OPERATOR: Good day, ladies and gentlemen, and welcome to the third-quarter 2006 ING Canada earnings conference call. My name is Michelle, and I will be your audio coordinator for today. (Operator Instructions).

I would now like to turn the presentation over to your host for today's call, Mr. Brian Lynch, Director of Investor Relations. Please proceed, sir.

BRIAN LYNCH, DIRECTOR, IR, ING CANADA: Thanks, Michelle. Good morning, everyone. Background information for today's call can be found at INGCanada.com. Please note in particular the forward-looking statement disclaimer in the slide presentation, cautioning you to refrain from placing undue reliance on any forward-looking statements we may make for the various reasons detailed on the slide.

As usual, Claude Dussault, CEO, will comment broadly on the quarter's results. And Mark Tullis, CFO, will remark briefly on specific aspects of our performance. We will proceed to take questions in French or English from financial analysts and investors. Charles Brindamour, EVP, is also with us and available to take your questions. With that, I will ask Claude to comment.

CLAUDE DUSSAULT, CEO, ING CANADA: Thank you, Brian. Good morning, everyone. I'm pleased to report on the third quarter, which we consider has been another strong performance in continuity of previous quarters. Our earnings per share for the quarter were $1.17 compared to $1.52 for the same quarter in 2005. And our net income for the quarter was $156.8 million, a decrease of 22.7% over the third quarter of last year.

The decrease in earnings is not reflective of the fundamentals of our business. When you look at the two main drivers of the change, they were the decline in the level of the realized investment gains and the lower levels of favorable prior-year claims development. We expect variance in these numbers from quarter-to-quarter. And even though realized gains in prior years' reserve favorable development were lower than last year, they were still contributing positively to the results.

Our combined ratio of 89.9% was quite healthy with all segments of business being in the 84% to 88% range except for personal property. Personal property combined ratio of 107.3% was mainly driven by heavy storms activity in the third quarter that represented approximately 10 points on the loss ratio.

The current accident year loss ratio in personal lines, auto and property, excluding catastrophes, is 0.5 percentage points higher year-to-date than last year and that in spite of rate decreases. For us, this is a very significant indicator.

In commercial lines, the accident year loss ratio is 2.8 percentage points better than last year in a highly-competitive market. These loss ratios reflect the effectiveness of our disciplined underwriting and pricing capabilities in a softening market.

We were pleased with the growth in our direct written premiums. It increased by 4.9% in Q3 when we exclude AGR transfer and industry poolls. Our number of risks insured grew by 4%. Our organic growth continues to trend upward and is the result of a number of customer-centric initiatives introduced in the past 12 to 18 months.

In the third quarter, we launched a loyalty initiative in partnership with Aeroplan. And the early customer response has been quite positive. In the third quarter, we also repaid the remaining debt of $127 million that we had on our balance sheet.

Now for the outlook at the industry level, we expect the top-line growth to remain in the low single-digit level and the underwriting results to remain better than historical average and that for the near term. So I would now invite our CFO, Mark Tullis, to tell you more specifics on some of the issues we would like to focus on.

MARK TULLIS, CFO, ING CANADA: Thank you, Claude. Underwriting results for the quarter were strong across all business lines except for personal property, which as Claude mentioned, was hit by $19 million of storm claims. Our claims frequency decreased slightly, remaining favorable across all lines of business.

Prior-year development of $69.9 million was higher than historical averages, although $24.4 -- $24.5 million below last year's extraordinary level. Significantly, our income from current-year loss experience, not counting catastrophes and Facility Association business, remained the same as last year despite absorbing rate decreases averaging 2.7% of earned premium.

Investment results continued to be favorable. Our book yield of 4.9% was slightly down from Q3 '05. Realized gains were $35.8 million for the quarter, including $3.9 million of fixed-income gains and equity gains of $43.8 million.

We experienced other losses of $11.9 million, primarily due to losses in the derivative portfolio backing our DROP Alpha portfolio. These derivatives have associated equity investments that had unrealized gains of $10.4 million in the quarter. But under current Canadian accounting standards, we do not recognize these unrealized gains. In total, our net unrealized gain position strengthened over $100 million in the quarter.

All-in-all, this was another solid quarter for both net income and underwriting income.

BRIAN LYNCH: Okay, Michelle, if you could remind listeners how to pose a question.

OPERATOR: (Operator Instructions). Jamie Keating, RBC Capital Markets.

JAMIE KEATING, ANALYST, RBC CAPITAL MARKETS: I'm struck by the derivatives gains/losses so to speak. I wonder if I could just follow the money a bit. Unrealized securities gains went up $100 million. Would that include naked the equity gains that were perhaps offset by the hedge loss?

MARK TULLIS: Yes, of the $101.9 million, $10.4 million of them represent the unrealized gains on the DROP Alpha portfolio.

JAMIE KEATING: That's in the delta. Is there also a number we should be aware of that gives you an idea what the net unrealized gains balance might be, if there is such an adjustment necessary?

