2011 ANNUAL REPORT

COMMITTEDTHE RIGHT PLACE TO GROWTH 2011 Annual Report SSQ Financial Group

Summary

01 2011 Financial highlights 02 new communications platform 04 message from the Chairman of the Board 10 message from the Chief Executive Officer 24 2011 Social responsibility Report 24 Committed to solidarity 28 A responsible company 39 excerpt from the consolidated financial statements As at December 31, 2011, and 2010 40 mAnagement Report 42 Consolidated statements of income 43 Consolidated statements of comprehensive income 44 Consolidated statements of financial position 45 Consolidated statements of changes in equity 46 Consolidated Statements of Cash Flows 47 Excerpt from the notes to the Consolidated Financial Statements

75 Organizational Structure 76 Boards of Directors, senior Managements and Vice-Presidencies ADdresses Contact information

2 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 2011 Financial Highlights (in millions of dollars)

2011 2010 variation $ $ % Consolidated data

Premiums and premium equivalents 2,543.1 2,359.6 7.8 Assets under management and administration 8,006.1 6,939.6 15.4 Shareholders’ equity 334.1 307.3 8.7 Net income 33.8 41.3 -18.2 Number of employees 1,627 1,632 –

SSQ, Life Insurance Company Inc.

Premiums and premium equivalents - Life and health Insurance 1,297.8 1,233.6 5.2 Premiums and premium equivalents - Investment and retirement 1,026.9 946.0 8.6 Assets under management - Segregated funds 3,165.9 2,623.5 20.7

SSQ General Insurance Company Inc.

Written premiums 218.5 180.1 21.3 Number of insureds 262,002 181,995 44.0 Net combined ratio 94.3 89.1 5.8

SSQ Realty Inc.

Net income - SSQ properties 8.5 8.9 -4.5 Fair market value - SSQ properties 174.2 150.8 15.5

— — — Consote lida d premiums Consote lida d assets under SHAREHOLDERS’ equity and premium equivalents management and administration (in millions of dollars) (in millions of dollars) (in millions of dollars)

* Based on Canadian generally accepted accounting principles (GAAP). SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 01 New communications platform

On February 13, 2011, SSQ Financial The platform is the starting point for Maximizing the communication Group introduced its new corporate the integration of SSQ’s corporate synergy within every company entity communications platform. SSQ General communications and marketing has increased brand recognition. By Insurance, its subsidiary, unveiled the strategies which will: demonstrating flexibility with colours first campaign based on the new and graphics, which can be easily creative platform. Under the slogan • strengthen the corporate brand tailored to the multiple communication “The right place for your auto needs of SSQ and its business lines, this insurance”, SSQauto launched three TV • drive the development of new new communications platform proves spots, various direct marketing and products and services that SSQ Financial Group is a successful, on-line pieces on a newly revamped • facilitate new acquisitions as an cutting-edge financial institution that Web site SSQauto.com. Subsequently, anchor and a benchmark. knows where its values lie: every business line has followed We thrive on mutual trust. SSQauto’s lead, inspired by the Moreover, a brand with a strong common desire to create effective identity attracts top-notch resources and integrated communications. and revitalizes partner relationships, inspiring confidence and determination.

2 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT STRENGTHEN the corporate brand DRIVE the development of new products and services F Acilitate new acquisitions as an anchor and a benchmark

SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 3 message du président

message FROM THE CHAIRMAN OF THE BOARD

— Pierre Genest Sound governance: CHAIRMAN OF THE BOARD the cornerstone of our performance

2011 was a pivotal year in the product and service offering and history of SSQ Financial Group to boost our national standing. and was marked by a number of In other words, it has reaffirmed important events. Some of the SSQ Financial Group’s place more noteworthy developments among the leading institutions included the acquisition of AXA in Canada’s financial sector. It Life Assurance Inc. (AXA) by SSQ, also confirms that SSQ is Life Insurance Company Inc. resolutely committed to growth. (SSQ) with the participation of its longstanding partner, the Fonds Restructuring for better de solidarité FTQ. positioning — This acquisition represents a major step in SSQ Financial The acquisition of AXA goes Group’s business development hand in hand with the need and growth. It will enable us to to reorganize and thus to diversify and enhance our restructure our teams, in

04 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT COMMITTED TO GROWTH

The mutualist values that have shaped our business decisions from the beginning will continue to be a part of our management philosophy, a philosophy that keeps on giving.

particular the Boards of importance of this change for appointment of the 12 directors SSQ, Mutual Management the members of the Corporation. of SSQ, Mutual Management Corporation; SSQ, Mutual In the future, all of the directors Corporation to those Boards. Holding Inc.; and SSQ, Life of SSQ, Mutual Management Insurance Company Inc. Indeed, Corporation, elected by the As a result, the mutualist values it is clear that after having members of the Corporation, that have shaped our business invested $300 million to facilitate will sit on SSQ’s Board as well decisions since the very this acquisition, the Fonds de as on the Boards of SSQ, Mutual beginning will continue to be an solidarité FTQ wishes to take on Holding Inc. and AXA Life integral part of our management a more active role within SSQ’s Insurance Inc., the Group’s philosophy, whose effectiveness Board. In recognizing the validity newest company. has been evident for many years. of the Fund’s position, SSQ is ensuring that the current SSQ’s Board subsequently set Implementing the SSQ management model, based the total number of directors at model on the mutualist values it holds nineteen (19). As the majority — dear, will be maintained. shareholder holding more than 71% of the shares in SSQ’s capital By investing more than $78 For that reason, the Board of stock, the Fonds de solidarité million in SSQ, Mutual Holding SSQ, Mutual Management FTQ is entitled to appoint the Inc., the Fonds de solidarité FTQ Corporation initially decided in majority of the directors on SSQ’s is enabling SSQ, Mutual Holding late 2011 to reduce the number Board. Seeking to preserve SSQ’s Inc. to acquire an equity stake in of its directors to twelve (12), well-established mutualist AXA. To complete this transac- requiring the departure of three culture, the Fund is requesting tion, the shareholder structures directors. Although they were only five seats on SSQ’s Board of three entities (SSQ, SSQ, sad to step down, all three and five seats on AXA’s Board. Mutual Holding Inc. and AXA) individuals recognized the The Fund also welcomes the are currently being restructured.

SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 05 message FROM THE CHAIRMAN OF THE BOARD

When this restructuring is com- Board, as permitted under plete, the shareholders will hold Quebec’s Business Corporations an equity stake in AXA commen- Act, which took effect on surate with their stake in SSQ. February 14, 2011. In this context of major restructuring, Pierre Patry left the Going bald! — Board in late 2011 after five years of service. On behalf of all the SSQ Financial Group’s employees Board members, I would like to demonstrated their belief in sincerely thank Pierre not only the values of solidarity and for his participation in the community service in a very Board’s activities, but also for his special way in 2011. A total work with the Audit and Risk of 25 employees took part Management Committee, on in the Shaved Head Challenge which he had served since 2008. launched by René Hamel, CEO of SSQ, in connection with the In addition, two other companies SSQ Quebec City Marathon. joined forces with SSQ Financial Cheered on by their colleagues, Group during the year: Finance families, friends and partners, et Indemnisation and Service they raised a combined total of d’encadrement pour directeur more than $110,000 to benefit commercial (SEDC), both of Leucan, an organization that which distribute replacement provides support to children insurance products for with cancer and their families. BOARD MEMBER automobiles and recreational PARTICIPATION RATE vehicles, as well as credit Sound governance OF 97% insurance. To capitalize on — Proof positive of their dedication and the complementary nature of In 2011, the Board carried out the interest they have for their duties their product offerings and to the first annual review of its and in the proper conduct of SSQ’s maximize the resources in place, governance program. This operations throughout the year. both companies were merged. rigorous process was aimed at ensuring that the rules Real estate: an area of governing the Board’s activities responsibility for SSQ’s remain on the leading edge Board of recognized best practices. — In another noteworthy change, The governance program sets the Board of Directors of SSQ out SSQ’s well-established Realty Inc. was dissolved. In the practices concerning the context of SSQ’s administrative composition and role of the restructuring undertaken in 2011, the powers of SSQ Realty’s Board were transferred to SSQ’s

06 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT COMMITTED TO GROWTH

Board, which must: Complying with market rules • be made up of a majority — of independent members Business continuity • pursue a clear and specific The Business Continuity mandate Management Guideline issued • assume responsibility for by the Autorité des marchés overseeing the Company’s financiers will take effect on business April 1, 2012. In anticipation of that event, the Board approved • keep separate the functions the complete revision of SSQ’s of CEO and Chairman of the business continuity policy. Board, which must be performed by separate Investments individuals Following several months • clearly set out its expectations of work aimed at determining concerning the directors, the the investment risk tolerance Board chair, the committee for all of SSQ Financial Group’s chairs and the CEO. investments and implementing a system to measure the overall Following the annual review of risk exposure stemming from the governance program, the investment operations, senior roles and responsibilities of the management submitted a new four committees tasked with investment policy to the Board, supporting the Board were which approved it. This process confirmed: proved especially relevant considering the importance that • The respective responsibilities SSQ places on safeguarding its of the chair of each of the clients’ financial interests, committees and the Board particularly in light of the chair have been clarified, not financial market instability only with respect to the Board, in recent years. but also with respect to senior management. Board members: an unwavering commitment • At each meeting of the Board, the committee chairs report With an attendance rate at Board on the work performed by meetings of more than 97%, each committee. the Board members provided an eloquent testament to their • As soon as they are available, commitment and their interest the minutes of the committee in their duties and the proper meetings are submitted to the conduct of SSQ’s business Board of Directors. throughout the year.

SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 07 message FROM THE CHAIRMAN OF THE BOARD

ATTENDANCE RECORD FOR THE YEAR ENDED DECEMBER 31, 2011

Executive Audit and Risk Board and HR investment management of Directors committee committee committee Ethics Committee

Brouillet, Normand 9 / 9 9 / 9 Doré, Chantal 9 / 9 5 / 5 Genest, Pierre 9 / 9 9 / 9 Hamel, René 9 / 9 9 / 9 5 / 6 Jomphe, Eddy 8 / 9 2 / 2 MacDougall, Andrew 9 / 9 Morin, Gaétan 8 / 9 9 / 9 Nadeau, Michel 8 / 9 8 / 9 6 / 6 Paradis, Denyse 9 / 9 2 / 2 Paré, Sylvain (December 8-31) 1 / 1 Patry, Pierre (January 1st-December 8) 7 / 8 5 / 5 Pélissier, Alain 7 / 9 Picard, Sylvain 9 / 9 5 / 5 Turnbull, Norman A. 9 / 9 6 / 6 Vallée, Émile 8 / 9 9 / 9 Verreault, Dominique 9 / 9 2 / 2

Training for directors: These topics included: Moving towards a staying on the leading paperless Board edge • the technological tools used — to ensure the Company’s — The experiment of running The Board members and sound governance SSQ’s meetings via a specially committee members took part • an updated look at SSQ since designed extranet site proved in the training sessions offered it was founded highly successful. In 2011, this by both external and internal system was incorporated within resources. Various topics of • green technologies and a tour the governance framework of interest were addressed, of the Cité Verte project site SSQ Financial Group’s other enabling the participants to companies, thus ushering in expand their knowledge and • the financial information the end of “paper documents”. stay up to date on the changes system affecting the markets covered • the economic outlook. by SSQ Financial Group.

08 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT COMMITTED TO GROWTH

Asrrival and departures Tribute to a pioneer: Acknowledgments — Jacques de la Chevrotière To fill the position left vacant — I would like to extend my sincere by Pierre Patry’s departure, the In closing, I would like to pay thanks to all the members of SSQ Board of Directors appointed tribute to one of SSQ’s greatest Financial Group’s various Boards Sylvain Paré, the Fonds de builders, who passed away last for the quality of their work, solidarité FTQ’s Vice-President year. Jacques de la Chevrotière, as well as for their remarkable of Management and Financial who served as General Manager dedication and diligence. All Strategy. Mr. Paré joined from 1949 to 1977 and as the Board members carried out the Board in December 2011. Chairman of the Board from 1977 their tasks and responsibilities Mr. Paré was also appointed to to 1990, died on April 18, 2011 conscientiously and professionally. SSQ’s and AXA’s Executive and at the age of 90. He left a lasting More than ever in this year of Human Resources Committees. mark on SSQ’s development accelerated growth, the Board thanks to his vision, his members also provided SSQ As part of the restructuring determination and his belief in Financial Group’s management undertaken in 2011 within SSQ’s our mutualist values. He was a with sound and sensible advice. various companies, Germain great source of inspiration for Ménard left his position as us all. director and Chairman of the Board of SSQ General Insurance Company Inc. Mr. Ménard was a tireless and exemplary worker — during the years in which he Pierre Genest served on the Boards of SSQ Chairman of the Board and its subsidiary, SSQ General Insurance Company Inc. His efforts on our Company’s behalf greatly contributed to raising the governance standards of SSQ General Insurance Company Inc. His commitment as Chairman of the Investment Committee deserves to be recognized and applauded. On behalf of all the directors of SSQ Financial Group, I offer him my sincere thanks. Mr. Ménard was replaced on the Board of SSQ General Insurance Company Inc. by René Hamel, SSQ’s CEO.

SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 09 MESSAGE FROM THE CHIEF EXECUTIVE OFFICER

— René HAMEL COMMITTED TO GROWTH CHIEF EXECUTIVE OFFICER In 2011, despite sluggish Overview of our financial markets and relatively performance low, declining interest rates, we — pursued business growth while In 2011, SSQ Financial Group once again delivering stable and remained focused on growth reasonable financial results and and delivered excellent annual continuing to offer our clients results once again: world-class service. In that regard, we are honouring our • Our sales, which totalled commitment to be a modern $976.2 million, grew by 9.9%. and high-performance financial • Our business volume topped institution with its values in the the $2.5 billion mark, an right place. We are committed increase of 8.8%. to being more effective as we question our own practices and • Assets under management reinvent ourselves. We kept our stood at $8.1 billion, beating promise by restructuring our the 2010 figure by 15.3%. operations and completing three acquisitions—a first in the • Profit totalled $33.8 million history of SSQ Financial Group. for a return on shareholders’ equity of 11.3%.

10 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT We respect our commitment to being a modern, productive financial institution with its values in the right place. We are equally committed to being more efficient, to challenge ourselves and to always be willing to reinvent ourselves.

