The Future of Bancassurance Rebuilding Confidence

International Insurance Society Annual SeminarJune 07, 2010

Oscar ZimmermanSVP & Managing Director, Corporate InsuranceThe Bank of Nova Scotia

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Agenda

• Bancassurance

• Customer Needs

• Opportunities

• Challenges

• Scotiabank Strategy

• Key Success Factors

• Operational Results

• Closing

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Branch Officers Insurance Agents

Telemarketing Internet Mailing

External Sales Forces

BANK

Products - Bank Owned Insurer Products – Other Insurers

Distribution of any insurance product through Bank channels

BANK CLIENTS

BANCASSURANCE

Definition

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Types of Products

• Risk Protection

• Life and health insurance

• Automobile and home insurance

• Wealth Accumulation

• Savings with an insurance component

• Accumulation and payout annuities

• Pensions

Universal Life

Creditor Insurance

Optional Insurance

Annuities

BANCASSURANCE

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Retail Banking Products

• Choice

• Simple, easy to understand and purchase

• Convenience

• Service

• Trust the “promise to pay”

• Price competitiveBancassurers are uniquely positioned to offer an integrated value proposition to meet customer needs at various life stages.

CUSTOMER NEEDS

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Typical Changes in Life Stage

Single

Couple

New Family

Established Family

Pre-Retirement

RetiredIndependent

• Plan to retire• Buy home• Plan estate

• Buy Car• First Job• Start Saving

• Disburse Savings

• Plan Estate

• Buy Home• Acquire Goods• Protect Income

• Buy Home• Start Saving• Acquire Goods

• Save for Education

• Reduce Debt

• Plan to Retire• Accumulate• Plan Estate

It is easier to cross sell insurance to existing relationships

Life Stages

CUSTOMER NEEDS

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How Does Bancassurance Help Retail Banks?

• Protects credit insurance

• Improves loyalty and cost utilization

• Additional fee income boosts shareholder ROE

• Insurance risk taking is less correlated to the credit cycle

• Approved borrowers tend to be better insurance risks

RETAIL BANK OPPORTUNITY

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Cultural Differences Between Financial Sectors

Closing the Cultural Gaps

Protect Bank Reputation

Focus on Retail

Understand and manage insurance risk volatility

Enhance ROE with stable recurring income

BANKING INSURANCE

Consumer Brand

TransactionsSales &

Relationship-based

Mortality, morbidity, property

& financial risk management

Long Term Focus

Distributor Brand

Appointed Actuary(AA)

Short Term Focus

Deconsolidated capital ratio test

Deconsolidated capital ratio test

Chief Risk Officer(CRO)

BANCASSURANCE CHALLENGES

Fixed cost Variable cost

Liquidity, credit & financial risk management

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Regulatory Framework

• Bank and Insurance sectors separately regulated

• Outdated regulations

• Limits of regulatory restrictions

• International insurance regulation vary

BANCASSURANCE CHALLENGES

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• Strong Canadian Financial System

• Sound Canadian Banking System

• World Economic Forum

Strength of Canada & Canadian Financial System

Relative bank share price performance

* As of April 30, 2010.Source: Bloomberg; Scotia Capital.

-25

-20

-15

-10

-5

0

5

10

15

20

25

30

Canada Australia U.S. Switzerland U.K.* Japan*

5-Year CAGR

10-Year CAGR

Data to May 3, 2010

SCOTIABANK STRATEGY

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Scotiabank Around The World

SCOTIABANK STRATEGY

• 14.6 million customer in some 50 countries

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

• Personal, Commercial, Corporate and Investment Banking

• 2700 + Branches and Offices, 5800 ABMs

• Diversified Business Lines: Canadian Banking, International

Banking, Scotia Capital

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

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

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

2010 Half Year $C2.1 billion ROE 18.7%

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2009 Return on Equity (Reported)

Canada U.S. International

Scotia 16.7% Wells Fargo 9.9% Credit Suisse 18.3%

Royal 11.9 US Bancorp 8.2 BBVA 16.0

BMO 9.9 JPMorgan 6.0Commonwealth

Bank

of Australia15.8

CIBC 9.4Bank of America

n/m Deutsche 14.6

TD 8.4 Citibank n/m HSBC 5.1

Top Tier ROE Versus Global Peer Group

SCOTIABANK STRATEGY

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• Sustainable revenue growth

• Capital management

• Leadership

• Prudent risk management and appetite

• Efficiency and expense management

Global Priorities

SCOTIABANK STRATEGY

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Scotiabank Mission

Four Cornerstone Strategy

To be the best at helping customers become financially better off by finding relevant solutions to meet their

unique needs.

SCOTIABANK STRATEGY

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• Focus on helping customers protect their assets

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

• Assume retail insurance risks

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

Bancassurance Strategy

SCOTIABANK STRATEGY

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Insurance Footprint

Direct Writing Subsidiaries

Canada (L & H)

Dominican Republic (L & H)

El Salvador (L & H / P & C)

Jamaica (L & H)

Trinidad (L & H)

Reinsurance Subsidiary

Barbados (L & H / P & C)

Joint Venture

El Salvador (Auto)

Insurance Brokerages

Canada

Chile

Costa Rica

Dominican Republic

Puerto Rico

Insurance Fee Income

Caribbean

Central America

Mexico

Peru

SCOTIABANK STRATEGY

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Key Success Factors in Bancassurance

• Identify profit zone in retail value chain

• Integrated sales processes

• Sales Management

• Optimize corporate structure and risk taking business model

• Manage adverse earnings volatility

Teamwork is critical to strategy executionTeamwork is critical to strategy execution

KEY SUCCESS FACTORS

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Value Proposition Differs By Customer Segment

Retail Banking Products

Retail Banking Sales &

Service Platforms

Identify Profit Zone in the Retail Value Chain

Retail Consumers Protection Needs

KEY SUCCESS FACTORS

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Systematic sales management

Systematic sales management

Leverage Information Technology

Systems and Customer Data

Leverage Information Technology

Systems and Customer Data

Integrated Sales Management

Integrated Sales Management

Integrated Sales Processes

Simple product portfolio

Simple product portfolio

Simplified underwritingSimplified

underwriting

Attractive packagingAttractive packaging

Streamlined sales processStreamlined

sales process

Comprehensive sales support

Comprehensive sales support

Bundled salesBundled sales

Systematic sales guidance

Systematic sales guidance

Rigorous Market conduct

compliance

Rigorous Market conduct

compliance

KEY SUCCESS FACTORS

Low product complexity

Low product complexity

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• Measurable bank channel sales targets

• Appropriate incentives impacting bonus compensation

• Fully automated and simple sales process

• Provide continuous product and sales training

Sales Management

KEY SUCCESS FACTORS

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Optimize Business Model

Decision Criteria:

• Local Market Structure

• Insurer Financial Strength

• Regulatory Environment

• Retained Risk Appetite

• Management Capacity

• Speed to Market

Choices:

• Underwriting Subsidiary

• Pure Distribution

• Distribution/Reinsurance

• Joint Venture

KEY SUCCESS FACTORS

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• Insurance Oversight Committee

• External Appointed Actuaries for Subsidiaries

• Follow Canadian Insurance Prudential Standards

• Pre-Approval of limits for catastrophic events

Manage Adverse Earnings Volatility

KEY SUCCESS FACTORS

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Operational Results

•Protect Bank Reputation

•Focus on Retail

•Understand and manage insurance risk

•Enhanced ROE, Stable Recurring Income

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Closing Observations

• Insurance profits held firm during financial crisis

• Bank colleagues were very appreciative

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Thank You