MARK TULLIS: Yes, that's actually in the financial statements. It's $130-some million. The DROP Alpha portfolio -- the amount of the unrealized gain is in the financial statements. I'm trying to --

JAMIE KEATING: That's okay. Don't --

MARK TULLIS: -- and the net amount of the DROP Alpha portfolio is in the MD&A. Actually, I have a tab on that. The DROP Alpha portfolio net as of September 30 was an unrealized loss of $1.5 million. So we had a gain in the portfolio. And again, you have to match up the derivatives in the investments.

But if you just look at the underlying equities, there was a net unrealized loss of $1.5 million at the end of the third quarter. The net gain in the portfolio is $136 million. So if you look at the portfolio less the DROP Alpha portfolio, it would be $137.5 million.

JAMIE KEATING: Brilliant! Okay, that's very helpful. One other just point of clarification. I think Brian may have helped me on this. The commissions in aggregate expense was down quite a bit. It seems to be the influence of I believe it's Grey Power. I just wondered if true -- and that is the offset -- what are the other influences on the income statement, perhaps at the premium line and so on?

I guess maybe what I'm getting at is, is there a positive influence related to the acquisition on the other lines? And if we could just see some of that detail, that would be helpful.

MARK TULLIS: Let me spend a minute on the commission and the -- you know - - and explain that. If you look on the income statement, there's sort of three things going on with the commissions. One is, the big thing if you look at year-over-year, the commission expense has dropped from $488 million to $457 million. The big reason for that swing is basically as we buy brokerages and we go from paying money to a third party, which is unaffiliated, to paying money to an affiliated company, we eliminate the expense down below because we are effectively paying the money to ourselves. If you look at that swing from '05 to '06, that's what's causing the swing.

In the quarter, we had a $5 million reclass. So basically, if you look at just the third-quarter results, the $139 million if it were not for the reclass would have been $144. But similarly, the commission revenue line instead of $3 million would have been $8 million. So it didn't affect the bottom line, and it doesn't affect year-to-date.

The third thing going on with commissions, particularly as you look at the revenue item, is the drop from 39 to 27. This represents commissions we're paid from unaffiliated third parties. And primarily the reason for the drop is as we have sort of eased out of the mutual fund business, we get less revenue from third-party mutual fund companies.

As far as how other than commissions we would be impacted by brokerage operations, the other thing is we have expenses coming through. So the general expense line would be impacted by the brokerage acquisitions. I can't think of anything else that would be significant. Because we booked --

JAMIE KEATING: Any idea what the isolated impact on the expenses is roughly -- order of magnitude?

MARK TULLIS: Yes, it's kind of -- on the MD&A on page 19, it's included in the expense line. So it would be -- the only thing is it's hard to see the trend because we've got the mutual fund tucked in in '05.

JAMIE KEATING: I will come offline.

MARK TULLIS: Yes.

OPERATOR: Andre Hardy, Merrill Lynch.

ANDRE HARDY, ANALYST, MERRILL LYNCH: Mark, can you let us know please how much excess cash do you think you have and debt capacity right now? And Claude, are you willing to be more precise as to the timing of either an acquisition or if that fails your return of capital to shareholders?

CLAUDE DUSSAULT: I'll start while Mark gets the number. No, I don't think I can be more precise than what I've said in the past, which it's part of our strategy. It's something that we are pursuing and would like to see. And in the medium long-term, we're confident that it will happen. But in the short-term, I can't comment on how close or far we are to achieving any transaction.

ANDRE HARDY: Given that you have so much excess capital right now, barring deployment or a return, do you think you can maintain your historical ROE gap?

CLAUDE DUSSAULT: I think the ROE gap is something that we keep working at expanding. We're also working at managing capital effectively. So this is an issue that we want to manage effectively.

If the strategy was to keep all the capital and not use it, obviously it would put pressure on our ROE. Our strategy is to try to find the right way to get to the proper ROE gap.

MARK TULLIS: Yes, and I think as far as the excess, we have about $650 million at the holding company. Looking at sort of the 170, 175 ratio for MCT, you would pick up another $400 million; we'd end up around $1.1 billion. And we believe our debt capacity, consistent with our targeted rating level was about $1 billion. So that puts us at about $2.1 billion.

OPERATOR: John Reucassel, BMO.

JOHN REUCASSEL, ANALYST, BMO: Just a question on the personal lines. It looks like your insured risks were up 5% in personal auto. Could you talk about where that growth is coming from? Is that all belairdirect or where the growth in the insured risks is coming from?

CHARLES BRINDAMOUR, EVP, ING CANADA: The growth -- belairdirect is clearly a contributor to the growth. However, in general across the country with a few exceptions, growth is fairly good as well in the brokerage environment.

Quebec is a more difficult environment from a competitive point of view in personal lines. But the other regions offer good growth opportunities. But belairdirect, clearly as you can see in the stat supplement, is having a very healthy low double-digit growth in units.

