriting and
        committed to superior service.

    Financial Highlights

    -------------------------------------------------------------------------
    (in millions of
     dollars, except
     as otherwise       2007     2006    Change      2007     2006    Change
     noted)              Q4       Q4
                        ----     ----    ------      ----     ----    ------
    Direct Premiums
     Written           961.3    955.6      0.6%   4,108.6  3,993.6      2.9%

    Underwriting
     Income             47.5     62.3   (23.8)%     208.9    403.8   (48.3)%
    Net Income          95.8    109.4   (12.4)%     508.3    658.1   (22.8)%
    Earnings Per
     Share ($)
      Basic and
       Diluted          0.77     0.82    (6.1)%      4.01     4.92   (18.5)%
    Return on Equity                                15.4%    20.8% (5.4) pts
    Combined Ratio     95.3%    93.6%   1.7 pts     94.7%    89.4%   5.3 pts
    -------------------------------------------------------------------------

    Financial Summary

    -   Net income for the fourth quarter of 2007 was $95.8 million, a 12.4%
        decrease from the same quarter in 2006. The decrease was driven by
        lower underwriting income and lower gains on invested assets
        reflecting impairments on equity and debt securities. Higher claim
        activities during the year in personal auto insurance were the main
        cause of lower underwriting income.

        For the year 2007 net income was $508.3 million, down 22.8% from
        2006, as a result of a combination of lower underwriting income
        and a decline in net gains on invested assets caused by unfavourable
        market conditions.

    -   Direct premiums written reached $961.3 million during the quarter, a
        0.6% increase over the same quarter of last year. For the year,
        direct premiums written were $4,108.6 up from $3,993.6 million, a
        2.9% increase driven by higher personal lines premiums both during
        the quarter and the year despite an overall annual rate decrease of
        1.4%. Commercial lines premiums decreased by 3.1% both during the
        quarter and the year, as our commercial portfolio shifted towards
        smaller accounts that are less price-sensitive.

    -   Underwriting income for the quarter amounted to $47.5 million down
        23.8% from the corresponding quarter of last year but increased year-
        over-year, excluding the impact of a $20.7 million increase to net
        claims liabilities to reflect lower interest rates. Increases in
        underwriting income in personal property and commercial non-auto
        largely offset lower results in auto insurance. Overall the combined
        ratio increased by 1.7 percentage points during the quarter to reach
        95.3%. For the year 2007 underwriting income fell 48.3% to
        $208.9 million with a 94.7% combined ratio as a result of higher
        claims in personal auto and in property.

        In personal insurance, automobile insurance underwriting income was
        $9.1 million during the quarter down from $60.9 million in the same
        quarter of 2006. Higher accident benefit and bodily injury claims in
        Ontario continued to weigh on underwriting results. Property
        insurance registered a gain of $3.7 million during the quarter
        compared to a loss of $18.7 million last year. Overall personal
        insurance underwriting income amounted to $12.8 million during the
        quarter and $105.3 million for the year. Combined ratios for personal
        lines during the quarter and the full year were 98.3% and 96.3%
        respectively.

        Commercial insurance underwriting income increased by 73.1% during
        the quarter to $34.8 million. For the year 2007, commercial insurance
        underwriting income amounted to $103.4 million down from $161.7
        million in 2006. The combined ratio for commercial lines during the
        quarter and the year were 87.2% and 90.5% respectively.

    -   Interest and dividend income, net of expenses amounted to
        $86.5 million during the quarter with an overall market yield of
        5.1%. For the whole year, it increased 7.3% to reach $344.8 million.

    -   Net losses on invested assets amounted to $3.3 million during the
        quarter, down from a gain of $15.3 million as a result of asset
        impairments. Net gains on invested assets for the year 2007 were also
        down by approximately $120 million before taxes.

    -   Net operating income, which is defined as net income excluding net
        gains on invested assets and other gains after tax, increased to
        $102.8 million or $0.83 per share from $101.8 million or $0.76 per
        share. Net operating income per share declined by 6.5% during the
        year.

    -   Shareholders' equity decreased by 7.3% in 2007 as a result of the
        completion of a $500 million Substantial Issuer Bid on March 30. The
        book value per share at the end of the year was $25.48.
    

    Analyst Estimates

    The average estimate of earnings per share and operating earnings per
share for the fourth quarter among the analysts that follow the company were
$0.91 and $0.77 respectively.

    Conference Call

    ING Canada will host a conference call to review its earnings results
later this morning at 10:00 am 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 416-644-3415 or
1-800-733-7560 (toll-free in North America). Please call ten minutes before
the start of the call.
    A replay of the call will be available at 1:00 p.m. ET today through
11:59 p.m. ET on February 27.To listen to the replay, call 416-640-1917 or
1-877-289-8525 (toll-free in North America). The passcode is 21261391 followed
by the number sign. A transcript of the call will also be available on ING
Canada's website.

    About ING Canada

    ING Canada is the largest provider of property and casualty insurance in
the country, offering automobile, property and liability insurance to
individuals and businesses through its insurance subsidiaries.


    
    Management's Discussion and Analysis
    For the fourth quarter and year ended
    December 31, 2007

    Date: February 19, 2008

    Table of contents
    -------------------------------------------------------------------------

    Section 1 -  ING Canada - Overview of the business
    Section 2 -  Canadian property & casualty industry outlook
    Section 3 -  Overview of consolidated performance
    Section 4 -  Personal lines
    Section 5 -  Commercial lines
    Section 6 -  Corporate and distribution
    Section 7 -  Financial condition
    Section 8 -  Accounting and disclosure matters
    Section 9 -  Risk management
    Section 10 - Other matters
    Section 11 - Additional Information
    

    February 19, 2008

    The following Management's Discussion and Analysis ("MD&A"), which was
approved by the Board of Directors for the quarter and year ended December 31,
2007, should be read in conjunction with the company's Consolidated Financial
Statements and accompanying notes.
    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. 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.
    "ING", "ING Canada" and "the company" are terms used throughout the
document to refer to ING Canada Inc. and its subsidiaries.

    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 below or in the company's 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 percentage
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%. Not material ("n/m") is
used when figures are not significant.

    
    PERFORMANCE HIGHLIGHTS

    Table 1
    -------------------------------------------------------------------------
    (in millions of
     dollars, except
     as otherwise
     noted)          Q4-2007  Q4-2006    Change      2007     2006    Change
    -------------------------------------------------------------------------
    Written insured
     risks
     (thousands)    1,056.7  1,051.1       0.5%  4,679.9  4,565.1       2.5%
    -------------------------------------------------------------------------
    Direct premiums
     written
     (excluding
     pools)           961.3    955.6       0.6%  4,108.6  3,993.6       2.9%
    -------------------------------------------------------------------------
    Net underwriting
     income            47.5     62.3    (23.8)%    208.9    403.8    (48.3)%
    -------------------------------------------------------------------------
    Combined ratio     95.3%    93.6%   1.7 pts     94.7%    89.4%   5.3 pts
    -------------------------------------------------------------------------
    Net (losses)
     gains on
     invested assets
     and other gains
     (table 8)         (3.3)    15.3   (121.6)%     73.6    193.5    (62.0)%
    Effective income
     tax rate          27.8%    35.4%  (7.6)pts     24.3%    30.9%  (6.6)pts
    -------------------------------------------------------------------------
    Net income         95.8    109.4    (12.4)%    508.3    658.1    (22.8)%
    -------------------------------------------------------------------------
    EPS - basic and
     diluted (dollars) 0.77     0.82     (6.1)%     4.01     4.92    (18.5)%
    -------------------------------------------------------------------------
    ROE for the last
     twelve months     15.4%    20.8%  (5.4)pts
    -------------------------------------------------------------------------
    Book value per
     share            25.48    25.58     (0.4)%
    -------------------------------------------------------------------------
    Note:  All references to direct premiums written exclude pools in this
           MD&A (including tables), unless otherwise indicated.
    

    Fourth quarter 2007

    Underwriting income was $47.5 million in the fourth quarter, down by
$14.8 million compared to the same period in 2006. Excluding the impact of a
$20.7 million market yield adjustment to claims liabilities, underwriting
income increased year-over-year. Solid operating performance reflected higher
personal property and commercial non-auto underwriting results versus the
fourth quarter last year. Personal auto underwriting income decreased due to
higher severity and frequency of claims.
    Direct written premiums were relatively flat as personal lines growth was
offset by a decrease in premiums in commercial lines, reflecting a shift in
the portfolio mix toward smaller accounts that are less price-sensitive. In
the fourth quarter, written premium rates in personal lines rose slightly for
the first time since 2003. Rates are being adjusted upward in certain
geographic regions in both personal auto and personal property to take into
account cost inflation.
    Net income decreased in the fourth quarter due to debt and equity asset
impairments which led to a small net loss on invested assets compared to a
gain in the fourth quarter of 2006 (shown in table 8). The impact of the
market yield adjustment on underwriting income was offset by gains on
held-for- trading invested assets, resulting in a minimal net impact to net
income.

    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
more than four million individuals and small- and medium-sized businesses
across Canada. Overall, the company has an approximate 11.0% market share and
is the leading private sector P&C insurer in Quebec, Alberta and Nova Scotia,
and the second largest in Ontario. ING Canada distributes insurance through
brokers under the ING Insurance and Grey Power brands, and direct-to-
consumers through belairdirect. The investment management subsidiary manages
the invested assets of ING Canada Inc. and its insurance subsidiaries.

    Personal insurance

    ING Canada 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 40.0% of annual premiums in Canada. In automobile, the company is
30.0% larger than the second largest insurer and 58.0% larger than the third,
based on the most recently reported industry data. In property, the gap is
even larger - ING Canada is approximately 45.0% larger than the second largest
insurer and 80.0% larger than the number three insurer in the market. Though
the company holds the number one position in both segments of personal
insurance, its estimated market share is only 14.0% in automobile and 15.0% in
property, demonstrating the potential to continue to grow this segment of the
business. Over the last 10 years, ING Canada has sustained a superior claims
ratio gap of 600 basis points below the industry average in automobile
insurance. In personal property, the company incurred higher claims due to
heavier seasonal storm activity than was expected and consequently has
underperformed the industry in terms of claims ratio. The company has
initiated a focused strategy to better manage water loss exposures by: 1)
adjusting pricing models and insured amounts to reflect current reconstruction
cost factors; and, 2) taking advantage of claims management expertise to
reduce claims costs. These actions should enable the company to gain a claims
ratio advantage in that segment in the future.

    Commercial insurance

    ING Canada is also one of the largest players in commercial insurance
with a significant share of the small- to medium-size commercial segment,
which makes up approximately 90.0% of the company's commercial premiums. Over
the last 10 years, the company's claims ratio in commercial lines has
outperformed the industry average claims ratio by more than 500 basis points
annually and the positive gap has been widening in more recent years. Though
commercial insurance can be subject to significant market pricing volatility,
mainly due to excess capital in the industry, ING Canada's strategy is to
remain disciplined in pricing and grow by targeting sub-segments of the market
that are priced attractively through the P&C cycle.

    Investment Management

    ING Canada actively manages its portfolio of invested assets to generate
superior after-tax returns while balancing capital preservation and risk. The
portfolio strategy is more heavily concentrated in equities compared to the
average Canadian insurer to maximize dividend income. ING Canada's return on
invested assets was 170 basis points higher than its benchmark of Canadian P&C
insurers over the last five years of reported industry data ending in 2006.
See section 7.2 for more information on the quality, asset mix, and
performance of the company's portfolio of invested assets.

    1.2 Critical Capabilities

    ING Canada has several critical capabilities which enable it to sustain
its strong performance in the Canadian P&C industry. These critical
capabilities are described in the table below.

    
    -------------------------------------------------------------------------
    Significant scale   The key benefit of scale is a uniquely comprehensive
      advantage         database of customer and claims information that
                        allows the company to more accurately model the risk
                        of each policy. The company also uses its scale to
                        negotiate preferred terms with suppliers, priority
                        service on repairs, quality guarantees on
                        workmanship and lower material costs.
    -------------------------------------------------------------------------
    Underwriting        Through underwriting and pricing expertise, the
     discipline/        company is constantly refining and enhancing its
    pricing             proprietary risk scoring models. In addition, scale
    sophistication      enables the company to identify market opportunities
                        that haven't been exploited by other insurers. 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        More than 95.0% of ING's claims are handled
     claims management  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. In 2007, the company achieved a 95.0%
                        customer claims satisfaction rate.
    -------------------------------------------------------------------------
    Product innovation  ING Canada is constantly developing new products to
                        attract customers and retain existing business at
                        renewal time. Product features such as Responsible
                        Driver Guarantee are available to new customers as a
                        premium policy feature, but are provided for free to
                        customers of five or more years. The company also
                        offers one Aeroplan Mile(R) for every $2 paid in
                        premiums. In the commercial lines segment, ING has
                        worked aggressively to expand its customer loss
                        prevention services. With more than 40 loss
                        prevention specialists, ING conducted more than
                        9,500 site visits in 2007 and more than
                        4,000 building appraisals.
    -------------------------------------------------------------------------
    Proven acquisition  ING Canada has been the most active in the industry's
     strategy           consolidation with more than 11 successful
                        acquisitions in 19 years. ING'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 underwriting expertise and the
                           use of proprietary pricing models
    -------------------------------------------------------------------------
    Solid investment    ING's investment strategy is to generate solid
     returns            after-tax returns while preserving capital and
                        diversifying risk. The company's $7.2 billion
                        portfolio is comprised primarily of Canadian
                        securities, including high-quality fixed income
                        securities as well as common shares of large-cap
                        companies and preferred shares that pay dividends.
                        Over the last five years, the company's portfolio of
                        invested assets generated a market yield of 5.1%.

    -------------------------------------------------------------------------
    Diverse business    The company benefits from diversity in its geographic
     portfolio          mix, product mix and multi-channel distribution. The
                        diversity of the portfolio provides some insulation
                        from the cyclicality of the industry.
    -------------------------------------------------------------------------
    Aeroplan(R) is a registered trademark of Aeroplan Limited Partnership.
    

    1.3 Key Performance Indicators

    ING Canada'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 the P&C
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     Claims ratio
      execution
                        Claims incurred, net of reinsurance, during a defined
                        period and expressed as a percentage of net premiums
                        earned for the same period.
                       ------------------------------------------------------
                        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 result.
    -------------------------------------------------------------------------
    Capital management  Return on equity (ROE)

                        Represents net income for the twelve months ended on
                        the date indicated divided by the average
                        shareholders' equity over the same twelve-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"). The company compares
                        its 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.
    -------------------------------------------------------------------------
    


    Section 2 - Canadian property and casualty industry outlook

    Management expects that several key factors will affect the Canadian
property and casualty insurance industry over the coming 12 months.

    
    -------------------------------------------------------------------------
    Industry growth and underwriting income
    -------------------------------------------------------------------------
    We expect underwriting ratios and industry premium growth to trend toward
    historical averages.
    -------------------------------------------------------------------------
    Automobile insurance
    -------------------------------------------------------------------------
    The automobile insurance product has been favourable over the last 36
    months both from a consumer and a competitive point of view. The stable
    cost environment and the reforms adopted by various provinces have been
    effective at containing and stabilizing claims and making auto insurance
    products more affordable and available to consumers. Accident benefit and
    bodily injury claims have risen in Ontario. In addition, the $4,000 cap
    on pain and suffering awards on minor injuries in Alberta is being
    challenged. Industry participants will need to assess the potential
    impact on claims costs and premiums. These developments will likely lead
    to premium increases.
    -------------------------------------------------------------------------
    Personal property insurance
    -------------------------------------------------------------------------
    Increases in water-related property damages caused by seasonal storm
    activity as well as construction cost inflation have contributed to
    higher claims ratios in the personal property segment. Construction cost
    inflation and rate activity could drive increases in industry premiums
    in the property segment.
    -------------------------------------------------------------------------
    Commercial insurance
    -------------------------------------------------------------------------
    Commercial insurance continues to be competitive. Rates on large
    commercial accounts are under more pressure than small and medium
    commercial accounts. The company remains disciplined in pricing and
    underwriting and committed to superior service to brokers and commercial
    customers.

    Material and labour cost inflation could put pressure on underwriting
    margins in property lines. The company is working with brokers and
    customers to ensure that policies include sufficient coverage for current
    replacement costs of insured properties and adjusting pricing models
    accordingly, to reflect the elevated cost environment.
    -------------------------------------------------------------------------
    

    As discussed in section 1.2, ING Canada has several significant critical
capabilities that enable the company to produce superior returns to many other
insurers in the industry.

    SECTION 3 - OVERVIEW OF CONSOLIDATED PERFORMANCE

    3.1 Financial results

    Notes: All references to "direct premiums written" in this MD&A exclude
    pools, unless otherwise noted. All references to "investment portfolio"
    refer to the company's portfolio of invested assets.

    
    Table 2 (Key performance indicators are bolded in the table below)
    -------------------------------------------------------------------------
    (in millions of
     dollars, except
     as otherwise
     noted)            Q4-2007  Q4-2006   Change      2007     2006   Change
    -------------------------------------------------------------------------
    Written insured
     risks
     (thousands)      1,056.7  1,051.1      0.5%  4,679.9  4,565.1      2.5%
    -------------------------------------------------------------------------
    Direct premiums
     written
     (including
     pools)             959.7    963.6    (0.4)%  4,100.0  3,990.4      2.7%
    -------------------------------------------------------------------------
    Direct premiums
     written
     (excluding
     pools)             961.3    955.6      0.6%  4,108.6  3,993.6      2.9%
    -------------------------------------------------------------------------
    Underwriting:
    -------------------------------------------------------------------------
      Net premiums
       earned         1,004.7    979.6      2.6%  3,932.0  3,826.6      2.8%
    -------------------------------------------------------------------------
      Net claims
       and general
       expenses
       (table 3)        957.2    917.3      4.3%  3,723.1  3,422.8      8.8%
    -------------------------------------------------------------------------
      Net
       underwriting
       income            47.5     62.3   (23.8)%    208.9    403.8   (48.3)%
    -------------------------------------------------------------------------
    Combined ratio       95.3%    93.6%  1.7 pts     94.7%    89.4%  5.3 pts
    -------------------------------------------------------------------------
      Claims ratio       66.9%    64.2%  2.7 pts     65.7%    59.1%  6.6 pts
    -------------------------------------------------------------------------
      Expense ratio      28.4%    29.4% (1.0)pts     29.0%    30.3% (1.3)pts
    -------------------------------------------------------------------------
    Interest and
     dividend income,
     net of expenses
     (table 4)           86.5     87.1    (0.7)%    344.8    321.3      7.3%
    -------------------------------------------------------------------------
    Market-based yield    5.1%     4.8%  0.3 pts      5.1%     4.8%  0.3 pts
    Net (losses) gains
     on invested
     assets and other
     gains (table 5)     (3.3)    15.3  (121.6)%     73.6    193.5   (62.0)%
    -------------------------------------------------------------------------
    Corporate and
     distribution
     (table 9)            1.9      4.5   (57.8)%     44.3     33.4     32.6%
    -------------------------------------------------------------------------
    Income before
     income taxes       132.6    169.2   (21.6)%    671.6    952.0   (29.5)%
    -------------------------------------------------------------------------
    Income taxes         36.8     59.8   (38.5)%    163.3    293.9   (44.4)%
    -------------------------------------------------------------------------
    Effective income
     tax rate            27.8%    35.4% (7.6)pts     24.3%    30.9% (6.6)pts
    -------------------------------------------------------------------------
    Net income           95.8    109.4   (12.4)%    508.3    658.1   (22.8)%
    -------------------------------------------------------------------------
    EPS - basic and
     diluted (dollars)   0.77     0.82    (6.1)%     4.01     4.92   (18.5)%
    ROE for the last
     twelve months       15.4%    20.8% (5.4)pts
    -------------------------------------------------------------------------
    Book value per
     share              25.48    25.58    (0.4)%
    -------------------------------------------------------------------------
    

    3.2 Explanation of Financial Results

    Fourth quarter 2007

    Direct premiums written were up slightly as personal lines growth of 2.3%
was partly offset by a 3.1% decrease in premiums in commercial lines. Lower
premiums in commercial lines reflect our pricing discipline which led to a
shift in the portfolio mix toward smaller accounts, as well as moderate rate
decreases.
    Underwriting income was down by $14.8 million in the fourth quarter, but
increased year-over-year excluding the impact of a $20.7 million market yield
adjustment to net claims liabilities. The impact of the market yield
adjustment on underwriting income was offset by gains on held-for-trading
invested assets, which resulted in a minimal net impact to net income. See
section 7.3, "Claims liabilities."
    Increases in underwriting income in personal property and commercial non-
auto offset lower underwriting income in auto lines. The main factors that
contributed to improved results in personal property and commercial non-auto
included more favourable prior year claims development and lower catastrophe
claims in personal property. In personal auto, underwriting income decreased
due to higher claims severity and frequency.
    Net income decreased in the fourth quarter due to debt and equity asset
impairments which led to a small net loss on invested assets compared to a
gain in the fourth quarter of 2006. Equity and debt impairments were partly
offset by gains on derivatives and embedded derivatives (see table 8).
    The following table reflects major changes in income before income taxes.

    
    Table 3
    -------------------------------------------------------------------------
                                                         Q4-2007        2007
    -------------------------------------------------------------------------
    (in millions of dollars, except as otherwise noted)
    -------------------------------------------------------------------------
    As reported in 2006                                    169.2       952.0
    -------------------------------------------------------------------------
      Higher (lower) favourable prior year
       claims development                                   21.1       (54.0)
    -------------------------------------------------------------------------
      Current accident year:
    -------------------------------------------------------------------------
        Lower losses from catastrophes                      16.8        18.1
    -------------------------------------------------------------------------
        Lower results from Facility Association            (14.7)      (17.1)
    -------------------------------------------------------------------------
        Lower current accident year underwriting income    (38.0)     (141.4)
    -------------------------------------------------------------------------
      Change in net underwriting income                    (14.8)     (195.0)
      Lower net gains on invested assets and other gains   (18.6)     (120.0)
    -------------------------------------------------------------------------
      (Lower) higher interest and dividend income,
       net of expenses                                      (0.6)       23.5
      Corporate and distribution                            (2.6)       11.1
    -------------------------------------------------------------------------
    As reported in 2007                                    132.6       671.6
    -------------------------------------------------------------------------
    

    Full year 2007

    Direct premiums written rose 2.9% due to increases in written insured
risks and amounts insured in personal lines. In commercial lines, lower direct
premiums written reflect continued pricing discipline which led to a shift in
the portfolio toward smaller accounts and slower growth in written insured
risks.
    Net income was down by 22.8% due to a combination of lower underwriting
income and a decrease in net gains on invested assets, compared to relatively
high net gains in 2006. Net gains on invested assets were $119.9 million lower
in 2007 due to a combination of investment impairments and lower realized
gains on invested assets. A lower effective tax rate, higher interest and
dividend income and an increase in corporate and distribution income
positively contributed to net income in 2007. The effective income tax rate
decreased mainly because non-taxable dividend income was higher relative to
underwriting income.
    Higher current and prior year claims in personal auto were the largest
factors that caused the decrease in underwriting income in 2007. Increases in
current year property claims also contributed significantly to the
underwriting shortfall versus 2006, partly offset by lower catastrophe claims
in 2007. In addition, underwriting income was positively impacted by a
$19.8 million market yield adjustment.

    3.3 Recent events

    Alberta cap on pain and suffering awards on minor injuries

    In 2004, the Government of Alberta introduced auto insurance reforms to
make insurance more affordable and accessible for all Albertans. The reforms
included numerous initiatives such as the introduction of a premium grid,
premium rollbacks, a diagnostic and treatment process designed to provide
injured individuals prompt diagnosis and treatment and Minor Injury Regulation
(MIR) that capped awards for pain and suffering for minor injuries at $4,000.
    On February 8, 2008, a decision was rendered by the Court of Queen's
Bench in Alberta which basically results in the lifting of the $4,000 cap on
pain and suffering awards for minor injuries in the province. The decision has
been appealed by the Alberta government but uncertainty remains over the
ultimate outcome of the court's decision. The December 31, 2007 financial
statements include a provision for this item. Management continues to assess
the potential impact on claims costs and premiums and as more information is
available, will react appropriately. If the changing situation results in a
reassessment of the provision, any changes would be recorded in future
quarters.

    ING Canada Normal Course Issuer Bid
    On February 19, 2008, the Board of Directors approved a recommendation by
management to proceed with a normal course issuer bid to purchase for
cancellation during the next 12 months up to 6,223,638 common shares,
representing five percent of the currently outstanding common shares of the
company. The actual number of common shares which may be purchased and the
timing of any such purchases will be determined by ING Canada. ING Groep, ING
Canada's majority shareholder, has advised ING Canada of its intention to
participate on a proportionate basis in the program to maintain its ownership
in the company at 70%. Purchases from minority shareholders will be made on
the open market through the facilities of the Toronto Stock Exchange at market
prices and in accordance with the rules of the TSX applicable to normal course
issuer bids.
    The company's strong capital base enables it to return capital to
shareholders through a share buyback while retaining sufficient financial
resources to pursue its acquisition strategy. The normal course issuer bid
constitutes a flexible way of distributing some excess capital to shareholders
while increasing shareholder value over the long term.
    Refer to the news release posted on the company's web site at
www.ingcanada.com for more information on the normal course issuer bid.

    Return on equity

    Return on equity ("ROE") for the twelve-month period ending December 31,
2007 was 15.4% compared to 20.8% in 2006.

    Book value per share

    The book value per share was flat in the fourth quarter reflecting the
impact of the share buyback in early 2007 which reduced share capital and
retained earnings.

    Written insured risks

    The number of written insured risks grew 0.5% during the fourth quarter
and by 2.5% in 2007, driven by growth in personal lines. The rate of unit
growth in personal lines slowed in the fourth quarter reflecting the near-term
effect of premium rate increases in certain geographic regions in late 2007.
In commercial lines, the number of insured risks was up slightly in the fourth
quarter and flat in 2007 overall, reflecting pricing discipline in a highly
competitive marketplace.

    Direct premiums written (excluding pools)

    Direct premiums written increased 0.6% in the fourth quarter driven by
higher premiums in personal lines. Overall in 2007, direct written premiums
rose 2.9% reflecting increases in written insured risks and average amounts
insured in personal lines. In commercial lines, direct premiums written
decreased 3.1% in the fourth quarter and also for the full year, compared to
the same periods in 2006.

