THE EMPIRE LIFE INSURANCE COMPANY

THE EMPIRE LIFE INSURANCE COMPANY Condensed Interim Consolidated Financial Statements For the nine months ended September 30, 2013 Unaudited Issue Date: November 6, 2013 These condensed interim consolidated financial statements have not been reviewed by external auditors.

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MANAGEMENT S DISCUSSION AND ANALYSIS The following Management s Discussion and Analysis ( MD&A ) of the unaudited operating results and financial condition of The Empire Life Insurance Company ( Empire Life or the Company ) for the third quarter of 2013 should be read in conjunction with the MD&A for the year ended December 31, 2012, the Company s annual audited financial statements, the notes relating thereto, and the quarterly unaudited financial statements and notes contained in this report, as well as the Company s MD&A and unaudited interim financial statements for the quarters of 2012 and the previous quarters of 2013. The unaudited condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ) as set out in the Handbook of the Canadian Institute of Chartered Accountants ( CICA Handbook ). Unless otherwise noted, both the condensed consolidated financial statements and this MD&A are expressed in Canadian dollars. MD&A may contain certain forward-looking statements that are subject to risks and uncertainties that may cause the results or events mentioned in this discussion to differ materially from actual results or events. No assurance can be given that results, performance or achievement expressed in, or implied by, any forward-looking statements within this discussion will occur, or if they do, that any benefits may be derived from them. Financial Analysis Overview Third quarter Year to date (millions of dollars) 2013 2012 2013 2012 Shareholders' net income $ 32.5 $ 20.2 $ 83.4 $ 55.1 Empire Life reported third quarter shareholders net income of $32.5 million for 2013, compared to $20.2 million for 2012. Net income was higher relative to the third quarter of 2012 due primarily to improved Individual Insurance product line net income. This product line s improved result was due primarily to the favourable impact of stock market movements and long-term interest rate movements in 2013. Year to date shareholders net income was $83.4 million compared to $55.1 million in 2012. Net income was higher relative to 2012 due primarily to improved Individual Insurance product line net income. This improvement was due primarily to the favourable impact of long-term interest rate movements in 2013. Empire Life has three major product lines (Wealth Management, Employee Benefits and Individual Insurance) and maintains distinct accounts for Capital and Surplus. A discussion of each product line s 2013 net income compared to 2012 is shown in the Product Line Results sections later in this report. This interim report contains references to annualized premium sales. This term does not have any standardized meaning according to generally accepted accounting principles and therefore may not be comparable to similar measures presented by other companies. Annualized premium sales is used as a method of measuring sales volume. It is equal to the premium expected to be received in the first 12 months for all new Individual Insurance and Employee Benefit policies sold during the period. Empire Life believes that this measure provides information useful to its shareholders and policyholders in evaluating Empire Life s underlying financial results. Management s assessment of industry dynamics, risks and risk management, critical accounting estimates, strategy and outlook remains consistent with the disclosure in the 2012 Annual Management s Discussion and Analysis. MANANGEMENT S DISCUSSION AND ANALYSIS The Empire Life Insurance Company Third Quarter 2013 1

MANAGEMENT S DISCUSSION AND ANALYSIS The following tables provide a summary of Empire Life results by major product line (figures in Management s Discussion and Analysis may differ due to rounding): For the three months ended September 30 (millions of dollars) Wealth Employee Individual Capital and Management Benefits Insurance Surplus Total Q3 2013 Q3 2012 Q3 2013 Q3 2012 Q3 2013 Q3 2012 Q3 2013 Q3 2012 Q3 2013 Q3 2012 Revenue Net premium income $ 34 $ 53 $ 77 $ 72 $ 92 $ 89 $ - $ - $ 203 $ 214 Fee and other income 36 29 2 2 - - - - 38 31 Investment income 15 12 1 2 35 33 12 8 63 55 Realized gain on FVTPL investments 3 - - - 13 7 - - 16 7 Realized gain(loss) on available for sale investments including impairment write downs 1 - - - - - (3) 1 (2) 1 Fair value change in FVTPL investments (12) 6 (1) - (70) 63 - - (83) 69 77 100 79 76 70 192 9 9 235 377 Expenses Benefits and expenses 65 94 74 65 46 187 6 4 191 350 Income and other taxes 3 1 3 4 7 2-1 13 8 68 95 77 69 53 189 6 5 204 358 Net income after tax $ 9 $ 5 $ 2 $ 7 $ 17 $ 3 $ 3 $ 4 $ 31 $ 19 Policyholders' portion (1) (1) Shareholders' net income $ 32 $ 20 Assets under management General fund assets $ 1,103 $ 1,138 $ 6,026 $ 5,892 Segregated fund assets $ 5,414 $ 4,627 $ 21 $ 21 $ 5,435 $ 4,648 Mutual fund assets $ 27 $ 4 $ 27 $ 4 Annualized premium sales $ 14 $ 13 $ 14 $ 19 For the nine months ended September 30 (millions of dollars) Wealth Employee Individual Capital and Management Benefits Insurance Surplus Total 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 Revenue Net premium income $ 115 $ 127 $ 229 $ 215 $ 263 $ 259 $ - $ - $ 607 $ 601 Fee and other income 102 84 6 5 1 1 1 1 110 91 Investment income 40 39 3 5 103 109 30 26 176 179 Realized gain on FVTPL investments 7 3 - - 27 14 - - 34 17 Realized gain (loss) on available for sale investments including impairment write downs 1 - - - - - (1) 5-5 Fair value change in FVTPL investments (33) 4 (6) (1) (303) 64 - - (342) 67 232 257 232 224 91 447 30 32 585 960 Expenses Benefits and expenses 211 246 216 204 25 431 14 11 466 892 Income and other taxes 4 1 8 8 21 4 3 4 36 17 215 247 224 212 46 435 17 15 502 909 Net income after tax $ 17 $ 10 $ 8 $ 12 $ 45 $ 12 $ 13 $ 17 $ 83 $ 51 Policyholders' portion - (4) Shareholders' net income $ 83 $ 55 Assets under management General fund assets $ 1,103 $ 1,138 $ 6,026 $ 5,892 Segregated fund assets $ 5,414 $ 4,627 $ 21 $ 21 $ 5,435 $ 4,648 Mutual fund assets $ 27 $ 4 $ 27 $ 4 Annualized premium sales $ 40 $ 33 $ 37 $ 49 2 The Empire Life Insurance Company Third Quarter 2013 MANAGEMENT S DISCUSSION AND ANALYSIS