JOHN REUCASSEL: So what is giving you the -- can you give us a sense of what you are doing differently in the rest of the group to -- you know I think if the market is flat to growing a little bit, you are taking substantial market share. Is there something you are doing differently?

CLAUDE DUSSAULT: I think what we would like to mention is the fact that we have been in the past 12, 18 months doing a number of things increasingly to improve our value proposition, including new initiative at the customer level, the Responsible Driver Guarantee, the zero deductible policy, Aeroplan points which I guess hasn't been reflected yet in the growth because it's very -- it was at the end of the third quarter.

So we have been very active. And you know those initiatives don't generally show significant increases right away. They need to flow through the system. And I think we're getting the benefit of a number of initiatives that we put in place 12 months ago and 9 months ago. We think that we will continue with the current initiatives to develop that.

Our team is also very active at the broker level to work on the value proposition for brokers in terms of making it more efficient for them to do business with ING through improvements on the technology, improvement in the services that we provide faster service. We've put a lot of emphasis on providing best service in small commercial lines area. So there is a series of activities.

We've been saying that organic growth is a competency that we need to strengthen as an organization. So we been hitting both on the distribution improvement as well as the customer value proposition. I think we're seeing the benefit of it. I don't think we're where we want to be yet, but the trend is encouraging.

JOHN REUCASSEL: Great. Just a last question, Claude, why do you think -- it's surprising me consolidation hasn't happened in Canada. Can you explain to me why the consolidation has taken longer than -- the impatient markets want -- does it happen? Why is it so slow? Can you help us understand that?

CLAUDE DUSSAULT: Yes, I think the overall environment is such that if you look at the past two years, the capital position of many of the owners of Canadian companies have strengthened significantly. And in a way, a number of players are looking at deploying capital versus looking at repatriating some of the capital that would be required if there was expansion elsewhere. So we think that fundamentally, that tends to slow down.

I think what we have been saying before is that we expect that foreign companies as they develop into other segment of business or other parts of the world will want to support that growth to look at whether their Canadian operations fit well for the future. So the fact that there is not as much of a need for capital than there was three or four years ago for many of the parent companies as well as having the return being positive the way they are, I think there is on the seller side less urgency to do something than we might have seen at other periods of time.

But I think the whole issue on acquisition is being patient, being persistent and making sure that you find the right fit at the right valuation. So the fact that there hasn't been anything done so far this year is not a reflection of our lack of desire or activity to try to find opportunities. Those opportunities have to fit at both sides, and I think it hasn't happened yet.

Have to remind you that we have talked about 11 acquisitions since '88, but the pace of our acquisition has been on average every two or three years. So it's not something that we have never been in a position of doing multiple acquisition in the same year. So we are confident that it will happen, but the timing of it when you want to make sure that you do it at the proper valuation is hard to predict.

OPERATOR: Doug Young, TD Newcrest.

DOUG YOUNG, ANALYST, TD NEWCREST: I just want to start maybe with a few number questions. First of all, I guess the corporate and other -- and I know it's fairly small but it did -- on the revenue side, it did drop off significantly year-over-year and sequentially. And I guess I was expecting it to kind of trend more along the lines of last quarter. I am just wondering what happened there.

MARK TULLIS: You are looking in the MD&A in particular on page 19?

DOUG YOUNG: I believe that's the page. I don't have it in front of me.

MARK TULLIS: You are just looking at the quarter or are you looking at the year-to-date numbers?

DOUG YOUNG: Looking at the quarter.

MARK TULLIS: If you look at the quarter, again I think to look at this quarter and the comparison basis, you should add $5 million to the commission and advisory fees revenue for the quarter and add $5 million to the commission expense for the quarter. There was basically a reclass that went through. It didn't affect the total. You still come to $13 million income before tax. But the revenue and expense were both low by $5 million because of a reclass.

DOUG YOUNG: Even if I guess if I add back $5 million to the revenue, it was still down significantly. Is there -- is this just the brokerage operations that is flowing through here or is there other--?

MARK TULLIS: The commission and advisory fee represents our commissions that we've received from unaffiliated third parties. So there's two dynamics changing it from year to year. One is, as we've exited the mutual fund business, we get fewer fee income from the mutual fund companies.

The other is the extent to which we buy. We bought brokerages through the years. And as we pay ourselves commissions, that goes through on the expense line instead of the revenue line. So if there is a change in mix of the business where maybe they go sell a little bit more ING business and a little less of some other people's business, that would move the commissions from being a positive revenue to a negative expense. So it wouldn't affect the total, but it would affect where it comes through on the income statements.

DOUG YOUNG: Mark, can you give me the absolute impact from the Facility Association and the pools in this quarter?

MARK TULLIS: Yes. Let's see, do you want them in total or the Facility Association separate? What are you looking for? You looking for income effect or premium or--?

DOUG YOUNG: Underwriting income impact.