    3.4 Underwriting: Net claims and general expenses

    
    Table 4
    -------------------------------------------------------------------------
    (in millions of
     dollars, except
     as otherwise
     noted)          Q4-2007   Q4-2006   Change      2007      2006   Change
    -------------------------------------------------------------------------
    Net claims:
    -------------------------------------------------------------------------
      (Favourable) prior
       year claims
       development    (45.4)    (24.3)    86.8%   (115.9)   (169.9)  (31.8)%
    -------------------------------------------------------------------------
      Current year
       catastrophes     9.7      26.4   (63.3)%     41.1      59.2   (30.6)%
    -------------------------------------------------------------------------
      Current year
       claims         707.4     627.2     12.8%  2,659.0   2,371.9     12.1%
    -------------------------------------------------------------------------
        Total         671.7     629.3      6.7%  2,584.2   2,261.2     14.3%
    -------------------------------------------------------------------------
    Commissions, net  146.3     154.7    (5.4)%    583.1     611.7    (4.7)%
    -------------------------------------------------------------------------
    Premium taxes,
     net               35.0      33.2      5.4%    136.9     132.3      3.5%
    -------------------------------------------------------------------------
    General expenses,
     net              104.2     100.1      4.1%    418.9     417.6      0.3%
    -------------------------------------------------------------------------
        Total         957.2     917.3      4.3%  3,723.1   3,422.8      8.8%
    Combined ratio     95.3%     93.6%  1.7 pts     94.7%     89.4%  5.3 pts
    -------------------------------------------------------------------------
    

    Prior year claims development

    Favourable prior year claims development increased by $21.1 million in
the fourth quarter. For the full year, favourable prior year claims
development decreased by $54.0 million compared to 2006. The decrease in 2007
was primarily due to higher accident benefit and bodily injury claims in
personal and commercial auto in Ontario. For the fourth quarter, the market
yield adjustment had a $17.1 million negative impact on prior year claims
development and $3.6 million on current accident year results for a total of
$20.7 million. For the year, the market yield adjustment had a $13.6 million
positive impact on prior year claims development. See section 7.3, "Claims
liabilities."
    The following table shows the annualized rate of favourable prior year
claims development by quarter.

    
    Table 5
    -------------------------------------------------------------------------
                                  2007                       2006
    (Annualized rate)   Q4     Q3     Q2     Q1     Q4     Q3     Q2     Q1
    -------------------------------------------------------------------------
    Favourable prior
     year claims
     development as a
     % of opening
     reserves          5.1%   2.3%   4.2%   1.4%   2.8%   7.9%   4.5%   4.2%
    -------------------------------------------------------------------------
    

    Catastrophes

    Catastrophe claims were down by $16.7 million and $18.1 million in the
fourth quarter and in 2007, respectively, compared to the same periods last
year. Rain and hail in Western Canada in the spring and summer were the
primary causes of catastrophe claims in 2007. Catastrophe claims are defined
as a single event resulting in $5.0 million or more in aggregate claims.

    Current accident year claims

    Current accident year claims were up by $80.2 million in the fourth
quarter and $287.1 million for the full year mainly due to higher auto and
property claims severity in both periods. Refer to section 5 for more detailed
information on current accident year claims.

    Commissions

    Variable commissions were down in the fourth quarter and for the full
year of 2007 due to lower underwriting results.

    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 fourth quarter and for the full year of 2007, the net effect of transfers
in and out of these pools resulted in lower year-over-year underwriting income
by $3.8 million and $6.5 million, respectively.

    3.4 Interest and dividend income, net of expenses

    
    Table 6
    -------------------------------------------------------------------------
    (in millions of
     dollars, except
     as otherwise
     noted)               Q4-2007  Q4-2006 Change     2007     2006   Change
    -------------------------------------------------------------------------
    Interest income        50.9     52.1   (2.3)%    197.7    195.4     1.2%
    -------------------------------------------------------------------------
    Dividend income        40.4     39.2     3.1%    166.5    147.0    13.3%
    -------------------------------------------------------------------------
    Interest and dividend
     income, before
     expenses              91.3     91.3       -     364.2    342.4     6.4%
    -------------------------------------------------------------------------
    Expenses               (4.8)    (4.2)   14.3%    (19.4)   (21.1)  (8.1)%
    -------------------------------------------------------------------------
    Interest and dividend
     income, net of
     expenses              86.5     87.1   (0.7)%    344.8    321.3     7.3%
    -------------------------------------------------------------------------
    

    Interest and dividend income

    Interest and dividend income decreased slightly in the fourth quarter but
increased overall in 2007 reflecting an increase in invested assets and higher
yields. The company introduced a zero cash policy in early 2007, increasing
its investments in fixed income securities.

    Market-based yield

    The market-based yield is a non-GAAP measure that represents the total
interest and dividend 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, compared to 4.8% from the
same quarter of last year.

    
    Table 7
    -------------------------------------------
    Percentage (%)          Market-based yield

    Q4-2007                        5.1
    -------------------------------------------
    Q3-2007                        5.1
    -------------------------------------------
    Q2-2007                        5.1
    -------------------------------------------
    Q1-2007                        5.0
    -------------------------------------------
    -------------------------------------------
    2007                           5.1
    -------------------------------------------
    2006                           4.8
    -------------------------------------------
    2005                           4.7
    -------------------------------------------
    2004                           4.9
    -------------------------------------------


    3.5 Net (losses) gains on invested assets and other gains

    Table 8
    -------------------------------------------------------------------------
    (in millions of
     dollars, except as
     otherwise noted)    Q4-2007  Q4-2006  Change    2007     2006    Change
    -------------------------------------------------------------------------
    Debt securities
    -------------------------------------------------------------------------
      Realized gains
       (losses)            0.9      6.8   (86.8)%   (16.5)    23.8  (169.3)%
    -------------------------------------------------------------------------
      Unrealized gains
       (losses) on
       held-for-trading
       debt securities    17.7        -      n/a     (6.4)       -      n/a
    -------------------------------------------------------------------------
      Impairments         (8.1)       -      n/a    (37.3)       -      n/a
    -------------------------------------------------------------------------
      Gains (losses) on
       derivatives        (8.0)    (1.3)   515.4%    (4.0)     2.3  (273.9)%
        Net gains
         (losses) on
         debt securities   2.5      5.5   (54.5)%   (64.2)    26.1  (346.0)%
    -------------------------------------------------------------------------
    Equity securities
    -------------------------------------------------------------------------
      Realized gains       7.8     29.1   (73.2)%   151.9    193.4   (21.5)%
    -------------------------------------------------------------------------
      Unrealized losses
       on held-for-
       trading equity
       securities        (11.6)       -      n/a    (13.7)       -      n/a
    -------------------------------------------------------------------------
      Impairments        (34.7)    (7.0)   395.7%   (47.7)   (20.4)   133.8%
    -------------------------------------------------------------------------
      Gains (losses)
       on derivatives     14.2    (18.6) (176.3)%    11.5    (15.8) (172.8)%
    -------------------------------------------------------------------------
      Gains on embedded
       derivatives        19.6        -      n/a     38.1        -      n/a
    -------------------------------------------------------------------------
        Net gains (losses)
         on equity
         securities       (4.7)     3.5  (234.3)%   140.1    157.2   (10.9)%
    -------------------------------------------------------------------------
    Other                 (1.1)     6.3  (117.5)%    (2.3)    10.2  (122.5)%
    -------------------------------------------------------------------------
    Total gains (losses)
     before income taxes  (3.3)    15.3  (121.6)%    73.6    193.5   (62.0)%
    -------------------------------------------------------------------------
    Total gains (losses)
     after income taxes   (7.0)     7.6  (192.1)%    38.3    127.6   (70.0)%
    -------------------------------------------------------------------------
    

    Fourth quarter and full year 2007

    In the fourth quarter, the company recorded a small pre-tax loss on
invested assets due to asset impairments which were partly offset by gains on
derivatives and embedded derivatives. These factors are described in more
detail below.

    Capital notes and total return swaps associated with SIVs

    In the fourth quarter, the company incurred losses of $6.1 million in
leveraged capital notes and $3.9 million in total return swaps associated with
specific asset-backed securities (structured investment vehicles, or SIVs).
The company incurred $49.8 million in losses associated with these SIVs during
the year, including $34.0 million in capital notes and $15.8 million in total
return swaps. As of the end of the year, the company had a remaining total SIV
exposure of $19.8 million.

    Common and preferred shares

    The company recorded in the fourth quarter of 2007, impairments of $20.0
million on common shares and $14.7 million on preferred shares. The
impairments were related to factors specific to certain securities as well as
the large scale impact of the credit market events. Management generally
impairs a security if the market value is unlikely to recover in the near-to
mid-term future based on an assessment of information available at the time.
Furthermore, common shares are generally impaired when the security is in a
significant unrealized loss position for a period exceeding six months.
    Preferred shares make up 19.8% of the company's portfolio of invested
assets as part of its objective to maximize after-tax returns while balancing
risk and capital preservation. The preferred shares in the portfolio are
mainly stable, large-cap Canadian securities that pay dividends, which are
generally deductible in the calculation of taxable income. The value of the
company's preferred share portfolio generally declined under current market
conditions. As a result, some preferred shares were impaired through the
company's asset impairment process, described above. The company generally
holds the preferred shares for the long term or until maturity, so
fluctuations in the market value of preferred shares have little or no impact
on the economic value of the assets as long as it continues to receive
dividends from the issuers.
    Overall in 2007, the company recorded $47.7 million in impairments
related to common and preferred shares, most of which occurred in the last
half of the year for the reasons noted above.

    Gains on derivatives and embedded derivatives

    The company also recorded gains on derivatives and call options embedded
in perpetual preferred shares. The gains on embedded derivatives were
associated with the decline in market values of the preferred shares. The
gains on embedded derivatives flow through the income statement while changes
in the fair values of preferred shares flow through other comprehensive
income.
    Under accounting rules introduced in 2007, the value of preferred shares
and embedded derivatives (if any) are recorded separately. For example, call
options embedded in preferred shares are recorded as liabilities and the
preferred shares are recorded as assets. If the market value of a preferred
share declines, the call option is less likely to be exercised by the issuer.
The liability associated with the call option is eliminated and an offsetting
gain is recorded. In 2007, the value of certain of the company's callable
preferred shares declined in general and a gain was recorded for the embedded
call options. For more information see section 8.4, Impact of the Adoption of
New Accounting Standards on January 1, 2007 as well as section 8.3, Critical
Accounting Estimates and Assumptions.

    3.7 Net operating income

    
    Table 9
    -------------------------------------------------------------------------
    (in millions of
     dollars, except as
     otherwise noted)    Q4-2007  Q4-2006 Change     2007     2006   Change
    -------------------------------------------------------------------------
    Net income            95.8    109.4   (12.4)%   508.3    658.1   (22.8)%
    -------------------------------------------------------------------------
    Less: Net (losses)
     gains on invested
     assets and other
     gains, after income
     taxes (table 8)      (7.0)     7.6  (192.1)%    38.3    127.6   (70.0)%
    Net operating
     income              102.8    101.8      1.0%   470.0    530.5   (11.4)%
    -------------------------------------------------------------------------
    Average outstanding
     shares (millions)   124.5    133.7    (6.9)%   126.7    133.7    (5.2)%
    -------------------------------------------------------------------------
    Net operating income
     per share (dollars)  0.83     0.76      9.2%    3.71     3.97    (6.5)%
    -------------------------------------------------------------------------
    

    Net operating income and net operating income per share are non-GAAP
measures. Net operating income is equal to net income less net gains on
invested assets and other gains, after tax. 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 may not be
comparable to similar measures used by other companies; however, they are
commonly used by investors to assess the company's performance.

    Other comprehensive income

    Other comprehensive income ("OCI") was introduced with accounting
standards which became effective in January 2007. OCI includes the changes in
fair values of invested assets classified as available for sale. Available for
sale assets sold during the period are reflected in income and are no longer
included in OCI. Unrealized gains on available-for-sale assets are tax-
affected.
    Unrealized losses on available-for-sale securities and dispositions of
available-for-sale securities resulted in negative OCI of $227.4 million in
2007. Lower market values of the company's fixed income assets, some of which
are classified as available-for-sale, reflect less favourable bond market
conditions in 2007.

    3.8 Selected quarterly information

    
    Table 10
    -------------------------------------------------------------------------
                                                        2007
    (in millions of dollars,
     except as otherwise noted)           Q4        Q3        Q2        Q1
    -------------------------------------------------------------------------
    Written insured risks (thousands)  1,056.7   1,273.1   1,399.7     950.4
    -------------------------------------------------------------------------
    Direct premiums written
     (excluding pools)                   961.3   1,091.2   1,209.8     846.3
    -------------------------------------------------------------------------
    Total revenues                     1,096.8   1,091.3   1,152.2   1,099.6
    -------------------------------------------------------------------------
    Net underwriting income               47.5      28.7      92.3      40.3
    -------------------------------------------------------------------------
    Net income                            95.8      92.0     194.3     126.2
    -------------------------------------------------------------------------
    Combined ratio (%)                    95.3      97.1      90.6      95.8
    -------------------------------------------------------------------------
    EPS-basic/diluted (dollars)           0.77      0.74      1.56      0.95
    -------------------------------------------------------------------------
    (Favourable) prior year claims
     development                         (45.4)   (20.7)     (37.6)    (12.2)
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                                        2006
    (in millions of dollars,
     except as otherwise noted)           Q4        Q3        Q2        Q1
    -------------------------------------------------------------------------
    Written insured risks (thousands)  1,051.1   1,242.9   1,356.1     914.9
    -------------------------------------------------------------------------
    Direct premiums written
     (excluding pools)                   955.6   1,059.1   1,166.4     812.5
    -------------------------------------------------------------------------
    Total revenues                     1,095.8   1,080.2   1,096.7   1,133.8
    -------------------------------------------------------------------------
    Net underwriting income               62.3      95.9     165.6      79.9
    -------------------------------------------------------------------------
    Net income                           109.4     156.8     205.9     185.9
    -------------------------------------------------------------------------
    Combined ratio (%)                    93.6      89.9      82.7      91.5
    -------------------------------------------------------------------------
    EPS-basic/diluted (dollars)           0.82      1.17      1.54      1.39
    -------------------------------------------------------------------------
    (Favourable) prior year claims
      development                        (24.3)    (69.1)    (39.5)    (37.0)
    -------------------------------------------------------------------------


    3.9 Selected Annual Information

    Table 11
    -------------------------------------------------------------------------
    (in millions of dollars,
     except as otherwise noted)                   2007      2006      2005
    -------------------------------------------------------------------------
    Total revenue                                4,439.9   4,406.4   4,446.1
    -------------------------------------------------------------------------
    Net underwriting income                        208.9     403.8     537.7
    -------------------------------------------------------------------------
    Net income                                     508.3     658.1     781.8
    -------------------------------------------------------------------------
    EPS - basic and diluted (dollars)               4.01      4.92      5.85
    -------------------------------------------------------------------------
    Annual dividends per common share               1.08      1.00      0.65
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Invested assets                              7,237.8   7,241.9   6,721.0
    -------------------------------------------------------------------------
    Total assets                                10,389.7  10,377.3   9,926.5
    -------------------------------------------------------------------------
    Debt outstanding                                   -         -     127.0
    -------------------------------------------------------------------------
    Total shareholders' equity                   3,172.1   3,420.8   2,892.6
    -------------------------------------------------------------------------
    

    Financial performance between 2007 and 2006 is analyzed in detail in this
document. In 2005, net income was higher than in 2006 due to the following
factors: (1) stronger underwriting income, particularly in personal
automobile; (2) more favourable prior year claims development; and, (3) robust
results from the company's investment portfolio.
    ING Canada has two segments: 1) P&C insurance; 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
investments in brokerages as well as other corporate items.

    SECTION 4 - PERSONAL LINES

    4.1 Financial Results

    
    Table 12
    -------------------------------------------------------------------------
    (in millions of
     dollars, except as
     otherwise noted)  Q4-2007  Q4-2006  Change   2007     2006     Change
    -------------------------------------------------------------------------
    Written insured
     risks (thousands)
    -------------------------------------------------------------------------
      Automobile       541.5    541.5        -   2,514.4  2,440.1       3.0%
    -------------------------------------------------------------------------
      Property         394.6    390.4      1.1%  1,676.1  1,637.5       2.4%
    -------------------------------------------------------------------------
        Total          936.1    931.9      0.5%  4,190.5  4,077.6       2.8%
    -------------------------------------------------------------------------
    Direct premiums
     written (excluding
     pools)
    -------------------------------------------------------------------------
      Automobile       453.1    449.6      0.8%  2,057.7  1,969.2       4.5%
    -------------------------------------------------------------------------
      Property         215.3    203.6      5.7%    904.4    841.5       7.5%
    -------------------------------------------------------------------------
        Total          668.4    653.2      2.3%  2,962.1  2,810.7       5.4%
    -------------------------------------------------------------------------
    Net premiums earned
    -------------------------------------------------------------------------
      Automobile       515.2    495.7      3.9%  2,008.0  1,911.2       5.1%
    -------------------------------------------------------------------------
      Property         217.6    203.4      7.0%    837.0    785.4       6.6%
    -------------------------------------------------------------------------
        Total          732.8    699.1      4.8%  2,845.0  2,696.6       5.5%
    -------------------------------------------------------------------------
    Net underwriting
     income (loss)
    -------------------------------------------------------------------------
      Automobile         9.1     60.9    (85.1)%   123.1    242.5    (49.2)%
    -------------------------------------------------------------------------
      Property           3.7    (18.7)  (119.8)%   (17.8)    (0.3)      n/a
    -------------------------------------------------------------------------
        Total           12.8     42.2    (69.7)%   105.3    242.2    (56.5)%
    -------------------------------------------------------------------------
    Ratios
    -------------------------------------------------------------------------
      Claims ratio      71.7%    66.9%   4.8 pts    69.0%    62.5%   6.5 pts
    -------------------------------------------------------------------------
      Commissions
       ratio            15.0%    16.1%  (1.1)pts    15.0%    16.3%  (1.3)pts
      Premium taxes
       ratio             3.4%     3.3%   0.1 pts     3.4%     3.4%         -
    -------------------------------------------------------------------------
      General expenses
       ratio             8.2%     7.7%   0.5 pts     8.9%     8.9%         -
    -------------------------------------------------------------------------
    Combined ratio      98.3%    94.0%   4.3 pts    96.3%    91.1%   5.2 pts
    -------------------------------------------------------------------------
    

    4.2  Explanation of Financial Results

    Fourth quarter 2007

    Direct premiums written grew by 2.3% in personal lines, driven by higher
average amounts insured. Direct written premium rates in personal lines also
increased slightly for the first time since 2003.

    In personal auto, direct premiums written grew by 0.8% reflecting higher
average amounts insured. Overall, direct written premium rates in personal
auto were flat but increased in Ontario. Underwriting income in personal auto
decreased year-over-year due to higher severity and frequency of current year
claims.
    In personal property, direct premiums written were up 5.7%, reflecting
higher insured amounts and a 1.1% increase in written insured risks.
Underwriting income in personal property increased due to lower catastrophe
claims and more favourable prior year claims development. Current year claims
in personal property were up moderately, caused by an increase in severity.
Building cost inflation factors, such as material costs and labour rates, have
put pressure on underwriting margins in 2007, particularly in Western Canada.

    Full year 2007

    Direct premiums written rose 5.4% in personal lines, driven by a 2.8%
increase in the number of written insured risks and an increase in average
amounts insured. In personal property, insured amounts are increasing to
reflect higher reconstruction costs, particularly in Western Canada. The
company's pricing models are also being adjusted for regions that are most
susceptible to seasonal storm activity and sewer back-up.
    Underwriting income declined in 2007 due to a combination of higher
current and prior year claims in personal auto, as well as an increase in
personal property claims. As mentioned in the fourth quarter commentary,
increases in both frequency and severity in personal auto contributed to a
decline in underwriting results versus 2006. Increases in seasonal rain, wind
and hail storms in certain zones, cost inflation and some larger losses caused
a meaningful increase in personal property claims severity in 2007. Overall,
frequency of claims in personal property decreased.

    SECTION 5 - COMMERCIAL LINES

    5.1 Financial Results

    
    Table 13
    -------------------------------------------------------------------------
    (in millions of
     dollars, except as
     otherwise noted)     Q4-2007  Q4-2006  Change   2007     2006   Change
    -------------------------------------------------------------------------
    Written insured risks
     (thousands)
    -------------------------------------------------------------------------
      Automobile           62.8     61.8     1.6%    255.8    253.6     0.9%
    -------------------------------------------------------------------------
      Non-auto             57.7     57.4     0.5%    233.5    233.9   (0.2)%
    -------------------------------------------------------------------------
        Total             120.5    119.2     1.1%    489.3    487.5     0.4%
    -------------------------------------------------------------------------
    Direct premiums
     written (excluding pools)
    -------------------------------------------------------------------------
      Automobile           81.7     81.9   (0.2)%    321.2    327.5   (1.9)%
    -------------------------------------------------------------------------
      Non-auto            211.3    220.6   (4.2)%    825.3    855.5   (3.5)%
    -------------------------------------------------------------------------
        Total             293.0    302.5   (3.1)%  1,146.5  1,183.0   (3.1)%
    -------------------------------------------------------------------------
    Net premiums earned
    -------------------------------------------------------------------------
      Automobile           80.7     82.2   (1.8)%    320.2    326.8   (2.0)%
    -------------------------------------------------------------------------
      Non-auto            191.1    198.3   (3.6)%    766.9    803.1   (4.5)%
    -------------------------------------------------------------------------
        Total             271.8    280.5   (3.1)%  1,087.1  1,129.9   (3.8)%
    -------------------------------------------------------------------------
    Net underwriting
     income (loss)
    -------------------------------------------------------------------------
      Automobile           (1.8)    11.4 (115.8)%     22.0     43.0  (48.8)%
    -------------------------------------------------------------------------
      Non-auto             36.6      8.7   320.7%     81.4    118.7  (31.4)%
    -------------------------------------------------------------------------
        Total              34.8     20.1    73.1%    103.4    161.7  (36.1)%
    -------------------------------------------------------------------------
    Ratios
    -------------------------------------------------------------------------
      Claims ratio        53.9%    57.7% (3.8) pts   57.2%    51.0%   6.2 pts
    -------------------------------------------------------------------------
      Commissions ratio   20.2%    21.0% (0.8) pts   19.8%    20.9% (1.1) pts
    -------------------------------------------------------------------------
      Premium taxes ratio  3.6%     3.5%   0.1 pts    3.6%     3.6%        -
    -------------------------------------------------------------------------
      General expenses
       ratio               9.5%    10.6% (1.1) pts    9.9%    10.2% (0.3) pts
    -------------------------------------------------------------------------
    Combined ratio        87.2%    92.8% (5.6) pts   90.5%    85.7%   4.8 pts
    -------------------------------------------------------------------------
    

    5.2 Explanation of Financial Results

    Fourth quarter 2007

    Direct premiums written decreased by 3.1% in commercial lines. The
decline reflects a shift in the mix of the portfolio to smaller commercial
accounts with lower annual premiums and moderate rate reductions. Written
insured risks were up modestly, indicating the competitiveness of the
commercial market in 2007. The company's commercial business is focused on
small- to medium-sized accounts which are less price-sensitive, providing some
insulation in a more aggressive pricing environment.
    Underwriting income and the combined ratio in commercial lines improved
markedly in the fourth quarter due to more favourable prior year claims
development and slightly lower current year claims.

    Full year 2007

    Direct premiums written were down 3.1% in 2007 primarily due to price
competition in the marketplace, moderate rate decreases and a change in
portfolio mix toward smaller accounts, referred to in the fourth quarter
discussion. The number of written insured risks increased slightly.
Underwriting income decreased significantly during the year, principally due
to an increase in current year claims severity in commercial non-auto caused
by weather-related events and an increase in large losses. In commercial auto,
underwriting income declined due to less favourable prior year claims
development in 2007. Current year claims only increased slightly in commercial
auto.

    SECTION 6 - CORPORATE & DISTRIBUTION

    6.1 Financial Results

    Our corporate and distribution segment primarily includes the results of
the company's brokerage operations (Canada Brokerlink, Grey Power and
Equisure) and other activities.

    
    Table 14
    -------------------------------------------------------------------------
    (in millions of
     dollars, except
     as otherwise noted)  Q4-2007  Q4-2006  Change    2007     2006   Change
    -------------------------------------------------------------------------
    Distribution income    26.9     25.0     7.6%    102.9    100.0     2.9%
    -------------------------------------------------------------------------
    Distribution expenses  21.4     19.7     8.6%     85.3     71.0    20.1%
    -------------------------------------------------------------------------
      Distribution
       earnings             5.5      5.3     3.8%     17.6     29.0  (39.3)%
    -------------------------------------------------------------------------
    Other income (loss),
     net                   (3.6)    (0.8)  350.0%     26.7      9.7   175.3%
    -------------------------------------------------------------------------
    Interest on debt          -        -     n/a         -      5.3     n/m
    -------------------------------------------------------------------------
    Income before income
     taxes                  1.9      4.5  (57.8)%     44.3     33.4    32.6%
    -------------------------------------------------------------------------
    

    6.2 Explanation of Financial Results

    Other income in 2007 included a reduction to a provision established for
a prior year divestiture that became redundant. The total reduction was $28.0
million in 2007, which was recorded in the first and second quarters.

    SECTION 7 - FINANCIAL CONDITION

    7.1 Balance Sheet Highlights

    The table below shows the balance sheets as reported on December 31,
2006, January 1, 2007 (after adopting the new accounting standards) and
December 31, 2007. All comparisons in this section are made to January 1, 2007
figures which were restated from December 31, 2006 in accordance with
accounting standards adopted at the beginning of 2007. See section 8.4 for the
impact of the adoption of the new accounting standards.

    
    Table 15
    -------------------------------------------------------------------------
    (in millions of dollars,
     except as otherwise noted)                              As at
    -------------------------------------------------------------------------
                                                 Dec. 31,   Jan. 1,  Dec. 31,
                                                    2007      2007      2006
    -------------------------------------------------------------------------
    Cash and cash equivalents                        8.1     126.0     126.0
    -------------------------------------------------------------------------
    Invested assets                              7,237.8   7,503.9   7,241.9
    -------------------------------------------------------------------------
    Premiums receivables                         1,440.8   1,366.9   1,366.9
    -------------------------------------------------------------------------
    Accrued interest and dividend income            46.2      51.1      51.1
    -------------------------------------------------------------------------
    Other receivables                              264.8     282.8     282.8
    -------------------------------------------------------------------------
    Deferred acquisition costs                     379.6     372.8     372.8
    -------------------------------------------------------------------------
    Reinsurance assets                             273.5     290.1     288.1
    -------------------------------------------------------------------------
    Other assets                                   280.1     246.0     246.0
    -------------------------------------------------------------------------
    Income taxes receivable                        168.4      54.1      54.1
    -------------------------------------------------------------------------
    Future income tax asset                         68.7      55.5     119.2
    -------------------------------------------------------------------------
    Intangible assets and goodwill                 221.7     228.4     228.4
    -------------------------------------------------------------------------
    Total assets                                10,389.7  10,577.6  10,377.3
    -------------------------------------------------------------------------
    Claims liabilities                           3,989.0   3,841.4   3,823.5
    Unearned premiums                            2,333.5   2,264.1   2,264.1
    -------------------------------------------------------------------------
    Other liabilities                              862.6     922.5     844.9
    -------------------------------------------------------------------------
    Income taxes payable                            32.5      24.0      24.0
    -------------------------------------------------------------------------
    Total liabilities                            7,217.6   7,052.0   6,956.5
    -------------------------------------------------------------------------
    Share capital                                1,101.9   1,183.9   1,183.9
    Contributed surplus                             97.2      93.5      93.5
    -------------------------------------------------------------------------
    Retained earnings                            2,091.3   2,139.1   2,143.4
    -------------------------------------------------------------------------
    AOCI                                          (118.3)    109.1         -
    -------------------------------------------------------------------------
    Total shareholders' equity                   3,172.1   3,525.6   3,420.8
    -------------------------------------------------------------------------
    Total liabilities and shareholders' equity  10,389.7  10,577.6  10,377.3
    -------------------------------------------------------------------------
    Book value per share (dollars)                 25.48     26.40     25.58
    -------------------------------------------------------------------------
    

    Invested assets, including cash and cash equivalents, decreased by
$384.0 million notwithstanding cash flows generated from operations of $606.5
million due to the share buyback of $501.2 million in the first quarter of
2007 and to the decline in the fair values by $310.6 million in 2007 compared
to 2006 following the general decline in capital market conditions. This
decline is reflected in the December 31, 2007 AOCI position.