MANAGEMENT S DISCUSSION AND ANALYSIS Total Revenue Third quarter Year to date (millions of dollars) 2013 2012 2013 2012 Revenue Net premium income $ 203 $ 214 $ 607 $ 601 Investment income 63 56 176 179 Fair value change in FVTPL investments including realized amounts (67) 75 (308) 84 Realized gain (loss) on AFS investments including impairment write downs (3) 1-5 Fee and other income 38 31 110 91 Total $ 234 $ 377 $ 585 $ 960 For the quarter, total revenue at Empire Life decreased by 38% to $234 million compared to $377 million in 2012. On a year to date basis, total revenue decreased by 39% to $585 million compared to $960 million in 2012. Major revenue items are discussed below. Net premium income for the quarter decreased in 2013 relative to 2012. The decrease for the quarter related primarily to the Wealth Management product line due to lower fixed interest annuity premiums. Net premium income for the year to date increased in 2013 relative to 2012. The increase for the year to date related primarily to the Employee Benefits product line. Fair value change in FVTPL investments including realized amounts often causes large revenue volatility. These assets experienced a net loss in 2013 compared to a net gain in 2012. In 2013 the large loss was from primarily a decrease in bond prices (due to a large increase in market interest rates). This was partly offset by an increase in common share prices in 2013. In 2012 the gain was from primarily an increase in bond prices (due to a decrease in market interest rates) and an increase in common share prices. The impact of this on net income is largely reduced due to a corresponding change in insurance contract liabilities (discussed in the Total Benefits and Expenses section below). Realized gain (loss) on available for sale investments including impairment write downs was a loss for the quarter and the year to date in 2013 relative to gains in 2012. The decreased revenue was due primarily to losses from the sale of AFS bonds in 2013, compared to gains from the sale of AFS bonds in 2012. These gains and losses impact net income and are considered in the net income investment experience comments for each of the impacted product lines (see Product Line Results sections later in this report). The assets sold back primarily capital and surplus. Fee and other income for the quarter and year to date increased in 2013 relative to 2012 due primarily to growth in segregated fund management fees and growth in segregated fund guarantee fees related to guaranteed minimum withdrawal benefit (GMWB) products. The growth in both of these items was due primarily to strong GMWB product sales in the second half of 2012 and the first three quarters of 2013 and GMWB price increases in 2013. In addition, there was a positive impact on average assets under management and management fees earned, resulting from stock market conditions, as stock markets were higher on average during 2013 than 2012. Total Benefits and Expenses Third quarter Year to date (millions of dollars) 2013 2012 2013 2012 Benefits and expenses Net benefits and claims $ 132 $ 120 $ 415 $ 393 Net change in insurance contract liabilities (22) 148 (203) 250 Change in investment contracts provision - - 1 1 Policy dividends 5 5 16 16 Operating expenses 31 32 103 101 Net commissions 39 42 121 121 Interest expense 6 3 13 10 Total $ 191 $ 350 $ 466 $ 892 Total benefits and expenses at Empire Life for the quarter decreased by 46% to $191 million compared to $350 million in 2012. On a year to date basis, total benefits and expenses decreased by 48% to $466 million compared to $892 million in 2012. Major benefit and expense items are discussed below. MANANGEMENT S DISCUSSION AND ANALYSIS The Empire Life Insurance Company Third Quarter 2013 3

MANAGEMENT S DISCUSSION AND ANALYSIS Net benefits and claims variability is dependent on the claims incurred. Generally, claims rise year over year due to growth of the insurance blocks, which was the case for both the quarter and year to date for all lines of business. Variability in claims amounts does not, in isolation, impact net income as insurance contract liabilities are released when claims occur. The insurance contract liabilities released can be larger or smaller than the claims incurred depending on whether claims experience has been favourable or unfavourable. Claims experience is the combination of claims incurred compared to claims expected in product pricing and in insurance contract liabilities. Year over year claims experience is discussed in each of the impacted product lines (see Product Line Results sections later in this report). Net change in insurance contract liabilities varies with many factors including new business sold, claims incurred, surrender and lapse experience, assumptions about the future, and changes in the market value of assets matching insurance contract liabilities. For the quarter and year to date, the main reason for the large change from 2012 for this item was the change in insurance contract liabilities resulting from the fair value change in matching assets (described above in the Total Revenue section). Variability in the net change in insurance contract liabilities amounts does not, in isolation, impact net income as it must be looked at in concert with other lines of the statement of operations. Interest expense for the quarter and year to date increased in 2013 relative to 2012 due to the issuance of $300 million of subordinated debentures on May 31, 2013. Product Line Results - Wealth Management As at Sept 30 (millions of dollars) 2013 2012 Assets under management General fund annuities $ 1,103 $ 1,138 Segregated funds 5,414 4,627 Mutual funds 27 4 Third quarter Year to date (millions of dollars) 2013 2012 2013 2012 Selected financial information Fixed interest annuity premiums $ 35 $ 52 $ 116 $ 126 Segregated fund gross sales 193 247 707 620 Segregated fund net sales 21 91 124 91 Segregated fund fee income 35 28 102 83 Mutual fund gross sales 6 2 12 4 Mutual fund net sales 6 2 10 4 Mutual fund fee income - - - - Net income after tax fixed income annuity portion $ 2 $ 1 $ 4 $ 4 Net income after tax segregated fund portion 8 5 15 8 Net loss after tax mutual fund portion (1) (1) (2) (2) Net income after tax $ 9 $ 5 $ 17 $ 10 Assets in Empire Life general fund annuities decreased by 3%, while segregated fund assets increased by 17% during the last 12 months. The increase over the last 12 months for segregated funds was attributable to strong net sales (gross sales net of withdrawals) described below, and positive investment returns, due to the stock market increase since September 30, 2012. Premium income for the Wealth Management product line is comprised solely of new deposits on fixed interest annuities and excludes deposits on the segregated fund and mutual fund products. For the quarter and year to date, fixed interest annuity premiums were down 32% and 8% respectively compared to 2012. For the quarter, the decrease was due primarily to decreased sales of fixed interest deferred annuities. For the year to date, the decrease was due primarily to decreased sales of fixed interest immediate annuities. For the quarter, segregated fund gross sales were down 22% compared to 2012. This product line s gross sales decline for the quarter is attributable primarily to guaranteed minimum withdrawal benefit (GMWB) products. While GMWB product sales remain strong they are down from the elevated levels experienced in the third and fourth quarters of 2012. The elevated sales in the third and fourth quarters of 2012 appeared to be attributable primarily to announcements by some GMWB competitors to suspend the sale of GMWB products, remove benefits, or increase fees. 4 The Empire Life Insurance Company Third Quarter 2013 MANAGEMENT S DISCUSSION AND ANALYSIS