This performance is consistent Company Inc. and SSQ Realty Inc. The parent company was with our long history of stable approved these far-reaching entrusted with the corporate and reasonable returns, which organizational changes. services of the Group’s three have ranged from 10% to 15% companies (SSQ, Life Insurance for close to 20 years. The fact In order to create maximum Company Inc., SSQ General that we are able to repeat this synergies, Pierre Genest, Insurance Company Inc. and SSQ performance year after year, Chairman of the Board of SSQ, Realty Inc.). These activities were despite the turbulence of the Life Insurance Company Inc., placed under the responsibility financial markets, proves how also became Chairman of the of the senior vice-presidents of solid and well managed our Board of SSQ General Insurance SSQ, Life Insurance Company Inc. Company is. Company Inc. The functions of This new structure makes it the Board of Directors of SSQ possible to capitalize on the Realty Inc. were placed under Governance and complementary features of the responsibility of the Board of the combined sectors and restructuring in synergy Directors of SSQ, Life Insurance — to optimize the performance Company Inc. In addition, Gilles 2011 began with the of all business units, thereby Mourette, President and CEO ensuring SSQ Financial Group’s implementation of a new of SSQ General Insurance organizational structure aimed encouraging pace of growth Company Inc., joined the and continued viability. at maximizing operational senior management team synergies within all the of SSQ Financial Group. Company’s entities. In this regard, the Boards of Directors of SSQ, Life Insurance Company Inc., SSQ General Insurance

SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 11 MESSAGE FROM THE CHIEF EXECUTIVE OFFICER

The mandates of the six corporate Serge Boiteau retained his Senior Vice-Presidents were functions pertaining to corporate thus expanded to include all actuarial services, internal SSQ Financial Group entities. auditing, reinsurance, risk The sectors involved are management and compliance, Human Resources; Corporate business continuity and complaint Communications and Marketing; resolution. However, market Finances and Control; Investments; watch, acquisitions and legal Technology and Material services were included in the Resources; and Corporate mandate of the new Senior Services. Pooling the strengths Vice-Presidency, Corporate and expertise of the existing Services. resources in each of these entities facilitates the provision Carl Cleary, former Vice-President of an integrated and consistent of Finance and Human Resources service offering to the various at SSQ General Insurance, was business sectors. This restructuring appointed Vice-President, has strengthened cohesion and Corporate Development, effectiveness among the teams, reporting to the Senior resulting in significant productivity Vice-President, Corporate gains and paving the way for Services. His responsibilities acquisitions that will require include mergers and acquisitions. the concerted efforts of multidisciplinary resources. Growth-FOCUSED vision — Appointments Having achieved an enviable GROWTH-FOCUSED — level of maturity and having VISION In that context, the following ensured the autonomy of its To continue to be competitive and offer our appointments were announced. business sectors, SSQ Financial clients leading edge products and financial Group is pursuing its growth- services, it is essential that we optimize our At the beginning of 2011, oriented vision while taking overall performance and support the Patrick Cyr was appointed Senior steps to optimize its processes business lines with their growth objectives. Vice-President, Finances and and increase their robustness. Control. The responsibilities of this In order to offer our clients new Senior Vice-Presidency competitive financial products initially included accounting, tax, and services while maintaining financial statements, reporting our customary service quality, to authorities, controls and it is essential that we optimize expense analysis/allocation. Later our overall performance and in the year, SSQ Realty, the Group’s provide additional support to real estate subsidiary, was the business sectors in their assigned to Mr. Cyr: the name growth objectives. Our new of the Senior Vice-Presidency structure enables us to offer the was then changed to Finances business sectors high-quality and Realty. value-added services that are consistent and relevant. 12 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT COMMITTED TO GROWTH

First wave of acquisitions Creating links to these two new This acquisition also enables — distribution networks and their SSQ Financial Group to strengthen In summer 2011, SSQ completed complementary product/service its position in the individual its first acquisition, which offering will enable SSQauto, insurance market, to enhance involved Groupe Finance et our general insurance subsidiary, its presence across Canada, to Indemnisation (F&I), a company to offer a full range of insurance expand its distribution network specializing in the distribution of products to purchasers of new for its range of segregated fund replacement insurance products or used vehicles at automobile products (ASTRA Funds) and (produced by SSQauto), and dealerships. With these acquisitions, to incorporate a portfolio of credit insurance (produced by SSQ Financial Group is improving complementary group insurance SSQ, Life Insurance Company its position in the insurance and products. Inc.). These insurance products credit insurance sector. are distributed in Quebec In addition, we are very pleased via a network of automobile that the Fonds de solidarité FTQ AXA Life Insurance placed its trust in SSQ Financial dealerships. The company — Group, clearly supporting its was founded in 2000 and is On September 26, 2011, headquartered in Trois-Rivières. desire to become a major player SSQ Financial Group, with the in Canada. It has approximately 30 employees support of its majority share- and representatives around holder, the Fonds de solidarité the province. FTQ, announced the conclusion of an agreement covering the SSQ subsequently acquired acquisition of the operations of Service d’encadrement pour AXA Life Insurance. The acquired directeur commercial (SEDC), entity, now known as SSQ also based in Trois-Rivières. SEDC Insurance Company Inc., became offers a range of warranty/credit an entity of SSQ Financial Group insurance products, primarily to on January 1, 2012. purchasers of recreational and leisure vehicles. The company, With its offices in Montreal, which has a dozen employees Toronto, Calgary and Dartmouth, and representatives, also offers AXA Life Insurance offers a comprehensive training a comprehensive range of program for financial managers individual insurance products at automobile dealerships, and specialized group insurance providing them with tools products. With its subsidiary, covering all stages of the sales SecuriGroup, AXA Life Insurance process, from financing to delivery. generated $150.5 million in premiums in 2011 and recorded In order to capitalize on their assets of $1.5 billion and complementary product offering shareholders’ equity of $154.0 and maximize the resources million. It has over 200 employees. in place, both companies were merged.

SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 13 MESSAGE FROM THE CHIEF EXECUTIVE OFFICER

Diversifying our products and accelerating growth — In order to operate strategically in a highly competitive industry, SSQ is diversifying its product offering. In this regard, the acquisition of AXA Life Insurance enhances SSQ’s range of group insurance products with the addition of excellent coverage — for expatriates. In addition, Premiums under management AXA’s expertise will facilitate - LIFE AND HEALTH INSURANCE SSQ’s expansion Canada-wide. (in millions of dollars) In terms of diversification, the acquisition of F&I and SEDC, both of which distribute credit insurance products, reflects SSQ Financial Group’s desire to LIFE AND HEALTH expand its operating sectors.

INSURANCE SSQ Mobile Services: a Canadian first ACCELERATE Upper echelons — GROWTH — In spring 2011, SSQ Financial To grow strategically in a highly Over the past few years, SSQ’s Group reaffirmed its ability competitive industry, SSQ diversifies its overall growth rate has exceeded to propose boldly innovative product offer and continues to expand the average for the Canadian solutions by launching its into the Canadian market. group insurance market. 2011 mobile application—a first in the was no exception: SSQ remains Canadian group insurance sector. in the upper echelons of group Thanks to this application, SSQ insurers in Quebec and has is even more accessible to its achieved an enviable market clients. Policyholders can share across Canada. This pace now submit health or dental of growth is attributable not insurance claims via their mobile only to the arrival of major phones. This ties in perfectly clients such as Jean Coutu Group with SSQ’s efforts to simplify and the Quebec Association its clients’ lives. of Dental Surgeons (ACDQ), but also to the trust that SSQ’s groups place in it year after year.

14 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT COMMITTED TO GROWTH

contact us claim

electronic last card payments

SSQ’s mobile application clearly with the addition of personalized offers ongoing guidance aimed meets its clients’ needs. By the services, complementing the at achieving tangible results. Our end of 2011: current suite of products already fourth Health InSight conference, renowned for its relevance and held in spring 2011, was a • Approximately 20,000 claims quality. The program, which resounding success with had been submitted. includes seminars, on-site our clients and partners. • More than 10,000 users had activities and training sessions, downloaded the application. takes a unique approach and • More than 80 benefit claims per day were being submitted.

Health InSight: a tailor-made program — Thanks to its Health InSight Program, SSQ Financial Group quickly became a partner of choice in the areas of prevention, health promotion and work attendance management. In 2011, the program expanded

SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 15 MESSAGE FROM THE CHIEF EXECUTIVE OFFICER

INVESTMENT AND RETIREMENT

Maintaining the pace — In 2011, we beat our sales record Our efforts during the year were — established in 2010. This feat was devoted to increasing our market Segregated funds all the more remarkable given share and to maintaining not – investment and retirement that these sales were recorded only the pace of our sales, but (Assets under management across Canada. Assets under also the quality of our products, – in millions of dollars) management of segregated services and partner/client funds rose to $3,165.9 million, relationships. Our ability to setting another new record remain focused and stay the for this business sector. course amid high growth will prove useful in 2012, particularly The liability-driven investment in light of the prospects opened strategy (LDI) launched in late up by the acquisition of AXA Life 2010 has been phenomenally Insurance in terms of sales of successful. The defined benefit segregated funds across Canada. plans that opted for this financial risk management strategy (many of which are based — outside Quebec) have combined Sales – Investment and retirement assets of $606.7 million. (in millions of dollars)

16 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT COMMITTED TO GROWTH

Maintaining quality Maintaining service — — The continuous optimization Such high growth in the area of our products forms the of investment and retirement is foundation of our promise to our only possible if all of the teams clients: at SSQ, our clients have in place can adapt rapidly to 24/7 access to a well-thought-out change. Throughout the year, all platform of high-performance of our teams, without exception, independent funds. We will not reconsidered and redefined their hesitate to modify our fund tasks and processes with a view offering to ensure quality. In to consistently providing the 2011, that same determination same excellent service. The year resulted in the closing of eight was marked by team refocusing, funds and the opening of various segmentation, revamped other funds geared towards processes, training and meetings. different clienteles, including We also took steps to ensure the following new ASTRA Funds: that our growth did not affect our existing clientele in any way. • Dynamic Power Balanced And we achieved that goal! • Sprott/Fiera Sceptre Canadian Balanced • Montrusco Bolton Canadian Equity • Lazard Global Equity • Calamos Global Equity • Morgan Stanley Global Real Estate • Presima Global Real Estate Enhanced Yield QUALITy Ongoing optimization of our products underscores our client pledge.

SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 17 MESSAGE FROM THE CHIEF EXECUTIVE OFFICER

Opening a second client relations centre — In a context of sustained growth that outpaces the industry average, a second client relations centre (CRC) was inaugurated in Longueuil in January 2011 to support the Quebec City CRC. The opening of this second CRC was designed to forge closer links with our clients in the Greater Montreal region and to tap into an additional pool of qualified bilingual resources. Made up of experienced agents — and managers, the teams at UNDERWRITTEN PREMIUMS the Longueuil office integrated - GENERAL INSURANCE rapidly and successfully and (IN MILLIONS OF DOLLARS) went on to play an active role in SSQ’s performance last year.

Rethinking our business identity — While continuing to offer one of the industry’s most comprehensive GENERAL and competitive ranges of automobile and home INSURANCE insurance/assistance products, the Company shifted its business In the general insurance sector, focus in 2011 by adopting a 21% in a highly competitive market SSQauto excelled with total written trademark that is easier for the premiums topping the $200 million in which each actor must public to remember and which mark for the first time, representing demonstrate initiative and better reflects its business record growth of more than 21% innovation, SSQ stood out thanks strategy: SSQauto. in 2011. to its written premiums, which topped the $200 million mark This trademark has become for the very first time. This result, the primary identity of the which represents a record general insurance company, growth rate of more than 21% both internally and externally. in 2011, was achieved without This positioning, combined with affecting profitability: the our redesigned communication Company recorded a net profit platform, was backed by a of $8.3 million, which represents high-profile advertising campaign. a return of 13.2% in a market that continues to be highly competitive.

18 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT committed to growth

Online quote tool Resolutely (SPQ), Local 106 of the Quebec launched group-oriented Teamsters and the united — — transportation union (SUT). In spring 2011, the Company also Despite the Company’s success In addition, a number of launched its online quote tool, since diversifying its offering and agreements with major groups which complements the online making products available to the were renewed, including quote request feature introduced general public several years ago, FSSS-CSN, TUAC 500 and the City in 2009. These tools enable clients growth continues to depend on of Montreal’s blue-collar workers. to submit their quote requests the development of customized quickly and conveniently and plans that meet the needs of to obtain online automobile current and prospective group insurance quotes directly, saving clients. In this regard, new them both time and money. agreements were signed with the Quebec firefighters union The rollout of this new application was a resounding success and resulted in a more than 27% increase in the number of online quote requests. Sales grew by nearly 25%.

SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 19 REAL ESTATE

First residents to be completely energy- Major developments of La Cité Verte independent—a North American — — first in the residential housing SSQ Realty continued to In 2011, we announced the market. renovate the SSQ building’s end of the first phase of the St. Lawrence tower. Given the construction of La Cité Verte, In December 2011, SSQ Realty scale of this project, SSQ has Quebec’s first large-scale announced the beginning applied for LEED-NC certification, multi-residential project in of the project’s second phase, which is geared towards new the area of green/intelligent which involves the presale of structures. buildings. In December, 24 new townhouses. La Cité Verte welcomed In practical terms, La Cité its first residents. Verte resolves a number of The first phase represented an environmental issues, including important (and complex) step urban density, rainwater since it involved the requalification management, building energy of three buildings constructed efficiency, selective waste in the first half of the 20th century, recovery, transportation as well as the construction management, green space of 68 housing units and the preservation and social diversity. integration of an urban heating system. This woodchip-fed system enables La Cité Verte

20 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT commitTed to growth

SSQ financial group

Governance, risk Investment policy review As the first Canadian insurer management and — to sign the Principles for compliance We reviewed the investment Responsible Investment (PRI) — policies of SSQ, Life Insurance document, SSQ ensures that Governance, risk management Company Inc. and SSQ General the Company closely monitors and compliance are far from Insurance Company Inc. to its investment portfolio year in being recent concerns at SSQ ensure that they reflect our and year out. To that end, SSQ Financial Group. Indeed, they overall management approach retained the services of a have always guided how we to investment risk and clearly specialized firm Groupe do business. It was our natural establish the investment Investissement Responsable response to adapt our activities management strategy for inc. (GIR) to review the and structure in an atmosphere SSQ Financial Group’s assets. investment portfolio twice a of openness to meet the year. As in previous years, the requirements of the new The investment team is also investment committee: guidelines that took effect getting ready to repatriate the in 2011. In the view of the management of SSQ Financial • received reports from GIR Group’s bond and money market regulatory authorities, the • ensured compliance with principles set out in these portfolios, as well as AXA Life Insurance’s portfolios. the socially responsible guidelines are the foundations investment policy supporting the sensible and prudent management of Responsible investments • submitted a report to the financial institutions. In addition, — Board of Directors regarding these guidelines will form the True to its values, SSQ adopted the committee’s decisions basis of all requirements issued a policy on socially responsible and the actions taken. by the regulatory authorities investing in 2006, which clearly in the future. states that our Company invests only in socially responsible companies that do not subscribe to unacceptable behaviour such as discrimination, exploitation of children, human rights abuses and non-compliance with environmental standards.

SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 21 MESSAGE FROM THE CHIEF EXECUTIVE OFFICER

Finalizing the conversion Nt otewor hy achievements of the financial — statements to IFRS All in all, 2011 was an eventful — year for SSQ Financial Group’s International Financial Reporting business sectors: Standards (IFRS) took effect in January 2011, replacing • The Life and Health insurance Canadian generally accepted sector brought new high-profile accounting principles (GAAP). clients on board. SSQ’s first financial statements • Approximately 20,000 benefit in 2011 were presented in claims have been submitted accordance with this new via the SSQ Mobile Services accounting framework. Since application since it was we were also required to present launched in April 2011. a comparative year using the • Meetings were held with more same framework, our financial than 300 brokers in the data for 2010 were represented Investment and Retirement in accordance with IFRS. All of sector. In addition, the business our financial statements for 2011 volume grew significantly, are thus being presented using while ASTRA Funds were this new framework. enhanced by the acquisition of AXA Life Insurance Inc. • SSQauto diversified its business operations, while a major technology rollout was aimed at improving client service. • The popularity of La Cité Verte is soaring, with more than 50% of the condominiums sold to date and the successful January 2012 launch of the townhouse presales.

22 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT commitTed to growth

MERCI

© Photo: Stéphane Groleau ACKNOWLEDGMENTS Our Board members guided And that is our pledge: we are and supported us in all of our committed to growth with you! One thing is certain: without the activities throughout 2011. restructuring undertaken in early We are very grateful to them. 2011, our recent acquisitions would have been very difficult To our clients, we wish to make indeed. Last year, our employees clear our desire to be a different demonstrated that they are kind of business partner: one collectively committed to that is modern and successful, believing in and embracing naturally, but also one that — change. Together, they took the offers the best service there is. René Hamel necessary steps to implement A partner for whom We thrive Chief Executive Officer a new management structure. on mutual trust is more than a They also enthusiastically slogan; it’s reality. participated in the completion of our three acquisitions. Congratulations and thank you!

SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 23 Social Responsibility Report

2011 Social Responsibility Report Diversifying business, ensuring growth, obtaining a level of financial performance that allows it to remain competitive, and preserving the confidence of clients and partners are all part of SSQ Financial Group’s way of conducting business.

Committed to solidarity • the adoption of an — organizational structure that The Company is guided by its meets the highest industry solid values and is fuelled by standards its desire to remain true to its market position. Its strong • the harmonization of business commitment to responsible practices with the mutualist governance has resulted in values that have guided rigorous practices that ensure Company activities management integrity, • excellent customer service including: • the creation of an exceptional workplace for employees. On the basis of these principles, SSQ’s number-one priority is to do more—and to do it better.

24 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT COMMITTED TO GROWTH

The Board of Directors: • must abide by the Company’s Trained and informed independence and code of ethics, which includes directors integrity clear guidelines on ethical — — matters. Board members All new Board members are The Board of Directors is renew their commitment in invited to a private meeting responsible for conducting the writing each year, to reaffirm with the Chairman of the Board. Company’s business and must their compliance with the During this meeting, the new respect rigorous criteria in terms principles that guide the members: of integrity and transparency. Company’s business practices. In this regard, the Board: • are informed of SSQ’s It should also be noted that: corporate governance • is made up of 19 directors, practices most of whom are independent, • The functions of the Chairman which guarantees that the of the Board and the Chief • become familiar with the work Company’s interests are always Executive Officer have been of the Board and its various the primary concern separate since the creation committees of the Company in 1944. • is mostly made up of members This ensures that the Board • receive the member’s manual, elected by mutualist delegates remains autonomous from which is a collection of all the at the Annual General Meeting senior management. documentation regarding the of SSQ, Mutual Management Board member’s role and Corporation • The remuneration of Board functions, information about members is not based on the the nature of SSQ’s operations • fosters a mutualist culture in Company’s financial results. as well as the Company’s legal the organization, upholding The decision-making process and regulatory framework. such values as democracy, is therefore motivated by the equality and solidarity interest of the Company’s members, clients, shareholders and employees.

SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 25 Social Responsibility Report

In the spirit of sharing • The Audit and Risk information and ensuring that Management Committee the operating mechanisms closely monitors the currently in force in the Company Company’s financial are fully understood, Board management. Its impartiality directors frequently participate in: is ensured by the fact that it is composed exclusively • presentations made by of independent directors. members of SSQ Management at Board meetings. The topics • The Investment Committee of these presentations are makes sure that the related to insurance and Company’s general funds are various activities of the managed in accordance with Company and its subsidiaries its investment policy. • training sessions and • The Ethics Committee adopts information briefings aimed and promotes the Company’s at increasing members’ rules of conduct, makes them knowledge and understanding known and ensures that they of the Company, its business are respected. Particularly and the industry in which it because of its mutual status, operates. SSQ does not compromise when it comes to the Permanent committees: transparency of its activities. the mainstay of the Board Conflicts of interest or the INTEGRITY — appearance of conflicts of SSQ Financial Group has mechanisms To ensure efficient and interest are not tolerated. That in place to guarantee the integrity is why the Ethics Committee of its managers and directors. competent management of the Company’s business, the Board is composed entirely of of Directors relies on the support independent directors— and expertise of four permanent a guarantee of impartiality. committees: To foster impartial sharing of • The Executive and Human information, SSQ Financial Group Resources Committee is has implemented mechanisms responsible for the smooth that guarantee the integrity of operation of the Company, in its leaders and directors and help accordance with the policies, them perform their duties programs and budgets competently. For example: defined by the Board of • Each committee is required Directors. to keep the Board of Directors informed about its progress.

26 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT COMMITTED TO GROWTH

• The Board receives all of the • the transmission of a biannual information required for close report to regulatory and continuous monitoring of authorities, including the Company’s development the Autorité des marchés with regards to strategic financiers and the Financial planning. Services Commission of Ontario. • A discussion amongst the directors, without the SSQ also has a Personal presence of senior Company Information Protection Policy. officers, is an integral part of This policy covers: every Board and committee meeting. • the designation of a person responsible for the protection of the personal information Established compliance held by SSQ enterprises practices — • the production of an annual SSQ Financial Group has had a report for the Audit and Risk Complaint Handling and Dispute Management Committee Resolution Policy in place for and the Board of Directors. quite some time. This policy This report summarizes covers: the committee’s activities in protecting personal • the designation of a information, such as the Complaints Officer development of internal • the implementation of a directives and procedures complaints management and the processing of access- structure to coordinate to-information requests or resources in the various related complaints. departments involved In response to the guidelines in complaint handling set out by regulatory authorities, • the presentation of an annual senior management and the report to the Audit and Risk Audit and Risk Management Management Committee and Committee worked to complete then to the Board of Directors. the adoption of various policies. The report includes a brief As part of that process, the description of the complaints Business Continuity Policy was received over the year, substantially revised. including the reason for each complaint and the outcome of the complaint procedure

SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 27 A responsible company

SSQ Financial Group believes In 2011, SSQ expanded its Health that sound management of InSight team and offering by group insurance plans goes hand providing a comprehensive in hand with the protection and range of health initiatives to its HEALTHWISE promotion of good health within policyholders, including personal Encouraging employees to take their health to heart. companies. With the Health interest surveys, conferences on InSight program, SSQ: various health-related themes, workshops, workplace health • offers solid expertise and breaks and support for the proposes concrete health implementation of structured solutions prevention and promotion • raises the enthusiasm and activities. SSQ is able to work willingness to change and with interested clients to help improve, both within them implement programs to organizations and on an achieve the “Healthy Enterprise” individual basis certification. • encourages the mobilization Since 2006, SSQ employees have of employees in terms of their benefitted from the success overall health and creates a of the HealthWise program, health-oriented culture within which encourages workplace the organizations the attendance through activities Company insures. aimed at prevention and the

28 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT COMMITTED TO GROWTH

promotion of a healthy lifestyle. Employees: a valuable Our objective is to encourage resource employees to take charge of — their own health. Some of the A strong reputation, Company means adopted include: performance, meaningful values, multiple challenges, competitive • intranet portal working conditions and a • annual vaccination campaigns harmonious working environment… For those who • ergonomic services want a career in the financial services industry, SSQ Financial • annual health check-up Group is truly an employer of • conferences on health-related choice. As proof, year after year, themes our employee turnover rate has consistently been among the • physical activities in the lowest in the industry. workplace In addition to the work • professional healthcare environment, we firmly believe services in the workplace that our employees’ expertise is both a motivational factor and • measures and activities a sign of success in a highly concerning work/private life competitive industry. That is balance why we allocate 3.5% of the Company’s payroll for employee Recognition for the training every year. “HealthWise” program — SSQ Financial Group’s Quebec offices were awarded “Elite Healthy Enterprise” certification by the Quebec Standards Bureau (BNQ). This certification confirms SSQ’s leadership as an employer of choice in the areas of health and well-being.

SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 29 Social Responsibility Report

At SSQ, developing expertise • a program to assist employees also means: with their professional career development Courses and training, with: • a workplace recognition • free access to LOMA insurance program aimed at courses and the Autorité des strengthening and marchés financiers training recognizing the existing program corporate culture • training on key skills: Information, including: communication, change management, recognition in • conferences on co-operation the workplace, conducting and mutualism meetings, teamwork, time and priority management • a reference site to ensure French language quality • English conversation workshops • an intranet portal devoted to performance management • first aid • on-line self-training capsules Making way for the next generation of employees Training incentives, with: — SSQ Financial Group believes • bursaries for work-related in the next generation of continuing education employees. In addition to Giving back to programs participating in the activities of the financial services • paid study leave for writing industry and collaborating with the community exams Our growth and success compel us to share. internship programs, SSQ spares Programs and coaching, no effort in training a succession including: of responsible and skilled prospects. This contribution • an orientation program to is represented, among other welcome and integrate new things, by implementing a employees university recruitment program that allows students to continue • a training program for new their education while they: managers and implementation of management tools • work for a renowned employer • a development program • receive quality training in for trainers insurance

30 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT COMMITTED TO GROWTH

• become familiar with the job participating in the economic, • an annual donation of $10,000 market cultural and social life of our for three years to Le Grand community in the form of: Chemin centre, an organization • acquire practical experience that provides assistance to in their field • contributions to community young people aged 12 to 17 well-being through donations who have addiction problems In addition, SSQ is fundamentally and sponsorships attached to the co-operative and with drugs, alcohol, prescription mutualist values that have • volunteer work by our drugs or gambling. guided its evolution over the employees In addition to this assistance years. That is why it is natural aimed directly at young people, for us to promote these values SSQ Foundation in 2008, the SSQ Foundation among young people. Every — took over SSQ Financial Group’s summer since 2003, we have In 2011, SSQ enterprises paid role in the Fonds d’emprunt organized the SSQ Youth Co-op, a total of $100,000 to the économique communautaire the only one of its kind in the SSQ Foundation, bringing its in Quebec, an organization that Quebec City area. This year, a capitalization to over $1 million. helps individuals obtain loans total of 15 participants, aged 13 This is an important milestone they are otherwise unable to to 15, took part in the program, for the Foundation because obtain through traditional which allows them to put their some 15 years after its creation, financial networks. The SSQ creativity and imagination to it is now starting to participate Foundation will contribute good use. As in previous years, in charitable activities. Its first $18,000 per year for three years this initiative received a warm activities were directed at young to support this organization’s welcome from employees, who people and included: mission. signed up in large numbers for the services offered by the • the continuation of a participants. partnership that began in 2008 with the Réseau Giving back québécois des CFER (Centres to the community de formation en entreprise et — récupération), a network of Although SSQ has become a “enterprise schools” that train major player in the financial young people aged 15 to 18 services industry on a national who have not completed their scale, we remember our humble first year of high school. In beginnings in a working-class 2011, the SSQ Foundation neighbourhood of Quebec City. renewed its pledge to pay In the early days, our Company’s $25,000 annually over a mission was to provide access to three-year period to health care and services to less encourage this educational affluent clients. Today, our formula based on training growth and financial success conducted either in class, encourage us to share. We are outside the school or in particularly proud to be a factory location.

SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 31 Social Responsibility Report

Contributions:

22% Health

12% Education and youth

32% SOLIDARITY AND COMMUNITY INVOLVEMENT

34% ssq Foundation

Contributions inspired Quebec City by our values University Hospital — Centre Foundation (CHUQ) While pursuing their capitalization efforts for the SSQ Foundation, With a $100,000 donation paid SSQ Financial Group enterprises over a five-year period to the donated nearly $290,000 in CHUQ Foundation, SSQ actively 2011 to organizations dedicated supports the development fund to improving community living that keeps CHUQ on the cutting conditions. edge of medical technology innovation. United Way Heart and Stroke Foundation In 2011, the United Way/ of Ontario Centraide campaign was an unparalleled success at SSQ In 2011, SSQ Financial Group Financial Group. Supplementing concluded the final year of its the institutional donation, partnership with the Heart and individual donations by Stroke Foundation of Ontario. employees and retirees enabled Under this five-year agreement, us to beat the ambitious target $125,000 in financial support of $175,000 and to raise more was provided for an automatic than $176,080, a year-over-year external defibrillator (AED) increase of more than 7.2%. program in a number of public buildings in Ontario. This program trains designated

32 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT COMMITTED TO GROWTH

individuals to properly FONDTI A ON DU MAIRE : • Portage administer lifesaving skills to LE MONTRÉAL INC. DE DEMAIN anyone experiencing cardiac (Montreal Mayor’s On a related note, SSQ General arrest within or near a building Foundation) Insurance is now the official host where an AED is available. of the “Agir à grande échelle” SSQ will donate $20,000 per year campaign launched by the Michel Sarrazin Foundation for five years to the Fondation Fondation des pompiers du du Maire : Le Montréal inc. de Québec pour les grands brûlés. SSQ Financial Group has made demain. The total donation The proceeds of this initiative a pledge to support the Michel ($100,000) will help young go to safety, prevention and Sarrazin Foundation for the next people aged 18 to 35 to start the well-being of patients with five years. Maison Michel Sarrazin up their own businesses. third-degree burns. is a palliative care centre dedicated to improving the quality of life 211 phone line of late-stage cancer patients. Key sponsorships and Created with the support of partnerships Educaide insurance companies in the — Quebec City area, the 211 phone As a responsible citizen, SSQ On November 29, 2011, Educaide line offers a centralized reference Financial Group takes a particular launched the SSQ bursaries and information service that interest in individuals’ well-being to mark the major investment directs people to the appropriate and quality of life. Thanks to made by its partner, SSQ community organizations that partnerships that have real Financial Group. A total of 160 may provide them with meaning and are in keeping with bursaries valued at $80,000 were assistance. About 17,000 people SSQ’s values, the Group reaffirms distributed to students around use it each month—ample proof its commitment to the community. the province in 2011. In addition of its relevance and usefulness. Through its sponsorship program, to providing funds for books, SSQ accepts over 250 requests academic materials, appropriate Other contributions for partnerships and clothing and after-school sponsorships every year. activities, these bursaries are SSQ Financial Group continues designed to foster self-esteem, to provide financial aid to several prevent kids from dropping out community organizations, and give them an extra chance including: at success. • Pignon Bleu – La maison pour grandir • Fondation des Arches du Québec • Imaginer un monde meilleur Foundation (benefiting the Jacques Cartier Centre) • YMCA/YWCA National Capital Region (Ottawa)

SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 33 Social Responsibility Report

SSQ Quebec City Marathon — For the sixth year in a row, SSQ More than 500 SSQ employees Financial Group acted as the title and their families took part in sponsor of the SSQ Quebec City one or more of the Marathon Marathon and host for the events. Part family activity and Health 5K event, activities that part sports challenge, this event, have countless positive benefits which is sponsored by SSQ in all respects, including: Financial Group, serves to mobilize employees around • physical activity the goals of health and social • adoption of healthy lifestyle commitment. habits In 2011, the SSQ Quebec City • support for an organization Marathon raised a total of chosen for its contribution $110,483 for Leucan as part of to health the Leucan-SSQ Shaved Head Challenge. Thanks to their • development of the tourism commitment and solidarity, industry SSQ’s employees raised a significant sum for Leucan thanks to contributions from 34 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT their families, friends and business partners. Leucan — SSQ Financial Group is Above and beyond the goal of particularly proud of the efforts raising funds for various Leucan of more than 1,000 individuals services in all regions of Quebec, (employees, family members, the Leucan-SSQ Shaved Head business partners) who supported Challenge is a gesture of the 25 employees who sacrificed solidarity that meshes perfectly their locks as part of the with SSQ’s values. Leucan-SSQ Shaved Head Challenge on August 23, 2011. Congratulations to the participants and their sponsors!

SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 35 Social Responsibility Report

SOCODEVI Sustainable development — As a founding member of the SSQ Financial Group has clearly Canadian Cooperation Society taken the green road by for International Development increasing its environmental Projects (SOCODEVI), SSQ initiatives, not only in its internal Financial Group participates practices, but also in its external in the promotion of health projects. worldwide through co-operation and mutualism. This contribution Sustainable includes: development policy • financial support for SOCODEVI’s Reflecting its desire to clearly projects as part of a partnership reaffirm its interest in sustainable that began over 25 years ago development issues and to set out its related goals, SSQ has • sharing expertise in various adopted a Sustainable projects around the world. For Development Policy based on example, in the last few years, a development model in which several SSQ employees and social equity is a goal, economic managers have participated development is a means to an in missions organized by end and environmental SOCODEVI, including one protection is a prerequisite. in Sikasso, Mali, where they contributed to the creation Cité Verte of a regional health mutual. After more than eight years of DEVELOPING Supporting excellence hard work, Cité Verte, a $300 in sports million project headed up by SUSTAINABLY SSQ Realty, is now recognized SSQ has a sustainable development In addition, SSQ is proud to as an innovative eco-energy policy based on social equity as a promote commitment and the goal, economic development as a and environmental initiative. pursuit of excellence in sports The Government of Quebec, means and environmental protection and education by providing as a condition. Hydro-Quebec, the Government financial support to: of Canada and the City of • the Université de Montréal’s Quebec all agree: Cité Verte will Carabins football team have a positive impact on the environment. • Université Laval’s Rouge et Or volleyball team. Sustainable architecture, thermal plant, waste management, storm water and wastewater management and transpor­ tation… The entire project was designed with its ecological and sustainable aspects in mind.

36 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT COMMITTED TO GROWTH

Compared with traditional real • promotes the use of estate projects of similar scope, recoverable resources and Cité Verte also represents: virtual servers • 30% less energy consumption • donates used office equipment to non-profit • 50% less consumption of organizations drinking water, i.e. a savings of 131 million litres of water • converts water coolers so they per year. receive a direct supply of drinking water, thereby FSC certification eliminating the need for SSQ Financial Group’s Copy bottled water Centre has maintained its • uses FSC-certified paper in its certification with the Forest printers and photocopiers, as Stewardship Council (FSC), a well as in the 2.5 million world-renowned non-profit envelopes it uses every year organization that develops responsible forest resource • provides selective recycling management practices. Thanks bins to encourage the to this certification, SSQ is collection of refundable authorized to display the bottles and the recycling of FSC logo on the documents plastic, glass, cardboard and it prints, demonstrating its used batteries. commitment to eco-responsible use of paper. Coffee cups Recycling All of our employees have traded in their Styrofoam cups for a For SSQ, preserving the reusable mug provided free of environment means making charge by SSQ. The Company environmentally-conscious provides a reusable coffee mug choices in terms of equipment to every new employee in an supply and management. For effort to raise environmental example, the Group: awareness. • entrusts its paper recycling Fair-trade coffee is also offered to Iron Mountain in most of our coffee machines at the same price as “traditional” • ensures that cellphones are coffee. recycled • entrusts its used computer material to companies specializing in this field

SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 37 Social Responsibility Report

Public transportation Committed employees In 2007, SSQ Financial Group In 2011, the Mutual Life financed the construction of a Promotion Committee organized bus shelter in front of its head a large-scale collection initiative office on one of the busiest involving SSQ employees. As streets in Quebec City. In an part of this project, close to 3,000 ongoing effort to encourage used items were sorted and public transportation, SSQ cleaned before being donated signed an agreement with the to charitable organizations. local public bus transportation company to offer its employees Socially responsible SSQ bus shelter monthly bus passes at reduced investing rates. This permanent offer SSQ has adopted a clear policy has encouraged many of our governing socially responsible employees to use this versatile investments. This policy clearly and green mode of demonstrates the Company’s transportation. desire to invest only in socially In 2011, the Quebec City responsible companies that transportation authority (RTC) do not condone unethical paid tribute to SSQ’s contribution behaviour such as discrimination, during public/active transit week. exploitation of child labour, human rights abuses or Ecological food baskets non-compliance with environmental standards. Also, Throughout the summer, SSQ Financial Group has taken the Mutual Life Promotion the lead by becoming the first Committee partnered with a insurer to sign the Principles for local fruit and vegetable grower Responsible Investment (PRI), to offer employees in the Quebec a charter written by the United City area the opportunity to Nations Environment Program buy produce cultivated using Finance Initiative (UNEP FI) and ecological methods. For 14 the United Nations Global weeks, these food baskets were Compact. delivered to the SSQ head office. In keeping with sustainable development principles, this initiative encourages healthy eating while supporting local agriculture.

38 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT EXCERPT FROM THE Consolidated Financial Statements A s at December 31, 2011 and 2010*

* For the complete consolidated financial statements, please send your request to [email protected].

SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 39 Management Report

Preparation of the consolidated liabilities of the Company in financial statements of SSQ, LIFE accordance with the standards INSURANCE COMPANY INC. (the and practices of the Canadian Company) is the responsibility Institute of Actuaries. Moreover, of Management. These audited independent auditors, appointed financial statements, which have at the Annual General Meeting been approved by the Board of shareholders, ensure the of Directors, are prepared in accuracy of the data presented accordance with International in the financial statements and Financial Reporting Standards express their opinion on these. (IFRS) and include certain amounts that are based on Audits are carried out regularly our best judgements and by the Autorité des marchés estimations. The financial financiers to ascertain that the information presented in this Company is in compliance with annual report is excerpted from the Act respecting insurance, audited financial statements. which aims primarily to protect policyholder interests and In order to carry out its maintain a sound financial responsibilities with respect position. to the financial statements, Management maintains internal The Audit and Risk Management systems of control aimed at Committee of the Board of providing a reasonable degree Directors, the members of which of certitude that operations have are neither from Management been duly authorized, that assets nor employees of the Company, are well safeguarded and that ensures that Management fulfills adequate and proper records its responsibilities with respect have been kept. These systems to financial information. The of control are reinforced by the Committee meets regularly with work of a team of internal Management, internal auditors auditors who regularly review and external auditors. The latter all sectors of activity within can, if they wish, meet with said the Company. Committee in the presence or absence of Management, to In conformity with the Insurance discuss questions regarding Act, the Board of Directors the audit and the financial appoints the actuary, who is information. charged with the responsibility of valuating the actuarial

40 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT Adoption of International The Company also began Financial Reporting training its staff and upgrading Standards (IFRS) its financial data processing — systems with a view to incorporating the changes The Accounting Standards Board arising from the transition of Canada has confirmed that to IFRS. publicly accountable entities must apply IFRS in replacement of Canadian generally accepted accounting principles (GAAP) effective January 1, 2011. The Company adopted IFRS for presentation of its financial statements for the year ended December 31, 2011, including René Hamel the corresponding figures for Chief Executive Officer the previous year. Quebec City, Canada In advance of IFRS adoption, February 28, 2012 the Company has developed a project and a transition plan. It has carried out an in-depth analysis of the differences between IFRS and GAAP. The principal differences have to do with insurance contract classification and the accounting treatment of real estate investments. The Company is closely monitoring changes in accounting standards in order to update this analysis.

SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 41 For the years ended December 31 CONSOLIDATED STATEMENTS OF INCOME (in millions of dollars)

REVENUES 2011 2010 $ $ Gross premiums (Note 12)...... 1,955.9 1,819.6 Premiums ceded to reinsurance (284.4) (285.3)

Net premiums...... 1,671.5 1,534.3

Increase in unearned premiums...... (49.5) (30.0) Investment income ...... 90.1 96.5 Change in the fair value of financial assets at fair value through profit or loss...... 91.5 40.0 Income on investment property...... 17.4 38.3 Administration fees and other revenues 51.9 43.9

1,872.9 1,723.0

BENEFITS AND EXPENSES

Insurance and annuities...... Gross benefits...... 1,128.9 1,079.3 Benefits recovered from reinsurers...... (255.6) (253.8) Transfers to segregated funds...... 419.8 376.0 Net increase in actuarial reserve...... 174.5 141.8 Interest on deposits 5.0 2.8

1,472.6 1,346.1

Selling and administrative expenses ...... 214.5 197.9 General fund investment expenses ...... 8.8 5.9 Investment property expenses ...... 11.0 12.8 Commissions and fees on sales ...... 72.1 45.4 Premium taxes 35.4 34.0

1,814.4 1,642.1

INCOME BEFORE EXPERIENCE REFUNDS AND INCOME TAXES...... 58.5 80.9 Experience refunds 13.0 24.9

INCOME BEFORE INCOME TAXES...... 45.5 56.0 Income taxes (Note 11) 11.7 14.7

NET INCOME 33.8 41.3

42 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT For the years ended December 31 CONSOLIDATED STATEMENTS (in millions of dollars) OF COMPREHENSIVE INCOME

2011 2010 $ $ NET INCOME 33.8 41.3

OTHER COMPREHENSIVE INCOME, NET OF INCOME TAXES Unrealized gains and losses on available-for-sale financial assets1...... (12.0) 6.4 Reclassification to net income of gains and losses on disposal or impairment of financial assets2 9.6 (3.0)

(2.4) 3.4

COMPREHENSIVE INCOME 31.4 44.7

1 Net of income tax recovery of $4.4 (2010 – income tax expense of $2.7). 2 Net of income tax recovery of $3.5 (2010 – income tax expense of $1.3).

SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 43 A s at CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (in millions of dollars)

december 31, December 31, January 1, ASSETS 2011 2010 2010 $ $ $ Investments (Note 4) Bonds ...... 1,759.8 1,572.7 1,426.2 Loans ...... 376.7 375.0 350.3 Shares and units...... 43.9 109.1 97.0 Investment fund...... 32.1 38.6 39.2 Cash and cash equivalents...... 256.1 206.6 201.8 Other investment 8.0 7.9 7.9 2,476.6 2,309.9 2,122.4 Outstanding premiums...... 189.8 173.6 153.4 Ceded reinsurance assets ...... 885.7 820.4 755.3 Investment property under development...... 38.0 5.0 4.9 Income taxes receivable ...... 8.7 3.0 – Other assets...... 149.7 85.9 70.3 Investment property ...... 18.7 31.6 27.8 Fixed assets ...... 109.7 108.4 72.0 Intangible assets ...... 64.0 45.6 29.5 Goodwill (Note 15)...... 6.0 – – Deferred income tax assets 7.4 4.4 2.2 Total general fund assets 3,954.3 3,587.8 3,237.8 Segregated fund investments (Note 13) 3,165.9 2,623.5 1,950.1

TOTAL ASSETS 7,120.2 6,211.3 5,187.9

LIABILITIES

Obligations towards insureds (Note 7) Actuarial reserve – general fund insurance contracts ...... 2,753.0 2,507.7 2,296.6 Provision for claims ...... 91.7 89.5 89.1 Provision for experience refunds...... 29.1 32.3 51.4 Deposits 240.1 226.6 200.4 3,113.9 2,856.1 2,637.5 Unearned premiums...... 206.0 135.1 105.1 Unpaid claims...... 30.9 30.4 25.2 General fund investment contracts...... 5.7 8.5 5.8 Accounts payable ...... 103.7 100.5 75.9 Income taxes payable ...... – – 8.3 Subordinated debt (Note 8)...... 120.0 120.0 85.0 Other liabilities 40.0 31.5 28.5 Total general fund liabilities 3,620.2 3,282.1 2,971.3 Segregated fund insurance contracts (Note 13)...... 1,506.6 1,286.4 963.0 Segregated fund investment contracts (Note 13) 1,659.3 1,335.5 985.0 TOTAL LIABILITIES 6,786.1 5,904.0 4,919.3

