PPI Financial Group: Insurance Marketing & Distribution

1. Canadian Institute of Actuaries L’Institut canadien des actuaires 2006 General Meeting Assemblée générale 2006 Chicago, Illinois

2. Who is PPI Financial Group? • Insurance marketing & distribution company • 7 offices across the country • More than 200 employees • In business for almost 30 years

3. Who is PPI Financial Group? • Markets a full line of individual insurance & group benefit products from a variety of insurers • Investment product line is not a major focus • Markets through a network of independent agents and brokers

4. Target Consumer Market • Affluent & high net worth individuals • Owners of small to mid-size companies • Professionals & executives

5. Target Agent Market • Agents that target the same consumer groups and that: • Have a good reputation in the business • Have a proven track record in this market or the desire and the potential to do so • Are attracted to our value proposition • PPI has relationships with several hundred agents that fit this description

6. Agent Value Proposition • Provide agents with: • Strong agency contracts • Full range of products, including unique & proprietary products • Strong case & marketing support for all lines of business • Tax, legal, underwriting & product support

7. Agent Value Proposition – Cont’d • Provide agents with: • An attractive pooling arrangement • Ongoing education on products & sales applications • Post issue administrative support • Advice & support in solving problems of all sorts

8. Agent Value Proposition – Cont’d • In conclusion, we help agents to successfully & profitably grow their businesses • Competitive base commission rates • Override rates not nearly as competitive

9. Consumer Value Proposition • High quality & leading edge techniques for personal estate and/or business planning issues • Emphasis on tax efficiency • Ability to work cooperatively with client’s accountants & lawyers to achieve client objectives • Not simply a product sale but an advisory relationship

10. Individual Sales Results • Total new annual premium from individual insurance sales > $50 million • Average term face amount ≈ $1,000,000 • Average UL face amount > $2,000,000 • Average UL annual premium > $50,000

11. Past Events Impacting Distribution • Move from career to brokerage & MGA distribution • Significant consolidation at insurer level • Significant reduction in recruiting of new sales people by insurers

12. Brokerage & MGA Distribution • Variable cost distribution model • Most brokerage companies & MGA’s have evolved to compete primarily on price and/or compensation levels • Does not allow such entities to provide high levels of support to agents

13. Brokerage & MGA Distribution – Cont’d • As you move upscale, sales application knowledge becomes much more important & complex than product knowledge • In the brokerage & MGA markets, who is educating the agents in these areas? • Retained distribution margins insufficient to permit an adequate job to be done • Inadequate training has consequences

14. Brokerage & MGA Distribution – Cont’d • Should also provide support to agents & ensure compliance • Again, inadequate retained margins make this difficult

15. Insurer Consolidation • Significant consolidation in last 15 years • Resulting insurer challenges: • Acquisition indigestion • Difficult, costly & time consuming systems integration • Loss of many knowledgeable service staff

16. Insurer Consolidation – Cont’d • Market Consequences: • Companies too inwardly focused • Difficulty in getting proper insurer support to service older new money and UL products • Latter point much more problematic as you go upscale in the market

17. Significant Reduction in Recruiting • Graying & aging of existing distribution system • Most products not priced to support recruiting & related training efforts • Most companies do not seem particularly focused or concerned about bringing new sales people into the business • In a demutualized industry, sales growth is a requirement for a healthy share valuation

18. Distribution Company Consolidation • Over the next 10 years, there will be significant consolidation at the MGA level, due to: • Inadequate margins for many MGA’s • The need to invest in technology • Increasing legal & regulatory complexity, compliance & associated costs (PIPEDA, E&O requirements, Fintrac, etc) • Surviving MGA’s will progressively increase their margins to sustaining levels

19. Profile of New Sales People • The average age of new sales people will increase significantly compared to the past: • Insufficient compensation to make a living selling primarily term to young adults • Family formation now much later than it was a generation ago • Many new sales people will enter the business with some prior business experience • Should result in lower agent failure rates

20. Development of Sales People by MGA’s • The surviving & larger MGA’s will become a source of new sales people: • Some of their market support staff will evolve into sales people over time • Affinity relationships with other financial services firms will naturally produce insurance sales people from such firms • The numbers of such new sales people will not be great enough to satisfy industry needs & will tend to be focused on the upscale market

21. Industry Level Recruiting • In the past, an insurer would take responsibility for recruiting new agents to market its products • Going forward, recruiting & training new sales people will need to become an industry level initiative, involving all stakeholders • Insurers • Industry associations (CLHIA, Advocis, CALU) • MGA’s • Agents

22. Industry Level Recruiting – Cont’d • All industry stakeholders have a serious vested interest in this issue: • Insurers & MGA’s have the most obvious interest • The CLHIA has an interest in having healthy & domestically growing companies as members • Advocis needs more rather than fewer members and can play an important role in training & education of new sales people • The majority of today’s successful agents do not have a succession plan. Capable younger sales people are their best bet.

23. Industry Level Recruiting – Cont’d • In the past, new sales people came into the business: • At a very young age • With little or no prior business experience • Were thrust into full commission sales jobs after relatively short training & financial support periods • Not surprisingly: • The agent failure rates were high • The quality of the business written was low

24. Industry Level Recruiting – Cont’d • Going forward, sales apprenticeship programs need to be developed at an industry level and should involve: • Much longer training periods • Work experience in the industry that is relevant to sales & moves progressively towards a full sales role

25. Banks & Insurance Distribution • Unless the insurance industry can effectively service the broad based market, banks will eventually win on the issue of in branch retailing of insurance • Industry sales people recruiting success is very relevant to the outcome of this issue

26. Distribution Costs • In the upscale markets, particularly where permanent insurance is involved, agent compensation levels are fine • In the younger issue age mid market, which is where most new sales people will be focused, the agent compensation levels not sufficient to attract & sustain the new sales people that the industry needs • Over time, expect to see compression of compensation rates for the larger amount, older issue age market & higher compensation rates for the smaller amount, younger issue age market