MANAGEMENT S DISCUSSION AND ANALYSIS For the year to date, segregated fund gross sales were up 14% compared to 2012. This product line s gross sales increase for the year to date is attributable primarily to 75% maturity guarantee segregated funds and GMWB products. Empire Life has taken several steps to limit GMWB risk exposure. In the first quarter of 2013 Empire Life launched a new version of the GMWB product. The new version reduces the amount of risk Empire Life is taking on and commands a higher price, while still offering a competitive guaranteed income solution to policyholders. Segregated fund net sales for the quarter and year to date were down 77% and up 36% respectively compared to 2012 due to the above mentioned gross sales result, and higher withdrawals compared to 2012. For the quarter and year to date, segregated fund fee income increased by 24% and 23% respectively in 2013 relative to 2012. The increase was due to growth in segregated fund management fees and growth in segregated fund guarantee fees related to GMWB products. The growth in both of these items was due primarily to strong GMWB product sales in the second half of 2012 and the first three quarters of 2013 and GMWB price increases in the first quarter of 2013. In addition, there was a positive impact on average assets under management and management fees earned, resulting from stock market conditions, as stock markets were higher on average during 2013 than 2012. Empire Life launched its new mutual fund business during the first quarter in 2012. Therefore, Empire Life s mutual fund business is still in its early stages of development and represents a small portion of the Wealth Management product line. For the quarter and year to date, mutual fund gross sales were up 298% and 224% respectively in 2013 compared to 2012. Mutual fund gross sales also improved during 2013 as sales for the third quarter came in at $6 million compared to $3 million in the second quarter, and $3 million in the first quarter. During the third quarter and year to date earnings from this product line increased relative to 2012. The following table provides a breakdown of the components of this year over year change in net income. (millions of dollars) Third quarter Year to date Wealth Management Net Income Analysis Net income after tax 2013 $ 9 $ 17 Net income after tax 2012 5 10 Increase net income after tax $ 4 $ 7 Components of increase Increase in inforce profit margins $ 3 $ 7 Improved investment experience 3 4 Higher new business strain - (2) Worsened annuitant mortality experience (2) (2) Total $ 4 $ 7 Higher net income on inforce business in 2013 was due primarily to the strong growth of the GMWB product which generates higher fees than other segregated fund products. In addition, inforce business profits improved due to the positive impact of favourable stock market conditions in 2013 on average assets under management and management fees earned. Improved investment experience resulted from market interest rate movements and the availability of assets at attractive yields for matching fixed interest annuity contract liabilities. Lower net income from higher new business strain resulted from strong GMWB and 75% maturity guarantee segregated fund sales in 2013 relative to 2012. Worsened annuitant mortality experience relates to the fixed interest immediate annuity business. MANANGEMENT S DISCUSSION AND ANALYSIS The Empire Life Insurance Company Third Quarter 2013 5

MANAGEMENT S DISCUSSION AND ANALYSIS Product Line Results - Employee Benefits Third quarter Year to date (millions of dollars) 2013 2012 2013 2012 Selected financial information Annualized premium sales $ 14 $ 13 $ 40 $ 33 Premium income 77 72 228 215 Net income after tax $ 2 $ 7 $ 8 $ 12 For the quarter and year to date, sales in this product line increased by 11% and 20% respectively in 2013 relative to 2012. The 2013 sales reflect continuing strength compared to the recessionary lows experienced four years ago. This product line s quarterly and year to date premium income increased by 6% relative to 2012 due to continuing growth of the inforce block. During the third quarter and year to date earnings from this product line decreased relative to 2012. The following table provides a breakdown of the components of this year over year change in net income. (millions of dollars) Third quarter Year to date Employee Benefits Net Income Analysis Net income after tax 2013 $ 2 $ 8 Net income after tax 2012 7 12 Decrease in net income after tax $ (5) $ (4) Components of decrease Worsened claims experience $ (5) $ (4) Total $ (5) $ (4) In 2013 worsened claims experience relates to unfavourable long-term disability and health claims results. Product Line Results - Individual Insurance Third quarter Year to date (millions of dollars) 2013 2012 2013 2012 Selected financial information Annualized premium sales $ 14 $ 19 $ 37 $ 49 Premium income 91 89 263 259 Net income (loss) after tax Net income after tax shareholders' portion $ 19 $ 4 $ 47 $ 17 Net income (loss) after tax policyholders' portion (2) (1) (2) (5) Net income after tax $ 17 $ 3 $ 45 $ 12 For the quarter and year to date, annualized premium sales in this product line decreased by 23% and 24% respectively compared to 2012, and premium income increased by 2% and 1% respectively compared to 2012. This product line s third quarter and year to date sales result is attributable primarily to slower universal life product sales. Empire Life has been increasing prices on long-term products, including universal life, due to the low long-term interest rate environment. We have observed a similar trend with many of our competitors. 6 The Empire Life Insurance Company Third Quarter 2013 MANAGEMENT S DISCUSSION AND ANALYSIS