    Other receivables, deferred acquisition costs and unearned premiums are
higher consistent with increases in direct written premiums. A portion of
deferred acquisition costs related to prior acquisitions were reclassified to
goodwill during the second quarter; comparative numbers have been adjusted
accordingly.

    Income taxes receivable are higher due to the company's invested assets
unrealized losses in 2007, which are deductible on a fair value basis,
compared to unrealized gains in 2006.

    Claims liabilities and unearned premiums are slightly higher when
compared to last year 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 when compared to January 1, 2007 mainly
because of the decrease in the fair value of the derivatives embedded in the
company's preferred shares, which are now accounted for separately and
presented with other liabilities according to the new accounting standards
introduced in January 2007.

    Shareholders' equity was reduced significantly as a result of the share
buyback. The total cost of the purchase was $501.2 million, including expenses
net of income taxes. An amount of $82.0 million was deducted from share
capital and the remainder from retained earnings.

    7.2 Portfolio of invested assets

    The company's portfolio of invested assets is managed by ING Investment
Management Inc. (IIM), which is a wholly owned subsidiary of ING Canada. Each
insurance subsidiary's assets are managed by IIM in accordance with the
company's investment policy.
    ING Canada 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 effect 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 16
    -------------------------------------------------------------------------
    (in millions of dollars,                 As at               As at
     except as otherwise noted)        December 31, 2007   December 31, 2006
    -------------------------------------------------------------------------
                                     Fair value  % of FV      FV     % of FV
                                        (FV)
    -------------------------------------------------------------------------
    Cash and cash equivalents              8.1      0.1%    126.0       1.7%
    Short-term notes                      18.9      0.3%    713.5       9.4%
    -------------------------------------------------------------------------
    Fixed income securities            3,867.8     53.4%  3,281.6      43.3%
    -------------------------------------------------------------------------
    Preferred shares                   1,430.8     19.7%  1,517.1      20.0%
    Common shares                      1,709.5     23.6%  1,700.4      22.5%
    -------------------------------------------------------------------------
    Commercial mortgages                     -         -     59.0       0.8%
    -------------------------------------------------------------------------
    Loans to brokers                     188.2      2.6%    156.9       2.1%
    -------------------------------------------------------------------------
    Equity investments                    22.6      0.3%     14.7       0.2%
    -------------------------------------------------------------------------

    Total invested assets and cash     7,245.9    100.0%  7,569.2     100.0%

        In 2007, the commercial mortgages portfolio was sold and the proceeds
        were reinvested in other types of assets.
    

    The majority of the company's portfolio is invested in mainly 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 2007, the amount of invested
assets declined reflecting the cash and short-term notes used to buy back
shares in the first quarter.

    Fixed income securities

    The company invests in highly-rated fixed income securities mainly
including corporate bonds and government bonds, as well as asset-backed
securities (ABS), Canadian residential mortgage-backed securities and private
placements. The fixed income portfolio is mostly Canadian with 18.7% foreign
content. The ABS portfolio includes credit card loans, auto finance loans and
commercial mortgage-backed securities. In addition, the company owns a small
portion of Canadian government-guaranteed residential mortgage-backed
securities which make up less than 0.5% of the fixed income portfolio. 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 2007. The company has a remaining SIV exposure of $19.8
million, including $10.7 million in capital notes and $9.1 million in total
return swaps, which represents less than 0.3% of the company's $7.2 billion
investment portfolio.

    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 also actively managed to achieve additional dividend
payments to maximize dividend income throughout the year.

    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 results are impacted
only when preferred shares are impaired, or when the shares are called or
sold. The preferred share portfolio is 100% Canadian.

    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 first half of 2007, management adopted a zero cash strategy under
which cash and short term notes are maintained at their minimum level and the
excess assets are now invested in fixed-income securities.

    Credit ratings

    As at December 31, 2007, 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 (ratings are by Standard & Poor's ("S&P") or Dominion
Bond Rating Services). Approximately $36.8 million of securities with a rating
below investment grade were included in the fixed income and preferred share
portfolios at December 31, 2007, compared to $35.8 million as at December 31,
2006.

    Sector exposures

    The following table sets forth the company's exposure to the largest
industrial sectors

    
    Table 17
    -------------------------------------------------------------------------
    (in millions of dollars,                 As at               As at
     except as otherwise noted)        December 31, 2007   December 31, 2006
    -------------------------------------------------------------------------
                                          FV     % of FV      FV     % of FV
    -------------------------------------------------------------------------
    Banks, insurance and diversified
     financial services                3,112.3     43.0%  2,917.7      39.2%
    -------------------------------------------------------------------------
    Government                         3,097.8     42.8%  3,580.2      48.1%
    -------------------------------------------------------------------------
    Utilities                            369.1      5.1%    357.3       4.8%
    -------------------------------------------------------------------------
    Other                                658.6      9.1%    588.0       7.9%
    -------------------------------------------------------------------------
    Total invested assets              7,237.8     100.0%  7,443.2    100.0%
    -------------------------------------------------------------------------
    

    The company has higher exposure to banks, insurance companies and
diversified financial services companies than its benchmark of P&C insurers
reflecting ING Canada'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 2007, the widening of
credit spreads late in the year resulted in a general decline in the value of
the preferred share portfolio.

    
    Investment portfolio credit quality

    The following table includes the credit quality of the fixed income
    portfolio as at December 31, 2007 and 2006.

    Table 18
    -------------------------------------------------------------------------
    (in millions of dollars,       As at December 31,      As at December 31,
     except as otherwise noted)          2007                    2006
    -------------------------------------------------------------------------
                                     FV      % of FV       FV       % of FV
    -------------------------------------------------------------------------
    Fixed income securities
    -------------------------------------------------------------------------
    AAA                             2025.8    52.4%      1,815.7     55.3%
    -------------------------------------------------------------------------
    AA                               821.7     21.2%      466.1      14.2%
    -------------------------------------------------------------------------
    A                                851.9     22.0%      811.2      24.7%
    -------------------------------------------------------------------------
    BBB                              148.7      3.8%      186.1       5.7%
    -------------------------------------------------------------------------
    BB                                 5.8      0.2%        -           -
    -------------------------------------------------------------------------
    B                                  -           -        2.5        0.1%
    -------------------------------------------------------------------------
    (less than)B                      10.9      0.3%        -           -
    -------------------------------------------------------------------------
    Not rated                          3.0      0.1%        -           -
    -------------------------------------------------------------------------
    Total                          3,867.8    100.0%    3,281.6      100.0%
    -------------------------------------------------------------------------

    The following table includes the credit quality of the preferred share
    portfolio as at December 31, 2007 and 2006.


    Table 19
    -------------------------------------------------------------------------
    (in millions of dollars,       As at December 31,      As at December 31,
     except as otherwise noted)          2007                    2006
    -------------------------------------------------------------------------
                                     FV       % of FV        FV       % of FV
    -------------------------------------------------------------------------
    Preferred shares
    -------------------------------------------------------------------------
    P1                              778.2      54.4%        749.5      49.4%
    -------------------------------------------------------------------------
    P2                              456.5      31.9%        584.5      38.5%
    -------------------------------------------------------------------------
    P3                              177.5      12.4%        149.2       9.8%
    -------------------------------------------------------------------------
    P4                                 -           -         19.9       1.3%
    -------------------------------------------------------------------------
    P5                               4.2        0.3%         14.0       1.0%
    -------------------------------------------------------------------------
    Not rated                        8.2        0.6%           -          -
    -------------------------------------------------------------------------
    D                                6.2        0.4%           -          -
    -------------------------------------------------------------------------
    Total                        1,430.8      100.0%      1,517.1     100.0%
    -------------------------------------------------------------------------
    

    7.3 Claims liabilities

    Assessing claims reserve adequacy

    Effectively assessing claims reserve adequacy is a critical skill
required to effectively manage any property and casualty insurance business
and a strong determinant of the long-term viability of the organization. The
objective of the claims reserve is to make a best estimate of the future total
cost of incurred claims, which are a liability to the company. The total
claims reserve is made up of two main elements: 1) case reserves; and 2)
claims that are incurred but not reported (IBNR). IBNR reserves supplement the
case reserves by taking into account:

    
    -   possible claims that have been incurred but not yet reported to the
        company;
    -   expected over/under estimation in case reserves based on historical
        patterns; and,
    -   other adjustment expenses not included in the initial case reserve.
    

    Case reserves and IBNR should be sufficient to cover all expected claims
liabilities for events that have already occurred, whether reported or not,
taking into account a provision for adverse deviation (PfAD) and a discount
for the time value of money (see "Market yield adjustment" below). The
discount is applied to the total claims reserve and adjusted on a regular
basis based on changes in market yields. If market yields rise, the discount
would increase and reduce total claims liabilities and therefore, positively
impact underwriting income in that period, all else being equal. If market
yields decline, it would have the opposite effect. IBNR and the provision for
adverse deviation (PfAD) are reviewed and adjusted periodically. Total claims
reserves are also reviewed by the company's auditors.
    Historically, ING's claims liabilities have had a three to four percent
redundancy per year. This is commonly referred to as favourable prior year
claims development. The rate of favourable prior year claims development was
unusually high in 2005 and 2006 and does not represent a normal or expected
level of reserve redundancy in a typical year.

    
    Table 20

    -------------------------------------------------------------------------
                                    2007        2006        2005        2004
    -------------------------------------------------------------------------
    Favourable prior year claims
     development as a % of
     opening reserves                3.2%        4.9%        7.9%       3.3%
    -------------------------------------------------------------------------
    Long-term average                                3%-4%
    -------------------------------------------------------------------------
    

    Market yield adjustment

    Prior to 2007, claims liabilities were discounted using book rates which
were generally adjusted annually. Claims liabilities are now discounted at
current market interest rates, following the adoption of accounting standards
introduced in January 2007. A significant increase in interest rates,
primarily in the second quarter, resulted in a $19.8 million reduction of
claims liabilities which had a positive impact on underwriting income and net
operating income in 2007. Of the $19.8 million from the 2007 fiscal year,
$13.6 million affected prior year claims development. The adjustment to claims
liabilities was offset by an adjustment to specific invested assets classified
as held-for-trading, resulting in a minimal net impact to net income.
    The following table shows the development of claims liabilities for the
10 most recent accident years, with subsequent developments during the
periods. The original reserve estimates are evaluated quarterly for redundancy
or deficiency. The evaluation is based on actual payments in full or partial
settlement of claims as well as on current estimates of claims liabilities for
claims still open or claims still unreported.

    
    Table 21
                                         Accident Year
    -------------------------------------------------------------------------
                     Total      2006      2005      2004      2003      2002
    -------------------------------------------------------------------------
    Original reserve         1,178.0   1,118.8   1,117.7     973.2     838.6
    -------------------------------------------------------------------------
    (Favourable)
     unfavourable
     development
     during
     Q4 2007         (45.4)    ($15.7)  ($10.0)    ($6.9)    ($0.9)    ($1.1)
    -------------------------------------------------------------------------
    As a % of
     original
     reserve                   (1.3)%    (0.9)%    (0.6)%    (0.1)%    (0.1)%
    -------------------------------------------------------------------------
    (Favourable)
     unfavourable
     development
     during
     YTD 2007       (115.9)    ($9.3)   ($35.2)   ($36.2)    ($4.8)    ($0.1)
    -------------------------------------------------------------------------
    As a % of
     original
     reserve                   (0.8)%    (3.1)%    (3.2)%    (0.5)%    (0.0)%
    -------------------------------------------------------------------------
    Cumulative
     development               ($9.3)   ($93.1)  ($227.3)  ($179.4)   ($18.4)
    -------------------------------------------------------------------------
    As a % of
     original
     reserve                   (0.8)%    (8.3)%   (20.3)%   (18.4)%    (2.2)%
    -------------------------------------------------------------------------


                                     Accident Year
    ---------------------------------------------------------------
                      2001      2000      1999      1998  1997 & -
    ---------------------------------------------------------------
    Original reserve 729.0     655.5     587.0     548.1    1276.9
    ---------------------------------------------------------------
    (Favourable)
     unfavourable
     development
     during
     Q4 2007         ($2.8)    ($0.7)    ($6.2)    ($0.6)    ($0.4)
    ---------------------------------------------------------------
    As a % of
     original
     reserve         (0.4)%    (0.1)%    (1.1)%    (0.1)%    (0.0)%
    ---------------------------------------------------------------
    (Favourable)
     unfavourable
     development
     during
     YTD 2007        ($8.8)    ($1.7)    ($2.6)    ($6.8)   ($10.4)
    ---------------------------------------------------------------
    As a % of
     original
     reserve         (1.2)%    (0.3)%    (0.4)%    (1.2)%    (0.8)%
    ---------------------------------------------------------------
    Cumulative
     development     $40.2     $34.8     $37.0    ($15.2)  ($180.4)
    ---------------------------------------------------------------
    As a % of
     original
     reserve           5.5%      5.3%      6.3%    (2.8)%   (14.1)%
    ---------------------------------------------------------------
    

    The $17.9 million decrease in direct claims liabilities related to the
transition to accounting standards introduced in 2007 was added to the opening
claims liabilities but is reflected in the table above only for the portion
($4.9 million) that relates to the 2006 accident year. Other original reserve
amounts have not been restated in this table.

    7.4 Reinsurance

    At December 31, 2007, the company had reinsurance treaties with a number
of unaffiliated reinsurance substantially all of which meet the company's
financial strength rating requirements. Most of the company's reinsured claims
are ceded to these unaffiliated reinsurers with the exception of 12.3% which
is ceded to ING Re, an affiliate.

    ING Canada's goals related to ceded reinsurance are:

    1. capital protection;
    2. reduction of the results' volatility;
    3. increase of underwriting capacity;
    4. access to the expertise of reinsurers.

    The reinsurers chosen to participate in the program have a minimum rating
of A- from A.M. Best. The S&P rating and the financial analysis performed by
the company's specialized reinsurance brokers are also considered. The
treaties have a security review clause allowing ING Canada to change a
reinsurer during the term of the agreement if its rating falls below the
minimum required. Diversification of reinsurers is analyzed and implemented to
avoid too much concentration in a specific reinsurance group.
    The placement of ceded reinsurance is done almost exclusively on an
excess of loss basis (per event or per risk) as per practice, actuarial norms
and regulatory guidelines. Under such programs, management considers that in
order for a contract to reduce exposure to risk, it must be structured to
ensure that the reinsurer assumes significant insurance risk related to the
underlying reinsured policies and it is reasonably possible that the reinsurer
may realize a significant loss from the reinsurance. A measure of transfer of
risk is the variability of the potential negative impact of the reinsured
losses on the reinsurer's underwriting results. Furthermore, the reinsurance
treaties call for timely reimbursement of ceded losses.
    For single risk events, net retention for property and liability for both
2007 and 2006 was generally $5.0 million and $7.0 million, respectively; in a
number of cases, like special classes of business or types of risks, the
retention would be lower through specific treaties or the use of facultative
reinsurance. In 2007 and 2006, for multi-risk events or catastrophes,
retention is $25.0 million with a reinsurance coverage limit of $1.25 billion.
For 2007, the company retains 10.0% of the overall exposure between
$25.0 million and $750.0 million and for 2006 it was between $25.0 million and
$600.0 million.
    Reinsurance coverage is spread across many reinsurers to minimize risk to
the company in the event of a very large loss. A single catastrophic event
such as an earthquake could be devastating to a reinsurer, so distribution of
risk is a key reinsurance strategy for ING Canada.
    Following industry practice, the company's reinsurance recoverables with
licensed Canadian reinsurers (December 31, 2007: $215.3 million; December 31,
2006: $229.3 million) are generally unsecured because Canadian regulations
require these reinsurers to maintain minimum asset and capital balances in
Canada to meet their Canadian obligations, and claims liabilities take
priority over the reinsurer's subordinated creditors. Reinsurance recoverables
with non-licensed reinsurers are secured with cash, letters of credit and/or
assets held in trust accounts.

    Share Capital

    As of February 20, 2008, there were 124,472,761 common shares and one
Special Share issued and outstanding. The Special Share is convertible into
one common share. ING Groep holds 70.0% of the issued and outstanding common
shares and the Special Share. Refer to ING Canada's Annual Information Form
for more detailed information on the rights of common shareholders and the
owner of the Special Share.
    Under the company's long-term incentive plan (LTIP), certain employees
were awarded performance units as part of their compensation. At the end of
the performance cycle, the performance units will ultimately be converted to a
certain number of restricted common shares determined by the company's three-
year average return on equity compared to the Canadian P&C industry average.
In 2008, the company intends to purchase shares in an amount equal to that
required under the Plan, which was estimated at 616,115 as at December 31,
2007 for the three performance cycles of 2005-2007, 2006-2008 and 2007-2009.
    Shareholders' equity was reduced as a result of the share buyback in the
first quarter of 2007. The total cost of the purchase was $501.2 million,
including expenses net of income taxes. An amount of $82.0 million was
deducted from share capital and the remainder from retained earnings. The
statements of changes in shareholders' equity provide a complete
reconciliation of the changes that occurred during the quarter. There were
124,472,761 outstanding common shares on December 31, 2007.
    Accumulated other comprehensive income (loss) is a component of
shareholders' equity. It reflects the unrealized gains or losses related to
available for sale assets.

    Table 22

    
    -------------------------------------------------------------------------
                                                            2007
    -------------------------------------------------------------------------
                                             Pre-tax       Taxes   After-tax
    -------------------------------------------------------------------------
    Unrealized gains as reported on
     December 31, 2006                         201.3         n/a         n/a
    Items not included in AOCI                  (2.8)        n/a         n/a
    -------------------------------------------------------------------------
    Reduction to recognize fair values at the
     bid/ask price                              (9.2)        n/a         n/a
    -------------------------------------------------------------------------
    Transfers to retained earnings for
     held-for-trading instruments              (14.8)        n/a         n/a
    Opening AOCI balance on January 1, 2007    174.5       (65.4)      109.1
    -------------------------------------------------------------------------
    Changes in fair values during the year    (296.3)       95.9      (200.4)
    -------------------------------------------------------------------------
    Realized gains reclassified to income
     during the year                           (54.5)       27.5       (27.0)
    -------------------------------------------------------------------------
    AOCI as at December 31, 2007              (176.3)       58.0      (118.3)
    -------------------------------------------------------------------------
    

    The table above shows how unrealized gains reported as at December 31,
2006 have been treated at the transition date and subsequently during the
year. On transition, the fair values were adjusted downwards to reflect
bid/ask prices rather than closing prices. Unrealized gains on held-for-
trading instruments were transferred to retained earnings on January 1, 2007
consistent with the new accounting standards. These unrealized gains will not
flow through the income statement in the future.
    Unrealized gains on available for sale assets were $174.5 million after
transition on January 1, 2007. During the year, the company sold available for
sale assets resulting in realized net gains of $54.5 million. These were
transferred to net gains on invested assets and other gains in the income
statement. Available for sale assets lost value during the year due to
unfavourable capital market conditions, representing a reduction of
$296.3 million in AOCI.

    7.5 Liquidity and Capital Resources

    Cash Flows and Liquidities

    
    Table 23
    -------------------------------------------------------------------------
    Selected inflows and
     (outflows)         Q4-2007  Q4-2006   Change     2007     2006   Change
    -------------------------------------------------------------------------
    Operating activities:
    -------------------------------------------------------------------------
      Cash provided by
       operating
       activities         216.5    104.0    108.2%    620.3    431.0    43.9%
    -------------------------------------------------------------------------
    Investing activities:
    -------------------------------------------------------------------------
      Proceeds from the
       sale of invested
       assets, net of
       (purchases)       (146.2)    52.7   377.4%    (42.7)  (309.8)   86.2%
    -------------------------------------------------------------------------
    Financing activities:
    -------------------------------------------------------------------------
      Dividends paid      (33.6)   (33.4)    0.6%   (136.9)  (133.7)    2.4%
    -------------------------------------------------------------------------
      Redemption of
       common shares
       for cancellation       -        -       -    (501.2)       -      n/a
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Cash at the end of
     the period             8.1    126.0   (93.6)%     8.1    126.0  (93.6)%
    -------------------------------------------------------------------------
    

    Cash generated from operating activities has been used for the share
buyback and for dividends paid to shareholders in 2007. The remaining cash
generated from operating activities was invested in debt and equity
securities.

    Capital and cash management

    Based on the 150% Minimum Capital Test (MCT), the company had
approximately $453.7 million in excess capital in its insurance subsidiaries
and $487.5 million at the holding company level at the end of 2007. In
addition, the company had no long-term debt. The company has a prudent capital
management program in place to ensure that its capital is employed
effectively. The following includes a list of capital and cash management
initiatives undertaken in 2007:

    
    -   $500.0 million share buyback in the first quarter carried out through
        a Dutch Auction at $54.0 per reducing the number of outstanding
        shares by 9,259,239
    -   Adopted a zero cash strategy in the first half of 2007 whereby cash
        and short term notes are maintained at a minimum level and the assets
        were reinvested in fixed-income securities to capture a higher
        investment yield
    -   Renewed the company's short form base shelf prospectus with Canadian
        securities regulators allowing ING Canada to issue up to $1.0 billion
        in debt securities, Class A shares or common shares over a 25-month
        period.
    

    The company's significant excess capital could be used to: 1) support
organic growth and/or growth through acquisitions as part of ING Canada's
market consolidation strategy; 2) buy back shares in the future; or, 3)
increase dividends.
    The following table presents the minimum capital test of the company's
insurance subsidiaries with a total for all companies.

    
    Table 24
    -------------------------------------------------------------------------
    MCT - P&C COMPANIES
    -------------------------------------------------------------------------
                   ING     Belair     Nordic  ING Novex  Trafalgar
             Insurance  Insurance  Insurance  Insurance  Insurance     Total
    -------------------------------------------------------------------------
    At
     December
     31, 2007
    -------------------------------------------------------------------------
      Total
       capital
       available 940.4      196.0      814.1      159.2      140.7   2,250.4
    -------------------------------------------------------------------------
      Total
       capital
       required  525.0       96.7      439.9       72.4       63.7   1,197.7
    -------------------------------------------------------------------------
      Excess
       capital   415.4       99.3      374.2       86.8       77.0   1,052.7
    -------------------------------------------------------------------------
      MCT %      179.1%     202.8%     185.0%     219.8%     220.9%    187.9%
    -------------------------------------------------------------------------
      Excess at
       150%      152.8       51.0      154.1       50.6       45.2     453.7
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    At
     December
     31, 2006
    -------------------------------------------------------------------------
      Total
       capital
       avail-
       able    1,073.7      282.0      966.8       49.3       61.7   2,433.5
    -------------------------------------------------------------------------
      Total
       capital
       required  554.5      104.8      466.8       14.4       18.2   1,158.7
    -------------------------------------------------------------------------
      Excess
       capital   519.2      177.2      500.0       34.9       43.5   1,274.8
    -------------------------------------------------------------------------
      MCT %      193.6%     269.0%     207.1%     341.2%     338.8%    210.0%
    -------------------------------------------------------------------------
      Excess at
       150%      242.0      124.8      266.7       27.6       34.4     695.5
    -------------------------------------------------------------------------
    

    On February 13, 2007, the Board of Directors increased the company's
quarterly dividend by $0.02 to $0.27, an 8.0% increase. A quarterly cash
dividend of $0.27 per common share was paid on March 30, 2007, June 29, 2007,
September 28, 2007 and December 28, 2007.

    Credit ratings

    ING Canada Group has an A+ (Superior) rating from A.M. Best, which was
reaffirmed on July 3, 2007. The company's primary insurance subsidiaries are
rated A+ by Standard & Poor's, which was reaffirmed on October 31, 2007.
Although the company does not have any senior unsecured debt, DBRS has
assigned a rating of A (low).

    Financing

    The nature, size and timing of any financings will depend on ING Canada's
assessment of its credit requirements and general market conditions. If any
securities covered by the base shelf prospectus are offered for sale, a
prospectus supplement containing specific information about the terms of these
securities will be provided.
    The company has an uncommitted revolving credit facility of
$100.0 million with the Royal Bank of Canada, which was undrawn at
December 31, 2007.

    7.6 Contractual Obligations

    
    Table 25
    -------------------------------------------------------------------------
                                            Payments due by period
    -------------------------------------------------------------------------
                                             Less
                                             than    1 - 3    4 - 5    After
    (in millions of dollars)       Total   1 year    years    years  5 years
    -------------------------------------------------------------------------
    Operating leases               279.7     57.1     81.0     60.8     80.8
    -------------------------------------------------------------------------
    Other long-term obligations     88.8     28.9     27.5     15.4     17.0
    -------------------------------------------------------------------------
    Total contractual obligations  368.5     86.0    108.5     76.2     97.8
    -------------------------------------------------------------------------
    

    7.7 Off-Balance Sheet Arrangement

    The company has an agreement with a major Canadian bank under which they
borrow the Company's shares for some of their short sells. As collateral for
these borrowed shares, the bank provides the company with sufficient assets as
a guaranty.

    SECTION 8 - ACCOUNTING AND DISCLOSURE MATTERS

    8.1 Disclosure Controls and Procedures

    ING Canada is committed to providing timely, accurate and balanced
disclosure of all material information about the company and to providing fair
and equal access to such information. The company's management is responsible
for establishing and maintaining the company's disclosure controls and
procedures to ensure that information used internally and disclosed externally
is complete and reliable. Due to the inherent limitations in all control
systems, an evaluation of controls can provide only reasonable, not absolute
assurance, that all control issues and instances of fraud or error, if any,
within the company have been detected. The company continues to evolve and
enhance its system of controls and procedures.
    Management at the direction and under the supervision of the Chief
Executive Officer and the Chief Financial Officer of the company have
evaluated the effectiveness of the company's disclosure controls and
procedures. The evaluation was conducted in accordance with the requirements
of Multilateral Instrument 52-109 of the Canadian Securities Administrators.
This evaluation confirmed, subject to the inherent limitations noted above,
the effectiveness of the design and operation of disclosure controls and
procedures as at December 31, 2007. The company's management can therefore
provide reasonable assurance that material information relating to the company
and its subsidiaries is reported to it on a timely basis so that it may
provide investors with complete and reliable information.

    8.2 Internal Controls over Financial Reporting

    Management has designed and is responsible for maintaining adequate
internal control over financial reporting to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with Canadian GAAP.
    No changes were made to the company's internal controls over financial
reporting during the year ended December 31, 2007 that had, or is reasonably
likely to have, a negative material effect on the company's internal controls
over financial reporting.

