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					Assemblée annuelle 2007
  2007 Annual Meeting




                             Canadian             L’Institut
                              Institute           canadien
                                     of           des
                             Actuaries            actuaires
                          2007 Annual Meeting ● Assemblée annuelle 2007
                                           Vancouver
                            Desjardins
                            Securities

                          Lifeco valuations
Assemblée annuelle 2007

                          Focus on value added and validity of assumptions
  2007 Annual Meeting




                                                        Michael Goldberg, CFA
                                                           Financial Services
                                                            (416) 867-3758
                                                michael.goldberg@vmd.desjardins.com



                          The Desjardins Takeaway
                          • Traditional valuation tools for lifecos do not reflect value added well

                          • We find that valuations range from yield support/dividend growth to NAV-
                            type value

                          • Two key drivers to watch are value of new business and experience
                            gains/losses

                          • Rising VNB is main basis for our targets and 11–19% forecast capital
       2
                            appreciation
                                       Desjardins
                                       Securities

                          Lifecos—traditional valuations
Assemblée annuelle 2007
  2007 Annual Meeting


                          Comparative valuation: North American Lifecos
                                                                                                                          Actual        Desjardins EPS          Consensus EPS       Earnings growth                        P/E(x)
                                                                                                                          EPS ($)       ($)                     ($)


                                                                                     Shares O/S Mkt cap                                                                             07E/06A                                                    Book                      Div yld
                          Canadian lifecos            Price ($)      52-wk range ($) (m)        ($m)          Div/sh ($) 2006A          2007E       2008E       2007E     2008E     (%)          08E/07A (%)   2006A      2007E      2008E     value/sh (C$) P/B(x)      (%)
                          Great West Lifeco                  34.48       27.5 – 37.7       891       30,761        1.02          2.09       2.40       2.70        2.42      2.69        14.9%         12.5%      16.5x      14.4x     12.8x          11.31       3.0x       2.96%
                          Industrial Alliance                39.56     29.52 – 39.76        80        3,169        0.72          2.74       2.95       3.30        2.97      3.29         7.7%         11.9%      14.4x      13.4x     12.0x          19.66       2.0x       1.82%
                          Manulife                           39.44     33.83 – 41.49      1547       60,602        0.88          2.51       2.80       3.20        2.75      3.11        11.6%         14.3%      15.7x      14.1x     12.3x          17.15       2.3x       2.23%
                          Sun Life                           49.94     41.79 – 54.14       572       28,497        1.28          3.65       3.95       4.50        3.91      4.36         8.2%         13.9%      13.7x      12.6x     11.1x          28.89       1.7x       2.56%
                          Weigthed Average: Cdn lifecos                                                                                                                                  10.7%         14.0%     15.2x       13.7x     12.0x                      2.2x       2.37%
                          US comparables
                          Aflac                              52.63       41.63 – 54        493       25,744        0.82          2.85           -           -      3.29      3.76        15.4%         14.3%      18.5x      16.0x     14.0x          17.37       3.0x       1.56%
                          Lincoln National                   71.05     53.94 – 74.72       276       19,238        1.58          5.14           -           -      5.48      6.17         6.6%         12.6%      13.8x      13.0x     11.5x          44.45       1.6x       2.22%
                          Metlife                            64.98     48.66 – 69.35       758       48,190        0.59          5.21           -           -      5.44      5.92         4.5%          8.7%      12.5x      11.9x     11.0x          43.14       1.5x       0.91%
                          Principal Financial Group          58.34     52.44 – 64.92       268       15,623        0.80          3.53           -           -      3.85      4.36         9.2%         13.2%      16.5x      15.1x     13.4x          30.32       1.9x       1.37%
                          Prudential Financial              100.35 71.28 – 103.27          471       46,663        0.95          6.15           -           -      7.17      8.08        16.6%         12.7%      16.3x      14.0x     12.4x          50.55       2.0x       0.95%
                          Torchmark                          68.16     57.95 – 70.54        98        6,509        0.52          4.99           -           -      5.39      5.85         8.0%          8.6%      13.7x      12.7x     11.7x          35.48       1.9x       0.76%
                          UnumProvident                      26.22      16.15 – 28.2       343        8,988        0.30          1.82           -           -      1.93      2.21         6.2%         14.2%      14.4x      13.6x     11.9x          21.52       1.2x       1.14%
                          Weighted Average: US lifecos                                                                                                                                   10.2%         11.7%     15.0x       13.6x     12.2x                      1.9x       1.22%