SHAREHOLDERS’ EQUITY Share capital (Note 9)...... 36.6 36.6 36.6 Retained earnings...... 292.8 263.6 228.3 Accumulated other comprehensive income 4.7 7.1 3.7 TOTAL SHAREHOLDERS’ EQUITY 334.1 307.3 268.6

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 7,120.2 6,211.3 5,187.9

On behalf of the Board:

Pierre Genest René Hamel Chairman of the Board Chief Executive Officer

44 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT For the years ended December 31, 2011 and 2010 CONSOLIDATED STATEMENTS (in millions of dollars) OF CHANGES IN EQUITY

Accumulated other Share Retained comprehensive capital earnings income 1 Total $ $ $ $ Balance as at January 1, 2010 36.6 228.3 3.7 268.6

Comprehensive income...... – 41.3 3.4 44.7 Dividends (Note 9) – (6.0) – (6.0)

Balance as at December 31, 2010 36.6 263.6 7.1 307.3

Comprehensive income...... – 33.8 (2.4) 31.4 Dividends (Note 9) – (4.6) – (4.6)

Balance as at December 31, 2011 36.6 292.8 4.7 334.1

1 Including unrealized gains and losses on available-for-sale financial assets.

SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 45 For the years ended December 31 CONSOLIDATED STATEMENTS (in millions of dollars) OF CASH FLOWS

CA SH FLOws FROM THE FOLLOWING ACTIVITIES:

OPERATING 2011 2010 $ $ Income before income taxes...... 45.5 56.0 Income taxes paid, less refunds received ...... (19.4) (29.6) Items not affecting cash flows Gains and losses on investments...... (85.1) (43.7) Amortization of discounts and premiums on bonds...... (20.3) (18.0) Net gain on disposal of investment property...... – (19.4) Depreciation of investment property...... – 0.2 Depreciation and amortization of fixed assets and intangible assets...... 22.0 18.5 Obligations towards insureds...... 257.8 218.6 Other items 13.5 (2.7)

214.0 179.9 Net change in other operating assets and liabilities (71.6) (39.3)

142.4 140.6

INVESTING

Acquisition of investments...... (585.9) (640.5) Proceeds on disposal of investments...... 557.2 525.2 Acquisition of investment property...... (15.3) (12.0) Disposal of investment property...... – 29.3 Acquisition of fixed assets and intangible assets...... (35.9) (66.8) Disposal of fixed assets and intangible assets...... 0.6 – Business acquisitions (9.0) –

(88.3) (164.8)

FINANCING

Dividends...... (4.6) (6.0) Subordinated debt – 35.0

(4.6) 29.0

INCREASE IN CASH AND CASH EQUIVALENTS...... 49.5 4.8

CASH AND CASH EQUIVALENTS, beginning of year 206.6 201.8

CASH AND CASH EQUIVALENTS, end of year 256.1 206.6

Cash flows from operating activities include:

Interest paid on subordinated debt...... 7.0 6.0

46 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT For the years ended December 31, 2011 and 2010 Excerpt from the NOTES TO THE (in millions of dollars, unless otherwise indicated) CONSOLIDATED FINANCIAL STATEMENTS

1. GOVERNING STATUTES AND NATURE OF ACTIVITIES — SSQ, Life Insurance Company Inc. (the Company), majority owned by the Fonds de solidarité des travailleurs du Québec (F.T.Q.), was established in accordance with An Act respecting insurance. The Company offers its insureds a complete range of financial services including financial protection in the event of death, disability, illness or retirement through a variety of individual and group insurance products as well as savings, retirement and investment products. It is also active in property and casualty insurance and real estate management. The Company’s head office is located at 2525 Laurier Boulevard, Quebec City, Quebec, Canada. The Company’s consolidated financial statements were approved by the Board of Directors on February 28, 2012.

2. SIGNIFICANT ACCOUNTING POLICIES — Presentation of financial statements The consolidated financial statements were prepared in accordance with International Financial Reporting Standards (IFRS). The consolidated financial statements include the accounts of the Company and of its wholly-owned subsidiaries SSQ General Insurance Company Inc., SSQ Realty Inc. and 6801188 Canada Inc. Use of estimates and management’s judgments The preparation of financial statements in accordance with IFRS requires Management to rely on best estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting year. Actual results may differ from estimates. The most important estimates involve determining: • liabilities related to obligations towards insureds • fair values of financial instruments in the general funds and segregated funds, insurance and investment contract liabilities in the segregated funds and ceded reinsurance assets • assumptions used in determining provisions for and write-downs of financial instruments Management uses its judgment to classify insurance and investment contracts and financial instruments. Management’s judgment is also required in the recognition of investment property, fixed assets and intangible assets. Foreign currencies The Company’s consolidated financial statements are presented in Canadian dollars, which is the functional currency of the Company and its subsidiaries. Shares denominated in U.S. dollars are converted at the exchange rate in effect at the date of the financial statements.

SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 47 For the years ended December 31, 2011 and 2010 Excerpt from the NOTES TO THE (in millions of dollars, unless otherwise indicated) CONSOLIDATED FINANCIAL STATEMENTS

2. SIGNIFICANT ACCOUNTING POLICIES (cont’d) — Business acquisitions Business acquisitions are accounted for using the acquisition method. The acquisition cost consists of the fair value of the consideration transferred and measured at the acquisition date. Acquisition-related costs are recognized directly in income in the period in which they are incurred. Insurance contracts and investment contracts – classification The Company issues contracts that transfer an insurance risk, a financial risk, or both. Insurance contracts are contracts that involve a significant insurance risk. A significant insurance risk exists when the Company agrees to indemnify policyholders or policy beneficiaries should a specified uncertain future event have an adverse effect on the policyholder. Investment contracts are contracts that carry a financial risk with no significant insurance risk. Insurance contracts Revenue recognition and related expenses Insurance premiums are recognized as revenue when they become due. Once premiums are recognized, obligations towards insureds are computed in a manner such that expenses are matched with such revenue. Claims are recognized when a notice is received of an event that gives entitlement to compensation. Furthermore, commissions are recognized on the same basis as insurance premiums. Property and casualty insurance premiums are recognized as revenue over the terms of the policies. Unearned premiums entered in the consolidated statements of financial position represent the portion of written premiums for the unexpired in-force policies, according to the daily pro rata method. For some products, unearned premiums are adjusted to account for changes in the related risks. Ceded reinsurance assets In the normal course of business, the Company uses reinsurance to manage its level of risk exposure. The risk and the corresponding premium are transferred to duly registered reinsurers that are subject to the same regulatory bodies as the Company. The ceded reinsurance assets are valued in a similar manner to the obligations towards insureds and in accordance with the terms and conditions of each reinsurance contract. Ceded reinsurance assets represent amounts due to the Company with respect to the liabilities of the ceded policies. Ceding a risk does not release the Company from its obligation to fully comply with the commitments made to its insureds. These assets are subject to an impairment test and, if they are impaired, their carrying value is reduced and the loss in value is carried to profit and loss.

48 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT For the years ended December 31, 2011 and 2010 Excerpt from the NOTES TO THE (in millions of dollars, unless otherwise indicated) CONSOLIDATED FINANCIAL STATEMENTS

2. SIGNIFICANT ACCOUNTING POLICIES (cont’d) — Insurance contracts (CONT’D) Obligations towards insureds The actuarial reserve, provisions for claims and experience refunds, and deposits related to insurance contracts are established by the actuary in accordance with the standards of practice of the Canadian Institute of Actuaries and reflect the amounts required to meet obligations resulting from insurance contracts in force. The actuarial reserve is calculated according to the Canadian asset liability method, a recognized actuarial method established by the Canadian Institute of Actuaries. This method requires the use of assumptions based on best estimates of future experience, according to the Company’s own experience and that of the industry, and includes additional amounts for plausible adverse deviations related to assumptions made on the different factors considered. Segregated fund insurance contracts Liabilities for segregated fund insurance contracts include the deposit portion of these contracts, recognized in the same manner as investment contracts, as well as the guaranteed portion, which is determined by an actuary in accordance with the practice standards of the Canadian Institute of Actuaries and which corresponds to the amount required to cover current insurance contract commitments. The insurance contract liabilities of segregated funds are calculated according to the Canadian asset liability method, and include additional amounts for plausible adverse deviations related to assumptions made on the different factors considered. Liability adequacy test On each date of the financial statements, a liability adequacy test is performed to ensure the adequacy of obligations towards insureds, net of deferred acquisition costs. Since the concept of liability adequacy is an integral part of the Canadian asset liability method, any inadequacy of provisions is immediately carried to profit or loss in order to ensure compliance. Unpaid claims Unpaid claims are charged to events associated with claims settled in property and casualty insurance. The amount of unpaid claims is actualized and is based on the claims experience of the Company. Investment contracts Revenue recognition Investment contracts fall under the scope of IAS 39, Financial Instruments: Recognition and Measurement. Deposit accounting applies to these contracts, which involves recording the premiums received and benefits paid on these contracts as deposits and withdrawals, with no impact on the income statement. Revenues from these contracts consist of fees related to contract issue, administration and surrender as well as asset management, and are recognized in Administration fees and other revenues.

SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 49 For the years ended December 31, 2011 and 2010 Excerpt from the NOTES TO THE (in millions of dollars, unless otherwise indicated) CONSOLIDATED FINANCIAL STATEMENTS

2. SIGNIFICANT ACCOUNTING POLICIES (cont’d) — Investment contracts (CONT’D) Investment contract liabilities All investment contracts are designated at fair value through profit or loss, since changes in net income are offset by changes in the value of investments related to the general funds and segregated funds and are managed on a fair value basis. Recognition of other income Investment income is recorded on an accrual basis. Income on investment property is recognized in profit or loss on a straight-line basis over the term of the lease. Fees for the management of segregated funds and for the management of administrative service contracts are recognized when earned in Administration fees and other revenues. Financial Instruments – classification On initial recognition of its financial instruments, the Company must classify financial assets into one of the following categories: at fair value through profit or loss, held to maturity, loans and receivables and available-for-sale. The “fair value through profit or loss” category includes financial assets held for trading and financial assets designated at fair value through profit or loss. The Company must classify financial liabilities into one of the following categories: designated at fair value through profit or loss and at amortized cost. Financial instruments are classified upon initial recognition according to their nature and the Company’s use of the financial instrument. Bonds Bonds backing obligations towards insureds are designated at fair value through profit or loss, since changes in their fair value on the income statement are offset by changes in obligations towards insureds. Bonds backing investment contracts are designated at fair value through profit or loss, since they are managed and measured on a fair value basis in accordance with a strategy for managing the risks in investment contracts. Bonds not backing obligations towards insureds or investment contracts are classified as assets available for sale and are carried at fair value. Changes in fair value of these bonds are recorded in Other comprehensive income. On disposal of these bonds, or on any decline in value, the gain or loss is reversed from Accumulated other comprehensive income and recorded in income. Reversals to losses in value may occur and are recognized in profit or loss when there is objective evidence of recovery. Interest income and the amortization of discounts and premiums on bonds are recorded in income according to the effective interest rate method. Purchases and disposals of bonds are recognized at trade date.

50 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT For the years ended December 31, 2011 and 2010 Excerpt from the NOTES TO THE (in millions of dollars, unless otherwise indicated) CONSOLIDATED FINANCIAL STATEMENTS

2. SIGNIFICANT ACCOUNTING POLICIES (cont’d) — Loans Loans are classified as loans and receivables and are carried at amortized cost according to the effective interest rate method, less the allowance for investment losses. Their fair value is established by discounting future cash flows at the current market rate for this type of receivable and for a term equal to the term of the loan. The allowance for investment losses is established on an individual and collective basis from the estimated realizable value measured by discounting the expected future cash flows. Commissions paid on issuance of new loans are recognized with loans and amortized according to the effective interest rate method. Shares and units Classified as available for sale, shares and units include equity securities, units of Canadian investment funds and units of limited partnerships. Purchases and disposals of shares are recognized at trade date. Shares and units are carried at fair value and all changes in fair value are recorded in Other comprehensive income. In occurrence, transaction costs paid upon purchase are capitalized at cost. On disposal of these shares and units, or at any loss in value, the gain or loss is reversed from Accumulated other comprehensive income and recorded in income. No reversal of losses in value is allowed. However, shares continue to be carried at fair value, even if a loss in value has previously been recognized. Investment fund The investment fund is held for trading and includes Canadian equity securities acquired with the proceeds from the offering of certain debentures. In accordance with the debenture acts, the excess fair value of these securities over the capital of the debentures is recorded to the liability account of the Company. When fair value of the securities is less than the capital value of the debentures, the Company records a receivable from the decline in value equal to the difference. Cash and cash equivalents Cash and cash equivalents are made up of bank accounts and short-term fixed income securities held with financial institutions. The bank accounts are classified as loans and receivables and are carried at amortized cost according to the effective interest rate method. Short-term money market securities are designated as held for trading. Other investment The Company has made an investment in an associate. An associate is an entity over which the Company has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating decisions of the company held, but it is not control or joint control over those policies. This investment is recognized according to the equity method.

SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 51 For the years ended December 31, 2011 and 2010 Excerpt from the NOTES TO THE (in millions of dollars, unless otherwise indicated) CONSOLIDATED FINANCIAL STATEMENTS

2. SIGNIFICANT ACCOUNTING POLICIES (cont’d) — Deriti va ve financial instruments Derivative financial instruments include foreign exchange contracts and stock index contracts. These financial instruments are held for trading. The Company uses daily settlement foreign exchange contracts and stock index contracts in support of certain obligations towards insureds. Gains and losses are recognized in income under Investment income. The Company also uses foreign exchange contracts under its currency risk management strategy. Such financial instruments cover fair value and their effectiveness is reviewed on a monthly basis. Exchange gains and losses on forward contracts and fluctuations in fair value related to asset currency price are recognized in income under Investment income. Other financial assets and liabilities Other financial assets and liabilities are recognized at amortized cost and classified as Loans and receivables and Other liabilities, respectively. Fair value The best evidence of fair value is published price quotations in an active market. Fair value of bonds and shares is based on their bid price at year-end. When the market for an investment is not active, fair value is established by using a valuation technique that makes maximum use of inputs observed from the markets. Investment property under development Investment property under development consists of portion of real estate properties under construction held for resale. These properties are valued at the lower of cost and net realizable value. Cost is determined according to the specific identification method, and net realizable value corresponds to the estimated disposal price of the property less estimated completion costs and disposal costs. Investment property Investment property held by the Company, real estate properties held either to earn rentals or for capital appreciation, are recognized at acquisition cost less accumulated depreciation and losses in value. The cost of property is depreciated by major component, using each component’s estimated useful life and according to the straight-line method. Useful lives, residual values and the depreciation method are reviewed at the end of each year. The impact of any change in estimates is recorded prospectively. The profit or loss on the disposal or retirement of an investment property, which is the difference between proceeds on the asset’s disposal and its carrying value, is recognized in profit or loss.