    8.3 Critical Accounting Estimates and Assumptions

    Our significant accounting policies are disclosed in Note 2 to the
company's Audited Consolidated Financial Statements. The preparation of the
company's financial statements in accordance with GAAP requires management to
make estimates and assumptions that affect the amounts reported in its
financial statements. These estimates and assumptions principally relate to
the establishment of the fair value of financial instruments, impairment
losses, policy liabilities, income taxes, employee future benefits,
stock-based compensation, the allocation of the purchase price and goodwill
and contingencies. As more information becomes known, these estimates and
assumptions could change and impact future results. The most significant
estimates and assumptions management makes in preparing the company's
financial statements are described below. There were no significant changes
made to the company's assumptions over the past two years, except for the fair
value of financial instruments, as disclosed below.

    Fair value of financial instruments

    When they are initially recognized, all financial assets and liabilities,
including derivative financial instruments are recorded at fair value in the
consolidated balance sheet. In subsequent periods, they are measured at fair
value, except for items that are classified as loans and receivables and
financial liabilities not held for trading purposes, which are measured at
amortized cost. A more complete description of the accounting treatment for
financial instruments is presented in Note 2 to the Audited Consolidated
Financial Statements.
    The fair value of a financial instrument is the amount at which a
financial instrument could be exchanged, in an arm's length transaction,
between knowledgeable, willing parties who are under no compulsion to act.
    The existence of published price quotations in an active market is the
best evidence of fair value and, when they exist, management uses them to
measure the financial instruments. A financial instrument is regarded as
quoted in an active market when quoted prices are readily and regularly
available from an exchange, dealer, broker, industry group or pricing service
and those prices reflect actual and regularly occurring market transactions on
an arm's length basis. The fair value of a financial asset traded in an active
market generally reflects the bid price and, that of a financial liability
traded in an active market, the asking price. If a financial instrument's
market is not active, its fair value is established using valuation techniques
that make maximum use of observable market inputs. These valuation techniques
include using available information concerning recent market transactions,
discounted cash flow analysis, valuation models, and other valuation methods
commonly used by market participants where it has been demonstrated that the
technique provides reliable estimates.
    In cases where the fair value is established using valuation models,
management makes assumptions about the amount, the timing of estimated future
cash flows and the discount rates used. These assumptions are based primarily
on factors observable in external markets, such as interest rate yield curves,
volatility factors and credit risk.
    Establishing fair value is a critical accounting estimate and has an
impact on Held for trading securities, available for sale financial assets and
liabilities and loans and receivables in the consolidated balance sheet. This
estimate also has an impact on Interest income and Other income in the
consolidated statement of income and Other comprehensive income in the
consolidated statement of comprehensive income.

    Impairment losses

    The company obtains values for actively traded securities from external
pricing services. For private placements and a small number of infrequently
traded securities, quotes from brokers are obtained or values are estimated
using internally developed pricing models. These models are based on common
valuation techniques and require management to make assumptions regarding
credit quality, liquidity and other factors that affect estimated values.
    Impairment of securities results in a charge to earnings when a market
decline in the value of a security to below cost is other-than-temporary, as
defined under GAAP. The company's methodology to identify potential
impairments requires professional judgment and places particular emphasis on
those securities with unrealized losses of 25.0% or greater of the book value
where that unrealized loss has been outstanding for more than six months.
Members of the company's investment and accounting departments meet quarterly
to assess impairments. Management assesses which of these securities are OTT
impaired. Assessment factors include, but are not limited to, the financial
condition and rating of the issuer of the security, any collateral held and
the length of time the market value of the security has been below cost. Any
impairment is recognized when the assessment concludes that there is objective
evidence of impairment. Each quarter, any security with an unrealized loss
that is determined to have been other-than-temporarily impaired is written
down to its expected recoverable amount, with the amount of the write-down
reflected in the company's statement of income for that quarter. Previously
impaired securities continue to be monitored quarterly, with additional
write-downs taken quarterly, if necessary. There are inherent risks and
uncertainties involved in making these judgments. Changes in circumstances and
critical assumptions such as a weak economy, a pronounced economic downturn or
unforeseen events which affect one or more companies or industry sectors could
result in additional write-downs in future periods.

    Policy liabilities

    Policy liabilities consist of provisions for claims liabilities and
premium liabilities, net of reinsurance. The provision for policy liabilities
is discounted to take into account the time value of money. It also includes a
provision for adverse deviation, as required by Canadian accepted actuarial
practice. The appointed actuary of the company's P&C insurance subsidiaries,
using appropriate actuarial techniques, evaluates the adequacy of its claims
liabilities.
    Claims liabilities are maintained to cover the company's estimated
ultimate amount to settle i) insured losses with respect to reported and
unreported claims incurred as of the end of each accounting period and ii)
claims expenses. The provision for claims liabilities is first determined on a
case-by-case basis as claims are reported and then reassessed as additional
information becomes known. The provision also considers future possible
development of claims. Such reserves do not represent an exact calculation of
liability, but instead represent estimates developed using projection
techniques in accordance with Canadian accepted actuarial practice. The
estimates used are related to 1) expectations of the ultimate cost of
settlement and administration of claims based on management's assessment of
facts and circumstances then known, 2) its review of historical settlement
patterns, 3) estimates of trends in claims severity and frequency, 4) legal
theories of liability and other factors.
    Variables in the reserve estimation process can be affected by both
internal and external events, such as changes in claims handling procedures,
inflation, legal trends and legislative changes. Many of these items are not
directly quantifiable, particularly on a prospective basis. Additionally,
there may be significant reporting lags between the occurrence of the insured
event and the time it is actually reported to the insurer. Reserve estimates
are refined in a systematic ongoing process as historical loss experience
develops and additional claims are reported and settled. Because the
establishment of reserves is an inherently uncertain process involving
estimates, current provisions may not be sufficient. Adjustments to reserves,
both positive and negative, are reflected in the statement of income of the
period in which such estimates are updated. See table 6.4 in the Audited
Consolidated Financial Statements.
    Premium liabilities are considered adequate when the unearned premiums
reserve (after deducting any deferred acquisition cost asset) is at least
equal to the present value, at the balance sheet date, of cash flows of the
claims, expenses and taxes to be incurred after that date on account of the
policies in force at that date or at an earlier date. Deferred acquisition
costs comprise commissions, premium taxes and expenses directly related to the
acquisition of premiums. They are deferred to the extent that they are
recoverable from unearned premiums, after considering the related anticipated
claims, expenses and invested assets income in respect of these premiums.
Deferred acquisition costs are amortized on the same basis as the premiums are
recognized in income.
    A premium deficiency would be recognized immediately by a charge to the
statement of income as a reduction of deferred acquisition costs to the extent
that the unearned premiums reserve, plus anticipated invested assets income,
is not adequate to recover all deferred acquisition costs and related claims
and expenses. If the premium deficiency was greater than unamortized deferred
acquisition costs, a liability would be accrued for the excess deficiency.
    Reinsurance recoverables include amounts for expected recoveries related
to claims liabilities as well as the portion of the reinsurance premium which
has not yet been earned. The cost of reinsurance is accounted for over the
terms of the underlying reinsured policies using assumptions consistent with
those used to account for the policies. Amounts recoverable from reinsurers
are estimated in a manner consistent with claims liabilities and are reported
in the company's consolidated balance sheet. The ceding of insurance does not
discharge the company's primary liability to its insureds. An estimated
allowance for doubtful accounts is recorded on the basis of periodic
evaluations of balances due from reinsurers, reinsurer solvency, management's
experience and current economic conditions.

    Income taxes

    Management exercises judgment in estimating the provision for income
taxes. The company is subject to income tax laws in various jurisdictions
where it operates. Various tax laws are potentially subject to different
interpretations by the taxpayer and the relevant tax authority. The provision
for income taxes represents management's interpretation of the relevant tax
laws and its estimate of current and future income tax implications of the
transactions and events during the period. A future income tax asset or
liability is determined for each timing difference based on the future tax
rates that are expected to be in effect and management's assumptions regarding
the expected timing of the reversal of such temporary differences.

    Employee future benefits

    We sponsor a number of defined benefits and defined contribution plans
providing pension and other benefits to eligible employees after retirement.
The pension plans provide benefits based on years of service, contributions
and average earnings at retirement. Due to the long-term nature of these
plans, the calculation of benefit expenses and obligations depends on various
assumptions such as discount rates, expected rates of return on assets,
projected salary increases, retirement age, mortality and termination rates.
All assumptions are determined by management and are reviewed annually by the
actuaries. Actual experience that differs from the actuarial assumptions will
affect the amounts of benefit obligation and expense. The weighted average
assumptions used and the sensitivity of key assumptions are presented in
Note 11 to the company's Audited Consolidated Financial Statements.

    Stock-based compensation

    As previously discussed, a LTIP was implemented for certain employees.
Because of its long term nature, the company must re-estimate the number of
restricted shares that are expected to vest at each reporting period. The
actual number of restricted shares to be issued will only be known at the end
of each performance cycle of the plan.

    Allocation of the purchase price and goodwill

    Under GAAP, goodwill is not amortized but is tested annually for
impairment of value on a reporting unit basis. Management's judgment is
required to identify reporting units with similar economic characteristics and
to select an appropriate valuation model. In the P&C insurance industry and
the P&C insurance brokerage industry, it is common for companies to be
acquired at a multiple of revenue or book value, adjusted for net assets other
than intangibles. A range of values used to evaluate the multiple is developed
using discounted cash flow valuation techniques. When the fair value of the
reporting unit exceeds its carrying value, goodwill is considered not to be
impaired. When the carrying value of the reporting unit exceeds its fair
value, the fair value of the goodwill is compared with its carrying value to
determine the amount of impairment, if any. When the carrying value of
goodwill exceeds the fair value of the goodwill, an impairment loss is
recognized in the consolidated statements of income in an amount equal to the
excess. The company performed its annual impairment test of goodwill for years
ended December 31, 2007 and 2006 and no impairment was identified.

    Contingencies

    In the normal course of operations, various claims and legal proceedings
are instituted against the company. Legal proceedings are often subject to
numerous uncertainties and it is not possible to predict the outcome of
individual cases. In management's opinion, the company has made adequate
provision for, or has adequate insurance to cover all claims and legal
proceedings. Consequently, any settlements reached should not have a material
adverse effect on the company's consolidated future operating results and
financial position. The company provides indemnification agreements to
directors and officers, to the extent permitted by law, against certain claims
made against them as a result of their services to the company. The company
has insurance coverage for these agreements.

    8.4 Impact of New Accounting Standards

    Financial instruments, comprehensive income and hedges

    Effective January 1, 2007, the company applied the new provisions of the
CICA handbook on accounting for financial instruments, including sections
3855, "Financial Instruments - Recognition and Measurement", 3861, "Financial
Instruments - Disclosure and Presentation", 3865, "Hedges" and 1530,
"Comprehensive income", as well as Emerging Issues Committee (E.I.C.) abstract
no 164, "Convertible and Other Debt Instruments with Embedded Derivatives" and
abstract no 166, "Accounting Policy Choice for Transaction Costs".
    The new provisions affected the company's accounting for financial
instruments and hedges and resulted in a new statement of comprehensive income
and a new component of accumulated other comprehensive income within the
company's shareholders' equity. The comprehensive income is composed of the
company's net income and the unrealized gains and losses on available for sale
securities, net of income taxes.
    The standards require that all the company's financial assets and
liabilities be classified as trading, available for sale, held to maturity, or
loans and receivables.

    
    -   Available for sale (AFS) financial assets are carried at fair value
        on the consolidated balance sheet starting on the trade date and the
        changes in fair values are recorded, net of income taxes, in other
        comprehensive income (loss) ("OCI") until the financial asset is
        disposed of, or has become impaired. As long as an AFS asset is held
        and not OTT impaired, the gains and losses are not recognized in the
        consolidated statement of income. A portion of unrealized gains as at
        January 1, 2007, was accounted for as an opening adjustment to
        accumulated other comprehensive income.

    -   We classified a portion of the company's invested assets that is
        supporting net claims liabilities, as held for trading, under which
        the unrealized gains and losses are recognized in income. Such
        classification will reduce income statement volatility related to the
        changes in fair values of claims liabilities as described below.
        Other financial assets and liabilities, including all derivatives and
        embedded derivatives, were also classified as held for trading
        according to the new standards. Unrealized net gains related to
        securities designated as held for trading as at January 1, 2007, was
        accounted for as an adjustment to retained earnings.

    -   The net claims liabilities was discounted using a market rate instead
        of a book rate and an adjustment to the amount of net claims
        liabilities as at January 1, 2007, was recorded to retained earnings
        following the change.

    -   Certain financial assets were designated as loans and receivables.
        These financial assets are accounted for at amortized cost using the
        effective interest rate method. As long as a loan or receivable is
        held and not impaired, the gains and losses are not recognized in the
        consolidated statement of income.

    -   For the company's insurance subsidiaries, the Superintendent of
        Financial Institutions, Canada has imposed certain restrictions under
        guideline D-10, on the classification of assets as held for trading
        and the company met those requirements.

    Impact of the adoption of accounting standards introduced on
    January 1, 2007

    The adoption of new accounting standards on January 1, 2007 increased net
assets by $104.8 million as follows:

    -   Invested assets increased by $262.0 million to reflect the difference
        between their book values and fair values on December 31, 2006. Also
        included is the value of derivatives embedded in preferred shares
        which was not previously recognized for $71.6 million, as well as a
        $9.2 million reduction of fair values to reflect bid/ask prices
        rather than closing prices in the valuation of invested assets.
        Historically, fair values of invested assets were based on closing
        prices.

    -   Claims liabilities increased by $17.9 million to reflect discounting
        at rates based on market conditions rather than book rates. The
        adjustment also affects reinsurance assets as the reinsurers' share
        of the claims liabilities has increased by $2.0 million for the same
        reasons.

    -   Other liabilities increased by $77.6 million to reflect the
        difference between the book values and fair values of short
        securities and the value of the embedded derivatives discussed above
        of $71.6 million.

    -   The changes above were all tax-effected and as a result, the future
        income tax asset was reduced by $63.7 million.

    The impact of the above changes is reflected in different accounts of
shareholders' equity depending on whether they are classified as held-for-
trading or available for sale. In summary:

    -   Retained earnings were reduced by $4.3 million, due to the changes
        which relate to instruments classified or designated as held-for-
        trading and net claims liabilities.

    -   AOCI, a new component of shareholders' equity, increased by $109.1
        million due to the impact of assets classified as available for sale
        (see table 22).
    

    Accounting changes

    Effective January 1, 2007, the company applied the revised provisions of
the CICA handbook section 1506, "Accounting changes". Accordingly, voluntary
changes in accounting policies were made only if they resulted in reliable and
more relevant information. No such changes were made in 2007.

    Variability in variable interest entities

    Effective January 1, 2007, the company applied the (E.I.C.) Abstract No.
163, "Determining the Variability to be Considered in Applying AcG15". This
abstract provides additional clarification on how to analyze and consolidate
variable interest entities. The impact was not significant on the company's
Audited Consolidated Financial Statements.

    Future accounting changes not yet applied

    The company is analyzing the impact of the following new standards on the
Audited Consolidated Financial Statements once adopted:

    Financial Instruments and Capital

    Effective January 1, 2008, the company will apply the new CICA handbook
    sections 3862, "Financial Instruments - Disclosure", 3863, "Financial
    Instruments - Presentation" and 1535, "Capital Disclosures" revising and
    enhancing actual disclosure requirements. These new sections place
    increased emphasis on disclosures about the nature and extent of risks
    arising from financial instruments and how the company manages those
    risks and require the disclosure of both qualitative and quantitative
    information that enables users of financial statements to evaluate the
    company's objectives, policies and processes for managing capital. The
    adoption of these new CICA sections will not have any significant impact
    on the company's results or financial condition.

    IFRS

    The Accounting Standards Board has a strategic plan for financial
    reporting in Canada whereby Canadian GAAP will converge with
    International Financial Reporting Standards (IFRS) over the period ending
    December 31, 2010. After this transitional period, the company will cease
    to use Canadian GAAP and will adopt IFRS. The company monitors this
    transition to IFRS and is analyzing the impact that the adoption of the
    IFRS will have on the Audited Consolidated Financial Statements.

    SECTION 9 - RISK MANAGEMENT

    9.1 Risk management principles and responsibilities

    Effective risk management rests on identifying, understanding and
communicating all risks the company is exposed to in the course of its
operations. In order to make sound decisions, both strategically and
operationally, management must have continual direct access to the most timely
and accurate information possible. Either directly or through its committees,
the Board of Directors ensures that company management has put appropriate
risk management programs in place. The Board, directly and in particular
though its Audit and Risk Review Committee ("Audit Committee"), oversees the
company's risk management programs, procedures and controls and, in this
regard, receives periodic reports from, among others, the risk management
department, Chief Risk Officer, internal auditors and the independent
auditors. A summary of the risks the company is exposed to and the process for
managing them is outlined below.

    Product design and pricing risk

    Product design and pricing risk is the risk that the established price is
or becomes insufficient to ensure an adequate return for shareholders as
compared to the company's profitability objectives. This risk may be due to an
inadequate assessment of market needs, a poor estimate of the future
experience of several factors, as well as the introduction of new products
that could adversely impact the future behaviour of policyholders. New
products are reviewed by senior management and the risk is primarily managed
by regularly analyzing the pricing adequacy of company products as compared to
recent experience. The pricing assumptions are revised as needed and/or the
various options offered by the reinsurance market are utilized.

    Underwriting risk

    Underwriting risk is the risk of financial loss resulting from the
selection of risks to be insured and management of contract clauses.
Unfavourable results in these areas can lead to deviations from the estimates
based on the actuarial assumptions. The company has adopted policies which
specify the company's retention limits and risk tolerance. Once the retention
limits have been reached, the company turns to reinsurance to cover the excess
risk.

    Insolvency risk

    Insolvency risk is the risk that the company will not be able to meet the
demands of future claims as they arise. The regulatory authorities closely
monitor the solvency of insurance companies by requiring them to comply with
strict solvency standards based on the risk assumed by each company with
respect to asset composition, liability composition, and the matching between
these two components. The company is required to submit regular reports to the
regulatory authorities regarding its solvency, and publish its solvency ratio
every quarter. The minimum solvency ratio targeted by the company is 160.0%,
which is much higher than the regulatory MCT requirement of 150.0%. To measure
the degree to which the company is able to meet regulatory solvency
requirements, the appointed actuary must present an annual report to the Audit
Committee and management on the company's current and future solvency. This
report indicates a number of mitigating measures.

    Reinsurance risk

    Even though the company relies on reinsurance to manage the underwriting
risk, reinsurance does not release the company from its primary commitments to
its policyholders. Therefore, the company is exposed to the credit risk
associated with the amounts ceded to reinsurers. The company assesses the
financial soundness of the reinsurers before signing any reinsurance treaties
and monitors their situation on a regular basis. In addition, the company has
minimum rating requirements for its reinsurers.

    Interest rate and equity market fluctuations

    Movements in short-term and long-term interest rates, as well as
fluctuations in the value of equity securities, affect the level and timing of
recognition of gains and losses on securities the company holds, and cause
changes in realized and unrealized gains and losses. Generally, the company's
interest and dividend income will be reduced during sustained periods of lower
interest rates and will likely result in unrealized gains in the value of
fixed income securities the company continues to hold, as well as realized
gains to the extent the relevant securities are sold. During periods of rising
interest rates, the market value of the company's existing fixed income
securities will generally decrease and its realized gains on fixed income
securities will likely be reduced or result in realized losses. General
economic conditions, political conditions and many other factors can also
adversely affect the stock markets and, consequently, the value of the equity
securities the company owns.
    To mitigate these risks, the company establishes an investment policy
which is approved by the investment committee. The policy sets forth limits
for each type of investment and compliance with the policy is closely
monitored. The company manages market risk through asset class diversification
and in some cases, the use of total return swaps whereby the return of a
basket of securities is sold in exchange for interest receipts.

    Credit risk

    Credit risk is the possibility that counterparties may not be able to
meet payment obligations when they become due. A counterparty is any person or
entity from which cash or other forms of consideration are expected to
extinguish a liability or obligation to us. The company's credit risk exposure
is concentrated primarily in its fixed income and preferred share portfolios
and, to a lesser extent, in its reinsurance recoverables.
    The company's risk management strategy and investment policy is to invest
in debt instruments of high credit quality issuers and to limit the amount of
credit exposure with respect to any one issuer by imposing fixed income
portfolio limits on individual corporate issuers based upon credit quality.

    Foreign exchange risk

    Foreign exchange risk is the possibility that changes in exchange rates
produce an unintended effect on earnings and equity when measured in domestic
currency. This risk is larger when assets backing liabilities are payable in
one currency and are invested in financial instruments of another currency.
Although the company is exposed to some foreign exchange risk arising from
securities in some of its U.S. dollar-denominated assets, the general policy
is to minimize foreign currency exposure. The company mitigates foreign
exchange rate risk by buying or selling successive monthly foreign exchange
forward contracts.

    Liquidity risk

    Liquidity risk is the risk that an entity will encounter difficulty in
raising funds to meet cash flow commitments associated with financial
instruments. To manage its cash flow requirements, the company maintains a
portion of its invested assets in liquid securities.

    Market risk

    Market risk is the risk of losses arising from movements in market
prices. The company manages market risk through asset class diversification
and in some cases, the use of total return swaps whereby the return of a
basket of securities is sold in exchange for interest receipts.

    Cash flow risk

    Cash flow risk is the risk that future cash flows associated with a
monetary financial instrument will fluctuate in amount. The company mitigates
cash flow risk by entering into foreign exchange swaps, whereby foreign-
denominated principal and fixed interest receipts are sold in exchange for
Canadian dollars. These swaps are transacted in over-the-counter markets.

    Derivatives

    The company uses certain derivatives to mitigate certain of the above
mentioned risks and it uses other derivatives for trading purposes. The
company's use of derivative exposes it to a number of risks, including credit
risk and interest rate and equity market fluctuations. The credit risk for any
derivative transaction is generated by the potential for the counterparty to
default on its contractual obligations when one or more transactions have a
positive market value to the company. Therefore, credit risk related to
derivatives is represented by the positive fair value of the instruments and
is normally a small fraction of the contract's notional amount. Netting is a
technique that can reduce credit exposure from derivatives and is generally
facilitated through the use of master agreements. The master netting agreement
provides for a single net settlement of all financial instruments covered by
the agreement in the event of default. Trading derivatives also exposes the
company to additional interest rate and equity market fluctuations. The
company manages those additional risks in accordance with the risk management
policies specified above.

    Human Resources risk

    Human resources risk is the risk relating to attracting, and retaining
skilled resources.
    The company has developed a focused recruiting strategy to aggressively
market careers and opportunities at ING Canada, this includes updated website,
focused external recruiting, campaigns, rebranding with the use of employee
value proposition and targeted advertising. This also includes partnering with
four universities on graduate recruiting plus commercial and personal lines
trainee program recruiting.
    Talent identification, management training in talent development
programming and practice have been implemented to retain and grow existing
talents. We have ingrained succession planning and development leaders in the
organization through a competency based assessment and leadership development
programs. Integrated thinking on talent management includes total rewards
planning and development of programs that are competitive with market.

    Distribution risk

    Distribution risk is the risk relating to distribution of the company P&C
products. It includes inherent risk of dealing with independent distributors,
the risk related to new entrants, it also includes the risk related to the
multiple distribution channel strategy which is in place.
    The company has established and is maintaining very close relationships
with its independent distributors and has invested through equity, loans,
technology, training, etc, to strengthen its position. It monitors closely
pricing gaps between its various channels and manages the different channels
under different brand names.

    9.2 Operational risk management

    Operational risk is the risk of loss resulting from inadequate or failed
processes, people and systems or from external events. It includes events like
unauthorized activity, internal and external criminal activity, information
security failure, etc.

    We believe that managing operational risks related to the company's
business activities significantly reduces losses resulting from failed
processes, procedures or controls, inadequate systems, human errors, fraud or
external events such as natural disasters. To manage this risk, the company
follows a specific framework that is composed of four major steps:
identification, measurement, monitoring and mitigation. The scope of
operational risk management covers the security of people, assets and
information, as well as the continuity of the company's operations and
recovery of its technology during a crisis.
    For early detection and clear insight of the company's key operational
risks, it periodically performs Risk & Control Self-Assessments of the
company's critical functions with the collaboration of management. Management
also monitors and measures the company's risks on an ongoing basis through key
risk indicators which enable management to proactively initiate effective
actions. ING Canada has also developed clear incident reporting channels
within the organization to systematically report, manage and monitor
operational incidents leading to financial losses or reputation damage.
Ongoing training and exercises provided to all employees also contribute to
increase the operational risk awareness culture within the organization and
minimize the occurrence of incidents.
    In order to maintain the integrity and continuity of the company's
operations in the event of a crisis, ING Canada has developed personalized
alert and mobilization procedures as well as communication protocols. For
example, emergency action plans, business continuity plans, business recovery
plans, major health crisis plans, building evacuation plans and crisis
communication plans have all been defined and are tested on an ongoing basis.
    The implementation of the overall operational risk management program
relies on management. In addition, the operational risk management department
is there to assist them in monitoring the operational risk processes and
ensuring that appropriate actions are taken when necessary. The operational
risk department reports to the Risk Management Committee, which is comprised
of executive members appointed by the Board of Directors. The Committee has
the oversight responsibility for all enterprise risks and governance within
the organization. Finally, to ensure transparency, the Committee provides
regular updates of its operations to the Senior Management Committee, the
Audit Committee and the Board of Directors.

    9.3 Corporate governance & compliance

    ING Canada believes that good corporate governance and compliance with
all legal and regulatory requirements are essential for maintaining investor
confidence. Legal and regulatory compliance risk arises from non-compliance
with the laws, regulations or guidelines applicable to the company as well as
the risk of loss resulting from non-fulfilment of a contract. ING Canada is
subject to strict regulatory requirements and detailed monitoring of its
operations in all provinces or states where it conducts business, either
directly or through its subsidiaries. ING Canada's corporate governance and
compliance program is built on the following foundations:

    
    a)  ING Canada's Board of Directors and its Committees are structured in
        accordance with sound corporate governance standards. Directors are
        presented with significant information in all areas of the company's
        operations to enable them to effectively supervise the company's
        management, business objectives and risks.

    b)  Disclosure controls and processes have been put into place so that
        relevant information is obtained and communicated to senior
        management and directors of the Board to ensure that the company
        meets its disclosure obligations and to protect the confidentiality
        of information. A decision-making process is also in place to
        facilitate timely and accurate public disclosure.

    c)  Effective corporate governance is dependent on strong corporate
        compliance structures and processes. To this end, ING Canada has
        established an enterprise-wide Compliance Policy and framework
        including procedures and policies necessary to ensure adherence to
        laws, regulations and related obligations. Compliance activities
        include identification, mitigation and monitoring of
        compliance/reputation risks, as well as communication, education, and
        activities to promote a culture of compliance and ethical business
        conduct.

    d)  The Board of Directors and the Audit Committee of ING Canada, as well
        as that of its subsidiaries, periodically receive reports on all
        important litigation, whether they be in the normal course of
        business, where the contesting of certain claims appears normal, or
        outside the normal course of business. To manage this risk, the
        company has specialized resources in its Legal Department as well as
        experts outside the company, and provisions are taken when deemed
        necessary.
    