       3
                               Desjardins
                               Securities

                          Valuation: Lifecos vs banks
Assemblée annuelle 2007
  2007 Annual Meeting


                          Banks and Lifecos': Comparative Valuation
                                                               Banks    Lifecos'
                          2007 EPS growth                           11%      11%
                          2008 EPS growth                            8%      14%


                          PE on 2007 EPS                         13.2x     13.6x
                          PE on 2008 EPS                         12.1x     12.0x

                          PB                                      2.8x      2.2x

                          Yield                                  3.35%    2.38%

                          Dividend Payout 2007                    44%       32%
                          Dividend Payout 2008                    41%       28%

                          •Similar P/Es for faster earnings growth in 2008
                          •Lower price/book—lower ROEs
       4
                          •Lower yield, but also lower payouts
                            Desjardins
                            Securities

                          Problems with traditional valuations: P/E
Assemblée annuelle 2007
  2007 Annual Meeting



                           • Earnings do not reflect value added because of long-term
                             nature of lifeco products
                           • Earnings mainly reflect income emerging from ‘in-force’
                             business—mainly release of PAD—based on pricing
                             assumptions
                           • Patterns of earnings emergence from different types of
                             business can vary significantly
                           • Value added from new business is deferred
                           • Experience gains (losses) validate (or not) assumptions
                           • Persisting gains or losses can trigger assumption
                             changes that have a magnified impact on earnings


       5
                            Desjardins
                            Securities

                          Problems with traditional valuations: P/B
Assemblée annuelle 2007
  2007 Annual Meeting



                          • Not apples to apples
                          • PAD as unearned income—the gray zone between
                            liability and equity
                          • PAR surplus not included even though shareholders
                            effectively have free use of these funds in perpetuity
                          • Differences between CGAAP and US GAAP




       6
                            Desjardins
                            Securities

                          These differences reduce the usefulness of
Assemblée annuelle 2007

                          earnings and book value…
  2007 Annual Meeting




                           …what does that leave us with?


                           1. Dividend yield

                           2. Net asset value




       7
                            Desjardins
                            Securities

                          1. Dividend yield
Assemblée annuelle 2007
  2007 Annual Meeting



                          • As with banks, dividend growth signals companies’
                            confidence in sustainability of earning power
                          • Growth + Yield = Total Return
                          • Market rewards faster growth with lower relative yield
                            and penalizes slower growth with higher relative yield




       8
                                  Desjardins
                                  Securities

                          Year-over-year dividend growth
Assemblée annuelle 2007
  2007 Annual Meeting


                                               Lifeco Annualized Dividends

                          $1.40


                          $1.20


                          $1.00


                          $0.80
                                                                                                    •All but GWO started dividends at
                          $0.60
                                                                                                    zero
                          $0.40


                          $0.20


                          $0.00
                             01




                                        02




                                               03




                                                       04




                                                                   05




                                                                               06




                                                                                    07




                                                                                         08
                                                       GWO   IAG   MFC   SLF                                 YEAR OVER YEAR DIVIDEND GROWTH

                                                                                         60%                                                        60%
                          •GWO ~ 20% growth for more than
                          10 years; has slowed to mid-teens                              50%                                                        50%


                          -Most recent growth: GWO 14%, IAG                              40%                                                        40%

                          28%, MFC 26%, SLF 16%                                          30%                                                        30%
                          -Lifecos 21%, banks 18%
                                                                                         20%                                                        20%



                          Dividend growth is where you really                            10%                                                        10%


                          see the impact of compounding                                   0%                                                        0%
                                                                                               01       02      03      04         05     06   07

                                                                                                                 GWO   MFC   SLF    IAG
       9
                                Desjardins
                                Securities

                          Dividend payout on adjusted TTMEPS
                                     Dividend Payout on Adjusted TTM
                                                                     EPS
Assemblée annuelle 2007
  2007 Annual Meeting


                          60%


                          50%


                          40%


                          30%


                          20%


                          10%


                          0%
                           00




                                         01




                                              02




                                                     03




                                                                04




                                                                            05




                                                                                       06




                                                                                            07




                                                                                                   08
                                                          GWO   IAG   MFC        SLF


                          • GWO has risen from 40% to 45–50%
                          • IAG, MFC, SLF payouts trending higher
                          • IAG payout still the lowest–payout objective 20–30%, reaching 28% by
    10                    mid-2008
                               Desjardins
                               Securities