52 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT For the years ended December 31, 2011 and 2010 Excerpt from the NOTES TO THE (in millions of dollars, unless otherwise indicated) CONSOLIDATED FINANCIAL STATEMENTS

2. SIGNIFICANT ACCOUNTING POLICIES (cont’d) — Investment property (CONT’D) Depreciation is calculated using the following useful lives:

Structure...... 100 years

Building envelope...... 60 years

Mechanical services...... 40 years

Land improvements...... 20 years Government grants The Company receives government grants to build properties under development and investment properties. It recognizes the grants to reduce the carrying amount of these assets. The grants related to properties under development are recognized in income when the assets are sold and are presented to reduce gains. The grants related to investment properties are recognized in income in proportion to the depreciation of the assets, and presented to reduce the depreciation expense. Foreclosed assets Property acquired by foreclosure and held for resale are recorded at the lower of either the investment in the mortgage foreclosed or the estimated net proceeds from the disposal of the property. Gains and losses on resale of these properties are recorded in income in the period in which they arise. Fixed assets Fixed assets are recognized at acquisition cost less accumulated depreciation and impairment, except for land, which is not depreciated. The cost of these fixed assets is depreciated by major component, using each component’s estimated useful life and according to the straight-line method. Useful lives, residual values and the depreciation method are reviewed at the end of each year. The impact of any change in estimates is recorded prospectively. The profit or loss on the disposal or retirement of a fixed asset, which is the difference between proceeds on the asset’s disposal and its carrying value, is recognized in profit or loss.

SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 53 For the years ended December 31, 2011 and 2010 Excerpt from the NOTES TO THE (in millions of dollars, unless otherwise indicated) CONSOLIDATED FINANCIAL STATEMENTS

2. SIGNIFICANT ACCOUNTING POLICIES (cont’d) — Fixed assets (CONT’D) Depreciation is calculated using the following useful lives: Buildings

Structure...... 100 years Building envelope...... 60 years Mechanical service...... 40 years Land improvements...... 20 years IT equipments...... 3 to 5 years Office furniture and equipment...... 5 to 10 years Leasehold improvements...... 10 to 20 years Intangible assets with finite useful lives Intangible assets acquired separately Intangible assets include application software and are recorded at acquisition cost less impairment losses and accumulated amortization calculated according to the straight-line method over their expected useful life of five years. Useful life and the amortization method are reviewed at the end of each year, and the impact of any change in estimates is recognized prospectively. Internally developed intangible assets An intangible asset is recognized if it meets the criteria for deferral. The amount initially recognized for an internally developed intangible asset is equal to the sum of expenses incurred from the date that the asset first met the recognition criteria. When no internally developed intangible asset can be recognized, development expenses are charged to income in the year in which they were incurred. Following their initial recognition, internally developed intangible assets are recognized at cost less accumulated amortization and losses in value, according to the same method as that used for intangible assets acquired separately. Deferred acquisition costs Intangible assets also include costs incurred in selling investment and retirement contracts. These costs are deferred and amortized according to the straight-line method over a two to six-year period during which the Company expects to derive future economic benefits from such assets.

54 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT For the years ended December 31, 2011 and 2010 Excerpt from the NOTES TO THE (in millions of dollars, unless otherwise indicated) CONSOLIDATED FINANCIAL STATEMENTS

2. SIGNIFICANT ACCOUNTING POLICIES (cont’d) — Depreciation and amortization of investment property, fixed assets and intangible assets with finite useful lives At each financial position date, a review is conducted of the carrying values of investment property, fixed assets and intangible assets to determine whether there is any evidence that these assets are impaired. If such evidence exists, an estimate is made of the recoverable amount of the asset to determine the amount of the impairment (if applicable). If the estimated recoverable value of an asset is less than its carrying value, the asset’s carrying value is reduced to its recoverable value. An impairment is immediately recognized in profit or loss. If an impairment is subsequently recovered, the carrying value of the asset is increased to the revised estimate of its recoverable value up to a maximum of its amortized cost. The impairment recovery is immediately recognized in profit or loss. Goodwill and intangible assets with indefinite useful lives Goodwill represents the excess of the fair value of the transferred consideration over the identifiable assets acquired and liabilities assumed and is deemed to have an indefinite useful life. An intangible asset with an indefinite useful life is classified as such when the Company determines that there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows. Goodwill and intangible assets with indefinite useful lives are not amortized but are tested for impairment at least annually. Segregated fund investments Segregated fund investments are the accumulated net assets of the segregated funds, including inter-fund eliminations. They include bonds, shares, investment fund units and other assets and liabilities, including derivative financial instruments. The investments are designated at fair value through profit or loss since they are managed and valued on a fair value basis in accordance with the investment strategy approved by management. Other assets and liabilities are classified as loans and receivables and other liabilities, respectively, and are recognized at amortized cost except for derivative financial instruments, which are held for trading and recognized at their fair value.

SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 55 For the years ended December 31, 2011 and 2010 Excerpt from the NOTES TO THE (in millions of dollars, unless otherwise indicated) CONSOLIDATED FINANCIAL STATEMENTS

2. SIGNIFICANT ACCOUNTING POLICIES (cont’d) — Emy plo ee retirement benefits The Company offers its employees pension plans and other retirement benefits such as severance pay and life and health insurance coverage. The cost of pensions and other retirement benefits earned by employees is actuarially determined according to the projected benefit method prorated on services and Management’s best estimate of expected returns on plan assets, salary increases, retirement ages of employees and expected health care costs. The excess of actuarial gains and losses over 10% of the benefit liability is amortized based on a straight-line method over the average remaining active service period of employees. If rights to benefits were immediately acquired through the changes, the past service cost is immediately recognized as an expense. The plans’ assets are carried at fair values and are held in separate trustee pension funds. Income taxes Income taxes include current and deferred taxes. Income taxes are recognized in profit or loss, except for income taxes on items included under Other comprehensive income or Equity. In these specific cases, the income tax expense is recognized in Other comprehensive income and Equity, respectively. Income taxes receivable and payable are obligations to or claims by tax authorities for prior years or the current year that have not been received or paid at the end of the year. Current income taxes are calculated based on taxable income, which is different from net income. The calculation is made based on the tax rates and laws in force at the end of the year. The Company recognizes income taxes using the deferred tax asset and liability method. According to this method, deferred tax assets and liabilities are determined based on the difference between the carrying value and the taxable value of the assets and liabilities. Any change in the net amount of deferred assets and liabilities is posted to income and Accumulated other comprehensive income. Deferred tax assets and liabilities are determined based on currently applicable or applied tax rates and laws which, to the extent that can be predicted, will apply to the taxable income in the periods in which the assets and liabilities will be recovered or paid. Deferred tax assets are recognized when it is probable that they will be realized. Operating leases Leases that do not transfer substantially all the risks and rewards of ownership to the Company are classified as operating leases. Payments made under operating leases are presented on the income statement in Selling and administrative expenses. The amounts of future rents under operating leases are presented in the note on contingencies and commitments.

56 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT For the years ended December 31, 2011 and 2010 Excerpt from the NOTES TO THE (in millions of dollars, unless otherwise indicated) CONSOLIDATED FINANCIAL STATEMENTS

3. TRANSITION TO IFRS — The Company’s consolidated financial statements for the year ended December 31, 2011 are its first annual financial statements in accordance with IFRS. They were prepared as described in Note 2. The Company has applied IFRS 1, First-Time Adoption of International Financial Reporting Standards, in preparing its annual financial statements. The Company’s consolidated financial statements had previously been prepared in accordance with Canadian generally accepted accounting principles (GAAP). The date of transition to IFRS was January 1, 2010, the date of the first comparative year. The Company prepared an opening consolidated statement of financial position as at this date. The reporting date for the consolidated financial statements is December 31, 2011, and the Company adopted IFRS on January 1, 2011. To prepare consolidated financial statements in accordance with IFRS 1, the Company elected to use certain exemptions allowed to other IFRS while taking into account exceptions to retrospective application of other IFRS. Exemption The Company has elected to apply the following exemption to other standards as permitted by IFRS 1: Employee benefits The Company has applied an exemption permitting the presentation of amounts related to the present value of a defined benefit obligation, the fair value of the plan’s assets, the deficit in the plan and the experience adjustments for years beginning on or after the date of transition. Exceptions The Company has applied the following mandatory exceptions in its retrospective application of other IFRS: Estimates Estimates in accordance with IFRS as at January 1, 2010 are consistent with estimates on the same date in accordance with Canadian GAAP. Hedge accounting Current hedging relationships as at January 1, 2010 meet the criteria set forth in IAS 39.

SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 57 For the years ended December 31, 2011 and 2010 Excerpt from the NOTES TO THE (in millions of dollars, unless otherwise indicated) CONSOLIDATED FINANCIAL STATEMENTS

4. INVESTMENTS —

A) Carrying value and fair value of general fund investments december 31, 2011

Designated at fair value through Held for profit or Available Loans and Fair trading loss for sale receivables Other Total value $ $ $ $ $ $ $

Bonds Quebec, Canada and provinces – 965.7 94.8 – – 1,060.5 municipal and subsidized – 127.8 22.9 – – 150.7 Canadian corporations – 502.2 46.4 – – 548.6 – 1,595.7 164.1 – – 1,759.8 1,759.8

Loans Residential mortgages – – – 311.5 – 311.5 Non-residential mortgages – – – 14.2 – 14.2 Other – – – 51.0 – 51.0 – – – 376.7 – 376.7 384.1

shares and units Canadian shares – – 13.5 – – 13.5 u.S. shares – – 2.6 – – 2.6 Exchange-traded funds – – 11.8 – – 11.8 units in partnerships – – 16.0 – – 16.0 – – 43.9 – – 43.9 43.9

investment fund 32.1 – – – – 32.1 32.1

Cash and cash equivalents 147.5 – – 108.6 – 256.1 256.1

other investment – – – – 8.0 8.0 – 1 179.6 1,595.7 208.0 485.3 8.0 2,476.6 –

1 The Company does not establish fair value for this investment.

58 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT For the years ended December 31, 2011 and 2010 Excerpt from the NOTES TO THE (in millions of dollars, unless otherwise indicated) CONSOLIDATED FINANCIAL STATEMENTS

4. INVESTMENTS (cont’d) —

A) Carrying value and fair value of general fund investments (cont’d) December 31, 2010

Designated at fair value through Held for profit or Available Loans and Fair trading loss for sale receivables Other Total value $ $ $ $ $ $ $

Bonds quebec, Canada and provinces – 871.0 78.4 – – 949.4 municipal and subsidized – 97.9 12.2 – – 110.1 Canadian corporations – 475.2 38.0 – – 513.2 – 1,444.1 128.6 – – 1,572.7 1,572.7

Loans Residential mortgages – – – 304.4 – 304.4 non-residential mortgages – – – 15.4 – 15.4 Other – – – 55.2 – 55.2 – – – 375.0 – 375.0 388.3

shares and units Canadian shares – – 55.5 – – 55.5 u.S. shares – – 5.3 – – 5.3 Exchange-traded funds – – 13.0 13.0 units in partnerships – – 35.3 – – 35.3 – – 109.1 – – 109.1 109.1

investment fund 38.6 – – – – 38.6 38.6

Cash and cash equivalents 97.7 – – 108.9 – 206.6 206.6

other investment – – – – 7.9 7.9 – 136.3 1,444.1 237.7 483.9 7.9 2,309.9 –

SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 59 For the years ended December 31, 2011 and 2010 Excerpt from the NOTES TO THE (in millions of dollars, unless otherwise indicated) CONSOLIDATED FINANCIAL STATEMENTS

5.A F IR VALUE OF FINANCIAL ASSETS — Financial instruments recorded at fair value in the Consolidated Statements of Financial Position are classified using a hierarchy that reflects the significance of the inputs used in determining valuations and includes three levels: •. Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities • L evel 2 – A valuation based on inputs observable in markets for the asset or liability, obtained either directly or indirectly •. Level 3 – A valuation based on inputs other than inputs observable in markets for the asset or liability As at December 31, 2011 and 2010, general fund investment contracts were presented at fair value in the Consolidated Statements of Financial Position. The following table shows financial assets classified using the fair value hierarchy:

December 31, 2011 Level 1 Level 2 Level 3 Total $ $ $ $

Financial assets at fair value through profit or loss Bonds Quebec, Canada and provinces...... – 965.7 – 965.7 Municipal and subsidized...... – 127.8 – 127.8 Canadian corporations...... – 502.2 – 502.2 Investment fund...... 32.1 – – 32.1 Cash and cash equivalents – 147.5 – 147.5 32.1 1,743.2 – 1,775.3

available-for-sale financial assets Bonds Quebec, Canada and provinces...... 0.5 94.3 – 94.8 Municipal and subsidized...... – 22.9 – 22.9 Canadian corporations...... – 46.4 – 46.4 Shares and units Canadian shares...... 13.4 – 0.1 13.5 U.S. shares...... 2.6 – – 2.6 Exchange-traded funds...... 11.8 – – 11.8 Units in partnerships – – 16.0 16.0 28.3 163.6 16.1 208.0

During the years ended December 31, 2011 and 2010, there were no transfers of financial assets between Levels 1 and 2.