MARK TULLIS: Basically, I'll give you the Facility Association first. In the quarter -- and we look separately at current year and prior year and then we look in total. In total for the quarter, the effect was virtually zero. It was $300,000 of gain. On the current year in the quarter, there was a loss of $8.5 million. So basically on the prior-year claims, we made $8.8 million. That's on an income side.

The pools in total -- and this includes the Facility Association, so the numbers I read to you before would be included in this -- the current-year results are 0.5 negative. So other than the Facility Association, it was basically positive 8. And if you look at the prior-year results, 6.4, 6.5 positive. So there was a negative that offset the 8.8 from the Facility Association. That's the current quarter results only that I read to you.

DOUG YOUNG: That's fine. That's fine. Mark, in terms of the investment yields being down, any specific reason for that?

MARK TULLIS: Yes, there actually is. We had a one time event. Last year in the quarter, we had -- in the third quarter '05, we've received a special dividend -- you know in our DROP portfolio, we invest the rollover and get dividends and occasionally we get special dividends. We had a special dividend from one issuance of $4.5 million in Q3 '05, so it was kind of a one time deal.

We didn't have anything of that magnitude this quarter. If you adjust that out, it would have been 4.8 last time instead of the 5.1. So basically, we had this one special dividend that bumped our yield up in Q3 last year by 30 basis points.

DOUG YOUNG: So the yield that you are showing now is more indicative of what we should be really expecting?

MARK TULLIS: I think it's less -- last year the third quarter was -- I would consider a little higher than a normal run rate for the time. And if you look at the fourth-quarter one for last year, it kind of went down a little bit. And that's kind of why the decrease.

DOUG YOUNG: Maybe this is for Claude or for Charles. We're seeing in Ontario obviously the latest rate reductions were essentially zero. And we're seeing that you are growing your insured risk and direct written premiums on the personal auto side. Is this the turnaround in terms of we should start to see potentially some growth in these lines?

CHARLES BRINDAMOUR: Well, we are seeing growth in these lines as I mentioned in the earlier questions. And our level of comfort with the rates is as good as it's been for a long time. Therefore, we're comfortable growing and capitalizing on the customer-centric initiatives that we have put in place in the last 18 months as Claude referred to. I don't know, Claude, if you want to add anything there?

CLAUDE DUSSAULT: I think we have expressed that our goal is to grow at 3 percentage points more than the average market and that we can accomplish by growing our number of risks. So for us, it remains the target. And as we get industry results, we will be able to see how close we are to that achievement. But that's what we're pushing for.

DOUG YOUNG: What would -- I mean I don't know if you have -- what would be your market share in the personal auto market at this point and maybe if you can just stick with Ontario and Alberta. And if you don't have it, we can go offline; that's fine.

CLAUDE DUSSAULT: Yes, I think we will go offline. Overall auto market is higher than our market position overall -- slightly higher. And it is slightly lower in Ontario and higher in Alberta. But I think we would give you -- we wouldn't give you an exact percentage.

CHARLES BRINDAMOUR: Yes and the issue is that you don't have personal auto separated when it comes to industry data. So that's why it is difficult to give an answer.

OPERATOR: Mario Mendonca, Genuity Capital Markets.

MARIO MENDONCA, ANALYST, GENUITY CAPITAL MARKETS: Notwithstanding what is happening to the stock this morning, you didn't make any reference to deteriorating fundamentals or deteriorating claims environment. But last quarter, you referred to increasing severity in the personal auto. You made no reference to that this quarter. Should we take that to mean that the entire increase in the claims ratio in personal auto, excluding cats or development, really is a function of a lower premium?

CHARLES BRINDAMOUR: The bulk of it, yes. We refer to the MD&A under personal lines to severity in automobile. But it is not a material factor that has an impact on the deterioration this quarter.

MARIO MENDONCA: So the trend observed last quarter, actually you were careful. You didn't call it a trend. You said what we observed last quarter couldn't call it a trend simply because we didn't have enough data. How do you feel about that now?

CHARLES BRINDAMOUR: I feel the same at this point in time.

MARIO MENDONCA: Was severity similar this quarter to what it was last quarter?

CHARLES BRINDAMOUR: Slightly better this quarter.

MARIO MENDONCA: But still not sufficient to call it as a trend.

CHARLES BRINDAMOUR: No.

MARIO MENDONCA: More of a detailed question then -- let me stick with this for a moment. In prior quarters, you have given us a sense for what you thought the pricing reductions would do to net earned premium in personal auto. You've often given maybe one or two quarters ahead. Is there anything you can offer us in this respect?

CHARLES BRINDAMOUR: Sure. You are looking at personal automobile in particular?

MARIO MENDONCA: Yes.

CHARLES BRINDAMOUR: If we look at -- and you are looking at earned impact?

MARIO MENDONCA: Earned, yes. You've talked a little bit about what pricing in the past might do to earned.

CHARLES BRINDAMOUR: Right. If we look at the price changes that were put in the system if you wanted the last year, we expect that the whole year earned premium '06 in automobile will be impacted by about 5%. This is what have been put in the system if you wanted the last 12 months approximately.