                                          PE on EPS
                          P/E on adjusted TTMAdjusted TTM EPS
Assemblée annuelle 2007
  2007 Annual Meeting


                          24

                          22

                          20

                          18

                          16

                          14

                          12

                          10

                          8
                          00




                                       01




                                               02




                                                         03




                                                                    04




                                                                                  05




                                                                                             06




                                                                                                  07




                                                                                                       08
                                                           IAG    MFC       SLF        GWO

                          • P/Es fairly uniform since 2003
                          • With higher ROEs, GWO and MFC sell at
                          premium P/Es
    11
                          • Difficulty in justifying P/E-based valuations
                               Desjardins
                               Securities

                          Lifeco relative yields
Assemblée annuelle 2007
  2007 Annual Meeting


                                                       INTEREST EQUIVALENT DIVIDEND YIELD
                                                       AS % OF LONG CORPORATE BOND YIELD
                             100%                                                                                  100%

                              90%                                                                                  90%

                              80%                                                                                  80%

                              70%                                                                                  70%

                              60%                                                                                  60%
                              50%                                                                                  50%
                              40%                                                                                  40%
                              30%                                                                                  30%

                              20%                                                                                  20%
                              10%                                                                                  10%

                               0%                                                                                  0%
                                    99      00   01       02        03         04         05        06   07   08
                                                      monthly to Ma y 2007 la st da ta June 15, 2007

                                                              GWO        IAG      MFC       SLF



                          • Like banks, lifeco relative yields affected by expected dividend growth and flow
                          of funds
                          • Faster dividend growth rewarded with low relative yield; slower dividend growth
                          punished with higher relative yield
    12                    • GWO highest because of high payout; IAG lowest because of low payout
                                   Desjardins
                                   Securities

                          Capital and profitability
Assemblée annuelle 2007
  2007 Annual Meeting


                            •Capital strength also affects dividend growth potential
                            •SLF/MFC best capitalized, GWO not as well—even before Putnam
                            •1Q07 returns on adjusted surplus in a narrow range
                            •Returns do not reflect differing patterns of earnings emergence

                          Insurance companies                                                         As at:        20-Jun-07
                          RoE calculations

                                                                          (All amounts in Cdn$ million)
                          Ticker     Latest Qtr   Adjusted    Bal Sheet    Surplus    Adj Surplus         Net income attributable to common shares    RoE     RoAS
                                    S/H equity    Common       Assets      as % of       as % of            LFY      Last qtr     Last qtr   LTM
                                    (Common)       Equity                  Assets         Assets                      Q1 07        Q1 06
                          GWO          10,092.0    12,259.3   121,439.0          8.3%        10.1%         1,875.0      514.0        446.0  1,943.0   20.5%      16.1%
                          IAG           1,574.5     1,604.6    14,623.0         10.8%        11.0%           223.0        48.2        42.4    228.8   15.8%      15.7%
                          MFC          26,396.0    26,632.7   191,293.0         13.8%        13.9%         3,955.0      978.0        945.0  3,988.0   16.6%      14.9%
                          SLF          16,505.0    16,769.7   122,274.0         13.5%        13.7%         2,089.0      491.0        458.0  2,122.0   13.8%      13.4%




                          Key deficiency of earnings—a metric that complies with accounting rules
                          but does not necessarily reflect value added or subtracted



    13
                             Desjardins
                             Securities

                          EmV: Too many assumptions used?
Assemblée annuelle 2007
  2007 Annual Meeting


                          Manulife: EmV Reconciliation to Financial Statements
                                                                      2006      2005
                          Shareholders Equity (B/S)                  25018     23286
                          Add Fair Value Adjustments                  1431       776
                          Less Goodwill and post-tax intangibles      8571      8633
                          Net Shareholders Equity                    17878     15429

                          Add Pre-tax PAD                            30712    26533
                          Add Additional policy margins not in PAD    2314     3719
                          Less tax                                    9653     9187
                          Less cost of discount rate adjustment
                          from valuation to cost of capital           4878     4252
                          Less Cost of locked-in capital              4002     3227
                          Value of In-force business                 14493    13586

                          EmV                                        32371    29015
                          • Lifecos’ earnings include even more assumption
                          • One assumption taken away by EmV and VNB approach: the timing of
    14                    earnings emergence and recognition
                              Desjardins
                              Securities

                          1. Dividend yield
Assemblée annuelle 2007
  2007 Annual Meeting



                          2. NAV – embedded value
                          • For NAV, think of lifecos as analogous to exploration/production companies