    While senior management has ultimate responsibility for compliance,
compliance is a responsibility that each individual employee shares. This
responsibility is clearly set out in ING Canada's Business Principles and Code
of Conduct and employees are asked to sign annually that they have reviewed
and complied with them.

    9.4 Industry standards

    ING Canada is committed to maintaining its reputation as a corporation
with integrity and ethical business conduct that extends to how the company
treats its customers. In this light, ING Canada is currently working with the
Insurance Bureau of Canada (IBC) in reviewing the principles set out in IBC's
Standards of Sound Marketplace Practice ("Standards"), which includes concepts
such as information disclosure, timely and fair settlement of claims, adequate
systems of complaint handling, and knowledgeable intermediaries.
    ING Canada has subscribed to the underlying principles of the Standards
for many years and already has practices in place to ensure appropriate levels
of consumer service. Operational and compliance teams are reviewing the
Standards to see what gaps, if any, exist and how ING Canada can enhance its
practices. This self-regulation effort is in addition to the Code of Consumer
Rights and Responsibilities already adopted by ING Canada.
    An additional best practices initiative is the CCIR/CISRO's (industry
regulators) three (3) principle-based recommendations designed to promote
customer confidence in the insurance industry (i.e. priority of client's
interest, disclosure of conflicts or potential conflicts of interest, and
product suitability). ING Canada supports this initiative and is working with
the insurance industry to determine best practices.

    SECTION 10 - OTHER MATTERS

    10.1 Related party transactions

    The company has ongoing transactions with related parties consisting
mostly of:

    
    (1)    management and advisory services to ING Groep and affiliated
           companies;
    (2)    reinsurance by an affiliated company; and
    (3)    financing.
    

    In addition, the company has related party transactions with investees
accounted for as long-term investments. These transactions consist primarily
of loans and commission expenses.

    These transactions are carried out in the normal course of operations and
are measured at the amount of consideration paid or received as established
and agreed by the related parties. Management believes that such exchange
amounts approximate fair value.
    In addition, the company has related party transactions with investees
accounted for as long-term investments. These transactions consist primarily
of loans and commission expenses.
    Notes 1 and 7 to the accompanying Audited Consolidated Financial
Statements provide additional information on related party transactions.

    10.2 Cautionary note regarding forward-looking statements

    Certain statements in this report about the company's current and future
plans, expectations and intentions, results, levels of activity, performance,
goals or achievements or any other future events or developments are forward-
looking statements. The words "may", "will", "would", "should", "could",
"expects", "plans", "intends", "anticipates", "believes", "estimates",
"predicts", "likely" or "potential" or the negative or other variations of
these words or other similar words or phrases identify such forward-looking
statements.
    Forward-looking statements are based on estimates and assumptions made by
management based on management's experience and view of historical trends,
current conditions and expected future developments, as well as other factors
that management believes are appropriate in the circumstances. Many factors
could cause the company's actual results, performance or achievements or
future events or developments to differ materially from the forward-looking
statements. These factors include, without limitation, the following: the
company's ability to implement its strategy or operate its business as
management expects; its ability to accurately assess the risks associated with
the insurance policies that the company writes; unfavourable capital market
developments or other factors which could affect the company's invested
assets; the cyclical nature of the P&C insurance industry; its ability to
accurately predict future claims frequency; government regulations; litigation
and regulatory actions; periodic negative publicity regarding the insurance
industry; intense competition; the company's reliance on brokers and third
parties to sell its products; the company's ability to successfully pursue its
acquisition strategy; the significant influence of ING Groep; the company's
participation in the Facility Association (a mandatory pooling arrangement
among all industry participants); terrorist attacks and ensuing events; the
occurrence of catastrophic events; the company's ability to maintain its
financial strength ratings; the company's ability to alleviate risk through
reinsurance; the company's ability to successfully manage credit risk; the
company's reliance on information technology and telecommunications systems;
the company's dependence on key employees; general economic, financial and
political conditions; the company's dependence on the results of operations of
its subsidiaries; the limited trading history of its common shares; the
accuracy of analyst earnings estimates or the consensus figure based upon such
estimates; the volatility of the stock market and other factors affecting the
company's share price; and future sales of a substantial number of its common
shares. These factors should be considered carefully, and readers should not
place undue reliance on the company's forward-looking statements. Management
has no intention and accept no responsibility to update or revise any forward-
looking statements as a result of new information, future events or otherwise,
except as required by law.

    SECTION 11 - ADDITIONAL INFORMATION

    The following tables present the income and comprehensive income
    information, the shareholder's equity and the cash flows.

    Table 26

    
    -------------------------------------------------------------------------
                             For the quarter ended        For the year ended
                                  December 31                 December 31
    -------------------------------------------------------------------------
                              2007          2006          2007          2006
    -------------------------------------------------------------------------
    Revenues
    Premiums written
      Direct          $      959.7  $      963.6  $    4,100.0  $    3,990.4
      Ceded                   25.3          22.4          97.6          94.9
                      -------------------------------------------------------
      Net                    934.4         941.2       4,002.4       3,895.5
    Changes in net
     unearned premiums        70.3          38.4         (70.4)        (68.9)
                      -------------------------------------------------------
    Net premiums earned    1,004.7         979.6       3,932.0       3,826.6
    Interest and
     dividend income          91.3          91.3         364.3         342.4
    Net gains on
     invested assets
     and other gains          (3.3)         15.3          73.6         193.5
    Distribution and
     other                     4.0           9.5          70.0          43.8
    -------------------------------------------------------------------------
                           1,096.7       1,095.7       4,439.9       4,406.3
    Expenses
    Underwriting
      Claims                 671.7         629.3       2,584.3       2,261.2
      Commissions            146.3         154.7         583.1         611.7
      Premium taxes           35.0          33.2         136.9         132.3
      General expenses       104.2         100.1         418.9         417.6
                      -------------------------------------------------------
                             957.2         917.3       3,723.2       3,422.8
    Distribution and other     6.9           9.2          45.1          26.2
    Interest                     -             -             -           5.3
                      -------------------------------------------------------
                             964.1         926.5       3,768.3       3,454.3

    -------------------------------------------------------------------------
    Income before income
     taxes                   132.6         169.2         671.6         952.0
    Income taxes              36.8          59.8         163.3         293.9
    -------------------------------------------------------------------------

    Net income        $       95.8  $      109.4  $      508.3  $      658.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per
     share, basic
     and diluted
     (dollars)        $       0.77  $       0.82  $       4.01  $       4.92
    Dividends per
     share (dollars)          0.27          0.25          1.08          1.00
    Basic and
     diluted average
     number of
     common shares
     (in millions)           124.5         133.7         126.7         133.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Table 24

    Net income        $       95.8  $      109.4  $      508.3  $      658.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Unrealized losses
     on available for
     sale securities
      Increase during
       the period            (198.6)                    (296.3)           -
      Income taxes             62.3                       95.6            -
                      -------------------------------------------------------
                             (136.3)                    (200.4)           -
    Reclassified to
     income
      Realized gains           68.2                      (54.5)            -
      Income taxes            (19.2)                      27.5             -
                      -------------------------------------------------------
                               49.0                      (27.0)
    -------------------------------------------------------------------------
    Other comprehensive
     loss                    (87.3)            -        (227.4)            -

    Comprehensive
     income           $        8.5  $          -  $      280.9  $          -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Table 25

    -------------------------------------------------------------------------
                                                      Accumulated
                                                         other
                     Share   Contributed   Retained  comprehensive
                    capital     surplus    earnings  income (loss)    Total
    -------------------------------------------------------------------------

    Balance as at
     December 31,
     2006         $  1,183.9  $     93.5  $  2,143.4  $        -  $  3,420.8
    Transition
     adjustments           -           -        (4.3)      109.1       104.8
    Comprehensive
     income                -           -       508.3      (227.4)      280.9
    Common shares
     purchased for
     cancellation      (82.0)          -      (419.2)          -      (501.2)
    Dividends paid         -           -      (136.9)          -      (136.9)
    Stock-based
     compensation          -         3.7           -           -         3.7
    -------------------------------------------------------------------------
    Balance as at
     December 31,
     2007         $  1,101.9  $     97.2  $  2,091.3  $   (118.3) $  3,172.1

    -------------------------------------------------------------------------

    Balance as at
     December 31,
     2005         $  1,183.9  $     89.7  $  1,619.0  $        -  $  2,892.6
    Net income             -           -       658.1           -       658.1
    Dividends paid         -           -      (133.7)          -      (133.7)
    Stock-based
     compensation          -         3.8           -           -         3.8
    -------------------------------------------------------------------------
    Balance as at
     December 31,
     2006         $  1,183.9  $     93.5  $  2,143.4  $        -  $  3,420.8

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Table 26

    -------------------------------------------------------------------------
                           For the quarter ended          For the year ended
                                December 31                   December 31
    -------------------------------------------------------------------------
                              2007          2006          2007          2006
    -------------------------------------------------------------------------

    Operating
     activities
    Net income        $       95.8  $      109.4  $      508.3  $      658.1
    Adjustments for
     non-cash items         (111.1)        (74.4)         14.6        (106.0)
    Changes in net
     claims
     liabilities               4.6          33.3         163.0          62.1
    Changes in other
     operating assets
     and liabilities         227.2          35.7         (65.6)       (183.2)
                      -------------------------------------------------------
    Cash provided by
     operating
     activities              216.5         104.0         620.3         431.0

    Investing
     activities
    Proceeds from
     sale of
     invested
     assets                1,337.7       2,589.5      10,802.9      16,581.2
    Purchase of
     invested
     assets               (1,483.9)     (2,536.8)    (10,845.6)    (16,891.0)
    Purchase of
     brokerages and
     books of
     business, net            (0.3)        (15.4)        (10.0)        (65.2)
    Proceeds from
     sale and
     leaseback of
     properties                  -             -             -          30.0
    Purchase of
     property and
     equipment and
     other                   (29.7)          5.3         (47.4)        (40.4)
                      -------------------------------------------------------
    Cash (used in)
     provided by
     investing
     activities             (176.2)         42.6        (100.1)       (385.4)

    Financing
     activities
    Purchase of
     common shares
     for cancellation            -             -        (501.2)            -
    Dividends paid           (33.6)        (33.4)       (136.9)       (133.7)
    Debt repayment               -             -             -        (127.0)
                      -------------------------------------------------------
    Cash used in
     financing
     activities              (33.6)        (33.4)       (638.1)       (260.7)

    -------------------------------------------------------------------------
    Net decrease
     in cash
     and cash
     equivalents               6.7         113.2        (117.9)       (215.1)
    Cash and cash
     equivalents,
     beginning of
     period                    1.4          12.8         126.0         341.1
    -------------------------------------------------------------------------

    Cash and cash
     equivalents,
     end of period    $        8.1  $      126.0  $        8.1  $      126.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    ING Canada Inc.
    December 31, 2007



    CONSOLIDATED BALANCE SHEETS
    (in millions of dollars)
    -------------------------------------------------------------------------

    As at December 31                                     2007          2006
    -------------------------------------------------------------------------

    Assets
    Cash and cash equivalents                       $      8.1    $    126.0
    Invested assets (note 3)
      Debt securities                                  3,886.7       3,972.3
      Equity securities                                3,140.3       3,040.8
      Loans and equity investments                       210.8         228.8
                                                   --------------------------
                                                       7,237.8       7,241.9

    Premium receivables                                1,440.8       1,366.9
    Accrued interest and dividend income                  46.2          51.1
    Other receivables                                    264.8         282.8
    Deferred acquisition costs                           379.6         372.8
    Reinsurance assets (note 6)                          273.5         288.1
    Other assets (note 10)                               280.1         246.0
    Income taxes receivable                              168.4          54.1
    Future income tax asset (note 8)                      68.7         119.2
    Intangible assets (note 9)                            61.8          66.3
    Goodwill (note 9)                                    159.9         162.1
    -------------------------------------------------------------------------

                                                    $ 10,389.7    $ 10,377.3
    -------------------------------------------------------------------------

    Liabilities
    Claims liabilities (note 6)                     $  3,989.0    $  3,823.5
    Unearned premiums (note 6)                         2,333.5       2,264.1
    Other liabilities                                    862.6         844.9
    Income taxes payable                                  32.5          24.0
                                                   --------------------------
                                                       7,217.6       6,956.5
    Contingencies, commitments and guarantees
     (note 17)

    Shareholders' equity
    Share capital (note 13)                            1,101.9       1,183.9
    Contributed surplus                                   97.2          93.5
    Retained earnings                                  2,091.3       2,143.4
    Accumulated other comprehensive loss                (118.3)            -
                                                   --------------------------
                                                       3,172.1       3,420.8
    -------------------------------------------------------------------------

                                                    $ 10,389.7    $ 10,377.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to consolidated financial statements


    On behalf of the Board:

    Director:                            Director:
             -----------------------              -----------------------



    CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
    (in millions of dollars except for per share amounts)
    -------------------------------------------------------------------------

    For the years ended December 31                       2007          2006
    -------------------------------------------------------------------------

    Revenues
    Premiums written
      Direct                                        $  4,100.0    $  3,990.4
      Ceded                                               97.6          94.9
                                                   --------------------------
      Net                                              4,002.4       3,895.5
    Changes in net unearned premiums                     (70.4)        (68.9)
                                                   --------------------------
    Net premiums earned                                3,932.0       3,826.6
    Interest and dividend income (note 5)                364.3         342.4
    Net gains on invested assets and other gains          73.6         193.5
    Distribution and other                                70.0          43.8
    -------------------------------------------------------------------------
                                                       4,439.9       4,406.3
    Expenses
    Underwriting
      Claims                                           2,584.3       2,261.2
      Commissions (note 7)                               583.1         611.7
      Premium taxes                                      136.9         132.3
      General expenses                                   418.9         417.6
                                                   --------------------------
                                                       3,723.2       3,422.8
    Distribution and other                                45.1          26.2
    Interest                                                 -           5.3
                                                   --------------------------
                                                       3,768.3       3,454.3

    -------------------------------------------------------------------------
    Income before income taxes                           671.6         952.0
    Income taxes (note 8)                                163.3         293.9
    -------------------------------------------------------------------------

    Net income                                      $    508.3    $    658.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Unrealized losses on available for
     sale securities
      Increase during the year                          (296.3)            -
      Income taxes                                        95.9             -
                                                   --------------------------
                                                        (200.4)            -
    Reclassified to income
      From available for sale securities                 (54.5)            -
      Income taxes                                        27.5             -
                                                   --------------------------
                                                         (27.0)            -
    -------------------------------------------------------------------------
    Other comprehensive loss                            (227.4)            -

    Comprehensive income                            $    280.9    $        -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per share, basic and diluted (dollars) $     4.01    $     4.92
    Dividends per share (dollars)                         1.08          1.00
    Basic and diluted average number of
     common shares (in millions)                         126.7         133.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to consolidated financial statements



    CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
    (in millions of dollars)
    -------------------------------------------------------------------------
                                                      Accumulated
                                                         other
                     Share    Contributed  Retained  comprehensive
                    capital     surplus    earnings  income (loss)     Total
    -------------------------------------------------------------------------

    Balance as at
     December 31,
     2006          $ 1,183.9   $    93.5   $ 2,143.4   $       -   $ 3,420.8
    Transition
     adjustments
     (note 2)              -           -        (4.3)      109.1       104.8
    Comprehensive
     income                -           -       508.3      (227.4)      280.9
    Common shares
     purchased for
     cancellation
     (note 13)         (82.0)          -      (419.2)          -      (501.2)
    Dividends paid         -           -      (136.9)          -      (136.9)
    Stock-based
     compensation          -         3.7           -           -         3.7
    -------------------------------------------------------------------------

    Balance as at
     December 31,
     2007          $ 1,101.9   $    97.2   $ 2,091.3   $  (118.3)  $ 3,172.1
    -------------------------------------------------------------------------

    Balance as at
     December 31,
     2005          $ 1,183.9   $    89.7   $ 1,619.0   $       -   $ 2,892.6
    Net income             -           -       658.1           -       658.1
    Dividends paid         -           -      (133.7)          -      (133.7)
    Stock-based
     compensation          -         3.8           -           -         3.8
    -------------------------------------------------------------------------

    Balance as at
     December 31,
     2006          $ 1,183.9   $    93.5   $ 2,143.4   $       -   $ 3,420.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to consolidated financial statements



    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (in millions of dollars)
    -------------------------------------------------------------------------

    For the years ended December 31                       2007          2006
    -------------------------------------------------------------------------

    Cash flows from (used in) operating activities
    Net income                                      $    508.3    $    658.1
    Adjustments for non-cash items                        14.6        (106.0)
    Changes in net claims liabilities                    163.0          62.1
    Changes in other operating assets
     and liabilities                                     (65.6)       (183.2)
                                                   --------------------------
    Cash provided by operating activities                620.3         431.0

    Cash flows from (used in) investing activities
    Proceeds from sale of invested assets             10,802.9      16,581.2
    Purchase of invested assets                      (10,845.6)    (16,891.0)
    Purchase of brokerages and books of
     business, net (note 15)                             (10.0)        (65.2)
    Proceeds from sale and leaseback of properties           -          30.0
    Purchase of property and equipment and other         (47.4)        (40.4)
                                                   --------------------------
    Cash used in investing activities                   (100.1)       (385.4)

    Cash flows from (used in) financing activities
    Purchase of common shares for cancellation          (501.2)            -
    Dividends paid                                      (136.9)       (133.7)
    Debt repayment                                           -        (127.0)
                                                   --------------------------
    Cash used in financing activities                   (638.1)       (260.7)

    -------------------------------------------------------------------------
    Net decrease in cash and cash equivalents           (117.9)       (215.1)
    Cash and cash equivalents, beginning of year         126.0         341.1
    -------------------------------------------------------------------------

    Cash and cash equivalents, end of year
     (note 14)                                      $      8.1    $    126.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to consolidated financial statements



    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of dollars, except as otherwise noted)
    -------------------------------------------------------------------------

    Note 1   Status of the Company
    -------------------------------------------------------------------------

    ING Canada Inc. (the "Company") was incorporated under the Canada
    Business Corporations Act. The Company has investments in wholly-owned
    subsidiaries which operate principally in the Canadian property and
    casualty ("P&C") insurance market. The Company's significant subsidiaries
    are ING Insurance Company of Canada, Belair Insurance Company Inc., The
    Nordic Insurance Company of Canada, ING Novex Insurance Company of
    Canada, Trafalgar Insurance Company of Canada, Equisure Financial Network
    Inc., Canada Brokerlink Inc. and Grey Power Insurance Inc.

    ING Groep of the Netherlands ("ING Groep") both as the owner of 70% of
    the Company's outstanding common shares and the Special Share (note 13)
    and as a party to the Co-Operation Agreement (the "Agreement") has
    substantial influence over the ongoing business and operation of the
    Company. The Agreement provides, among other things, that for so long as
    ING Groep holds not less than one-third of the Company's outstanding
    common shares, the Company may not carry out certain corporate acts,
    including entering into business combinations with unaffiliated third
    parties or making acquisitions or dispositions above certain monetary
    thresholds or changing the dividend policy without the prior written
    approval of ING Groep.


    Note 2   Summary of significant accounting policies
    -------------------------------------------------------------------------

    These consolidated financial statements have been prepared in accordance
    with Canadian generally accepted accounting principles ("GAAP"). The
    accounting policies used to prepare the financial statements of the
    Company's regulated insurance subsidiaries must also comply with the
    accounting requirements of their respective regulators.

    The preparation of consolidated financial statements in accordance with
    Canadian GAAP requires management to make assumptions and estimates that
    affect the reported amounts of assets and liabilities at the dates of the
    consolidated financial statements, the reported amounts of revenue and
    expenses for the years presented, as well as the disclosure of contingent
    assets and liabilities. These estimates are subject to uncertainty.
    Significant estimates include the fair value of financial instruments
    (note 5), determination of impairment losses (notes 5 and 9), policy
    liabilities (note 6), income taxes (note 8), employee future benefits
    (note 11), stock-based compensation (note 13), the allocation of the
    purchase price (note 15) and contingencies (note 17). Changes in
    estimates are recorded in the accounting period in which these changes
    are determined.

    The significant accounting policies used in preparing these consolidated
    financial statements, including those specified by the insurance
    regulators, are, in all material respects, in accordance with Canadian
    GAAP and are summarized below. These policies have been consistently
    applied except as described in the significant accounting changes section
    below.

    (a) Significant accounting changes

    Financial instruments, comprehensive income and hedges

    The Company adopted on January 1, 2007, the new provisions of the
    Canadian Institute of Chartered Accountants ("CICA") Handbook on
    accounting for financial instruments, including sections 3855, "Financial
    Instruments - Recognition and Measurement", 3861, "Financial Instruments
    - Disclosure and Presentation", 3865, "Hedges" and 1530, "Comprehensive
    Income" as well as Emerging Issues Committee ("EIC") abstracts no 164
    "Convertible and Other Debt Instruments with Embedded Derivatives" and
    no 166 "Accounting Policy Choice for Transaction Costs".

    The impact of these changes, as explained in detail below, was
    significant on the Company's annual consolidated balance sheet and note
    disclosures. The impact was however not significant on the Company's
    annual consolidated statement of income except for the recognition of
    unrealized gains and losses on held-for-trading securities and embedded
    derivatives (see table 5.6). The Company also changed some groupings and
    descriptions in its consolidated financial statements to better disclose
    its financial position and results.

    i)  Transition adjustments

    The new standards were applied on January 1, 2007 on a retroactive basis
    without prior period restatement, in accordance with the applicable
    transitional provisions. The significant changes were:

    a)  Classification or designation of all financial assets and liabilities
        in one of these three categories:
        -   available for sale ("AFS")
        -   held-for-trading ("HFT")
        -   loans and receivable

    b)  Revaluation of most of the AFS assets and all the HFT assets and
        liabilities at their fair values and these, under the new standards,
        are determined based on the bid or ask price, respectively. The
        Company was previously disclosing fair values based on the closing
        price. The differences between the book values at December 31, 2006
        and the fair values at January 1, 2007 were recorded either in
        opening retained earnings or opening accumulated other comprehensive
        income (loss) ("AOCI"), according to the classification or
        designation of the specific asset or liability.

    c)  As a consequential effect of the changes above, the claims
        liabilities, net of reinsurance ("net claims liabilities") were
        recalculated at January 1, 2007 using an investment yield rate
        reflecting fair value instead of book value. The difference between
        the amount of net claims at December 31, 2006 and at January 1, 2007
        was recorded as a transitional adjustment in opening retained
        earnings.

    Table 2.1 - Transition adjustments for each balance sheet item
    -------------------------------------------------------------------------
                                       December 31,  Transition    January 1,
                                              2006  adjustments         2007
    -------------------------------------------------------------------------
    Assets
    Invested assets
      Debt securities                      3,972.3         21.7      3,994.0
      Equity securities                    3,040.8        240.3      3,281.1
      Loans and equity investments
        Broker loans and equity
         investments                         171.6            -        171.6
        Mortgage loans                        57.2            -         57.2
                                      ---------------------------------------
                                           7,241.9        262.0      7,503.9

    Reinsurance assets                       270.4          2.0        272.4
    Future income tax asset                  119.2        (63.7)        55.5
    -------------------------------------------------------------------------

                                                          200.3
    -------------------------------------------------------------------------
    Liabilities
    Other liabilities
      Short securities                        57.1          5.1         62.2
      Derivative financial instruments         3.5          0.9          4.4
      Embedded derivatives                       -         71.6         71.6

    Claims liabilities                     3,823.5         17.9      3,841.4
                                      ---------------------------------------
                                                           95.5
    Shareholders' equity
    Retained earnings                      2,143.4         (4.3)     2,139.1
    Accumulated other comprehensive
     income (loss)                               -        109.1        109.1
                                      ---------------------------------------
                                                          104.8
    -------------------------------------------------------------------------

                                                          200.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Table 2.2 - Classification and designation at January 1, 2007
    -------------------------------------------------------------------------
                                 Classified Designated
                             AFS     as HFT     as HFT      Loans      Total
    -------------------------------------------------------------------------
    Debt securities
      Short-term notes     713.5          -          -          -      713.5
      Fixed income
       securities        1,248.2          -    2,032.3          -    3,280.5
    Equity securities
      Preferred shares   1,583.6          -          -          -    1,583.6
      Common shares      1,407.1       73.9      216.5          -    1,697.5
    Loans and equity
     investments
      Broker loans
       and equity
       investments          14.7          -          -      156.9      171.6
      Mortgage loans           -          -          -       57.2       57.2
    Short securities,
     derivative financial
     instruments and
     embedded derivatives      -     (138.2)         -          -     (138.2)
    -------------------------------------------------------------------------

    Total                4,967.1      (64.3)   2,248.8      214.1    7,365.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Table 2.3 - Transition adjustments at January 1, 2007
                (net of income taxes) per classification and designation
    -------------------------------------------------------------------------
                                 Classified Designated  Net claims
                             AFS     as HFT     as HFT liabilities     Total
    -------------------------------------------------------------------------
    Retained earnings        0.7        1.1        4.6      (10.7)      (4.3)
    Accumulated other
     comprehensive
     income (loss)         109.1          -          -          -      109.1
    -------------------------------------------------------------------------

                           109.8        1.1        4.6      (10.7)     104.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    ii) Accounting policies now applied

    As per the new accounting standards, the Company classified or designated
    all its financial assets and liabilities as AFS, HFT or loans and
    receivables as at January 1, 2007 (see current designation in table 3.1).
    Each of these categories involves different accounting treatments.

    The principal changes and consequential changes in the accounting due to
    the adoption of these accounting standards are described below.

    Accounting for financial instruments as per their classification

    AFS financial assets
    --------------------
    AFS financial assets are carried at fair value on the consolidated
    balance sheet starting on the trade date and the changes in fair values
    are recorded, net of income taxes, in other comprehensive income (loss)
    ("OCI") until the financial asset is disposed of, or has become other
    than temporarily ("OTT") impaired. As long as an AFS asset is held and
    not OTT impaired, the gains and losses are not recognized in the
    consolidated statement of income (see current unrecognized gains and
    losses in table 3.2). When the asset is disposed of, or has become OTT
    impaired, the gain or loss is recognized in the consolidated statement of
    income as net gains on invested assets and other gains and, accordingly,
    the amount is deducted from OCI. Gains and losses on the sale of AFS
    fixed income and equity securities are calculated on a first in, first
    out basis and on an average cost basis, respectively.

    HFT financial assets and liabilities
    ------------------------------------
    HFT financial assets and liabilities are carried at fair value on the
    consolidated balance sheet starting on the trade date and the changes in
    fair values are recorded in the consolidated statement of income as net
    gains on invested assets and other gains.

    HFT financial assets and liabilities are purchased or incurred with the
    intention of generating profits in the near term ("classified as HFT") or
    are voluntarily so designated by the Company ("designated as HFT").

    The Company designated a portion of its fixed income securities that are
    supporting net claims liabilities as HFT. This designation will reduce
    the volatility of the consolidated statement of income related to the
    fluctuations in fair values of underlying net claims liabilities. To
    comply with insurance regulators guidelines, the Company ensures that the
    duration weighted amount of the fixed income securities designated as HFT
    and the net claims liabilities are approximately the same. Common shares
    used in a specific strategy were also designated as HFT to offset the
    fluctuations in fair values of their underlying derivative financial
    instruments.