And then, going forward, this is a matter of where frequency will be going in terms of giving a sense, our impression is that flat-to-low single-digit decreases is the sort of thing we will see prospectively. But the actual impact in '06 of rates that are in the system is about 5% on the earned and 4% on the written.

MARIO MENDONCA: When you say the impact on net earned premiums, is that on the presupposition that the number of insured risks is constant one quarter or one year versus the next? Or do you -- pardon me?

CHARLES BRINDAMOUR: Yes, this is just the element associated with rate levels. So if one is trying to understand what happens to the top line in general, then this is -- a few elements need to be taken into account. You need to take into account your expectation for unit growth. You need to take into account the rate number that I just referred to. You need to take into account the insured -- the increase in the insured value of the carpool that we insure, which is in the 3 to 4% range as well.

MARIO MENDONCA: Right. All of that plays in.

CHARLES BRINDAMOUR: That's right.

MARIO MENDONCA: Any comments you can make on the other segments that are similar to this? I understand if you can't simply because they are not regulated. But is there anything along the same lines you can offer?

CHARLES BRINDAMOUR: Yes, I guess as you are saying these and the other lines of business, it's not regulated nor public. But I can give you a sense of where rates have been and are going as well as insured value changes. And then you can deduce the units for yourself.

MARIO MENDONCA: Sure.

CHARLES BRINDAMOUR: So if we look for instance at personal property, the key influencing factors there would be, for instance, insured amount. You can expect mid-single-digit-type increases for insured amount, primarily driven by reconstruction costs. That's why the insured amounts are going up. And rates, you can expect single-digit rate increases there, in part driven by the impact of rain and flood activity that we've seen in the past.

If we look at commercial non-auto, what one can expect is insured amounts in the single digit -- low single-digit insured amount and rates flat-to-low single-digit decreases -- is the sort of things we're seeing and we expect to see in commercial lines in the near term.

MARIO MENDONCA: I suppose that leaves commercial auto.

CHARLES BRINDAMOUR: Pardon?

MARIO MENDONCA: I suppose that leaves commercial auto or was that last comment for--?

CHARLES BRINDAMOUR: Yes, that's right. That leaves commercial auto in the picture, and commercial auto is not too dissimilar from what we're seeing in personal auto. The difference in profile between commercial auto and personal auto would be on the units. This is where I would ask you to be careful there because the growth profile that we've had in personal auto has been stronger as it was pointed out earlier in the call than in commercial auto.

MARIO MENDONCA: So if you're giving us the amount that the -- if you give us a rate indication and the insured amount indication, really all we need to do then is slap on our estimate of what units are and we can make a pretty good guess here. Would those be the three parts? We combine those three parts. And clearly, we can be wrong on how we do it.

CHARLES BRINDAMOUR: Yes, there is one part that is tougher to predict, and that is relevant in commercial non-auto in my view and it's the mix. That is the profile of your book of business. So while in general, I've talked about the competitive environment in commercial lines and mentioned that we were growing faster in small accounts than in large accounts, this means that the profile of your book of business is shifting downward a little bit. And we referred to that in the past and that would be the missing element in the pieces that I have identified earlier.

CLAUDE DUSSAULT: There's probably another small one, which would be our provincial mix in automobile insurance where you have different regime by province. And depending on where the growth happens, there are some variations that would come from that.

As an example, as Charles mentioned, we are having a more competitive challenge in Quebec where average premium are lower because the bodily injury portion is covered by government, while we have some faster growth in other provinces. That would be a gradual, not necessarily major one, but it would be another factor.

MARIO MENDONCA: A detailed question here. The $27.2 million in cash, you said $19 million or so was in -- how much was that in personal insurance?

MARK TULLIS: Yes, I give you the --

CHARLES BRINDAMOUR: 19.

MARK TULLIS: -- the breakdown here.

CLAUDE DUSSAULT: $19 million.

MARIO MENDONCA: It was $19 million in personal --

MARK TULLIS: $19 million was personal property. Yes, there's actually a Q&A that lists this out that is attached to the press pack. It's $19 million personal property, $3.5 million personal auto, $4.6 million commercial other and $0.3 million commercial auto.

MARIO MENDONCA: Just in case I get those down wrong, it's at the end of the presentation. Is that right?

MARK TULLIS: Right. It's at the end of the investor presentation.

MARIO MENDONCA: Sorry I missed that.

OPERATOR: Brian Lim, Scotia Capital.

BRIAN LIM, ANALYST, SCOTIA CAPITAL: I was wondering if you're seeing any implications of a trend in reserve releasing.

CLAUDE DUSSAULT: Yes, let me comment on that specific item. Just to give you the broad perspective of the prior-year loss reserve. We've commented before that the long-term average has been in the 3.5% to 4% of our total reserve portfolio. So the outstanding reserve -- and this is the percentage of outstanding reserve -- that percentage in '05 was very strong -- was at 8.3%. And so far this year after three quarters is 4.2%.

