February 20, 2008 / 12:22 PM / in 10 years

ING Canada sees no strategic shift; profit dips

TORONTO (Reuters) - Dutch insurer ING Groep ING.AS, which recently sold its Mexican insurance unit, has a profitable stake in insurance subsidiary ING Canada IIC.TO and investors should not assume the parent company wants to sell, ING Canada President Charles Brindamour said on Wednesday.

In mid-February, ING Groep announced the sale of its Seguros ING unit in Mexico in order to focus on wealth management and asset management in the Americas.

That prompted analysts to question whether similar plans were in the works for ING Canada, which is the country’s biggest property and casualty insurer with an 11 percent share of the market.

“The Group has said for a while that P&C insurance is not a core business for them, however ING Canada is a great investment and a profitable investment,” Brindamour said in an interview after ING Canada released quarterly results.

When the parent company offered a portion of its Canadian unit to public investors in late 2004, it allowed them to sell part of their ownership while giving ING Canada the ability to grow “without constraints,” Brindamour said.

That has not changed, he added.

“If we look 12, 18, 24 (or) 36 months ahead, we’re not going to speculate, but at this point in time there’s no change in the Group’s position,” Brindamour added.

On the conference call, he described the Mexican transaction as “a repositioning in Latin America” which carried no specific implications for Canada.

ING Canada has repeatedly said it wants to keep buying assets in the fragmented domestic market for auto, property and commercial insurance.

Acquisitions remain an “important pillar” of ING Canada’s strategy, Brindamour said, and the deal-making outlook is improving.

“If I look ahead, compared to what we’ve seen in the last three years, the consolidation opportunities and the environment, in my view, will be more conducive,” Brindamour told Reuters.

That’s because return on equity in the P&C industry is falling back toward its historical return of about 10 percent, while the cost of capital is creeping up, he noted.

Earlier on Wednesday, ING Canada posted a 12 percent drop in fourth-quarter profit.

It also said it planned to boost its quarterly dividend by almost 15 percent, and would buy back shares. Parent ING Groep plans to participate in the normal course issuer bid to keep its equity stake at 70 percent.

ING Canada said it earned C$95.8 million, or 77 Canadian cents a share, down from C$109.4 million, or 82 Canadian cents a share, in the 2006 period.

It intends to buy back 5 percent of its outstanding shares over the next year, unless acquisition opportunities or “strategic options” pop up, Chief Financial Officer Mark Tullis said on the conference call. It has about C$1.5 billion in excess capital and debt capacity.

ING Canada blamed lower underwriting income and lower gains on invested assets for its decline in quarterly profits.

Return on equity, a key measure of profitability, dropped to 15.4 percent in the fourth quarter, compared with 20.8 percent a year earlier.

The company sells insurance through brokers in its ING Insurance and Grey Power units, and through belairdirect.

Its shares were up 1.6 percent at C$36.85 early on Wednesday afternoon on the Toronto Stock Exchange.

($1=$1.02 Canadian)

Additional reporting by Scott Anderson; Editing by Rob Wilson

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