    Other financial assets and liabilities, including all derivative
    financial instruments and embedded derivatives (see below), were
    classified as HFT according to the new standards.

    Loans and receivables
    ---------------------
    Certain financial assets were designated as loans and receivables. These
    financial assets are accounted for at amortized cost using the effective
    interest rate method. As long as a loan or receivable is held and not
    impaired, the gains and losses are not recognized in the consolidated
    statement of income (see current unrecognized gains and losses in table
    3.2). These designations are consistent with the accounting policies
    under the prior standards.

    Net claims liabilities
    ----------------------
    Net claims liabilities were previously discounted using the book yield of
    their supporting invested assets, which was consistent with the
    accounting treatment of these assets carried at amortized cost. Under the
    new accounting standards, these supporting assets are now carried at
    their fair value. As a consequential change of the adoption of the new
    accounting standards, the discount rate now used for net claims
    liabilities reflects the market yield of the supporting assets, which is
    consistent with the new accounting treatment of these assets.

    Derivative financial instruments and hedge accounting
    -----------------------------------------------------
    Derivative financial instruments are used for risk management ("non-
    trading") purposes and for trading purposes. Currency swaps and forwards,
    and certain total return swaps are held for non-trading purposes to
    mitigate foreign exchange and market risks. Interest rate futures,
    options and swaps, credit derivatives and certain total return swaps are
    held for trading purposes.

    For derivative financial instruments held for non-trading purposes where
    hedge accounting is applied, the accounting policy is as follows:

    (i)   The Company formally documents all relationships between hedging
          instruments and hedged items, as well as its risk management
          objective and strategy for undertaking its hedge transactions and
          the method to be used to measure its effectiveness. The Company
          also formally assesses, both at inception and on an ongoing basis,
          whether the derivative financial instruments that are used in
          hedging transactions are effective in offsetting changes in fair
          values of hedged items.

    (ii)  Hedge accounting is discontinued prospectively when the derivative
          financial instrument no longer qualifies as an effective hedge or
          the derivative financial instrument is terminated or sold. Under
          the previous standards, the fair value of the derivative financial
          instrument was then accounted for and the related gain or loss was
          deferred to be included in the consolidated statement of income
          during the periods in which the hedged item affected earnings.
          Should the hedged item cease to exist; the gains or losses deferred
          until then are immediately charged to income. Under the new
          standards, the cumulative adjustment to the carrying amount of the
          hedged item is amortized to the consolidated statement of income
          based on a recalculated effective interest rate over the residual
          period to maturity; unless the hedged item has been derecognized in
          which case it is released to the consolidated statement of income
          as net gains on invested assets and other gains immediately.

    (iii) The Company uses hedge accounting only for certain currency swaps
          used to manage foreign exchange risk related to certain private
          placements in U.S. dollars. Under the previous standards, these
          derivative financial instruments were recognized at cost and
          foreign exchange gains and losses related to the hedged items were
          not recognized until they were settled. Under the new standards,
          the derivative financial instruments are carried at fair value in
          the consolidated balance sheet and changes in their fair value are
          recorded in the consolidated statement of income. The hedged assets
          are carried at fair value in the consolidated balance sheet and the
          changes in their fair value attributable to the hedged risk,
          according to the accounting treatment of the hedging instrument,
          are recognized also in the consolidated statement of income and the
          changes in the fair value attributable to other risks are
          recognized in OCI. Any gain or loss in fair value relating to the
          ineffective portion of the hedging relationship is recognized
          immediately in the consolidated statement of income.

    For derivative financial instruments held for non-trading purposes where
    hedge accounting is not applied and for derivative financial instruments
    held for trading purposes, the instruments are recognized at their fair
    value, with changes in the fair value reflected in the consolidated
    statement of income as net gains on invested assets and other gains
    during the period in which they arise.

    These changes in accounting policies for derivative financial instruments
    and hedge accounting had no significant impact on the Company's
    consolidated financial statements.

    Embedded derivatives
    --------------------
    A derivative instrument may be embedded in another financial instrument
    (the "host instrument"). Prior to the adoption of the new standards, such
    embedded derivatives were not accounted for separately from the host
    instrument. Under the new standards, embedded derivatives are treated as
    separate derivative financial instruments when their economic
    characteristics and risks are not clearly and closely related to those of
    the host instrument, the terms of the embedded derivatives are the same
    as those of a stand-alone derivative financial instrument, and the
    combined contract is not designated or classified as HFT. These embedded
    derivatives are accounted for as other HFT financial assets and
    liabilities (see table 5.6).

    As a result of this new accounting standard for embedded derivatives, the
    Company now accounts for the redemption options embedded in some
    perpetual preferred shares separately from the host instrument.

    Comprehensive income
    --------------------
    The consolidated statement of comprehensive income is a new financial
    statement. This new statement reflects the net income as adjusted, net of
    income taxes, for the AFS asset changes in fair values during the period
    less the amount recognized in the consolidated statement of income during
    the period. Such an adjustment is called OCI and is not included in the
    earnings per share calculations.

    Accumulated other comprehensive income (loss)
    ---------------------------------------------
    The accumulated OCI ("AOCI") is a new component of shareholders' equity
    and represents the accumulated changes in fair values, net of income
    taxes, of AFS assets that are not yet recognized in the consolidated
    statement of income.

    Revenue and expense recognition
    -------------------------------
    Under previous standards, transaction costs were capitalized on initial
    recognition. Under the new standards, the transaction costs are now
    expensed as incurred for financial instruments classified or designated
    as HFT. For other financial instruments, transaction costs are still
    capitalized on initial recognition.

    The effective interest method of amortization is used for any transaction
    cost capitalized on initial recognition and for the premiums or discounts
    earned or incurred for loans and AFS securities.

    Determination of fair value
    ---------------------------
    The fair value of a financial instrument on initial recognition is
    normally the transaction price, i.e. the fair value of the consideration
    given or received.

    Subsequent to initial recognition, the fair values are determined based
    on available information:

    -   When a quoted active market exists, the fair values of financial
        assets are based on bid prices and the fair values of financial
        liabilities, namely short securities and some derivative financial
        instruments, are based on ask prices. Where bid or ask price is
        unavailable, the closing price of the most recent transaction of the
        instrument subject to liquidation adjustments is used.

    -   In the absence of an active market, fair values are determined based
        on prevailing market rates for instruments with similar
        characteristics and risk profiles or the fair values are determined
        by using valuation techniques commonly used by market participants,
        which refer to observable market data. Valuation techniques commonly
        used by market participants includes as well comparisons with similar
        instruments where market observable prices exist, discounted cash
        flow analysis and option pricing models.

    Fair values determined using valuation models require the use of
    assumptions concerning the amount and timing of estimated future cash
    flows and discount rates. In determining those assumptions, the external
    readily observable market inputs are primarily looked at, including
    factors such as interest rate yield curves, currency rates, and price and
    rate volatilities, as applicable. In limited circumstances, the Company
    uses input parameters that are not based on observable market data with
    an adjustment to reflect the uncertainty and to ensure that financial
    instruments are reported at fair values. Based on management's
    assessment, using possible alternative assumptions to fair value such
    financial instruments will not result in significantly different fair
    values.

    Liquidity adjustments are calculated when market prices are not
    observable due to insufficient trading volume or a lack of recent trades
    in a less active or inactive market. Liquidity adjustments are also
    calculated to reflect the cost of unwinding a larger than normal market
    size risk position.

    If the fair value of a financial asset measured at fair value becomes
    negative, it is recorded as a financial liability until its fair value
    becomes positive at which time it is recorded as a financial asset, or it
    is extinguished. These changes in classifications occur mainly to
    derivative financial instruments (see current classification in the
    consolidated balance sheet of derivative financial instruments in table
    4.1). Derivative financial instruments with positive fair values are
    recorded as other receivables and those with negative fair values are
    recorded as other liabilities.

    Other changes in accounting policies

    Effective January 1, 2007, the Company applied the revised provisions of
    the CICA Handbook section 1506, "Accounting Changes". Accordingly,
    voluntary changes in accounting policies are made only if they result in
    reliable and more relevant information. No voluntary changes were made in
    2007.

    The Company also applied the EIC Abstract No. 163 "Determining the
    Variability to be Considered in Applying AcG-15". This abstract provides
    additional clarification on how to analyze and consolidate variable
    interest entities. The impact was not significant on the Company's
    consolidated financial statements.

    Comparative figures

    During the year, the Company reclassified retroactively to goodwill
    certain deferred acquisition costs, net of income taxes. The
    reclassification had no significant impact on the consolidated statement
    of income or the financial position of the Company.

    Certain other comparative figures have been reclassified to conform to
    the presentation adopted in the current period.

    (b) Basis of consolidation

    The Company consolidates the financial statements of all subsidiary
    companies and eliminates on consolidation all significant inter-company
    balances and transactions. The equity method is used to account for
    investments over which the Company exerts significant influence. Gains
    and losses on sales of these investments are included in income when
    recognized, while expected losses on "other-than-temporary" impairments
    are recognized immediately.

    (c) Revenue recognition

    Premiums written are deferred as unearned premiums and recognized as
    revenue, net of reinsurance, on a pro rata basis over the terms of the
    underlying policies, usually twelve months and no longer than twenty-four
    months. Other revenues, mainly commissions and advisory fees, are
    recorded on an accrual basis.

    (d) Foreign currency translation

    Assets, liabilities, revenue and expenses arising from a foreign currency
    transaction are translated into Canadian dollars using the exchange rate
    prevailing at the date of the transaction. Monetary items denominated in
    a foreign currency are adjusted to reflect the exchange rate at
    December 31 and the foreign currency adjustments are reflected in the
    consolidated statements of income. Realized gains and losses on foreign
    currency transactions are recognized in the consolidated statements of
    income at the transaction date.

    (e) Earnings per share

    Earnings per share are computed by dividing net income available to
    common shareholders by the weighted average number of common shares
    outstanding for the period. Diluted earnings per share reflect the
    potential dilution that could occur if the holders of securities or
    contracts entitling them to obtain common shares in exchange for their
    securities or contracts exercised their right to obtain common shares.

    (f) Policy liabilities

    Policy liabilities consist of unearned premiums and claims liabilities,
    net of the reinsurers' share. The appointed actuary, using appropriate
    actuarial techniques, evaluates the adequacy of policy liabilities.

    Claims liabilities are first determined on a case-by-case basis as claims
    are reported and then reassessed as additional information becomes known.
    Included in claims liabilities is a provision to account for the future
    development of these claims, including claims incurred but not reported,
    as well as a provision for adverse deviations, as required by accepted
    actuarial practice in Canada. Claims liabilities are discounted to take
    into account the time value of money.

    In estimating claims liabilities, standard actuarial techniques are used.
    These techniques are based on historical loss development factors and
    payment patterns. They require the use of assumptions such as loss and
    payment development factors, future rates of claims frequency and
    severity, inflation, reinsurance recoveries, expenses, changes in the
    legal environment, changes in the regulatory environment and other
    matters, taking into consideration the circumstances of the Company and
    the nature of the insurance policies.

    Unearned premiums are calculated on a pro rata basis, from the unexpired
    portion of the premiums written. The unearned premiums estimate is
    validated through standard actuarial techniques to ensure that these
    premiums are sufficient to cover the estimated future costs of servicing
    these policies and related claims.

    (g) Reinsurance

    Reinsurance assets include reinsurers' share of claims liabilities and
    unearned premiums. The Company presents third party reinsurance balances
    in the consolidated balance sheets on a gross basis to indicate the
    extent of credit risk related to third party reinsurance and its
    obligations to policyholders and on a net basis in the consolidated
    statements of income. The estimates for the reinsurers' share of claims
    liabilities are presented as an asset and are determined on a basis
    consistent with the related claims liabilities.

    (h) Deferred acquisition costs

    Deferred acquisition costs comprise commissions, premium taxes and
    expenses directly related to the acquisition of premiums. They are
    deferred to the extent that they are recoverable from unearned premiums,
    after considering the related anticipated claims, expenses and interest
    and dividend income in respect of these premiums. They are amortized on
    the same basis as the premiums are recognized in the consolidated
    statements of income.

    (i) Income taxes

    The Company provides for income taxes using the liability method of tax
    allocation. Under this method, the income tax expense is calculated based
    on income tax laws and rates substantively enacted as at the consolidated
    balance sheet dates. The income tax expense is comprised of two
    components: current income taxes and future income taxes. Current income
    taxes are amounts expected to be payable or recoverable as a result of
    operations in the current year. Future income taxes arise from changes
    during the year in cumulative temporary differences between the
    accounting book values of assets and liabilities and their respective tax
    bases. A future income tax asset is recognized to the extent that future
    realization of the tax benefit is more likely than not.

    (j) Cash equivalents

    Cash equivalents consist of highly liquid invested assets that are
    readily convertible into a known amount of cash, are subject to
    insignificant risk of changes in value and have an original maturity of
    three months or less from the date of acquisition.

    (k) Property and equipment

    Property and equipment are carried at cost less accumulated amortization.
    Amortization rates are established to depreciate the cost of the assets
    over their estimated useful lives. Amortization methods and rates are
    shown below.

                               Method                Rate or term
                               ------                ------------
    Computer equipment         Straight-line         30 - 36 months
    Furniture and equipment    Declining balance     20% and 60 months,
                                and straight-line     respectively
    Leasehold improvements     Straight-line         Terms of related leases
    Buildings                  Declining balance     3% - 8%


    (l) Goodwill and intangible assets

    The excess of the purchase price over the fair value of the underlying
    net tangible assets is initially allocated to intangible assets, as
    appropriate, and the residual to goodwill. An intangible asset is
    recognized apart from goodwill when it results from contractual or other
    legal rights or when it is capable of being separated or divided from the
    acquired enterprise and sold, transferred, licensed, rented, or
    exchanged. Finite life intangible assets are amortized to the
    consolidated statements of income over their useful lives whereas
    infinite life intangible assets and goodwill are not subject to
    amortization. Goodwill is tested annually for impairment of value on a
    reporting unit basis. Judgment is required to identify reporting units
    with similar economic characteristics and to select a valuation model.
    Accordingly, the Company assesses the book value of its net assets on
    this basis. Impairment, if any, identified through this assessment is
    charged to the consolidated statements of income as a result of a
    reduction in the book value of the goodwill.

    (m) Employee future benefits

    For defined benefit pension and other retirement plans, the accrued
    benefit obligations, net of the fair value of plan assets and unamortized
    items, are accrued. The unamortized items are the past service costs, the
    transitional asset/obligation, the transitional valuation allowance and
    the net actuarial gains or losses. To match costs and services, these
    items are amortized on a straight-line basis over the expected average
    remaining service lifetime ("EARSL") of active members expected to
    receive benefits under the pension plans and over the expected average
    lifetime of the retirees receiving benefits under the other retirement
    plans. Changes in the valuation allowance are not deferred.

    For each plan, the Company has adopted the following policies:

    (i)   The actuarial determination of the accrued obligations for pensions
          and other retirement benefits uses the projected benefit method
          based on services provided by employees and management's best
          estimate assumptions.

    (ii)  For the purpose of calculating the expected return on plan assets,
          plan assets are valued at fair value.

    (iii) Only gains or losses in excess of 10% of the greater of the accrued
          benefit obligations or the fair value of plan assets are amortized
          over the EARSL for pension plans and over the expected average
          lifetime of the retirees receiving benefits under the other
          retirement plans.

    (iv)  Past service costs arising from plan amendments are amortized on a
          straight-line basis over the EARSL for pension plans and over the
          expected average lifetime of the retirees receiving benefits under
          the other retirement plans.

    (v)   The Company amortizes the transitional asset/obligation arising
          from the adoption on January 1, 2000 of the CICA Handbook Section
          3461 using the prospective application method on a straight-line
          basis over the EARSL as of January 1, 2000.

    (vi)  When the restructuring of a benefit plan gives rise to both a
          curtailment and a settlement of obligations, the curtailment is
          accounted for prior to the settlement.

    (n) Stock-based compensation

    Stock option awards to non-employees, direct awards of stock, awards that
    call for settlement in cash or other assets or stock appreciation right
    awards to employees are measured based on the fair value of the options
    at the grant date and a compensation expense is recognized over the
    related vesting period, or the period between the grant date to the date
    the employee becomes eligible to retire if shorter, with a corresponding
    increase in contributed surplus for those awards granted to employees and
    to liabilities for directors.

    (o) Future accounting changes not yet applied

    Financial Instruments and Capital
    ---------------------------------
    Effective January 1, 2008, the Company will apply the new CICA Handbook
    sections 3862, "Financial Instruments - Disclosure", 3863, "Financial
    Instruments - Presentation" and 1535, "Capital Disclosures" revising and
    enhancing disclosure requirements. These new sections place increased
    emphasis on disclosures about the nature and extent of risks arising from
    financial instruments and how the Company manages those risks and require
    the disclosure of both qualitative and quantitative information that
    enables users of financial statements to evaluate the Company's
    objectives, policies and processes for managing capital. Effective
    March 15, 2008, the Company will also apply the new EIC abstract no 169
    "Determining Whether a Contract is Routinely Denominated in a Single
    Currency", which deals with multicurrency contracts and provides further
    guidance for section 3855, "Financial Instruments - Recognition and
    Measurement". The adoption of these new CICA sections and abstract will
    not have any significant impact on the Company's results or financial
    condition.

    IFRS
    ----
    The Accounting Standard Board has a strategic plan for financial
    reporting in Canada whereby Canadian GAAP will converge with
    International Financial Reporting Standards ("IFRS") over the period
    ending December 31, 2010. After this transitional period, the Company
    will cease to use Canadian GAAP and will adopt IFRS. The Company monitors
    this transition to IFRS and is analyzing the impact that the adoption of
    the IFRS will have on its consolidated financial statements.


    Note 3   Invested assets
    -------------------------------------------------------------------------

    Invested assets by designation

    Table 3.1
    -------------------------------------------------------------------------
    As at                        Classified Designated
    December 31, 2007        AFS     as HFT     as HFT      Loans      Total
    -------------------------------------------------------------------------
    Debt securities
      Short-term notes      18.9          -          -          -       18.9
      Fixed income
       securities
        Investment grade
        Government and
         government-
         guaranteed        932.8          -      775.8          -    1,708.6
        Corporate          820.1          -      928.1          -    1,748.2
        Private
         placements         32.5          -          -          -       32.5
        Asset-backed       358.8          -          -          -      358.8
        Below investment
         grade              16.7          -          -          -       16.7
        Not rated            2.0          -        1.0          -        3.0
      Total fixed income
       securities        2,162.9          -    1,704.9          -    3,867.8
    Equity securities
      Preferred shares
        Investment
         grade           1,412.2          -          -          -    1,412.2
        Below investment
         grade              18.6          -          -          -       18.6
      Total preferred
       shares            1,430.8          -          -          -    1,430.8
      Common shares      1,427.6       72.9      209.0          -    1,709.5
    Loans and equity
     investments
      Broker loans
       and equity
       investments          22.6          -          -      188.2      210.8
      Mortgage loans           -          -          -          -          -
    -------------------------------------------------------------------------

                         5,062.8       72.9    1,913.9      188.2    7,237.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Fair value and unrealized gains and losses

    The following tables summarize the Company's invested assets. Fixed
    income securities and preferred shares are classified by investment grade
    and type of issuer.

    Table 3.2
    -------------------------------------------------------------------------
                             HFT        Other invested assets
    As at               invested                                       Total
    December 31,       assets at Unamortized Unrealized Unrealized   at fair
    2007              fair value       cost      gains     losses      value
    -------------------------------------------------------------------------
    Debt securities
      Short-term notes         -       18.9          -          -       18.9
      Fixed income
       securities
      Investment grade
        Government and
         government-
         guaranteed        775.9      919.9       14.3        1.5    1,708.6
        Corporate          928.1      826.2        4.9       11.1    1,748.1
        Private
         placements            -       34.8        0.5        2.7       32.6
        Asset-backed           -      364.2        0.3        5.7      358.8
      Below investment
       grade or not rated
        Corporate            1.0        7.7        0.1          -        8.8
        Private
         placements            -       10.9                     -       10.9
      Total fixed income
       securities        1,705.0    2,163.7       20.1       21.0    3,867.8
    Equity securities
      Preferred shares
        Investment grade       -    1,553.6       8.4       149.8    1,412.2
        Below investment
         grade                 -       18.2       0.4          -       18.6
      Total preferred
       shares                       1,571.8       8.8       149.8    1,430.8
      Common shares        281.9    1,464.5       74.3      111.2    1,709.5
    Loans and equity
     investments
      Broker loans and
       equity investments             211.7          -        0.9      210.8
      Mortgage loans                      -          -          -          -
    -------------------------------------------------------------------------

                         1,986.9    5,430.7      103.2      282.9     7,237.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Table 3.3
    -------------------------------------------------------------------------
    As at                                           Unrealized          Fair
    December 31, 2006            Book value      Gains     Losses      value
    -------------------------------------------------------------------------
    Debt securities
      Short-term notes                713.5          -          -      713.5
      Fixed income securities
      Investment grade
        Government and
         government-guaranteed      1,953.2       15.8        4.0    1,965.0
        Corporate                     900.9       12.1        0.9      912.1
        Private placements             92.2        1.7        1.1       92.8
        Asset-backed                  309.1        1.0        0.9      309.2
      Below investment grade
        Corporate                       3.4          -        0.9        2.5
        Private placements                -          -          -          -
      Total fixed income
       securities                   3,258.8       30.6        7.8    3,281.6
    Equity securities
      Preferred shares
        Investment grade            1,427.7       64.7        9.2    1,483.2
        Below investment
         grade                         32.4        3.0        1.4       34.0
      Total preferred shares        1,460.1       67.7       10.6    1,517.2
      Common shares                 1,580.7      170.6       50.9    1,700.4
    Loans and equity
     investments
      Broker loans and
       equity investments             171.6          -          -      171.6
      Mortgage loans                   57.2        1.7          -       58.9
    -------------------------------------------------------------------------

                                    7,241.9      270.6       69.3    7,443.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The Company presents its mutual funds and income trust units along with
    its common shares. The private placements include some leveraged capital
    notes in structured investment vehicles ("SIV") associated with asset-
    backed securities for which the market ceased to be active. To fair value
    these SIV capital notes, management used the leverage ratio and applied a
    reasonable liquidity discount to the underlying investment grade assets.
    The Company's remaining exposure to these SIV capital notes, directly and
    through the use of total return swap derivatives (note 4), amounts to
    $19.8 compared to an original exposure of $69.6.

    The Company uses Dominion Bond Rating Services ("DBRS") and Standard &
    Poor's ("S&P") to rate fixed income securities and preferred shares.
    Fixed income securities with a rating equal to or above BBB- are
    classified as investment grade and other rated fixed income securities
    are classified as below investment grade. Preferred shares with a rating
    equal to or above P3 low are classified as investment grade and other
    rated preferred shares are classified as below investment grade.

    Equities sold short

    The Company has assets invested in certain common shares and income trust
    units pursuant to a market neutral strategy. The objective of this
    strategy, which consists of having both long and short equity positions,
    is to maximize the value added from active portfolio management. Long
    positions are included in invested assets. Short positions are presented
    as other liabilities.

    The following table summarizes the Company's long and short positions
    pursuant to the market neutral strategy.

    Table 3.4                           2007                    2006
    -------------------------------------------------------------------------
                              Book value  Fair value  Book value  Fair value
    -------------------------------------------------------------------------
    Long positions                  61.0        62.1        55.3        62.3
    Short positions                 62.9        62.0        57.1        62.3
    -------------------------------------------------------------------------

    Fixed income securities totaling $63.7 (2006 - carrying value and fair
    value of $60.9) are pledged as collateral for the short securities.

    Maturity of invested assets

    Table 3.5
    -------------------------------------------------------------------------
                                   One year                    No
    As at               One year    to five  Over five   specific
    December 31, 2007    or less      years      years   maturity      Total
    -------------------------------------------------------------------------
    Short-term notes        18.9          -          -          -       18.9
    Fixed income
     securities            236.6    2,130.4    1,500.8          -    3,867.8
    Preferred shares        46.3      134.2      256.3      994.0    1,430.8
    Common shares              -          -          -    1,709.5    1,709.5
    Loans and equity
     investments
      Broker loans and
       equity investments   23.4       90.3       60.0       37.1      210.8
      Mortgage loans           -          -          -          -          -
    -------------------------------------------------------------------------

                           325.2    2,354.9    1,817.1    2,740.6    7,237.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Table 3.6
    -------------------------------------------------------------------------
                                   One year                    No
    As at               One year    to five  Over five   specific
    December 31, 2006    or less      years      years   maturity      Total
    -------------------------------------------------------------------------
    Short-term notes       713.5          -          -          -      713.5
    Fixed income
     securities            372.0    1,485.5    1,401.3          -    3,258.8
    Preferred shares        15.8      164.5      262.2    1,017.6    1,460.1
    Common shares              -          -          -    1,580.7    1,580.7
    Loans and equity
     investments
      Broker loans and
       equity investments   17.8       80.5       42.3       31.0      171.6
      Mortgage loans           -       53.2        4.0          -       57.2
    -------------------------------------------------------------------------

                         1,119.1    1,783.7    1,709.8    2,629.3    7,241.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Note 4   Derivative financial instruments
    -------------------------------------------------------------------------

    Derivative financial instruments are financial contracts whose value is
    derived from an underlying interest rate, foreign exchange rate, equity
    or commodity instrument or index.

    Types of derivatives

    Forwards and futures
    --------------------
    Forward contracts are effectively tailor-made agreements that are
    transacted between counterparties in the over-the-counter market, whereas
    futures are standardized contracts with respect to amounts and settlement
    dates, and are traded on regular future exchanges.

    Interest rate forwards and futures are contractual obligations to buy or
    sell an interest-rate sensitive financial instrument on a predetermined
    future date at a specified price.

    Currency forwards and futures are contractual obligations to exchange one
    currency for another at a specified price for settlement at a
    predetermined future date.

    Swaps
    -----
    Swaps are over-the-counter contracts in which two counterparties exchange
    a series of cash flows based on agreed upon rates to a notional amount.
    The various swap agreements that the Company enters into are as follows:

    Currency swaps include single currency, cross currency and cross currency
    interest rate swaps. Single currency swaps are agreements where two
    counterparties exchange a series of payments based on different interest
    rates applied to a notional amount in a single currency. Cross currency
    swaps involve the exchange of fixed payments in one currency for the
    receipt of fixed payments in another currency. Cross currency interest
    rate swaps involve the exchange of both interest and principal amounts in
    two different currencies.

    Total return swaps are contracts in which one counterparty agrees to pay
    or receive from the other cash flows based on changes in the value of an
    equity index, a basket of stocks or a single stock.

    Options
    -------
    Options are contractual agreements under which the seller (writer) grants
    the purchaser the right, but not the obligation, either to buy (call
    option) or sell (put option) an interest rate at a predetermined price,
    at or by a specified future date. The seller (writer) of an option can
    also settle the contract by paying the cash settlement value of the
    purchaser's right. The seller (writer) receives a premium from the
    purchaser for this right.