So historically around 4%. And this year if you annualize the 4.2%, it would be 5.6%, so somewhat higher than historical but lower than last year.

One thing I would like to point out on that -- and it's on page 21 of the MD&A and there is a second paragraph from the bottom -- is that when we're looking at the development of reserves, currently there are two factors that are adjusting the reserve. One is the discounting of the reserve, which lowers the amount of the reserve. And the second element is a provision for adverse deviation, which is the potential volatility. There is in the formula that is being used by the actuaries an approach of measuring that risk.

The difference between the positive decrease that would come from provision for adverse deviation minus the negative from discounting does systematically generate, if everything is right, 2%. So there is in the system a 2% reduction or a prior-year positive development that is assumed in the assumption. And the remainder is a reflection of methodology and how over time your methodology produce exact number or positive or negative number.

The methodology that has been used by our actuaries remain consistent. So that is why we are saying that the 3.5% to 4% is an indication of how that methodology has performed in the past.

Now on this issue of reserve -- the other comment I would like to make is because it tends sometimes to be confused with the life insurance industry where you have very long duration on reserve, our average duration on reserve or on the loss reserve is just over two years. So basically what happened is that there is a provision that happens -- is made when the event occurs. And as we pay or as we reassess that provision every year, there is change in the level of those reserves.

So when you see positive development, it means that we have paid less ultimately than what we had as a provision initially. And we're not talking here about long duration; it's just over two years. So it's not change in assumption, change in methodology that produces those developments of reserve. It is how the reality developed versus how the assumptions were made.

We mentioned that last year was the more challenging exercise to predict when our actuaries put reserve for 2003 and 2004, especially in automobile insurance because of the reforms that were put in place by government. When those reforms were put in place, there were assumptions that were made on how they would improve or deteriorate in some case losses in the future.

But until those reforms are fully in place and the system is stabilized, it is more challenging when those things come into place to have an accurate view on that. And what we have said is that the positive development was reflective of the positive effect of those reforms.

So I think that has been creating the 2005 higher levels. So I wouldn't see a trend between '05 and '06. I would look at '05 more as a result of the uncertainty that was in '03 and '04 when we were establishing initial reserves.

OPERATOR: Stephen Boland, CIBC World Markets.

STEPHEN BOLAND, ANALYST, CIBC WORLD MARKETS: Just a quick question in terms of the -- what's the tone at the regulator -- on the regulator side in terms of pricing? We've seen moderate-to-stable declines coming out of the auto in terms of Ontario, obviously a little more challenging than Alberta. Do you see that trend continuing?

CLAUDE DUSSAULT: Well, I think it varies by province. I would say that the province that is probably the most active right now is New Brunswick, where there is a -- as a result of the new government, there is a new review of rates within the province. I think that is probably the one that generates the most activity right now.

For us, it's less than 1% of our overall portfolio. But we think that the tone there is important because we need to make sure that the right attitude is in place when we look at the long-term.

Alberta basically has been following the path that they have put in place. And basically the loss or the premium decrease that took place this fall was a reflection of the improvement in the overall experience of the portfolio.

So had it not been for the rating board, we would have been filing rates that would've reflected that experience. So we don't think that it has in itself changed our position. If you ask me, I would say this is probably not the best way for it to have that approach of overall industry review of rates. But I think in practice, it hasn't changed the final result that we would have likely had otherwise.

Longer-term, we are doing a lot of effort to try to bring a more open market across the country and make sure that we convince regulators that they will achieve better solution for the consumer by having a less stringent regulation. And the competition will do the work as it does in other lines of business.

So, I would say if you were putting it on the scale, I think it's -- certainly, the heat is much lower on the scale than it was two years ago. But my personal view is that it should be much lower than it is, but that's the environment in which we've been working for the past number of years.

STEPHEN BOLAND: Just a quick follow-up in terms -- do you expect any changes in your reinsurance program coming up to year-end in terms of retention limits or just overall pricing that you are seeing in the market?

CLAUDE DUSSAULT: Pricing, we will have a better sense of it as we move closer to the renewal. The sense we're getting at this stage is that we're not expecting a significant change this year. And in terms of general program, we don't expect to make significant changes either.

STEPHEN BOLAND: Cause it's great.

OPERATOR: (Operator Instructions). Mario Mendonca, Genuity Capital Markets.

MARIO MENDONCA: I don't think the Company has ever really talked about a dividend payout target or anything like that. Can you offer anything today?

CLAUDE DUSSAULT: No, not really. We have not established a policy in terms of percentage of profit. Our goal is to make sure that we are providing an attractive dividend and continue to have a growing dividend in the future. And last year, we had a significant increase, which reflected our confidence in where our earnings were heading. But we have not established a specific percentage policy towards that.

MARIO MENDONCA: Now you said you wanted to offer something attractive and growing. Are there any other criteria that would help define attractive? Is there maybe something you can compare to either the life insurers, the banks on a yield basis perhaps just to put some texture around the word "attractive."