MANAGEMENT S DISCUSSION AND ANALYSIS During the third quarter and year to date earnings from this product line increased relative to 2012. The following table provides a breakdown of the components of this year over year change in net income. (millions of dollars) Third quarter Year to date Individual Insurance Net Income Analysis Net income after tax 2013 $ 17 $ 45 Net income after tax 2012 3 12 Increase in net income after tax $ 14 $ 33 Components of income increase Improved investment experience $ 7 $ 15 Lower new business strain - 6 Improved mortality, surrender and other experience 7 12 Total $ 14 $ 33 For the quarter, investment experience improved strongly year over year due primarily to the favourable impact from stock market movements in 2013. Empire Life makes use of common share assets for the purpose of matching long-term liabilities. Third quarter investment experience improved in 2013 due to the impact of changes in common share returns on existing insurance contract liabilities and matching assets. While the impact of common share asset market value changes on net income is largely reduced due to a corresponding change in insurance contract liabilities, net income is impacted as it is not possible to perfectly match future liability cash flows with future asset cash flows. For the quarter, investment experience also improved due to the favourable impact from long-term interest rate movements in 2013. For the year to date, investment experience improved strongly year over year due primarily to the favourable impact from long-term interest rate movements in 2013. While market interest rates remain unusually low, they increased significantly during the year to date, particularly during the second quarter of 2013. Empire Life took advantage of the higher rates by purchasing long-term bonds during the second quarter at these increased interest rates for the purpose of matching long-term liabilities. As a result a reserve release from locking in these higher investment yields occurred in the second quarter resulting in a $7 million increase in net income for this line of business. Year to date investment experience also improved in 2013 due to the impact of changes in long-term interest rates on existing insurance contract liabilities and matching assets. While the impact of bond asset market value changes on net income is largely reduced due to a corresponding change in insurance contract liabilities, net income is impacted as it is not possible to perfectly match future liability cash flows with future asset cash flows. Higher net income from lower new business strain caused a year over year improvement in net income. Lower new business strain resulted from higher prices on long-term products and lower annualized premium sales. For the quarter and year to date, mortality and surrender experience returned to more typical levels in 2013 compared to the unfavourable results experienced last year. MANANGEMENT S DISCUSSION AND ANALYSIS The Empire Life Insurance Company Third Quarter 2013 7

MANAGEMENT S DISCUSSION AND ANALYSIS Results - Capital and Surplus Third quarter Year to date (millions of dollars) 2013 2012 2013 2012 Net income after tax Net income after tax shareholders' portion $ 2 $ 4 $ 11 $ 16 Net income after tax policyholders' portion 1-2 1 Net income after tax $ 3 $ 4 $ 13 $ 17 In addition to the three major lines of business, Empire Life maintains distinct accounts for the investment income attributable to Shareholders Capital and Surplus and to Policyholders Surplus. During the third quarter and year to date Capital and Surplus earnings decreased relative to 2012. The following table provides a breakdown of the components of this year over year change in net income. (millions of dollars) Third quarter Year to date Capital and Surplus Net Income Analysis Net income after tax 2013 $ 3 $ 13 Net income after tax 2012 $ 4 $ 17 Decrease in net income after tax $ (1) $ (4) Components of decrease Decreased net income from sale of investments $ (1) $ (5) Higher interest expense (2) (2) Higher investment income 2 2 Lower impairment write downs - 1 Total $ (1) $ (4) Decreased net income from sale of investments was due primarily to losses from the sale of AFS bonds in 2013, compared to gains from the sale of AFS bonds in 2012. Higher interest expense was due to the issuance of $300 million of subordinated debentures on May 31, 2013. Higher investment income was due primarily to an increase in invested assets resulting from the investment of the proceeds from the above mentioned issuance of subordinated debentures. Total Cash Flow Year to date (millions of dollars) 2013 2012 Cash Flow provided from (used for) Operating Activities $ 128 $ 166 Investing Activities (542) (191) Financing Activities 267 (7) Net change in cash and cash equivalents $ (147) $ (32) The decrease in cash provided by operating activities in 2013 relative to 2012 was due primarily to cash outflows related to income taxes in 2013 compared to cash inflows related to income taxes in 2012. The increase in cash used for investing activities during 2013 relative to 2012 was due primarily to the investment of proceeds from the May 31, 2013 issuance of $300 million of subordinated debentures (described below). In addition, cash used for investing activities increased due to completion of asset mix changes that began late in 2012. A sale of common share assets backing Capital and Surplus was completed in 2012, and proceeds were partially re-invested in fixed income assets backing Capital and Surplus in 2012. The remainder of the re-investment into fixed income assets occurred in the first quarter of 2013. The increase in cash provided from financing activities was due to the issuance of $300 million of subordinated debentures on May 31, 2013. The debentures will mature on May 31, 2023 and bear interest at a fixed annual rate of 2.870% for the first five years, payable semiannually, and a variable annual rate equal to the 3-month Bankers Acceptance Rate plus 1.05% for the last five years, payable quarterly. This was partially offset by the payment of $24.1 million of dividends to common shareholders during the third quarter. 8 The Empire Life Insurance Company Third Quarter 2013 MANAGEMENT S DISCUSSION AND ANALYSIS