    Credit derivatives
    ------------------
    Credit derivatives are over-the-counter contracts that transfer credit
    risk related to an underlying financial instrument (referenced asset)
    from one counterparty to another. Some total return swaps include as well
    some credit derivative features.

    Fair value of derivatives

    Positive fair values are recorded as other receivable and negative fair
    values are recorded as other liabilities.

    Table 4.1                       2007                       2006
    -------------------------------------------------------------------------
                       Positive Negative          Positive Negative
                           fair     fair              fair     fair
                          value    value      Net    value    value      Net
    -------------------------------------------------------------------------
    Held for non-
     trading purposes
    Where hedge
     accounting is
     applied
      Currency swaps        2.4        -      2.4        -      0.8     (0.8)
    Where hedge
     accounting is
     not applied
      Foreign exchange
       contracts
        Currency
         forwards
         purchased            -        -        -        -        -        -
        Currency
         forwards sold        -        -        -        -        -        -
        Currency swaps      0.3        -      0.3      1.1        -      1.1
      Total return swaps    3.7      0.1      3.6        -      3.0     (3.0)
    Held for trading
     purposes
    Interest rate
     contracts
      Options purchased       -        -        -      0.3        -      0.3
      Options written         -        -        -        -      0.1     (0.1)
      Swaps                   -      1.7     (1.7)     0.1      0.5     (0.4)
    Total return swaps        -     16.2    (16.2)     0.1        -      0.1
    Credit derivatives      0.7      0.4      0.3        -        -        -
    -------------------------------------------------------------------------

                            7.1     18.4    (11.3)     1.6      4.4     (2.8)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Notional amounts of derivatives by terms of maturity

    Table 4.2
    -------------------------------------------------------------------------
                                              One year
    As at                          One year    to five  Over five
    December 31, 2007               or less      years      years      Total
    -------------------------------------------------------------------------
    Held for non-trading
     purposes
    Where hedge accounting
     is applied
      Currency swaps                      -       22.9          -       22.9
    Where hedge accounting
     is not applied
      Foreign exchange
       contracts
        Currency forwards purchased       -          -          -          -
        Currency forwards sold         25.6          -          -       25.6
        Currency swaps                    -        0.9          -        0.9
      Total return swaps              438.3          -          -      438.3
    Held for trading purposes
      Interest rate contracts
        Options purchased               0.9          -          -        0.9
        Swaps                             -      103.0          -      103.0
        Futures bought                811.1          -          -      811.1
        Futures sold                  377.6          -          -      377.6
      Total return swaps               19.7       24.7          -       44.4
      Credit derivatives                  -       49.3          -       49.3
    -------------------------------------------------------------------------

                                    1,673.2      200.8          -    1,874.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Table 4.3
    -------------------------------------------------------------------------
                                              One year
    As at                          One year    to five  Over five
    December 31, 2006               or less      years      years      Total
    -------------------------------------------------------------------------
    Held for non-trading
     purposes
    Where hedge accounting
     is applied
      Currency swaps                      -          -       51.4       51.4
    Where hedge accounting
     is not applied
      Foreign exchange
       contracts
        Currency forwards
         purchased                      8.8          -          -        8.8
        Currency forwards sold         25.3          -          -       25.3
        Currency swaps                    -        1.3        3.8        5.1
      Total return swaps              422.9          -          -      422.9
    Held for trading purposes
      Interest rate contracts
        Options purchased             442.3          -          -      442.3
        Options written               360.1          -          -      360.1
        Swaps                          58.3      159.5          -      217.8
        Futures bought                 43.5          -          -       43.5
        Futures sold                  219.1          -          -      219.1
      Total return swaps               23.4       60.0          -       83.4
      Credit derivatives                  -          -          -          -
    -------------------------------------------------------------------------

                                    1,603.7      220.8       55.2    1,879.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Note 5   Additional disclosures on financial instruments
    -------------------------------------------------------------------------

    Risk management

    The Company has an investment policy and applies the prudent person
    approach to investment management. Management monitors compliance with
    that policy. The majority of the invested assets portfolio is invested in
    well-established, active and liquid markets.

    Credit risk
    -----------
    Credit risk is the risk that one party to a financial instrument will
    fail to discharge an obligation and cause the Company to incur a
    financial loss. Credit risk mostly arises from assets invested in fixed
    income securities and preferred shares.

    The Company's investment policy requires that, at the time of the
    investment, substantially all fixed income securities have a minimum
    credit rating of BBB and preferred shares have a minimum credit rating of
    P3. Management monitors subsequent credit rating changes on a regular
    basis. Assets invested in any entity or group of related entities are
    limited to 5% of the Company's assets.

    Derivative-related credit risk
    ------------------------------
    Credit risk from derivative transactions is generated by the potential
    for the counterparty to default on its contractual obligations when one
    or more transactions have a positive market value to the Company.
    Therefore, derivative-related credit risk is represented by the positive
    fair value of the instrument and is normally a small fraction of the
    contract's notional amount.

    The Company subjects its derivative-related credit risk to the same
    credit approval, limit and monitoring standards that it uses for managing
    other transactions that create credit exposure. This includes evaluating
    the creditworthiness of counterparties, and managing the size,
    diversification and maturity structure of the portfolio. Credit
    utilization for all products is compared with established limits on a
    continual basis and is subject to a standard exception reporting process.

    Netting is a technique that can reduce credit exposure from derivatives
    and is generally facilitated through the use of master netting
    agreements. The master netting agreement provides for a single net
    settlement of all financial instruments covered by the agreement in the
    event of default. However, credit risk is reduced only to the extent that
    the financial obligations to the same counterparty can be set off against
    obligations of the counterparty to us. The Company maximizes the use of
    master netting agreements to reduce derivative-related credit exposure.
    The overall exposure to credit risk that is reduced through master
    netting agreements may change substantially following the reporting date
    as the exposure is affected by each transaction subject to the agreement
    as well as by changes in underlying market rates.

    The use of collateral is another significant credit mitigation technique
    for managing derivative-related counterparty credit risk. Marked-to-
    market provisions in the Company's agreements with some counterparties
    provide the Company with the right to request that the counterparty pay
    down or collateralize the current market value of its derivatives
    positions when the value passes a specified threshold amount.

    Replacement cost represents the total fair value of all outstanding
    contracts in a gain position, before factoring in the master netting
    agreements. The amounts in the table below exclude fair value relating to
    exchange-traded instruments as they are subject to daily margining and
    are deemed to have no credit risk.

    The credit equivalent amount is defined as the sum of the replacement
    cost plus an add-on amount for potential future credit exposure as
    defined by the Office of the Superintendent of Financial Institutions
    Canada ("OSFI").

    The risk-adjusted amount is determined by applying the standard OSFI-
    defined measures of counterparty risk to the credit equivalent amount.

    Table 5.1
    -------------------------------------------------------------------------
                                                         Credit         Risk
                                       Replacement   equivalent     adjusted
    As at December 31, 2007                   cost       amount      balance
    -------------------------------------------------------------------------
    Currency swaps - hedge
     accounting                                2.4          3.5            -
    Currency swaps - non hedge
     accounting                                0.3          0.3            -
    Currency forwards                            -          0.3            -
    Interest rate swaps                          -          0.5            -
    Total return swaps                         3.7         43.5          0.2
    Credit derivatives                         0.7          6.6          0.1
                                       --------------------------------------
    Total derivatives financial
     instruments                               7.1         54.7          0.3
    Less: Impact of master netting
     agreements                               (0.9)           -            -
    -------------------------------------------------------------------------

    Total derivatives after netting
     agreements                                6.2         54.7          0.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Table 5.2
    -------------------------------------------------------------------------
                                                         Credit         Risk
                                       Replacement   equivalent     adjusted
    As at December 31, 2006                   cost       amount      balance
    -------------------------------------------------------------------------
    Currency swaps - hedges                      -          2.6            -
    Currency swaps - non hedges                1.1          1.3            -
    Currency forwards                            -          0.4            -
    Interest rate swaps                        0.1          0.9            -
    Total return swaps                           -         38.9          0.2
    Credit derivatives                         0.1          9.6          0.1
                                       --------------------------------------
    Total derivatives financial
     instruments                               1.3         53.7          0.3
    Less: Impact of master netting
     agreements                               (1.1)           -            -
    -------------------------------------------------------------------------

    Total derivatives after netting
     agreements                                0.2         53.7          0.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Concentration of credit risk
    ----------------------------
    Concentration of credit risk exists where a number of borrowers or
    counterparties are engaged in similar activities, are located in the same
    geographic area or have comparable economic characteristics. Their
    ability to meet contractual obligations may be similarly affected by
    changing economic, political or other conditions. The Company's invested
    assets could be sensitive to changing conditions in particular geographic
    regions or specific industry.


    Table 5.3
    -------------------------------------------------------------------------
    Debt securities and loans                              2007         2006
    -------------------------------------------------------------------------
    By country
    Canada                                                81.3%        92.0%
    Foreign                                               18.7%         8.0%
    -------------------------------------------------------------------------

    Total                                                100.0%       100.0%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    By industry
    Banks, insurance and diversified
     financial services                                   43.0%        39.2%
    Government                                            42.8%        48.1%
    Utilities                                              5.1%         4.8%
    Other                                                  9.1%         7.9%
    -------------------------------------------------------------------------

    Total                                                100.0%       100.0%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Interest rate risk
    ------------------
    The following table details our exposure to interest rate risk. On- and
    off-balance sheet financial instruments are reported based on the earlier
    of their contractual repricing date or maturity date. Effective interest
    rates have been disclosed where applicable. The effective rates shown
    represent historical rates for fixed-rate instruments carried at
    amortized cost and current market rates for floating-rate instruments or
    instruments carried at fair value. The following table does not
    incorporate management's expectation of future events where expected
    repricing or maturity dates differ significantly from the contractual
    dates.

    Table 5.4
    -------------------------------------------------------------------------
    As at
    December 31,  Floating     Under  Over 1 to     Over  Non-rate
    2007             rates  12 months  5 years   5 years  sensitive    Total
    -------------------------------------------------------------------------
    Assets
    Cash and cash
     equivalents       8.1         -         -         -         -       8.1
    Short-term notes     -      18.9         -         -         -      18.9
      Effective
       interest rate           3.83%
    Fixed income
     securities          -     236.6   2,130.4   1,500.8         -   3,867.8
      Effective
       interest rate           4.35%     4.62%     4.89%
    Preferred
     shares          122.0      46.4     240.4     257.1     764.9   1,430.8
      Effective
       interest rate           4.68%     5.19%     5.00%
    Common shares        -         -         -         -   1,709.5   1,709.5
    Loans and equity
     investments         -      23.4      90.3      76.5      20.6     210.8
      Effective
       interest rate           6.48%     6.44%     6.28%
    Reinsurance
     assets              -      84.5     129.7      42.7      16.6     273.5
      Effective
       interest rate           4.67%     4.67%     4.67%
    Other assets       0.2         -         -         -   2,870.1   2,870.3
                    ---------------------------------------------------------
    Total assets     130.3     409.8   2,590.8   1,877.1   5,381.7  10,389.7
                    ---------------------------------------------------------

    Liabilities
    Claims
     liabilities         -   1,312.4   2,014.4     662.2         -   3,989.0
      Effective
       interest rate           4.67%     4.67%     4.67%
    Other
     liabilities       2.1         -         -         -   3,226.5   3,228.6
    Shareholder's
     equity              -         -         -         -   3,172.1   3,172.1
                    ---------------------------------------------------------
    Total
     liabilities and
     shareholder's
     equity            2.1   1,312.4   2,014.4     662.2   6,398.6  10,389.7
    -------------------------------------------------------------------------

    Assets less
     liabilities     128.2    (902.6)    576.4   1,214.9  (1,016.9)        -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Table 5.5

    -------------------------------------------------------------------------
    As at
    December 31,  Floating     Under  Over 1 to     Over  Non-rate
    2006             rates  12 months  5 years   5 years  sensitive    Total
    -------------------------------------------------------------------------
    Assets           271.9   1,226.8   2,002.9   1,811.7   5,064.0  10,377.3
      Effective
       interest rate           4.32%     4.81%     4.83%
    Liabilities        1.1   1,257.9   1,930.9     634.7   6,552.7  10,377.3
      Effective
       interest rate           4.64%     4.64%     4.64%
    -------------------------------------------------------------------------

    Assets less
     liabilities     270.8     (31.1)     72.0   1,177.0  (1,488.7)        -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liquidity risk
    --------------
    Liquidity risk is the risk that an entity will encounter difficulty in
    raising funds to meet cash flow commitments associated with financial
    instruments. To manage its cash flow requirements, the Company maintains
    a portion of its invested assets in liquid securities.

    Cash flow risk
    --------------
    Cash flow risk is the risk that future cash flows associated with a
    monetary financial instrument will fluctuate in amount. The Company
    mitigates cash flow risk by entering into foreign exchange swaps, whereby
    foreign-denominated principal and fixed interest receipts are sold in
    exchange for Canadian dollars. These swaps are transacted in over-the-
    counter markets.

    Foreign exchange rate risk
    --------------------------
    Foreign exchange rate risk is the risk that the value of a foreign-
    denominated financial instrument will fluctuate as a result of changes in
    foreign exchange rates. The Company mitigates foreign exchange rate risk
    by buying or selling successive monthly foreign exchange forward
    contracts. Foreign exchange forward contracts are commitments to buy or
    sell foreign currencies for delivery at a specified date in the future at
    a fixed rate. Forwards are transacted in over-the-counter markets. The
    Company is not significantly exposed to foreign exchange rate risk.

    Market risk
    -----------
    Market risk is the risk of losses arising from movements in market
    places. The Company manages most of its market risk through asset class
    diversification and some of its market risk through the use of total
    return swaps, whereby the return of a basket of securities is sold in
    exchange for interest receipts.

    Securities lending

    The Company participates in a securities lending program managed by the
    Company's custodian, a major Canadian financial institution, whereby the
    Company lends securities it owns to other financial institutions to allow
    them to meet delivery commitments. Government securities with an
    estimated fair value of 105% of the fair value of the securities loaned
    are received as collateral from the Canadian financial institution and
    amount to $1,580.2 at December 31, 2007 (2006 - $933.6).

    Fair value disclosure

    The fair value of invested assets and short securities, derivative
    financial instruments and policy liabilities are disclosed in notes 3, 4
    and 6 respectively. The fair value of other financial assets and
    liabilities approximates their book value due to their short-term nature.

    Consolidated statements of income amounts related to financial
    instruments

    Table 5.6                                              2007         2006
    -------------------------------------------------------------------------
    Income from HFT financial instruments
      Interest                                             76.1            -
      Dividends                                            11.2            -
      Realized losses
        Classified as HFT                                   4.5            -
        Designated as HFT                                  (6.5)           -
      Unrealized gains (losses)
        Classified as HFT                                   1.1            -
        Designated as HFT                                 (21.1)           -
      Derivative financial instruments
       (with comparative number for 2006)                   7.4        (13.7)
      Embedded derivatives                                 38.1            -
    Income from AFS financial instruments
     (from all invested assets in 2006)
      Interest                                            117.7        195.4
      Dividends                                           155.3        147.0
      Realized losses                                     137.4        218.1
      Impairments                                         (84.9)       (20.4)
    -------------------------------------------------------------------------


    Note 6   Policy liabilities
    -------------------------------------------------------------------------

    Policy liabilities are established to reflect the estimate of the full
    amount of all liabilities associated with the insurance policies at the
    consolidated balance sheet dates, including claims incurred but not
    reported. The ultimate cost of these liabilities will vary from the best
    estimate made for a variety of reasons, including additional information
    with respect to the facts and circumstances of the claims incurred.

    Movements

    Table 6.1                           2007                    2006
    -------------------------------------------------------------------------
                                 Claims   Reinsurers'     Claims  Reinsurers'
                             liabilities       share  liabilities      share
    -------------------------------------------------------------------------
    Balance, beginning of year   3,823.5       270.4     3,821.6       330.5
    Transition adjustment
     (note 2)                       18.0           -           -           -
    Claims incurred              2,710.9        10.8     2,444.1        13.0
    Prior year favorable
     claims development           (107.9)        8.0      (167.9)        2.1
    Claims paid                 (2,455.5)      (32.3)   (2,274.3)      (75.2)
    -------------------------------------------------------------------------

    Balance, end of year         3,989.0       256.9     3,823.5       270.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Amounts by line of business

    Table 6.2                           2007                    2006
    -------------------------------------------------------------------------
                                 Claims   Reinsurers'     Claims  Reinsurers'
                             liabilities       share  liabilities      share
    -------------------------------------------------------------------------
    Auto: liability              1,730.6        29.0     1,638.4        29.6
    Auto: personal accident        747.5        31.2       703.7        21.3
    Auto: other                    110.0         0.2       107.7         0.2
    Property                       601.8        77.9       582.6        87.7
    Liability                      794.8       117.8       786.3       130.4
    Other                            4.3         0.8         4.8         1.2
    -------------------------------------------------------------------------

                                 3,989.0       256.9     3,823.5       270.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Table 6.3                           2007                    2006
    -------------------------------------------------------------------------
                                Unearned  Reinsurers'   Unearned  Reinsurers'
    Unearned premiums           premiums       share    premiums       share
    -------------------------------------------------------------------------
    Auto: liability                612.5         0.5       597.6         0.7
    Auto: personal accident        200.7         0.1       194.3         0.1
    Auto: other                    553.9           -       538.7           -
    Property                       793.5         3.7       757.8         3.6
    Liability                      148.8         1.7       152.9         3.0
    Other                           24.1        10.6        22.8        10.3
    -------------------------------------------------------------------------

                                 2,333.5        16.6     2,264.1        17.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Fair value of net claims liabilities

    The Company estimates that the fair value of net claims liabilities
    approximate their book values. There was no premium deficiency at the
    consolidated balance sheet dates.

    Table 6.4                           2007                    2006
    -------------------------------------------------------------------------
                                 Claims   Reinsurers'     Claims  Reinsurers'
                             liabilities       share  liabilities      share
    -------------------------------------------------------------------------
    Undiscounted value           3,938.4       256.0     3,747.2       279.1
    Effect of time value of
     money using a rate of
     4.67% (2006 - 4.64%)         (401.1)      (33.7)     (381.0)      (39.7)
    Provision for adverse
     deviation                     451.7        34.6       457.3        31.0
    -------------------------------------------------------------------------

    Book value                   3,989.0       256.9     3,823.5       270.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Since the time value of money is considered when determining the claims
    liabilities estimate, an increase or decrease in the discount rate would
    result in a decrease or increase in claims liabilities, respectively.
    Consequently, a 1% change in the discount rate would have an impact of
    $82.1 on the fair value of claims liabilities at December 31, 2007
    (2006 - $77.8).

    Structured settlements

    The Company enters into annuity agreements with various Canadian life
    insurance companies to provide for fixed and recurring payments to
    claimants. Under such arrangements, the Company's liability to its
    claimants is substantially transferred, although the Company remains
    exposed to credit risk to the extent to which the life insurers fail to
    fulfill their obligations. This risk is managed by acquiring annuities
    from highly rated Canadian life insurance companies. At December 31,
    2007, none of the life insurers from which the Company had purchased
    annuities was in default and no provision for credit risk was required. A
    measure of the credit risk exposure is the unrecorded original purchase
    price of $354.2 (2006 - $323.9) for the annuities.

    Reinsurance

    In the ordinary course of business, the Company reinsures certain risks
    with other reinsurers to limit its maximum loss in the event of
    catastrophes or other major losses. For single risk events, net retention
    for property and liability for both 2007 and 2006 was generally $5.0 and
    $7.0, respectively; in a number of cases, like special classes of
    business or types of risks, the retention would be lower through specific
    treaties or the use of facultative reinsurance. In 2007 and 2006, for
    multi-risk events or catastrophes, retention is $25.0 with a reinsurance
    coverage limit of $1,250.0. For 2007, the Company retains overall 10% of
    the exposure between $25.0 and $750.0. For 2006, the Company retained
    overall 10% of the exposure between $25.0 and $600.0.

    Reinsurance contracts do not relieve the Company from its obligations
    towards policyholders. Failure of reinsurers to honour their obligations
    could result in losses to the Company. Thus, the Company evaluates the
    financial condition of its reinsurers and monitors concentrations of
    credit risk to minimize its exposure to significant losses from
    reinsurers' insolvencies. Substantially, all reinsurers are required to
    have a minimum credit rating of A- at inception of the treaty. Rating
    agencies used are A.M. Best and S&P. The Company also requires that most
    of its treaties have a security review clause allowing the Company to
    replace a reinsurer during the treaty period should the reinsurer's
    credit rating fall below the level acceptable to the Company. Management
    concluded that the Company was not exposed to significant loss from
    reinsurers for potentially uncollectible reinsurance as at the
    consolidated balance sheet dates.

    Furthermore, the Company is the assigned beneficiary of collateral
    consisting of cash, trust accounts and letters of credit totaling $78.7
    at December 31, 2007 (2006 - $79.2) as guarantee from unlicensed
    reinsurers. These amounts include $54.2 (2006 - $54.1) from an affiliated
    reinsurer. This collateral is held in support of policy liabilities of
    $58.2 at December 31, 2007 (2006 - $58.8) and could be used should these
    reinsurers be unable to meet their obligations.

    Table 6.5 presents the impact of reinsurance on the consolidated
    statements of income.

    Table 6.5                                              2007         2006
    -------------------------------------------------------------------------
    Premiums written                                       97.6         94.9
    -------------------------------------------------------------------------
    Premiums earned                                        98.6         94.5
    Claims                                                 18.8         15.0
    Commissions expense                                    16.4         13.5
    -------------------------------------------------------------------------

    Loss before income taxes                               63.4         66.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Note 7   Related party transactions
    -------------------------------------------------------------------------

    The Company enters into related party transactions with the controlling
    shareholder, ING Groep, and with entities that are subject to common
    control or are the managed parties of a common managing party ("common
    management"). These transactions consist of reinsurance, management and
    advisory expenses, financing charges, as well as advisory fee income.
    These transactions are carried out in the normal course of operations.
    Accordingly, they are measured at the amount of consideration paid or
    received, as established and agreed to by the related parties and are
    settled on a regular basis.

    Revenues and expenses with related parties

    Table 7.1                                              2007         2006
    -------------------------------------------------------------------------
    Reinsurance ceded to related entities
    Ceded premiums earned                                  21.0         17.7
    Ceded claims expenses                                   4.5          7.4
    Expenses
    Commissions                                            37.3         31.6
    General expenses                                       18.2         16.6
    Interest expense                                          -          5.3
    -------------------------------------------------------------------------

    Balance sheet amounts with related parties

    Table 7.2                                              2007         2006
    -------------------------------------------------------------------------
    Reinsurance receivable                                  2.4          4.3
    Loans                                                  90.4         63.0
    -------------------------------------------------------------------------


    Note 8  Income taxes
    -------------------------------------------------------------------------

    Income tax expense

    Table 8.1
    -------------------------------------------------------------------------
    Consolidated Statements of Income                      2007         2006
    -------------------------------------------------------------------------
    Current                                               169.4        274.0
    Future                                                 (6.1)        19.9
    -------------------------------------------------------------------------

    Income tax expense                                    163.3        293.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Table 8.2
    -------------------------------------------------------------------------
    Consolidated Statements of Comprehensive Income        2007         2006
    -------------------------------------------------------------------------
    Current                                              (116.3)           -
    Future                                                 (7.1)           -
    -------------------------------------------------------------------------

    Total                                                (123.4)           -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Effective income tax rate

    The consolidated statements of income contain items that are non-taxable
    or non-deductible for income tax purposes, which cause the income tax
    expense to differ from what it would have been if based on statutory tax
    rates.

    The following table explains the difference, expressed in percentage
    terms, between the income tax expense and the amount that would have been
    computed if the federal and provincial statutory tax rates had been
    applied to income before income taxes.


                                                           2007         2006
    Table 8.3                                                 %            %
    -------------------------------------------------------------------------
    Income tax expense calculated at statutory
     tax rates                                             34.2         34.5
    Increase (decrease) in income tax rates
     resulting from:
      Non-taxable dividend income                          (7.5)        (4.3)
      Non-taxable other income                             (1.7)           -
      Non-deductible (non-taxable) portion
       of capital losses (gains)                            1.4         (0.2)
      Impact of tax rate changes                            0.4          0.6
      Other                                                (2.5)         0.3
    -------------------------------------------------------------------------

    Effective income tax rate                              24.3         30.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Components of net future income tax asset

    Table 8.4                                              2007         2006
    -------------------------------------------------------------------------
    Future income tax asset
    Net claims liabilities                                 56.8         58.6
    Invested assets                                        29.1         68.0
    Expenses deferred for tax purposes                     40.7         67.4
    Property and equipment                                  7.4          8.2
    Losses available for carry-forward                      7.6          5.5
                                                       ----------------------

    Total future income tax asset                         141.6        207.7
    -------------------------------------------------------------------------

    Future income tax liability
    Deferred gains and losses on specified
     debt obligations                                      45.1         57.2
    Pension and post retirement benefit plans              13.7         16.4
    Other                                                  14.1         14.9
                                                       ----------------------

    Total future income tax liability                      72.9         88.5
    -------------------------------------------------------------------------

    Net future income tax asset                            68.7        119.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The Company recognized a future tax asset for all of its unused non-
    capital losses as at December 31, 2007 and 2006.

    At December 31, 2007 the Company had allowable capital losses of $33.4
    (2006 - $33.0), which had not been recognized when computing the future
    tax asset. These losses, which have no expiry date, can be used to reduce
    future taxable capital gains.


    Note 9   Goodwill and intangible assets
    -------------------------------------------------------------------------

    Goodwill

    Table 9.1                                              2007         2006
    -------------------------------------------------------------------------
    Balance, beginning of year                            162.1        121.7
    Goodwill purchased (note 15)                            5.8         41.1
    Goodwill disposed (note 15)                             8.0          0.7
    -------------------------------------------------------------------------

    Balance, end of year                                  159.9        162.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The Company performs an annual impairment test of goodwill. No impairment
    was identified in either 2007 or 2006. Impairments are non-cash in nature
    and they do not affect the Company's liquidity or ability to discharge
    its liabilities.

    Intangible assets

    The intangible assets represent customer relationships and the rights to
    offer renewals. They are amortized on a straight-line basis over ten
    years.

    Table 9.2                                              2007         2006
    -------------------------------------------------------------------------
    Cost                                                   80.0         76.5
    Accumulated amortization                               18.2         10.2
    -------------------------------------------------------------------------

    Book value                                             61.8         66.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Note 10  Other assets
    -------------------------------------------------------------------------

    Components of other assets

    Table 10.1                                             2007         2006
    -------------------------------------------------------------------------
    Property and equipment (table 10.2)                   111.3         94.3
    Prepaid pension asset (note 11)                        98.9         93.0
    Long-term investments (table 10.3)                     51.1         44.4
    Prepaids                                               17.3         12.6
    Other                                                   1.5          1.7
    -------------------------------------------------------------------------

                                                          280.1        246.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Property and equipment

    Table 10.2                  2007                          2006
    -------------------------------------------------------------------------
                            Accumulated   Book            Accumulated   Book
                      Cost amortization  value      Cost amortization  value
    -------------------------------------------------------------------------
    Computer
     equipment       144.0      72.4      71.6     109.3      57.9      51.4
    Furniture and
     equipment        53.3      32.3      21.0      50.5      27.9      22.6
    Leasehold
     improvements     30.8      12.2      18.6      28.3       8.7      19.6
    Land and
     buildings         0.1         -       0.1       1.0       0.3       0.7
    -------------------------------------------------------------------------
                     228.2     116.9     111.3     189.1      94.8      94.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Long-term investments

    The Company has investments in companies operating in the corporate and
    distribution segment that are recorded using the equity method. Under
    this method, the Company records its share in the net income of long-term
    investments, computed by the consolidation method. Net income from long-
    term investments is included in interest and dividend income in the
    consolidated statements of income. The following table presents the
    changes in the long-term investments during the year.