CLAUDE DUSSAULT: Yes, I know what you're asking. But we haven't done it in any specific terms.

MARIO MENDONCA: Perhaps maybe a broad question. The P&C industry is obviously very different from the life industry, not only in terms of the longevity of the business but also the volatility. I think we can all appreciate that. Does that say anything about how high the payout ratio can be for a P&C company relative to a life insurance company or a bank for that matter? Does the nature of the business say anything about relative payout ratios in your mind?

CLAUDE DUSSAULT: I think you are right. The volatility certainly creates a different dynamic. And there has been some if you look at some of experiences that have been happening in the industry. Progressive has established a process where they would pay a percentage of their earnings on an annual basis and will vary from year-to-year. We haven't gone that route.

But clearly, this is not as you can see in your expectation a straight line trend in this industry. I think as an organization, we have put a lot of initiatives to create a gap in ROE that will facilitate for us or help us to minimize fluctuation over time. But fundamentally, the industry has been having a varying ROE that is more significant than the life insurance industry.

MARIO MENDONCA: Would you agree with the notion that because of the greater volatility if an insurance company -- P&C insurance company didn't want to follow the Progressive route really didn't want the dividend to move up and down that way that it would necessarily have to be lower than your peers in the life insurance industry -- the payout ratio that is? Is that a reasonable conclusion from an outsider's perspective?

CLAUDE DUSSAULT: I think it would depend where you are in the cycle. It could be higher or lower depending on where you are in the cycle.

MARIO MENDONCA: But if we're talking very long-term and cycles sort of average themselves out and the P&C insurance company in question didn't want that kind of volatility in their payout ratio or their dividend period, the cycle doesn't really matter if you're thinking about this from a very long-term perspective.

CLAUDE DUSSAULT: Yes, I think you are right from that perspective. Other things would affect it obviously, depending on how much weight you put on growth through acquisition and use of capital. I think those would influence also the percentage and how much that's part of the strategy. And in our case, it is part of the strategy. But, purely theoretically, if you look on the long-term, then you're right. It would -- to maintain a level that would always be below a certain percentage of your net earnings in a more volatile environment would tend to have a lower yield. Yes.

MARIO MENDONCA: That was helpful. I guess that we will probably just have to wait and see to -- over the next few quarters see what your real call is on this. I appreciate your time.

OPERATOR: Tom Kennedy, Sprott Securities.

TOM KENNEDY, ANALYST, SPROTT SECURITIES: Congratulations on another great quarter. Just on the detail side I guess, what was your exposure to, if any, to the income trust sector in terms of your investment portfolio?

MARK TULLIS: Right, we -- the income trusts are not a significant part of our portfolio, measuring only about 4% of our invested assets. And as you know, during the past few weeks, some asset classes have gone up as trusts have declined. I think if you look at total in our portfolio, there really hasn't been a significant effect on the investment portfolio.

TOM KENNEDY: I guess to take a step back for a second, so on the acquisition side, would you describe this -- maybe this is for Claude -- would you describe this as more of a -- as a more attractive or a less attractive environment than in recent past quarters?

CLAUDE DUSSAULT: It's hard to describe in those terms. I think it's -- for us, the valuation, whether we are in a profitable, less profitable, down or up in the cycle, remain pretty much the same because we are looking at reflecting the positive short-term if it is above historical and trying to reflect the longer-term pretty much the same way depending on where we are in the cycle.

I think it affects the psychology of the seller. I think in that sense in a deteriorating result environment, there might be a different attitude. But as I said earlier, it's probably more driven by the need for capital unless the return becomes significantly below the rest of the performance of the organization or below cost of capital. So when it is higher than cost of capital and that there is no opportunity to redeploy, I think it tends to not generate the activity from the seller's point of view.

TOM KENNEDY: I guess to phrase it differently, would it be safe to say you are seeing I guess gradually fewer opportunities or fewer sellers? Would that be a safe assessment?

CLAUDE DUSSAULT: Well, I think depending on the different period that you look at and I think if I compare with the early 2001 when there was a real crunch on capital, obviously there were more opportunities in the market than there are now. But in the short-term, I would say it's -- it has been pretty stable. And as you can see, there hasn't been any specific thing that have happened in the last year.

TOM KENNEDY: And then I guess along those lines, is there a particular point at which you would start pursuing other avenues? For example, ramping up your dividend or starting to buy back stock?

CLAUDE DUSSAULT: That's part of what we are reviewing as we are looking at those opportunities. I think for us, we need -- we would not come to a position where we would say instead of, but we might get to a position where we have more than what is required to achieve the acquisition that we think are possible in the short-term. And then, we would review those what we do with the excess capital.

TOM KENNEDY: That's very helpful.

OPERATOR: Jamie Keating, RBC Capital Markets.

JAMIE KEATING: I got the sense this Belair jewel is starting to get some real traction. I'm just wondering perhaps along the lines of the earlier discussion you had with Mario on sources of growth, could you just help us out with some granularity as to what percentage of your growth in insureds and/or in premiums is being driven by the Belair offering?