MANAGEMENT S DISCUSSION AND ANALYSIS Capital Resources Sept 30 June 30 Mar 31 Dec 31 Sept 30 2013* 2013* 2013* 2012 2012 MCCSR Ratio 265% 262% 212% 203% 203% *Reflects adoption of IAS 19R and new MCCSR standards related to lapse required capital on January 1, 2013. Empire Life continues to maintain a strong balance sheet and capital position. The A (Excellent) rating given to Empire Life by A.M. Best Company provides third party confirmation of this strength. Empire Life s risk-based regulatory capital ratio, as measured by Minimum Continuing Capital and Surplus Requirements (MCCSR), of 265% as at September 30, 2013 continued to be well above requirements, and above minimum internal targets. The MCCSR ratio increased by 3 points from the previous quarter. This change was due to increases in available regulatory capital and decreases in required regulatory capital, as shown in the table below. Sept 30 June 30 Mar 31 Dec 31 Sept 30 (millions of dollars) 2013* 2013* 2013* 2012 2012 Available regulatory capital Tier 1 $ 785 $ 775 $ 732 $ 756 $ 746 Tier 2 523 521 335 327 331 Total $ 1,308 $ 1,296 $ 1,067 $ 1,083 $ 1,077 Required regulatory capital $ 493 $ 494 $ 503 $ 533 $ 529 *Reflects adoption of IAS 19R and new MCCSR standards related to lapse required capital on January 1, 2013. Tier 1 and Tier 2 available regulatory capital increased from the previous quarter and on a year to date basis. The increase in Tier 1 available regulatory capital from the previous quarter, was due primarily to third quarter net income, partly offset by the payment of a common share dividend of $24.1 million during the third quarter (the dividend decreased Empire Life s MCCSR ratio by 7 points). For the year to date the increase in Tier 1 available regulatory capital was due primarily to year to date net income partly offset by the above mentioned dividend payment and the impact of implementation of IAS 19R Employee Benefits standards (related to employee defined benefit plans). The implementation of IAS 19R, which occurred in the first quarter 2013, lowered Empire Life s available regulatory capital by $26 million, and decreased Empire Life s MCCSR ratio by 5 points. The increase in Tier 2 available regulatory capital from the previous quarter was not significant. The increase in Tier 2 available regulatory capital for the year to date was due primarily to the issuance of $300 million of subordinated debentures on May 31, 2013. In addition, there was an increase in negative insurance contract liabilities for the year to date. The increase in negative insurance contract liabilities for the year to date resulted in a $12 million decrease in Tier 1 regulatory capital and a $12 million increase in Tier 2 regulatory capital. Regulatory capital requirements decreased from the previous quarter and on a year to date basis. The decrease from the previous quarter was not significant. For the year to date the decrease was due primarily to higher interest rates which lowered required regulatory capital related to lapse risk, and to changes to the MCCSR standards related to lapse required regulatory capital in the first quarter which improved Empire Life s MCCSR ratio by 14 points. The above items were partly offset by the impact of higher investment exposures which were caused primarily by increased investment in common shares and bonds. In May 2014 Empire Life intends to redeem $200 million 6.73% subordinated debentures at par. The redemption is subject to OSFI approval. On a pro forma basis, after giving effect to the debenture redemption, Empire Life estimates that, as at September 30, 2013, its MCCSR ratio would have decreased by 19 points. MANANGEMENT S DISCUSSION AND ANALYSIS The Empire Life Insurance Company Third Quarter 2013 9

MANAGEMENT S DISCUSSION AND ANALYSIS Comprehensive Income Third quarter Year to date (millions of dollars) 2013 2012 2013 2012 Comprehensive income Shareholders' net income $ 32.5 $ 20.2 $ 83.4 $ 55.1 Unrealized fair value increase (decrease) on AFS investments (1.6) 9.5 (20.1) 9.4 Realized loss (gain) on AFS investments reclassification to net income 2.0 (0.7) 0.3 (4.1) 0.4 8.8 (19.8) 5.3 Amortization of loss on derivative investments designated as cash flow hedges reclassified to net income 0.1 0.1 0.4 0.4 Remeasurements of defined benefit plans 5.5 (4.0) 13.0 (9.6) 6.0 4.9 (6.4) (3.9) Less: Participating Policyholders (1.8) (1.2) (1.2) (0.9) Other comprehensive income (loss), attributable to shareholders 4.2 3.7 (7.6) (4.8) Comprehensive income, attributable to shareholders $ 36.7 $ 23.9 $ 75.8 $ 50.3 During the third quarter of 2013, Empire Life earned other comprehensive income of $6.0 million due primarily to the remeasurement of defined benefit ( DB ) plans. During the third quarter of 2012 Empire Life earned other comprehensive income of $4.9 million due primarily to unrealized fair value increases relating to AFS stocks and bonds. Year to date 2013, Empire Life incurred an other comprehensive loss of $6.4 million due primarily to unrealized fair value decreases relating to AFS bonds. Year to date 2012 Empire Life incurred an other comprehensive loss of $3.9 million due primarily to the remeasurement of DB plans. In the first quarter of 2013 the new accounting standard relating to the remeasurement of DB plans was applied retrospectively resulting in the restatement of 2012. For the third quarter and year to date of 2013 Empire Life experienced a $5.5 million and $13.0 million gain after tax respectively on its DB plans. The gain for the third quarter was due primarily to the impact of higher stock markets on DB plan assets. The gain for the year to date was due primarily to the impact of higher interest rates on DB plan liabilities. For the third quarter and year to date of 2012 Empire Life experienced a $4.0 million and $9.6 million loss after tax respectively on its DB plans. These losses were due primarily to the impact of lower interest rates on DB plan liabilities. Unrealized fair value increases and decreases on AFS bonds in other comprehensive income do not impact MCCSR. Remeasurement of DB plans do not immediately impact MCCSR as each quarter s remeasurement gain or loss is amortized over 12 quarters for MCCSR purposes. 10 The Empire Life Insurance Company Third Quarter 2013 MANAGEMENT S DISCUSSION AND ANALYSIS

