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

The Future of Bancassurance Rebuilding Confidence International Insurance Society Annual Seminar June 07, 2010. Oscar Zimmerman SVP & Managing Director, Corporate Insurance The Bank of Nova Scotia. Agenda. Bancassurance Customer Needs Opportunities Challenges Scotiabank Strategy

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

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  1. The Future of Bancassurance Rebuilding ConfidenceInternational Insurance Society Annual SeminarJune 07, 2010 Oscar Zimmerman SVP & Managing Director, Corporate Insurance The Bank of Nova Scotia

  2. Agenda • Bancassurance • Customer Needs • Opportunities • Challenges • Scotiabank Strategy • Key Success Factors • Operational Results • Closing

  3. Definition BANCASSURANCE • Distribution of any insurance product through Bank channels Products - Bank Owned Insurer Products – Other Insurers BANK Branch Officers Insurance Agents External Sales Forces Telemarketing Internet Mailing BANK CLIENTS

  4. Types of Products BANCASSURANCE • Risk Protection • Life and health insurance • Automobile and home insurance • Wealth Accumulation • Savings with an insurance component • Accumulation and payout annuities • Pensions Creditor Insurance Optional Insurance Universal Life Annuities

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

  6. Life Stages CUSTOMER NEEDS Typical Changes in Life Stage New Family Established Family • Save for Education • Reduce Debt • Buy Home • Acquire Goods • Protect Income Couple Pre-Retirement • Buy Home • Start Saving • Acquire Goods • Plan to Retire • Accumulate • Plan Estate Single Retired Independent • Buy Car • First Job • Start Saving • Disburse Savings • Plan Estate • Plan to retire • Buy home • Plan estate It is easier to cross sell insurance to existing relationships

  7. How Does Bancassurance Help Retail Banks? RETAIL BANK OPPORTUNITY • Protects credit insurance • Improves loyalty and cost utilization • Additional fee income boosts shareholder ROE • Insurance risk taking is less correlated to the credit cycle • Approved borrowers tend to be better insurance risks

  8. Cultural Differences Between Financial Sectors BANCASSURANCE CHALLENGES BANKING INSURANCE Closing the Cultural Gaps • Protect Bank Reputation • Focus on Retail • Understand and manage insurance risk volatility • Enhance ROE with stable recurring income Consumer Brand Distributor Brand Transactions Sales & Relationship-based Fixed cost Variable cost Mortality, morbidity, property & financial risk management Liquidity, credit & financial risk management Short Term Focus Long Term Focus Deconsolidated capital ratio test Deconsolidated capital ratio test Appointed Actuary (AA) Chief Risk Officer (CRO)

  9. Regulatory Framework BANCASSURANCE CHALLENGES • Bank and Insurance sectors separately regulated • Outdated regulations • Limits of regulatory restrictions • International insurance regulation vary

  10. Strength of Canada & Canadian Financial System SCOTIABANK STRATEGY • Strong Canadian Financial System • Sound Canadian Banking System • World Economic Forum Relative bank share price performance Data to May 3, 2010 * As of April 30, 2010.Source: Bloomberg; Scotia Capital.

  11. 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%

  12. Top Tier ROE Versus Global Peer Group SCOTIABANK STRATEGY

  13. Global Priorities SCOTIABANK STRATEGY • Sustainable revenue growth • Capital management • Leadership • Prudent risk management and appetite • Efficiency and expense management

  14. Scotiabank Mission SCOTIABANK STRATEGY To be the best at helping customers become financially better off by finding relevant solutions to meet their unique needs. Four Cornerstone Strategy

  15. Bancassurance Strategy SCOTIABANK STRATEGY • Focus on helping customers protect their assets • Leverage Bank distribution and servicing capabilities, financial strength and brand awareness • Assume retail insurance risks • Assume 3rd party reinsurance risks that are less correlated with traditional bank risk

  16. 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

  17. Key Success Factors in Bancassurance KEY SUCCESS FACTORS • Identify profit zone in retail value chain • Integrated sales processes • Sales Management • Optimize corporate structure and risk taking business model • Manage adverse earnings volatility Teamwork is critical to strategy execution

  18. Identify Profit Zone in the Retail Value Chain KEY SUCCESS FACTORS Retail Consumers Protection Needs Retail Banking Products Retail Banking Sales & Service Platforms Value Proposition Differs By Customer Segment

  19. Integrated Sales Processes Leverage Information Technology Systems and Customer Data Integrated Sales Management KEY SUCCESS FACTORS Simple product portfolio Streamlined sales process Systematic sales management Low product complexity Comprehensive sales support Attractive packaging Bundled sales Simplified underwriting Systematic sales guidance Rigorous Market conduct compliance

  20. Sales Management KEY SUCCESS FACTORS • Measurable bank channel sales targets • Appropriate incentives impacting bonus compensation • Fully automated and simple sales process • Provide continuous product and sales training

  21. Optimize Business Model KEY SUCCESS FACTORS 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

  22. Manage Adverse Earnings Volatility KEY SUCCESS FACTORS • Insurance Oversight Committee • External Appointed Actuaries for Subsidiaries • Follow Canadian Insurance Prudential Standards • Pre-Approval of limits for catastrophic events

  23. Operational Results • Protect Bank Reputation • Focus on Retail • Understand and manage insurance risk • Enhanced ROE, Stable Recurring Income

  24. Closing Observations • Insurance profits held firm during financial crisis • Bank colleagues were very appreciative

  25. Thank You

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