60 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT For the years ended December 31, 2011 and 2010 Excerpt from the NOTES TO THE (in millions of dollars, unless otherwise indicated) CONSOLIDATED FINANCIAL STATEMENTS

5.A F IR VALUE OF FINANCIAL ASSETS (cont’d) — december 31, 2010 Level 1 Level 2 Level 3 Total $ $ $ $

Financial assets at fair value through profit or loss Bonds Quebec, Canada and provinces...... – 871.0 – 871.0 Municipal and subsidized...... – 97.9 – 97.9 Canadian corporations...... – 475.2 – 475.2 Investment fund...... 38.6 – – 38.6 Cash and cash equivalents – 97.7 – 97.7 38.6 1,541.8 – 1,580.4

Available-for-sale financial assets Bonds Quebec, Canada and provinces...... – 78.4 – 78.4 Municipal and subsidized...... – 12.2 – 12.2 Canadian corporations...... – 38.0 – 38.0 Shares and units Canadian shares...... 55.4 – 0.1 55.5 U.S. shares...... 5.3 – – 5.3 Exchange-traded funds...... 13.0 – – 13.0 Units in partnerships – – 35.3 35.3 73.7 128.6 35.4 237.7

SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 61 For the years ended December 31, 2011 and 2010 Excerpt from the NOTES TO THE (in millions of dollars, unless otherwise indicated) CONSOLIDATED FINANCIAL STATEMENTS

6. FINANCIAL INSTRUMENT RISK MANAGEMENT — The Company has adopted control policies and procedures to manage risks related to financial instruments. An investment policy was approved by the Board of Directors to provide a framework for making investment decisions. The control procedures arising from this policy ensure sound management of investment risks. Segregated funds are excluded from the financial instrument risk management analysis since the policyholders assume the risks and benefit from the rewards of the segregated fund contracts. Risks related to financial instruments are credit risk, liquidity risk and market risk. Credit risk Credit risk is the risk of financial loss to the Company if a debtor fails to honour its obligations. The Company is exposed to this type of risk through its investment portfolios and, in particular, through credit extended as loans. The Company is also exposed to credit risk with regard to outstanding premiums and amounts receivable from reinsurers. It manages credit risk by applying the following control procedures: • U tilization guidelines that set minimum and maximum limits are established for each class of investment to meet the specific needs of each business sector • T he guidelines allocate liability among various quality Canadian issuers with credit ratings from recognized sources of BBB or higher at trade date • A n overall limit is established for each credit rating quality level • A detailed loan policy specifies the requirements for guarantees and credit • A n overall limit is also established for investments of a related issuer or group of issuers to mitigate concentration risk • T he Investment Committee of the Board of Directors carries out regular reviews of the investment portfolio and its transactions • W hen entering into reinsurance agreements, the Company monitors the financial position of the reinsurers

62 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT For the years ended December 31, 2011 and 2010 Excerpt from the NOTES TO THE (in millions of dollars, unless otherwise indicated) CONSOLIDATED FINANCIAL STATEMENTS

6. FINANCIAL INSTRUMENT RISK MANAGEMENT (cont’d) — Credit risk (cont’d)

Maximum exposure to credit risk 2011 2010 $ $ Bonds Designated at fair value through profit or loss ...... 1,595.7 1,444.1 Available for sale...... 164.1 128.6

Loans Mortgage loans...... 325.7 319.8 Other loans...... 51.0 55.2

Cash and cash equivalents...... 256.1 206.6 Outstanding premiums...... 96.5 90.5 Ceded reinsurance assets...... 885.7 820.4 Investment income due and accrued...... 10.2 10.6 Other financial assets 71.5 35.1 3,456.5 3,110.9

Bond portfolio quality 2011 2010 $ $ Bonds Quebec, Canada and provinces...... 1,060.5 949.4 Municipal and subsidized...... 150.7 110.1 Canadian corporations, per credit rating AAA...... 44.1 33.7 AA...... 36.2 35.2 A...... 371.5 377.0 BBB 96.8 67.3 1,759.8 1,572.7

an Lo portfolio quality 2011 2010 $ $ Insured loans...... 179.2 167.4 Conventional loans 197.5 207.6 376.7 375.0

SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 63 For the years ended December 31, 2011 and 2010 Excerpt from the NOTES TO THE (in millions of dollars, unless otherwise indicated) CONSOLIDATED FINANCIAL STATEMENTS

6. FINANCIAL INSTRUMENT RISK MANAGEMENT (cont’d) — Credit risk (cont’d) Allowance for investment losses The allowance for investment losses is established based on the Company’s assessment of its financial assets, considering all objective evidence of impairment. Such evidence stems from the financial difficulties of the issuer or from defaults on principal or interest payments. Obligations towards insureds also include an allowance to cover any potential loss on loans and investments in debt securities. The Company maintains an allowance for credit losses relating to the carrying value of its loans. A loss provision is established when the Company entertains doubt regarding the full recovery of the principal or interest on a loan. For allowance purposes, estimated realizable loan value takes into account recovery forecasts, guarantee valuations and market conditions. The following table summarizes impaired loans and allowances for investment losses:

2011 2010

Allowance for Allowance for investment investment impaired loans losses Impaired loans losses $ $ $ $

Residential mortgage loans...... – – 2.4 0.4 Non-residential mortgage loans...... 2.5 0.5 2.5 0.4 Other loans 42.4 1.9 36.3 1.4 44.9 2.4 41.2 2.2 General allowance on mortgage loans – 1.5 – 1.1 44.9 3.9 41.2 3.3

2011 2010 $ $ Awllo ance for investment losses

balance, beginning of year...... 3.3 3.6 New provision...... 0.9 0.6 Recovery (0.3) (0.9) Balance, end of year 3.9 3.3

Past due financial assets A financial asset is deemed past due when a counterparty has failed to make a payment when contractually due. As at December 31, 2011 and 2010, other than for certain impaired loans, the Company has no financial assets past due that substantially impact its financial position.

64 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT For the years ended December 31, 2011 and 2010 Excerpt from the NOTES TO THE (in millions of dollars, unless otherwise indicated) CONSOLIDATED FINANCIAL STATEMENTS

6. FINANCIAL INSTRUMENT RISK MANAGEMENT (cont’d) — Liquidity risk Liquidity risk refers to the risk that the Company might experience cash flow difficulties arising from its obligations and financial liabilities. The Company manages liquidity risk by applying the following control procedures: • The Company manages its liquidities by matching cash flows from its operations and investments to those required to meet its obligations • Its cash position is analyzed on short and medium term horizons to meet the needs of the different business sectors The following table presents contractual maturities of the undiscounted cash flows of financial liabilities and unsettled claims of the Company’s property and casualty insurance contracts.

2011 Payable on Less than demand 1 year 1 to 5 years Over 5 years Total $ $ $ $ $

unpaid claims...... – 24.6 5.7 0.6 30.9 General fund investment contracts...... 5.7 – – – 5.7 Accounts payable...... – 103.7 – – 103.7 Subordinated debt...... – – 30.0 90.0 120.0 Other financial liabilities 0.4 2.2 5.7 – 8.3 6.1 130.5 41.4 90.6 268.6

2010 Payable on Less than demand 1 year 1 to 5 years Over 5 years Total

$ $ $ $ $ Unpaid claims...... – 22.9 5.9 1.6 30.4 General fund investment contracts...... 8.5 – – – 8.5 Accounts payable...... – 100.5 – – 100.5 Subordinated debt...... – – – 120.0 120.0 Other financial liabilities 0.2 0.5 3.1 – 3.8 8.7 123.9 9.0 121.6 263.2

SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 65 For the years ended December 31, 2011 and 2010 Excerpt from the NOTES TO THE (in millions of dollars, unless otherwise indicated) CONSOLIDATED FINANCIAL STATEMENTS

6. FINANCIAL INSTRUMENT RISK MANAGEMENT (cont’d) — Market risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to market factors. Market risk includes three types of risk: interest rate risk, market price risk and currency risk. A) Interest rate risk The Company matches its assets with liabilities from obligations in each of its business sectors. Interest rate risk exists when interest rates fluctuate due to widening spreads in matching expected cash flows between assets and liabilities. In managing interest rate risk, the Company focuses on matching expected cash flows of assets and liabilities in selecting the investments backing its obligations. It uses different measures and performs sensitivity analyses to evaluate the spreads between the cash flows generated by investments held and those required to meet obligations according to various future interest rate scenarios. The Company’s investment policy sets maximum spread limits for those measures as applied to assets and liabilities. This information is disclosed to the Investment Committee on a quarterly basis. The results of the interest rate sensitivity analyses also serve to establish the amounts to be included in the valuation of obligations towards insureds for interest rate risk. A 1% change of the interest rate curve would have an insignificant impact on income. For its available-for-sale financial assets not matched to obligations towards insureds, the Company believes that a 1% increase of the interest rate curve would result in a decrease of $6.8 (2010 – $6.8) in Other comprehensive income. B) Market price risk The Company is exposed to market price risk through its available-for-sale equity investments. The investment policy puts restrictions on equity investments and sets out their limits. The Company does not invest in equities to back its obligations towards insureds. Changes in the fair value of these investments are recognized in Comprehensive income. A sudden 10% decrease in the value of such investments would result in an estimated decrease of $2.0 (2010 – $5.2) in Other comprehensive income. The Company is also exposed to market price risk through income from investment fund management fees and expenses related to capital guarantees provided to segregated funds. A sudden 10% decrease in stock markets would result in an estimated drop of $1.0 (2010 – $0.9) in income.

66 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT For the years ended December 31, 2011 and 2010 Excerpt from the NOTES TO THE (in millions of dollars, unless otherwise indicated) CONSOLIDATED FINANCIAL STATEMENTS

6. FINANCIAL INSTRUMENT RISK MANAGEMENT (cont’d) — Market risk (CONT’D) C) Currency risk Currency risk exists when transactions in currencies other than the Canadian dollar are affected by unfavourable exchange rate changes. The Company’s foreign currency risk exposure is low as only Canadian currency is used to acquire investments to back obligations towards insureds. The Company uses foreign exchange contracts to hedge against currency risk associated with U.S. shares. A variation of 10% in the exchange rate would have an insignificant impact on income.

7. OBLIGATIONS TOWARDS INSUREDS — Nature of obligations The obligations towards insureds are amounts that, added to future premiums and investment revenues, will allow the Company to respect its commitment to pay future claims, experience refunds and corresponding expenses originating from contracts in force. The obligations towards insureds are periodically reviewed and allow for additional amounts required to cover risks originating from plausible adverse deviations in experience as compared to the most probable assumptions. These amounts take into account the uncertainty included in the valuation assumptions. Inherent uncertainty of the appraisal process In order to estimate the obligations towards insureds, assumptions are required regarding future events related to mortality, morbidity, investment returns and operating expenses. These assumptions also include a provision for adverse deviations attributable to the inherent uncertainty of the appraisal process.

SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 67 For the years ended December 31, 2011 and 2010 Excerpt from the NOTES TO THE (in millions of dollars, unless otherwise indicated) CONSOLIDATED FINANCIAL STATEMENTS

8. SUBORDINATED DEBT — December 31, December 31, 2011 2010 $ $ debenture, 5.5%, maturing in 2016 redeemable by the Company under certain conditions...... 30.0 30.0 Debenture, 6.3%, maturing in 2030 redeemable by the Company under certain conditions ...... 20.0 20.0 Debenture, 6.675%, maturing in 2019 redeemable by the Company under certain conditions...... 15.0 15.0 Debenture payable to majority shareholder, 6.74%, maturing in 2030...... 15.0 15.0 Debenture payable to majority shareholder, 6.4%, maturing in 2027...... 10.0 10.0 Debenture, Series A, 7.75%, maturing in 20191 3.0 3.0 93.0 93.0

Subordinated notes, 7.09% semi-annual, maturing in 20201 Majority shareholder...... 6.1 6.1 Shareholder 0.9 0.9 7.0 7.0

Subordinated note payable to majority shareholder, 5.93% semi-annual, maturing in 2018 20.0 20.0 27.0 27.0 120.0 120.0 Fair value 116.9 124.3

1 Convertible at the discretion of the holder into shares under certain circumstances such as change in control, merger, public offering or default in the payment of interest and principal at maturity. The fair value of subordinated debt classified as Other financial liabilities is assessed using a model based on discounted expected cash flows. Cash flows are discounted at a rate equal to the rate of return of a benchmark index with a risk profile that is similar to that of underlying assets and with a term whose duration equals the maximum anticipated maturity of the subordinated debt.

68 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT For the years ended December 31, 2011 and 2010 Excerpt from the NOTES TO THE (in millions of dollars, unless otherwise indicated) CONSOLIDATED FINANCIAL STATEMENTS

9. SHARE CAPITAL —

Authorized

Class A 150,000,000 shares, without par value, participating and voting right Class B 150,000,000 shares, without par value, participating and voting right, redeemable by mutual agreement, convertible at the discretion of the holder in whole or in part, into Class A shares, one Class A share for each Class B share exchanged Class C 100,000,000 shares, with a par value of $1, non-voting, giving the right to fixed preferred dividends to Class A and B shares, issuable in one or several series. As at December 31, 2011 and 2010, no Class C shares were issued.

Issued 2011 2010 $ $ 29,901,210 Class A shares...... 24.0 24.0 15,872,860 Class B shares 12.6 12.6 36.6 36.6

Dividends

.On June 14, 2011, the Company declared dividends of 0.10 dollar for each Class A and Class B share payable to shareholders on June 30, 2011 and July 7, 2011. .On November 10, 2010, the Company declared dividends of 0.13 dollar for each Class A and Class B share payable to shareholders on December 9, 2010.

10. cAPITAL MANAGEMENT — The Company maintains a capital amount that satisfies the criteria of the Autorité des marchés financiers (Autorité) guideline on capital adequacy requirements. The guideline requires the calculation of a solvency ratio of capital available to capital required, with both amounts established in accordance with the guideline. Capital is required for each type of risk to which the Company is exposed. These include mortality, morbidity, asset yield deficiency, and changes in interest rate environment as well as segregated fund guarantee risk.

SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 69 For the years ended December 31, 2011 and 2010 Excerpt from the NOTES TO THE (in millions of dollars, unless otherwise indicated) CONSOLIDATED FINANCIAL STATEMENTS

10. cAPITAL MANAGEMENT (CONT’D) — Capital available corresponds primarily to equity increased by subordinated debt and decreased by amounts prescribed by the Autorité, including the required capital of the Company’s subsidiary SSQ, General Insurance Company Inc., which is established in accordance with the Autorité guideline on capital adequacy requirements (MCT) that apply to the subsidiary. Due to their limited life, subordinated debts cease to be recognized as capital linearly over the last five years prior to their maturity; moreover, they are recognized up to 50% of the Company’s equity amount. To maintain a capital amount that satisfies the criteria of the Autorité, the Company makes annual financial forecasts for the next five years; among the data reviewed are the solvency ratio and changes to the solvency ratio for the next five years. The actuary, appointed by the Board of Directors in conformity with An Act respecting insurance, prepares an annual assessment of the financial position of the Company; he carries out dynamic capital adequacy testing (DCAT) of which one objective is to verify the capital adequacy of the Company despite plausible unfavourable events. These documents are submitted and presented to the Board of Directors. The Autorité guideline states that the Company must set a target level of available capital that exceeds the minimum requirements. The Company has chosen to maintain a solvency ratio that exceeds the minimum requirements to, among others, take advantage of any business opportunities. The Company’s current solvency ratio exceeds minimum requirements and is higher than the set target.