MANAGEMENT S DISCUSSION AND ANALYSIS Risk Management Empire Life s MCCSR ratio, among other things, is sensitive to stock market volatility, due primarily to liability and capital requirements related to segregated fund guarantees. As of September 30, 2013 Empire Life had $5.4 billion of segregated fund assets and liabilities. Of this amount, approximately $5.2 billion have guarantees. The following table provides a percentage breakdown by type of guarantee: Sept 30 Dec 31 2013 2012 Percentage of segregated fund liabilities with: 75% maturity guarantee and a 100% death benefit guarantee 59.1% 63.8% 100% maturity and death benefit guarantees (with a minimum of 15 years between deposit and maturity date) 5.1% 5.2% 100% maturity and death benefit guarantees (guaranteed minimum withdrawal benefit (GMWB)) 35.8% 31.0% All Empire Life segregated fund guarantees are policy based (not deposit-based), thereby lowering Empire Life s stock market sensitivity relative to products with deposit-based guarantees. For segregated fund guarantee insurance contract liabilities the level of sensitivity is highly dependent on the level of the stock market at the time of performing the estimate. If period end stock markets are high relative to market levels at the time that segregated fund policies were issued, the sensitivity is reduced. If period end stock markets are low relative to market levels at the time that segregated fund policies were issued, the sensitivity is increased. Based on stock market levels at September 30 for 2013 and December 31 for 2012, the sensitivity of shareholders net income to changes in segregated fund guarantee insurance contract liabilities resulting from stock market increases and decreases is as follows: $ millions 10% Increase 10% Decrease 20% Increase 20% Decrease Sensitivity To Segregated Fund Guarantees: 2013 Shareholders' net income $ nil $ nil $ nil $ nil 2012 Shareholders' net income $ nil $ nil $ nil $ nil Based on stock market levels on the dates indicated below the sensitivity of Empire Life s MCCSR ratio to stock market increases and decreases for all Empire Life stock market exposures, including segregated fund guarantees, is as follows: 10% Increase 10% Decrease 20% Increase 20% Decrease Sensitivity To Stock Markets: September 30, 2013 MCCSR Ratio -0.5% 0.5% -1.0% 1.1% December 31, 2012 MCCSR Ratio -0.5% 0.0% -1.1% -12.2% The use of common share assets to match longer term liabilities causes the sensitivity of Empire Life s MCCSR ratio to stock market increases to be reduced or slightly negative. Increased stock markets cause a gain on common share assets partly offset by a loss due to higher policy liabilities for a net increase in available capital. However, increased stock markets also cause an increase in required capital, as the required capital related to common share assets increases. As of September 30, 2013 and December 31, 2012, under a 10% and 20% stock market increase scenario, the increase in required capital slightly outweighs the increase in available capital resulting in a slightly negative impact on Empire Life s MCCSR ratio. Similarly, the above mentioned increased use of common equities to match longer term liabilities has caused the sensitivity of Empire Life s MCCSR ratio to stock market decreases to be slightly positive. As of September 30, 2013, under a 10% and 20% stock market decrease scenario, the decrease in required capital slightly outweighs the decrease in available capital resulting in a slightly positive impact on Empire Life s MCCSR ratio. Empire Life has not historically hedged its segregated fund guarantee risk. Given the current segregated fund product mix and level of sensitivity to stock markets, Empire Life has not hedged its segregated fund guarantee risk as of September 30, 2013 or December 31, 2012. However, effective January 1, 2013 Empire Life has entered into a reinsurance agreement to cede a portion of Empire Life s segregated fund death benefit exposure. All Empire Life segregated fund policyholders with death benefit guarantees of at least $2 million are included in this agreement. If this agreement was in place as at December 31, 2012 approximately $8 million of the $112 million death benefit amount at risk reported as at December 31, 2012 in the table below would be ceded to the reinsurer. Empire Life does not reinsure any other insurer s segregated fund products. MANANGEMENT S DISCUSSION AND ANALYSIS The Empire Life Insurance Company Third Quarter 2013 11

MANAGEMENT S DISCUSSION AND ANALYSIS The amount at risk related to segregated fund maturity guarantees and segregated fund death benefit guarantees and the resulting actuarial liabilities and MCCSR required capital for Empire Life segregated funds is as follows: Segregated Funds Guarantee > Fund Value Death Benefit > Fund Value GMWB Top-up Actuarial MCCSR (millions of dollars) Fund Value Amount At Risk Fund Value Amount At Risk Amount At Risk Liabilities Required Capital September 30, 2013 $ 75 $ 6 $ 842 $ 49 $ 303 $ nil $ nil December 31, 2012 $ 107 $ 11 $ 1,250 $ 112 $ 298 $ nil $ <1 The first four columns of the above table show all segregated fund policies where the future maturity guarantee, or future death benefit guarantee, is greater than the fund value. The amount at risk represents the excess of the future maturity guarantee or future death benefit guarantee amount over the fund value for these policies. The fifth column of the above table shows GMWB top-up exposure. The GMWB top-up amount at risk represents the amount that could be paid by Empire Life to GMWB policyholders if the net return on each GMWB policyholder s assets is zero for the remainder of each GMWB policyholder s life, based on life expectancy. For these three categories of risk, the amount at risk is not currently payable. Payment is contingent on future outcomes including fund performance, deaths, deposits, withdrawals and maturity dates. The level of actuarial liabilities and required regulatory capital is calculated based on the probability that Empire Life will ultimately have to make payment to the segregated fund policyholders for any fund value deficiency that may exist upon future maturity of the segregated fund policies, or upon future death of the segregated fund policyholders, or upon the occurrence of future top-up payments to GMWB policyholders. The amounts at risk in September 2013 decreased from the December 2012 levels for maturity guarantee, and death benefit guarantee exposure due primarily to the increase in many global stock markets. The amount at risk in September 2013 increased from the December 2012 levels for GMWB top-up exposure, due primarily to strong GMWB sales in 2013. In addition to the discussion of risks included in this MD&A, a comprehensive discussion of the material risks that impact Empire Life is included in the Annual Information Form of Empire Life's parent company, E-L Financial Corporation Limited, which is available at www.sedar.com. Additional disclosures of Empire Life s sensitivity to risks are included in note 11 to the consolidated financial statements and in note 27 to the 2012 consolidated financial statements. Quarterly Results The following table summarizes various financial results on a quarterly basis for the most recent eight quarters: (millions of dollars) Sept 30 Jun 30 Mar 31 Dec 31 Sept 30 June 30 Mar 31 Dec 31 2013 2013 2013 2012 2012 2012 2012 2011 Revenue $ 234 $ 61 $ 289 $ 299 $ 377 $ 368 $ 215 $ 476 Shareholders' Net income $ 32 $ 40 $ 11 $ 25 $ 20 $ 18 $ 17 $ 8 Revenue for the three months ended September 30, 2013 decreased to $234 million (2012 $377 million). The decrease was due primarily to a net loss on FVTPL investments in 2013 compared to a net gain in 2012. These FVTPL net losses and gains were due primarily to long-term interest rate movements (see Total Revenue section earlier in this report). 12 The Empire Life Insurance Company Third Quarter 2013 MANAGEMENT S DISCUSSION AND ANALYSIS