    Table 10.3                                             2007         2006
    -------------------------------------------------------------------------
    Opening balance                                        44.4         41.6
    Net acquisitions                                        4.0          0.4
    Income                                                  9.5          8.8
    Dividends                                              (6.8)        (6.4)
    -------------------------------------------------------------------------

    Closing balance                                        51.1         44.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Note 11  Employee future benefits
    -------------------------------------------------------------------------

    The Company has several final earnings defined benefit pension plans. For
    these plans, the measurement date is December 31 and the latest actuarial
    valuations were performed as of December 31, 2005 or later. The next
    actuarial valuations will be performed as of December 31, 2008. During
    the year, the Company terminated its defined contribution pension plans
    acquired in the purchase of Allianz.

    The Company has several employer paid post retirement benefit ("PRB")
    plans offering life insurance and health benefits to certain retirees,
    which are closed to active employees. The post retirement benefits are
    unfunded. The measurement date for post retirement benefits is
    December 31 and the latest actuarial valuations were performed as of
    December 31, 2005.

    Pension plan movements

    Table 11.1
    -------------------------------------------------------------------------
                                                         Total net
                                                           assets
                         Benefit      Plan  Unrecognized  (liabil-  Expenses
                      obligation     assets    amounts     ities)   (revenue)
    -------------------------------------------------------------------------
    Balance as at
     December 31, 2006    (515.1)     557.9       30.9       73.7
    Employer current
     service cost          (26.0)                           (26.0)      26.0
    Interest costs on
     benefit obligation    (26.9)                           (26.9)      26.9
    Actuarial assumptions
     movements
      Actuarial gains
       or losses             1.4                  (1.4)
      Actual return on
       assets                          33.1      (33.1)
      Expected return
       on assets                                  39.0       39.0      (39.0)
      Past service cost     (2.9)                  2.9
      Change in valuation
       allowance                                   0.1        0.1       (0.1)
      Amortization                                 4.0        4.0       (4.0)
    Cash movements
      Employees
       contributions        (5.6)       5.6
      Employer
       contributions                   13.4                  13.4
      Benefits paid         21.9      (21.9)
      Settlements                      (1.7)       1.7
    -------------------------------------------------------------------------

    Balance as at
     December 31, 2007    (553.2)     586.4       44.1       77.3        9.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Table 11.2
    -------------------------------------------------------------------------
                                                         Total net
                                                           assets
                         Benefit      Plan  Unrecognized  (liabil-  Expenses
                      obligation     assets    amounts     ities)   (revenue)
    -------------------------------------------------------------------------
    Balance as at
     December 31, 2005    (435.7)     496.1        0.7       61.1
    Employer current
     service cost          (20.8)                           (20.8)      20.8
    Interest costs on
     benefit obligation    (22.7)                           (22.7)      22.7
    Actuarial assumptions
     movements
      Actuarial gains
       or losses           (49.8)                 49.8
      Actual return on
       assets                          63.9      (63.9)
      Expected return
       on assets                                  35.9       35.9      (35.9)
      Past service cost
      Change in valuation
       allowance
      Amortization                                 8.4        8.4       (8.4)
    Cash movements
      Employees
       contributions        (4.8)       4.8
      Employer
       contributions                   11.8                  11.8
      Benefits paid         18.7      (18.7)
      Settlements
    -------------------------------------------------------------------------

    Balance as at
     December 31, 2006    (515.1)     557.9       30.9       73.7       (0.8)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Pension plan funding status

    Table 11.3                      2007        2006        2007        2006
    -------------------------------------------------------------------------
                                                                 Post
                                     Pension plans       retirement benefits
    -------------------------------------------------------------------------
    Benefit obligation            (553.2)     (515.1)      (15.8)      (15.8)
    Fair value of plan assets      586.4       557.9           -           -
    Surplus (deficit)               33.2        42.8       (15.8)      (15.8)
    Unrecognized amounts:
      Actuarial gains               84.3        83.4         4.1         4.1
      Past service costs             3.1         1.7        (5.1)       (5.5)
      Transition (asset)
       obligation                  (42.1)      (52.6)        0.8         0.9
      Valuation allowance           (1.2)       (1.6)          -           -
    -------------------------------------------------------------------------

    Net prepaid asset
     (accrued liability) at
     the end of the year            77.3        73.7       (16.0)      (16.3)
    Presented as:
      Other assets (note 10)        98.9        93.0           -           -
      Other liabilities             21.6        19.3        16.0        16.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    For pension plans that are not fully funded, the benefit obligation is
    $335.9 in 2007 ($189.9 in 2006), the fair value of plan assets is $278.8
    in 2007 ($138.9 in 2006) and the net deficit is $57.1 in 2007 ($51.0 in
    2006).

    Post retirement benefits plan movements

    Table 11.4
    -------------------------------------------------------------------------
                                                         Total net
                                                           assets
                         Benefit      Plan  Unrecognized  (liabil-  Expenses
                      obligation     assets    amounts     ities)   (revenue)
    -------------------------------------------------------------------------
    Balance as at
     December 31, 2006     (15.8)         -       (0.5)     (16.3)
    Interest costs on
     benefit obligation     (0.8)                            (0.8)       0.8
    Actuarial gains
     or losses              (0.2)                  0.2
    Amortization                                   0.1        0.1       (0.1)
    Cash movements
      Employer
       contributions                    1.0                   1.0
      Benefits paid          1.0       (1.0)
    -------------------------------------------------------------------------

    Balance as at
     December 31, 2007     (15.8)         -       (0.2)     (16.0)       0.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Table 11.5
    -------------------------------------------------------------------------
                                                         Total net
                                                           assets
                         Benefit      Plan  Unrecognized  (liabil-  Expenses
                      obligation     assets    amounts     ities)   (revenue)
    -------------------------------------------------------------------------
    Balance as at
     December 31, 2005     (16.0)         -       (0.6)     (16.6)
     Interest costs on
     benefit obligation     (0.8)                            (0.8)       0.8
    Actuarial gains
     or losses
    Amortization                                   0.1        0.1       (0.1)
    Cash movements
      Employer
       contributions                    1.0                   1.0
      Benefits paid          1.0       (1.0)
    -------------------------------------------------------------------------

    Balance as at
     December 31, 2006     (15.8)         -       (0.5)     (16.3)       0.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Composition of pension plan assets

    Table 11.6                                             2007         2006
    -------------------------------------------------------------------------
    Equity securities                                     52.3%        40.6%
    Debt securities                                       46.3%        57.9%
    Other invested assets                                  1.4%         1.5%
    -------------------------------------------------------------------------

    The pension plan assets composition does not take into account the impact
    of the pension plans' derivatives and short securities.

    Components of the expense (revenue)

    Table 11.7                      2007        2006        2007        2006
    -------------------------------------------------------------------------
                                                                 Post
                                     Pension plans       retirement benefits
    -------------------------------------------------------------------------
    Current service cost            26.0        20.8           -           -
    Interest cost on benefit
     obligation                     26.9        22.7         0.8         0.8
    Past service costs               2.9           -           -           -
    Actual return on plan assets   (33.1)      (63.9)          -           -
    Net actuarial (gains) losses    (1.4)       49.8         0.2         0.1
    -------------------------------------------------------------------------
    Accrued benefit expense before
     adjustments to recognize the
     long-term nature of employee
     future benefit costs           21.3        29.4         1.0         0.9
    Excess of actual return over
     expected return on plan
     assets for the year            (5.9)       28.0           -           -
    Net actuarial (gains) losses
     arising during the year
     (table 11.8)                    1.4       (49.8)       (0.2)       (0.1)
    Past service costs              (2.9)          -           -           -
    Change in valuation allowance   (0.1)          -           -           -
    Amortization of past
     service cost                    3.2         0.2        (0.4)       (0.4)
    Amortization of transitional
     (asset) obligation            (10.5)      (10.5)        0.1         0.1
    Amortization of net actuarial
     losses                          3.6         2.2         0.2         0.2
    Amortization of valuation
     allowance                      (0.3)       (0.3)          -           -
    -------------------------------------------------------------------------

    Total                            9.8        (0.8)        0.7         0.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Components of net actuarial gains or losses arising during the year

    Table 11.8                      2007        2006        2007        2006
    -------------------------------------------------------------------------
                                                                 Post
                                     Pension plans       retirement benefits
    -------------------------------------------------------------------------
    Actuarial gains (losses)
     arising from the:
    Change in the discount rate
     used to measure the benefit
     obligation                     20.5           -         0.3        (0.1)
    Experience                      (1.5)      (30.2)                      -
    Change in mortality table      (17.6)       (8.6)       (0.5)          -
    Change in withdrawal/
     retirement                        -       (11.0)          -           -
    -------------------------------------------------------------------------

    Total                            1.4       (49.8)       (0.2)       (0.1)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Assumptions used

    The following table summarizes the key weighted average assumptions used
    for the measurement of the benefit obligations and benefit expense
    (revenue).

    Table 11.9                      2007        2006        2007        2006
    -------------------------------------------------------------------------
                                                                 Post
                                     Pension plans       retirement benefits
    -------------------------------------------------------------------------
    To determine benefit
     obligation at end of year
    Discount rate                   5.2%        5.0%        5.2%        5.0%
    Rate of increase in future
     compensation                   3.5%        3.5%         n/a         n/a
    Health care cost trend rate      n/a         n/a       10.0%        9.0%
    Dental care cost trend rate      n/a         n/a        5.0%        5.0%
    To determine benefit expense
     (revenue) for the year
    Discount rate                   5.0%        5.0%        5.0%        5.0%
    Rate of increase in future
     compensation                   3.5%        3.5%         n/a         n/a
    Expected long-term rate of
     return on plan assets          7.0%       7.25%         n/a         n/a
    Health care cost trend rate      n/a         n/a        9.0%       10.0%
    Dental care cost trend rate      n/a         n/a        5.0%        5.0%
    -------------------------------------------------------------------------

    The impact of a 1% increase or decrease in the health care and dental
    care cost trend rate would not be significant on the Company's results or
    financial position.


    Note 12  Debt outstanding
    -------------------------------------------------------------------------

    The Company has an uncommitted revolving credit facility in the amount of
    $100.0 (2006 - $50.0), which may be drawn as prime loans at the prime
    rate or as bankers' acceptances at the bankers' acceptance rate.


    Note 13  Share capital
    -------------------------------------------------------------------------

    Issued and outstanding

    The Company completed a substantial issuer bid under which it purchased
    for cancellation, on March 30, 2007, 9,259,239 of its common shares at
    $54.00 per share for a total consideration of $500.0 plus fees of
    $1.2 net of income taxes. Total cost paid, including fees, was first
    charged to share capital to the extent of the average carrying value of
    the common shares purchased for cancellation and the excess of $419.2 was
    charged to retained earnings.

    Table 13.1                                          2007
    -------------------------------------------------------------------------
                                                     Issued and
                                        Authorized  outstanding
    Classes of shares                     (shares)     (shares)       Amount
    -------------------------------------------------------------------------
    Common                               Unlimited  124,472,761      1,101.9
    Class A                              Unlimited            -            -
    Special                                    One            1            -
    -------------------------------------------------------------------------


                                                        2006
    -------------------------------------------------------------------------
                                                     Issued and
                                        Authorized  outstanding
    Classes of shares                     (shares)     (shares)       Amount
    -------------------------------------------------------------------------
    Common                               Unlimited  133,732,000      1,183.9
    Class A                              Unlimited            -            -
    Special                                    One            1            -
    -------------------------------------------------------------------------

    Authorized

    Issued and outstanding Class A shares would rank both with regards to
    dividends and return on capital in priority to the common shares.

    The Special Share is convertible into one common share. The beneficial
    owner of the Special Share is entitled to nominate and elect a certain
    number of directors to the Board and request the Board to appoint the
    Chief Executive Officer is appointed by the board from among the
    directors elected by the holder of the special share, as determined by
    the number of common shares that the holder of the Special Share
    beneficially owns.

    Capital management

    Common shareholders' equity consists of common shares, contributed
    surplus, retained earnings and accumulated other comprehensive income
    (loss). Capital management contributes to the Company's profitability, as
    capital is allocated to key activities for which precise profitability
    objectives and criteria have been established. The Company strives to
    maintain an optimal level of capital to support its activities while
    generating an attractive and competitive return for its shareholders, in
    relation to industry standards and the Company's risk profile.

    Regulatory capital

    The P&C insurance subsidiaries of the Company are subject to the
    regulatory capital requirements defined by OSFI and the Insurance
    Companies Act ("ICA"). OSFI has established a Minimum Capital Test
    guideline ("MCT") which sets out 100% as the minimum and 150% as the
    supervisory target MCT standards for P&C insurance companies.
    Notwithstanding that a company may meet the supervisory target standard;
    OSFI may direct a company to increase its capital under the Insurance
    Companies Act. As at December 31, 2007 the Company's P&C insurance
    subsidiaries average MCT ratio was 188% (2006 - 210%); which was in
    compliance with both OSFI and ICA requirements.

    Stock-based compensation

    Certain employees are entitled to a long-term incentive plan ("LTIP").
    Under this plan, these employees are awarded performance units as a
    portion of their compensation. Each award vests and pays out at the end
    of a three-year performance cycle. The actual award varies based on a
    performance target by comparing the Company's three-year average return
    on equity relative to that of the Canadian P&C insurance industry. The
    actual award may only be in common shares restricted for transfer.
    Accordingly, this type of compensation is recognized as an expense with a
    corresponding increase to contributed surplus. The Company re-estimates
    the number of performance units that are expected to vest at each
    reporting period. At the time of the payout, the Company intends to
    purchase common shares in the market in an amount equal to the number of
    vested units.

    Table 13.2
    -------------------------------------------------------------------------
                                                       Per unit
                                                     fair value
                                         Number of     at grant
    As at December 31, 2007                  units   date (in $)      Amount
    -------------------------------------------------------------------------
    2005-2007 performance cycle            341,279        26.30          9.0
    2006-2008 performance cycle            151,706        36.79          5.6
    2007-2009 performance cycle            123,130        44.27          5.5
    -------------------------------------------------------------------------

    Total                                  616,115        32.47         20.1
    -------------------------------------------------------------------------

    Table 13.3
    -------------------------------------------------------------------------
                                                       Per unit
                                                     fair value
                                         Number of     at grant
    As at December 31, 2006                  units   date (in $)      Amount
    -------------------------------------------------------------------------
    2005-2007 performance cycle            363,700        26.30          9.6
    2006-2008 performance cycle            181,574        36.79          6.7
    -------------------------------------------------------------------------

    Total                                  545,274        29.79         16.3
    -------------------------------------------------------------------------

    Employees who are not eligible for the LTIP are entitled to make
    contributions in accordance with a voluntary employee share purchase plan
    ("ESPP"). Under the ESPP, eligible employees can contribute up to 10% of
    their base earnings through payroll deduction. As an incentive for
    participation in the plan, the Company will contribute an amount
    corresponding to 50% of the employee contribution. The common shares are
    bought on the market by an independent broker at the end of each month
    and are held by a custodian on behalf of the employees. The common shares
    bought with the Company's contributions vest upon continued employment
    for a period of twelve months.

    The amount charged to compensation expense for these plans was $6.2 for
    the year ended December 31, 2007, (2006 - $4.1). The expense for the LTIP
    is based on the fair value of the awards at the dates of the grants and
    represents management's estimate of the payout by reference to the
    achievement of an expected performance target. The Company's
    contributions under the ESPP are accrued when payable and are expensed
    over the vesting period of the restricted common shares.

    Table 13.4                                             2007        2006
    -------------------------------------------------------------------------
    Long-term incentive plan (units)
      Outstanding, beginning of year                    545,274      363,700
      Awarded during the year                           140,720      181,574
      Change in estimate during the year                (69,879)           -
      Outstanding, end of year                          616,115      545,274
    Employee share purchase plan
     (restricted common shares)
      Outstanding, beginning of year                     22,892            -
      Awarded during the year                            63,146       22,892
      Vested during the year                            (19,810)           -
      Outstanding, end of year                           66,228       22,892
    -------------------------------------------------------------------------


    Note 14  Additional information on the statements of cash flows
    -------------------------------------------------------------------------

    Table 14.1                                             2007         2006
    -------------------------------------------------------------------------
    Adjustment for non-cash items:
    Unearned premiums                                      70.4         68.9
    Net gains on invested assets and other gains          (73.6)      (193.5)
    Deferred acquisition costs, net                        (6.8)       (10.8)
    Future income taxes                                     6.1         19.9
    Amortization of:
      Property and equipment                               24.9         19.6
      Intangible assets                                     8.0          6.0
      Net premiums on fixed income securities              (4.0)       (17.0)
    Increase (decrease) in broker loan provision            0.3         (0.5)
    Other                                                   1.5          1.4
    -------------------------------------------------------------------------

    Total                                                  14.6       (106.0)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Increase (decrease) in cash and cash
     equivalents due to changes in other operating
     assets and liabilities:
    Premium and other receivables                         (42.3)      (129.1)
    Income taxes                                         (105.7)       (42.3)
    Other assets                                           (8.8)       (19.6)
    Payables and other liabilities                         91.2          7.8
    -------------------------------------------------------------------------

    Total                                                 (65.6)      (183.2)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Income taxes paid                                     158.8        316.4
    Interest paid on debt outstanding                         -          8.0
    -------------------------------------------------------------------------
    Composition of cash and cash equivalents
     (as at December 31):
    Cash, net of bank overdrafts                            1.8        (19.4)
    Cash equivalents                                        6.3        145.4
    -------------------------------------------------------------------------

    Total                                                   8.1        126.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Note 15  Acquisitions and divestitures
    -------------------------------------------------------------------------

    Acquisitions of businesses are accounted for using the purchase method.
    This involves allocating the purchase price paid for a business to the
    assets acquired, including identifiable intangible assets and the
    liabilities assumed, based on their fair values at the date of
    acquisition. Any excess is then recorded as goodwill.

    On April 1, 2006 and October 31, 2006, respectively, the Company acquired
    100% of the outstanding shares of Grey Power Insurance Brokers Inc.
    (GPIB) and West & Associates Insurance Group Ltd. (West). These
    enterprises operate in the corporate and distribution segment.

    The Company's subsidiaries by way of share or asset purchases, acquired
    or increased the ownership and disposed of certain other businesses.

    The results of the acquired companies since their respective acquisition
    date are included in the Company's consolidated statements of income.

    The allocation of the net purchase price was established as follows:

    -------------------------------------------------------------------------
                                                                       Total
    Table 15.1              2007       GPIB       West      Other       2006
    -------------------------------------------------------------------------
    Goodwill                (2.2)      20.3        8.4       11.7       40.4
    Intangible assets        3.5       18.3        4.0       13.1       35.4
    Future income taxes     (0.6)      (6.0)      (1.3)      (1.8)      (9.1)
    Net tangible assets
     (liabilities)           9.3        0.1       (0.9)      (0.7)      (1.5)
    -------------------------------------------------------------------------

    Net cash
     consideration paid     10.0       32.7       10.2       22.3       65.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The net goodwill acquired is non deductible for tax purposes.

    In 2007, the Company paid $ 4.8 (2006 - $14.9) of accrued integration
    cost primarily related to discontinuance of information systems,
    redundant lease space and involuntary employee terminations. Furthermore,
    the provision for redundant lease space was increased by $1.6 (2006 -
    $5.1) with a corresponding charge in the current income.


    Note 16  Disclosures on rate regulation
    -------------------------------------------------------------------------

    The Company's insurance subsidiaries are licensed under insurance
    legislation in each of the provinces and territories in which they
    conduct business. Automobile insurance is a compulsory product and is
    subject to different regulations across the provinces and territories in
    Canada, including those with respect to rate setting. Rate setting
    mechanisms vary across the provinces and territories in Canada, but they
    generally fall under three categories: "use and file", "file and use" and
    "file and approve". Under "use and file", rates are filed following use.
    Under "file and use", insurers file their rates with the relevant
    authorities and wait for a prescribed period of time and then implement
    the proposed rates. Under "file and approve", insurers must wait for
    specific approval of filed rates before they may be used.

    Table 16.1 lists the provincial authorities which regulate automobile
    insurance rates. Automobile direct written premiums in these provinces
    totaled $2,335.2 in 2007 (2006 - $2,253.4) and represented approximately
    98.5% (2006 - 98.3%) of direct automobile premiums written.

    Table 16.1
    -------------------------------------------------------------------------
    Province              Rate filing          Regulatory authority
    -------------------------------------------------------------------------
    Alberta               File and approve or  Alberta Automobile Insurance
                          file and use         Rate Board
    Ontario               File and approve     Financial Services Commission
                                               of Ontario
    Quebec                Use and file         L'Autorité des marchés
                                               financiers
    Nova Scotia           File and approve     Nova Scotia Insurance Review
                                               Board
    New Brunswick         File and approve     New Brunswick Insurance Board
    Prince Edward Island  File and approve     Island Regulatory Appeals
                                               Commission
    Newfoundland          File and approve     Board of Commissioners of
                                               Public Utilities
    -------------------------------------------------------------------------

    Relevant regulatory authorities may, in some circumstances, require
    retroactive rate adjustments, which could result in a regulatory asset or
    liability. At December 31, 2007 and 2006, the Company had no significant
    regulatory asset or liability.


    Note 17  Contingencies, commitments and guarantees
    -------------------------------------------------------------------------

    In the normal course of operations:

    -   Various claims and legal proceedings are instituted against the
        Company. Legal proceedings are often subject to numerous
        uncertainties and it is not possible to predict the outcome of
        individual cases. In management's opinion, the Company has made
        adequate provision for, or has adequate insurance to cover all claims
        and legal proceedings. Consequently, any settlements reached should
        not have a material adverse effect on the Company's consolidated
        future operating results and financial position.

    -   The Company provides indemnification agreements to directors and
        officers, to the extent permitted by law, against certain claims made
        against them as a result of their services to the Company. The
        Company has insurance coverage for these agreements.

    The following table presents future minimum payments under long-term
    leases for premises and equipment.

    Table 17.1
    -------------------------------------------------------------------------
    Year                                                 Amount
    2008                                                   57.1
    2009                                                   45.6
    2010                                                   35.4
    2011                                                   32.1
    2012                                                   28.7
    Thereafter                                             80.8
    -------------------------------------------------------------------------

                                                          279.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Note 18  Segmented information
    -------------------------------------------------------------------------

    The Company has two reportable segments, the underwriting segment and the
    corporate and distribution segment.

    The Company's core business activity is P&C insurance underwriting.
    Underwriting segment includes two lines of business: personal lines and
    commercial lines. Classes in personal lines include automobile and
    property. Classes in commercial lines encompass primarily automobile and
    other, primarily property and liability.

    Corporate and distribution segment includes the results of the Company's
    broker operations and the results of other operations.

    a) Results of the Company's reportable segments and their assets

    Table 18.1
    -------------------------------------------------------------------------
                                                          Inter-
                                           Corporate     segment
    For the year ended                     and dist-    elimina-
    December 31, 2007       Underwriting    ribution       tions       Total
    -------------------------------------------------------------------------
    Revenues                     3,932.0       136.6       (66.6)    4,002.0
    Expenses                     3,723.2        86.0       (60.3)    3,748.9
                            -------------------------------------------------
    Subtotal                       208.8        50.6        (6.3)      253.1
    Interest and
     dividend income                                                   364.3
    Invested assets
     management expenses                                               (19.4)
    Net losses on invested
     assets and other gains                                             73.6
    -------------------------------------------------------------------------

    Total income before
     income taxes                                                      671.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Table 18.2
    -------------------------------------------------------------------------
                                                          Inter-
                                           Corporate     segment
    For the year ended                     and dist-    elimina-
    December 31, 2006       Underwriting    ribution       tions       Total
    -------------------------------------------------------------------------
    Revenues                     3,826.6       107.6       (63.8)    3,870.4
    Expenses                     3,422.8        74.2       (63.8)    3,433.2
                            -------------------------------------------------
    Subtotal                       403.8        33.4           -       437.2
    Interest and
     dividend income                                                   342.4
    Invested assets
     management expenses                                               (21.1)
    Net gains on invested
     assets and other gains                                            193.5
    -------------------------------------------------------------------------

    Total income before
     income taxes                                                      952.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Table 18.3
    -------------------------------------------------------------------------
                                                          Inter-
                                           Corporate     segment
    As at                                  and dist-    elimina-
    December 31, 2007       Underwriting    ribution       tions       Total
    -------------------------------------------------------------------------
    Goodwill                        74.4        85.5           -       159.9
    Invested assets              6,737.1       501.9        (1.2)    7,237.8
    Other                        2,714.7       290.6       (13.3)    2,992.0
    -------------------------------------------------------------------------

    Total assets                 9,526.2       878.0       (14.5)   10,389.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Table 18.4
    -------------------------------------------------------------------------
                                                          Inter-
                                           Corporate     segment
    As at                                  and dist-    elimina-
    December 31, 2006       Underwriting    ribution       tions       Total
    -------------------------------------------------------------------------
    Goodwill                        74.4        87.7           -       162.1
    Invested assets              6,570.0       688.8       (16.9)    7,241.9
    Other                        2,621.3       369.3       (17.3)    2,973.3
    -------------------------------------------------------------------------

    Total assets                 9,265.7     1,145.8       (34.2)   10,377.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    b) Results by line of business

    Table 18.5                                             2007         2006
    -------------------------------------------------------------------------
    Direct premiums written
    Personal                                            2,952.7      2,807.5
    Commercial                                          1,147.3      1,182.9
    Underwriting income
    Personal                                              105.3        242.2
    Commercial                                            103.5        161.6
    -------------------------------------------------------------------------


    Note 19  Subsequent events
    -------------------------------------------------------------------------

    On February 19, 2008, the Board of Directors approved a plan to proceed
    with an issuer bid to purchase for cancellation during the next 12 months
    up to 6,223,638 common shares. The actual number of common shares which
    may be purchased and the timing of any such purchases will be determined
    by the Company. Under the terms of the issuer bid (which is subject to
    the approval of the Toronto Stock Exchange), ING Canada's majority
    shareholder, ING Groep, will be permitted to participate in order to
    maintain its proportionate share ownership at 70%. ING Canada has been
    advised that ING Groep intends to participate on a
    proportionate basis.
    





For further information:

For further information: Media Enquiries: Gilles Gratton, Vice President
- Corporate Communications, (416) 217-7206, Email:
gilles.gratton@ingcanada.com; Investor Enquiries: Michelle Dodokin, Vice
President - Investor Relations, (416) 344-8044, Email:
michelle.dodokin@ingcanada.com


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