Capital position as at December 31

2011 2010 $ $

Shareholders’ equity...... 334.1 307.3 Subordinated debt...... 114.0 120.0 Prescribed reductions and other adjustments (19.9) (14.9) Capital available 428.2 412.4

Concerning its subsidiary, SSQ General Insurance Company Inc., the Company’s policy is to maintain a higher target level of capital than required under the Autorité guideline on the capital adequacy requirements (MCT) that apply to the subsidiary. The solvency ratios of the subsidiary as at December 31, 2011 and 2010 exceed the level required under the guideline.

70 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT For the years ended December 31, 2011 and 2010 Excerpt from the NOTES TO THE (in millions of dollars, unless otherwise indicated) CONSOLIDATED FINANCIAL STATEMENTS

11. iNCOME TAXES —

2011 2010 $ $ income tax expense for the year – Income Current income taxes...... 9.6 15.5 Deferred income taxes resulting from the origination or reversal of temporary differences 2.1 (0.8) 11.7 14.7

12. cOMPONENTS OF THE CONSOLIDATED STATEMENTS OF INCOME

— 2011 2010 $ $ gross premiums Life insurance...... 1,272.5 1,210.4 Investment and retirement Invested in general funds...... 41.3 50.0 Invested in segregated funds...... 423.7 379.2 Property and casualty insurance 218.4 180.0 1,955.9 1,819.6

13. SEGREGATED FUNDS — A) Carrying value of segregated fund investments december 31, December 31, 2011 2010 $ $

Investment fund units...... 2,358.2 1,960.1 Bonds and other fixed income investments...... 596.6 494.2 Shares 187.1 145.6

Total investments...... 3,141.9 2,599.9 Other assets and liabilities 24.0 23.6 3,165.9 2,623.5

As at December 31, 2010, the difference between segregated fund assets and liabilities is equal to seed capital.

SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 71 For the years ended December 31, 2011 and 2010 Excerpt from the NOTES TO THE (in millions of dollars, unless otherwise indicated) CONSOLIDATED FINANCIAL STATEMENTS

13. SEGREGATED FUNDS (CONT’D) — B) Fair value of segregated fund investments

The following table presents investments in segregated funds classified according to the fair value hierarchy defined in Note 5 and excludes all other financial assets except derivative financial instruments:

December 31, 2011 Level 1 Level 2 Level 3 Total $ $ $ $ segregated fund financial assets at fair value through profit or loss Investment fund units...... 2,174.2 184.0 – 2,358.2 Bonds...... – 451.8 – 451.8 Money market...... – 144.8 – 144.8 Shares...... 186.9 0.2 – 187.1 Derivative financial instruments 0.9 – – 0.9 2,362.0 780.8 – 3,142.8 Segregated fund financial liabilities at fair value through profit or loss Derivative financial instruments (3.5) – – (3.5) (3.5) – – (3.5)

During the years ended December 31, 2011 and 2010, there were no transfers of investments related to segregated funds between Levels 1 and 2.

December 31, 2010 Level 1 Level 2 Level 3 Total $ $ $ $ segregated fund financial assets at fair value through profit or loss Investment fund units...... 1,848.3 111.5 0.3 1,960.1 Bonds...... – 411.1 – 411.1 Money market...... – 82.3 0.8 83.1 Shares...... 145.6 – – 145.6 Derivative financial instruments 4.0 0.1 – 4.1 1,997.9 605.0 1.1 2,604.0

72 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT For the years ended December 31, 2011 and 2010 Excerpt from the NOTES TO THE (in millions of dollars, unless otherwise indicated) CONSOLIDATED FINANCIAL STATEMENTS

13. SEGREGATED FUNDS (CONT’D) — C) Changes in segregated fund insurance contracts and investment contracts

2011 2010 insurance investment Insurance Investment contracts contracts contracts contracts $ $ $ $

balance, beginning of year...... 1,286.4 1,335.5 963.0 985.0 Amounts collected from policyholders...... 434.8 392.6 387.6 394.2 Investment income...... (44.1) 51.2 91.1 105.2 Amounts paid to policyholders (170.5) (120.0) (155.3) (148.9) Balance, end of year 1,506.6 1,659.3 1,286.4 1,335.5

In accordance with the contractual maturities of cash flows, segregated fund insurance contracts and investment contracts are payable on demand.

14. cONTINGENCIES AND COMMITMENTS — Contingencies The Company and its subsidiaries are subject to legal actions, including proposed class actions, arising in the normal course of business. The Company does not expect that settlement of current legal actions will have a material adverse effect on its consolidated financial position. Letters of credit In the normal course of business, banking institutions issue letters of credit on the Company’s behalf. As at December 31, 2011, these letters of credit totalled $14.7 (2010 – $15.0). No assets were pledged against these letters of credit. Commitments The Company leases office space as lessee. These leases mature between 2012 and 2025. Lease payments, equal to the minimum payments expensed during the year, totalled $6.5 (2010 – $6.3). The expected payments on the leases are as follows:

Less than 1 year 1 to 5 years Over 5 years Total $ $ $ $ Basic rent 4.7 13.4 13.1 31.2

SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 73 For the years ended December 31, 2011 and 2010 Excerpt from the NOTES TO THE (in millions of dollars, unless otherwise indicated) CONSOLIDATED FINANCIAL STATEMENTS

15. bUSINESS ACQUISITIONS — On August 1, 2011, the Company acquired, through a wholly-owned subsidiary, all shares of Service d’encadrement pour directeur commercial (S.E.D.C.) Inc. and 3669203 Canada Inc. (Groupe Finance et Indemnisation), two companies specializing in the distribution of insurance products. The total cash consideration for these acquisitions was $12.9, including an estimated contingent consideration of $3.5. The preliminary indefinite-life intangible assets and goodwill amounted to $6.5 and $6.0, respectively. As at December 31, 2011, an amount of $3.9 was included in Other liabilities. Purchase price allocation process The Company has twelve months following the acquisition date to finalize the purchase price allocation process. Once the final analysis is completed, the allocation of the preliminary purchase price may be subject to adjustments. As at December 31, 2011, the Company was awaiting an expert’s final conclusions with respect to the fair value measurement of various assets and liabilities acquired as part of these transactions.

2011 $ Assets acquired...... Other accounts receivable...... 1.4 Income taxes receivable...... 0.1 Fixed assets 0.1

Liabilities assumed...... Accounts payable (1.2)

Net assets acquired...... 0.4 Preliminary intangible assets...... 6.5 Preliminary goodwill 6.0

Purchase price 12.9

16. SUBSEQUENT EVENT — On January 1, 2012, the Company acquired 100% of the voting shares of AXA Life Insurance Inc. for a consideration of $30.0. As part of this acquisition, the Company issued a subordinated debenture for an amount of $30.0. The value of all of the participating shares of AXA Life Insurance Inc. was established at $300.0. The initial recognition of this transaction has yet to be finalized, as the process of evaluating the acquired assets and related terms is ongoing.

74 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT Organizational structure

SSQ, Life Insurance Company Inc.

Life and Health Insurance Investment and Retirement • Life insurance • Guaranteed Interest Accounts (GIAs) • Accidental death or dismemberment • Segregated funds • Disability insurance • Minimum Guaranteed Income Product • Prescription drug insurance (Astra Guaranteed Income) • Additional health insurance • Private wealth management • Travel insurance and trip cancellation insurance • RRSPs, LIRAs, TFSAs, Non-registered Savings Plans • Dental care insurance • Group RRSPs • Credit insurance • Retirement plans • Health and wellness program, Health InSight • Deferred profit-sharing plan • RRIFs, LIFs, annuities • Mortgage loans

SSQ General Insurance Company Inc. SSQ Realty Inc.

• Automobile insurance • Property management and real • Home insurance estate assets management • Business insurance • Replacement insurance

SSQ Foundation

SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 75 BOARDS OF DIRECTORS, SENIOR MANAGEMENTS AND VICE-PRESIDENCIES

SSQ, Life Insurance u Denyse Paradis / Terrebonne Company Inc. Corporate Secretary and Treasurer Fédération de la santé et des Board of Directors services sociaux (FSSS) – CSN President ■ Sylvain Paré / Montreal ■ Pierre Genest / Quebec City l Vice-President – Financial and Chairman of the Board Strategic Management SSQ, Mutual Management Solidarity Fund QFL Corporation Alain Pélissier / Montreal Vice-Chairman Retiree ■ Émile Vallée / Gatineau Centrale des syndicats du Québec Retiree – CSQ Fédération des travailleurs et l travailleuses du Québec (FTQ) Sylvain Picard / Wendake Executive Director ■ Normand Brouillet / Native Benefits Plan Saint-Lambert s Retiree Norman A. Turnbull / East Bolton Confédération des Syndicats Corporate Director Nationaux (CSN) u Dominique Verreault / Chantal Doré / Boucherville Saint-Hubert Vice-President – Projects and President Strategic Support Alliance du personnel Solidarity Fund QFL professionnel et technique de la santé et des services sociaux ■ René Hamel / Quebec City (APTS) Chief Executive Officer SSQ, Life Insurance Company Inc. corporate secretary u Eddy Jomphe / Lévis Hélène Plante Union Representative Canadian Union of Public Employees – FTQ Andrew MacDougall / Toronto President Spencer Stuart Canada ■ Member of Executive and Human Resources Committee ■ Gaétan Morin / Terrebonne Executive Vice-President, l Me mber of Audit and Risk investments Management Committee Solidarity Fund QFL s Member of Investment Committee ■ Michel Nadeau / Longueuil s Executive Director u Member of Ethics Committee Institute for Governance of Private and Public Organizations

76 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT SSQ General Insurance ■ Bernard Piché / Montreal Company Inc. Corporate Director Board of Directors s Jocelyn Tremblay / Quebec City President Union Representative ■ Pierre Genest / Quebec City Canadian Union of Public Chairman of the Board Employees(CUPE) – FTQ SSQ, Life Insurance Company Inc. l Pierre-Maurice Vachon / Vice-President Sainte-Marie ■ Jacques Rochefort / Montreal Corporate Director Chief Executive Officer Chenelière Éducation corporate secretary u Lucie Grandmont / Quebec City Hélène Plante 3rd Vice-President Syndicat de la fonction publique du Québec (SFPQ) u Kathleen Grant / Saint-Lambert Director – Communications HEC Montréal René Hamel / Quebec City Chief Executive Officer SSQ, Life Insurance Company Inc. l Danielle Lallemand / L’Assomption Accountant Confédération des syndicats nationaux (CSN) l André L’Écuyer / Saint-Augustin-de-Desmaures President Rabaska

SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT 77 bOARDS OF DIRECTORS, SENIOR MANAGEMENTS AND VICE-PRESIDENCIES

SSQ, Life Insurance SSQ General Insurance Company Inc. Company Inc. Senior Management Vice-Presidencies Senior Management René Hamel* Life and Health Insurance Gilles Mourette* Chief Executive Officer Chief Executive Officer Carl Laflamme Serge Boiteau* Vice-President Hélène Plante Senior Vice-President – Sales and Marketing Corporate Secretary Corporate Services Darryl Ingham Vice-Presidencies Patrick Cyr* Vice-president – Toronto Office Senior Vice-President Denis Delmaire Diane Gaulin Finances and Realty Vice-President Vice-president – Sales, Special – Information Technology Yvon Girard* Groups Senior Vice-President Ginette Fortin Charles Plamondon Investments Vice-President – Insurance Vice-President – Systems Johanne Goulet* Development and Integration France LeBlanc Senior Vice-President Vice-President – Actuarial Services Éric Trudel SSQ Life and Health Insurance Vice-President – Actuarial Aurel Lessard Marie Lamontagne* Vice-President François Boisjoli Senior Vice-President – Sales and Marketing Vice-President – Client Services Corporate Communications and Administration and Marketing Éric Thériault Vice-President – Claims Denis Légaré* Investment and Retirement Senior Vice-President Jean Cinq-Mars Human Resources and Internal Vice-President – Client Services Communications and Administration Michel Loranger* Donald Cyr Senior Vice-President Vice-President – Actuarial and Sales Information Technology Support Bernard Tanguay* Marc Trépanier Senior Vice-President Vice-President SSQ Investment and Retirement and Business Development – National SSQ Insurance Company Inc. Individual Insurance and Retirement Hélène Plante Corporate Services Corporate Secretary Carl Cleary Vice-President * Members of the Senior Management Team of SSQ Financial Group – Corporate Development Marc Gagnon Vice-President – Legal Department

78 SSQ FINANCIAL GROUP / 2011 ANNUAL REPORT ADdresses Contact Us

SSQ, Life Insurance Company Inc. SSQ General Insurance Company Inc. Corporate Communications and Marketing Head Office Quebec City Office SSQ Financial Group 2525 Laurier Blvd 2515 Laurier Blvd 2525 Laurier Blvd Quebec, QC G1V 2L2 P.O. Box 10530, Station Sainte-Foy Quebec City (QC) G1V 2L2 Tel.: 418-651-7000 Quebec, QC G1V 0A5 1-800-463-5525 Tel.: 418-683-5515 Tel.: 1-866-332-3806 1-866-777-2886 E-mail: [email protected] Life and Health Insurance Longueuil Office 2525 Laurier Blvd You can also visit our Web site at ssq.ca. Quebec, QC G1V 2L2 1010 Sérigny Street, Suite 800 For the complete consolidated financial Tel.: 418-651-7000 Longueuil, QC J4K 5G7 statements, please send your request to 1-800-380-2588 Tel.: 450-321-0056 [email protected]. 1-866-777-2886 Montreal Office Le rapport annuel de SSQ Groupe financier est également disponible en français. 1200 Papineau Avenue, 4th Floor SSQ Realty Inc. Montreal, QC H2K 4R5 2525 Laurier Blvd Tel.: 514-521-7365 ISSN 1700-0688 1-800-361-8100 Quebec, QC G1V 2L2 Legal Deposit – 2nd quarter 2012 Tel.: 418-682-1245 Bibliothèque et Archives nationales Toronto Office du Québec National Library of Canada 110 Sheppard Avenue East, Suite 500 Toronto, ON M2N 6Y8 Tel.: 416-221-3477 Investment and Retirement

1245 Chemin Sainte-Foy, Suite 210 Quebec, QC G1S 4P2 Tel.: 1-800-320-4887 Mortgage Loans

2525 Laurier Blvd Quebec, QC G1V 2L2 Tel.: 418-652-2705 1-800-463-6987