Interim Consolidated Statements of Financial Position (in thousands of Canadian dollars) UNAUDITED December 31, 2012 January 1, 2012 As at September 30, 2013 (Restated - Note 2) (Restated - Note 2) Assets Cash and cash equivalents $ 101,704 $ 248,382 $ 155,559 Investments Short-term investments (Note 3) 57,265 16,440 33,867 Bonds (Note 3) 4,346,704 4,227,329 4,063,897 Common and preferred shares (Note 3) 980,287 878,085 808,681 Mortgages (Note 3) 294,105 302,531 264,238 Loans on policies (Note 3) 43,821 43,071 41,981 Policy contract loans (Note 3) 90,955 95,461 113,118 Total investments 5,813,137 5,562,917 5,325,782 Accrued investment income 37,840 21,452 20,107 Insurance receivables 31,294 30,035 28,455 Current income taxes receivable - - 17,106 Deferred income taxes - 4,596 - Other assets 15,429 9,126 21,330 Property and equipment 23,349 22,827 21,241 Intangible assets 3,635 2,071 1,090 Segregated fund assets (Note 4) 5,434,336 5,014,392 4,415,318 Total Assets $ 11,460,724 $ 10,915,798 $ 10,005,988 Liabilities Accounts payable and other liabilities $ 52,979 $ 69,875 80,266 Insurance payables 61,881 63,152 67,859 Current income taxes payable 2,347 7,473 - Reinsurance liabilities 231,253 244,808 156,119 Insurance contract liabilities 4,185,231 4,375,441 4,199,501 Investment contract liabilities 13,978 14,591 15,076 Policyholders' funds on deposit 30,855 30,634 30,263 Provision for profits to policyholders 23,362 22,142 21,791 Deferred income taxes 334-432 Subordinated debt (Note 9) 498,195 199,642 199,405 Segregated fund policy liabilities 5,434,336 5,014,392 4,415,318 Equity 10,534,751 10,042,150 9,186,030 Capital stock 985 985 985 Contributed surplus 19,387 19,387 19,387 Retained earnings 918,427 859,756 786,203 Accumulated other comprehensive income (loss) (12,826) (6,480) 13,383 925,973 873,648 819,958 Total Liabilities and Equity $ 11,460,724 $ 10,915,798 $ 10,005,988 The accompanying notes are an integral part of these interim consolidated financial statements. INTERIM CONSOLIDATED FINANCIAL STATEMENTS The Empire Life Insurance Company Third Quarter 2013 13

Interim Consolidated Statements of Operations (in thousands of Canadian dollars, except for per share amounts) UNAUDITED For the three months ended September 30 For the nine months ended September 30 2013 2012 2013 2012 (Restated - Note 2) (Restated - Note 2) Revenue Gross premiums $ 227,289 $ 235,780 $ 677,546 $ 666,291 Premiums ceded to reinsurers (24,086) (22,288) (70,689) (65,378) Net premiums (Note 5) 203,203 213,492 606,857 600,913 Investment income 62,298 55,554 175,800 179,144 Fair value change in fair value through profit or loss assets (82,603) 68,906 (341,797) 67,293 Realized gain (loss) on fair value through profit or loss assets sold 15,846 6,939 33,738 17,359 Realized gain (loss) on available for sale assets including impairment write downs (2,709) 1,289 (313) 5,498 Fee income 38,341 31,141 110,306 90,644 234,376 377,321 584,591 960,851 Benefits and Expenses Gross benefits and claims paid (Note 6) 145,728 130,481 450,491 428,604 Claims recovery from reinsurers (Note 6) (13,303) (10,900) (35,146) (35,611) Gross change in insurance contract liabilities (Note 6) (16,728) 148,302 (190,210) 253,927 Change in insurance contract liabilities ceded (Note 6) (5,948) (461) (13,555) (3,444) Change in investment contracts provision 208 209 628 565 Policy dividends 5,241 5,227 15,901 15,806 Operating expenses 30,670 31,383 103,323 101,321 Commissions 39,431 42,252 122,978 122,157 Commission recovery from reinsurers (453) (573) (1,628) (1,710) Interest expense 5,709 3,452 13,266 10,280 Total benefits and expenses 190,555 349,372 466,048 891,895 Premium tax 3,549 3,397 10,345 10,004 Investment and capital tax 1,000 938 2,825 2,813 Net Income Before Income Taxes 39,272 23,614 105,373 56,139 Income taxes 8,240 4,429 22,602 4,785 Net Income $ 31,032 $ 19,185 $ 82,771 $ 51,354 Net Income (Loss) Attributable to: Participating Policyholders (1,458) (1,062) (594) (3,701) Shareholders 32,490 20,247 83,365 55,055 $ 31,032 $ 19,185 $ 82,771 $ 51,354 Earnings per share - basic and diluted $ 32.98 $ 20.55 $ 84.63 $ 55.89 (2,000,000 shares authorized; 985,076 shares outstanding) The accompanying notes are an integral part of these interim consolidated financial statements. 14 The Empire Life Insurance Company Third Quarter 2013 INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Interim Consolidated Statements of Comprehensive Income (in thousands of Canadian dollars) UNAUDITED For the three months ended September 30 For the nine months ended September 30 2013 2012 2013 2012 (Restated - Note 2) (Restated - Note 2) Net Income $ 31,032 $ 19,185 $ 82,771 $ 51,354 Other comprehensive income (loss), net of income taxes: Items that may be reclassified subsequently to net income: Unrealized fair value change on available for sale investments (Note 8) (1,617) 9,467 (20,054) 9,424 Fair value change on available for sale investments reclassified to net income, including impairment write downs (Note 8) 1,986 (689) 284 (4,050) Net unrealized fair value increase (decrease) 369 8,778 (19,770) 5,374 Amortization of loss on derivative investments designated as cash flow hedges reclassified to net income (Note 8) 144 135 425 396 Items that will not be reclassified to net income: Remeasurements of post-employment benefit liabilities (Note 8) 5,490 (4,058) 12,999 (9,638) Total other comprehensive income (loss) 6,003 4,855 (6,346) (3,868) Comprehensive Income $ 37,035 $ 24,040 $ 76,425 $ 47,486 Comprehensive income (loss) attributable to: Participating Policyholders $ 357 $ 137 $ 625 $ (2,747) Shareholders 36,678 23,903 75,800 50,233 $ 37,035 $ 24,040 $ 76,425 $ 47,486 The accompanying notes are an integral part of these interim consolidated financial statements. INTERIM CONSOLIDATED FINANCIAL STATEMENTS The Empire Life Insurance Company Third Quarter 2013 15