                           OIL AND GAS                         LIFE INSURANCE
                           Reserves                            In-force business
                           NAV                                 PVFP of in-force business (EmV)
                           Exploration                         Sales
                           New reserves added                  PVFP of new business (VNB)
                           Geologist                           Actuary

                           Valuation:                          Valuation:
                           Premium to NAV based                Premium to EmV based
                           on exploration track record         on ability to generate profitable sales

    15
                                   Desjardins
                                   Securities

                          EmV per share                        EmV per Share
Assemblée annuelle 2007
                          $50.00
  2007 Annual Meeting



                          $45.00




                          $40.00




                          $35.00




                          $30.00




                          $25.00




                          $20.00




                          $15.00
                               00




                                                01




                                                     02




                                                          03




                                                                      04




                                                                               05




                                                                                    06




                                                                                              07
                            • GWO won’t play                   IAG  MFC  SLF

                            • MFC growth reduced by JHF dilution and forex, offset by stock
                            issued
    16                      • SLF growth reduced by CLI dilution and forex
                            • IAG: strong growth but different assumptions
                                    Desjardins
                                    Securities

                               VNB per share, annualized
Assemblée annuelle 2007
                                                       Annualized VNB per Share
  2007 Annual Meeting


                          $3.00




                          $2.50




                          $2.00




                          $1.50




                          $1.00




                          $0.50




                          $-
                               00




                                            01




                                                 02




                                                        03




                                                                     04




                                                                                  05




                                                                                       06




                                                                                            07
                                                               IAG        MFC   SLF

                               • Very significant measure of value added
                               • When companies acquire infrastructure, EmV may be diluted but payoff
                               should be stronger future VNB growth, eg MFC/JHF
    17                         • IAG and MFC provide quarterly data
                                  Desjardins
                                  Securities

                          VNB multiples over EmV
                                                         VNB multiple over EmV
Assemblée annuelle 2007
                          25.0
  2007 Annual Meeting



                          20.0




                          15.0




                          10.0




                           5.0




                           0.0




                           -5.0




                          -10.0
                             00




                                          01




                                               02




                                                        03




                                                                    04




                                                                                 05




                                                                                      06




                                                                                             07
                                                              IAG        MFC   SLF

                            • A function of ‘deal’ activity in the industry, thus increase from
                            2002
                            • How lifecos look at valuation for M&A activity
    18                      • Analogous to oil & gas premium to NAV
                            • IAG lower because of different (less conservative) assumptions
                              Desjardins
                              Securities

                          Desjardins Securities target prices and ratings
Assemblée annuelle 2007
  2007 Annual Meeting




                          Lifecos‘ Target Prices and Ratings
                          Ticker        Target priceBasis for target   Upside potential   Rating
                          GWO           39.25       15% dividend growth14%                Buy Average Risk
                          IAG           43.75       EmV+3xVNB          11%                Buy Average Risk
                          MFC           47.00       EmV+12.5XVNB       19%                Top Pick Average Risk
                          SLF           58.50       EmV+11.5XVNB       17%                Buy Average Risk




    19
                          Desjardins
                          Securities
                                                                                                                       Research
Assemblée annuelle 2007
                            Stock Rating System
  2007 Annual Meeting


                            Top Pick                                   Buy                              Hold                         Sell                          Not Rated
                            Desjardins’ best investment ideas—         Stocks that are expected to      Stocks that are expected to Stocks that are expected to    Stock is being covered exclusively
                            stocks that offer the best risk/reward ratio                                outperform their respective peer                           perform in line with their
                                underperform their respective           on an informational basis
                            and that are expected to significantly     group* over a 12-month period    respective peer group* over peer group* over a 12-month
                            outperform their respective peer                                            a 12-month period           period
                            group* over a 12-month period
                            Risk Qualifiers
                            Average Risk                                               Above-average Risk                                          Speculative
                            Risk represented by the stock is in line with its peer     Risk represented by the stock is greater than that of its   High degree of risk represented by the stock,
                            marked
                            group* in terms of volatility, liquidity and earnings      peer group* in terms of volatility, liquidity and earnings  by an exceptionally low level of predictability
                            predictability                                             predictability
                            * Peer group refers to all of the companies that an analyst has under coverage and does not necessarily correspond to what would typically be considered an industry
                            group. Where an         analyst’s coverage universe is such that ‘relative’ performance against a ‘peer group’ is not meaningful, the analyst will benchmark the rating
                            against the most appropriate market index.
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