CHARLES BRINDAMOUR: I think if you look at the stat supplement, we break down direct versus broker. And if you look in the third quarter, the premium growth in Belair was around 15 and year-to-date 11.5.

JAMIE KEATING: Thank you, Charles. I didn't catch that; thank you for that. Just in terms of in that channel or perhaps in any channels on auto, could you just describe what your hit ratio is on your new products here on the new insureds? Or maybe actually on new and existing insureds, how many are you offering or how many are taking up on the new deductible or on the Responsible Driver offerings, which seem to be going well?

CLAUDE DUSSAULT: Yes, I think in terms of hit ratio, the metrics are very difficult to compare because what comes through a quote through the Internet is very different than what comes through a call center call or what is done through the broker channel where we're being quoted with other insurers. So it's -- even though we follow those metrics, there is a lot of caveat around how those metrics are performing.

JAMIE KEATING: Maybe what I mean is in aggregate how much of your business that you are renewing and/or writing new business include one or both of those offers?

CHARLES BRINDAMOUR: The offers you're talking about are the Responsible Driver Guarantee and the Zero Deductible, is that--?

JAMIE KEATING: That's right, Charles.

CHARLES BRINDAMOUR: Yes, the Zero Deductible is a far more recent offer to have adequate data there. When we look at the Responsible Driver Guarantee and we look in our direct operation, the new business penetration is in the 35% - 40% range about.

JAMIE KEATING: Very popular then.

CLAUDE DUSSAULT: Yes.

CHARLES BRINDAMOUR: Quite popular, yes.

JAMIE KEATING: And do you get the sense the $0 deductible is going to be potentially that -- have that good penetration?

CHARLES BRINDAMOUR: Yes, the early signs at least on the direct side of the operation -- and this is where you always get a faster reaction in a direct environment. The early sign is that it is indeed popular in similar ranges in the provinces where it is offered.

CLAUDE DUSSAULT: The Responsible Driver Guarantee has been -- has had a very strong pickup within the broker community as well. So it has -- on the renewal, I think it is about 50% now.

JAMIE KEATING: That's very helpful. Just in terms of getting the word out, have you done most of your marketing or is there more marketing to do? What's the trend on that side? Can you do more and even accelerate things? You're very active out in the market on the marketing side.

CLAUDE DUSSAULT: We don't have a plan to accelerate. But we believe that we need to keep a good pace.

JAMIE KEATING: One other more technical question on the 3.5% to 4% range on your development favorable prior year. What time frame are your numbers developed from? I'm wondering if we might -- maybe we can see them in the numbers. I didn't think I had enough detail to get back far enough to get that. But what time frame is that roughly?

CLAUDE DUSSAULT: This percentage is looking at all prior years combined developments. So it goes all the way back to all of our portfolio, and it compares year-over-year how much positive from the prior years versus the total reserve base. So you have -- the last column is 90-some in prior so that would include all those years.

JAMIE KEATING: One last question -- reinsurance. I guess Steve asked about changes in pricing. Is there any change in capacity in your markets do you know, coming on-stream or up/down or sideways on capacity?

CLAUDE DUSSAULT: Yes, we're pretty comfortable that we will be able to retain the same level of capacity that we have now, which is above what is required for the most extreme one every 500 years exposure on that.

JAMIE KEATING: I'm sort of thinking in terms of competition as well. I would regard it if there was too much capacity that might even disadvantage you because you are one of the best capitalized. Just want to get a sense as to whether everyone is going to have availability if you had a window on that?

CHARLES BRINDAMOUR: Our early indications when it comes to industry-wide reinsurance in terms of capacity in the Canadian marketplace is that capacity is pretty good right now.

CLAUDE DUSSAULT: Beyond reinsurance, I think if you look at the overall capital position of the market, it's up.

CHARLES BRINDAMOUR: Yes, but specifically in reinsurance as well, the early signs there is that there is capacity and appetite, quite a bit of appetite for renewals.

JAMIE KEATING: Straight to one last quick quickie. The banks often talk about their unrealized gains post quarter if there's been a big event. So since the income trust thing happened post quarter, I just want to get a sense if you could give us some reassurance that your unrealized gains stayed intact through that period. It sounds like they did.

MARK TULLIS: Yes, I think I would report what I said previously, which is there's not a -- when you take everything into account, including movement in other asset classes and some of the run-up prior to the change in the tax in total for the quarter, there's not been a significant effect.

JAMIE KEATING: Very helpful, Mark.

OPERATOR: Ladies and gentlemen, this does conclude the question-and-answer portion of today's conference call. I would like to turn the presentation back over to Mr. Lynch for any closing remarks.

BRIAN LYNCH: I simply want to say thank you all for joining us and remind you that our next earnings call will take place on February 15. And that concludes today's call. Thank you.

OPERATOR: Ladies and gentlemen, thank you for your participation in today's conference call. This does conclude your presentation, and you may now disconnect. Have a great day.

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