Interim Consolidated Statements of Changes in Equity (in thousands of Canadian dollars) UNAUDITED For the nine months ended September 30, 2013 For the nine months ended September 30, 2012 (Restated - Note 2) Shareholders' Policyholders' Total Shareholders' Policyholders' Total Capital stock $ 985 $ - $ 985 $ 985 $ - $ 985 Contributed surplus 19,387-19,387 19,387-19,387 Retained earnings Retained earnings - beginning of year 812,642 47,114 859,756 732,479 53,724 786,203 Net income (loss) 83,365 (594) 82,771 55,055 (3,701) 51,354 Dividends to common shareholders (24,100) - (24,100) - - - Retained earnings - end of period 871,907 46,520 918,427 787,534 50,023 837,557 Accumulated other comprehensive income (loss) Accumulated other comprehensive income (loss) - beginning of year (10,344) 3,864 (6,480) 10,750 2,633 13,383 Other comprehensive income (loss) (7,565) 1,219 (6,346) (4,822) 954 (3,868) Accumulated other comprehensive income (loss) - end of period (17,909) 5,083 (12,826) 5,928 3,587 9,515 Total equity $ 874,370 $ 51,603 $ 925,973 $ 813,834 $ 53,610 $ 867,444 Composition of Accumulated Comprehensive Income (Loss) - end of period Unrealized gain on available for sale financial assets $ (5,935) $ 6,381 $ 446 $ 31,816 $ 5,431 $ 37,247 Unamortized gain (loss) on cash flow hedges (382) - (382) (945) - (945) Remeasurements of post-employment benefit liabilities (12,230) (660) (12,890) (25,486) (1,301) (26,787) Shareholder portion of policyholders' accumulated other comprehensive income 638 (638) - 543 (543) - Total accumulated other comprehensive income (loss) $ (17,909) $ 5,083 $ (12,826) $ 5,928 $ 3,587 $ 9,515 The accompanying notes are an integral part of these interim consolidated financial statements. 16 The Empire Life Insurance Company Third Quarter 2013 INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Interim Consolidated Statements of Cash Flows (in thousands of Canadian dollars) UNAUDITED Operating Activities For the three months ended September 30 For the nine months ended September 30 2013 2012 2013 2012 (Restated - Note 2) (Restated - Note 2) Net income $ 31,032 $ 19,185 $ 82,771 $ 51,354 Non-cash items affecting net income Change in contract liabilities (16,520) 148,511 (189,582) 254,492 Change in reinsurance liability (5,948) (461) (13,555) (3,444) Fair value change in fair value through profit or loss assets 82,603 (68,906) 341,797 (67,293) Realized (gain) loss on assets including impairment write downs on available for sale assets (13,137) (8,228) (33,425) (22,857) Amortization related to invested assets (18,387) (18,518) (53,097) (54,581) Amortization related to capital assets 1,085 874 3,246 2,701 Deferred income taxes 1,328 (482) 251 (534) Other items (346) 6,291 (10,559) 6,280 Cash provided from operating activities 61,710 78,266 127,847 166,118 Investing Activities Portfolio investments Purchases and advances (314,969) (229,116) (1,760,312) (939,728) Sales and maturities 270,250 166,159 1,259,887 735,737 Loans on policies Advances (6,629) (1,712) (12,140) (5,686) Repayments 11,371 1,570 16,759 5,893 Decrease (increase) in short-term investments (38,281) 1,970 (40,825) 16,948 Net purchase of capital assets (1,529) (1,408) (5,332) (4,402) Cash provided from (used for) investing activities (79,787) (62,537) (541,963) (191,238) Financing Activities Dividends to common shareholders (24,100) - (24,100) - Interest paid on subordinated debt - - (6,730) (6,730) Debt issue (Note 9) - - 298,268 - Cash provided from (used for) financing activities (24,100) - 267,438 (6,730) Net Change in Cash and Cash Equivalents (42,177) 15,729 (146,678) (31,850) Cash and Cash Equivalents - Beginning of Period 143,881 107,980 248,382 155,559 Cash and Cash Equivalents - End of Period $ 101,704 $ 123,709 $ 101,704 $ 123,709 Supplementary cash flow information related to operating activities: Income taxes paid, net of (refunds) 4,722 (18,676) $ 20,447 $ (16,916) Interest income received 36,678 28,353 87,632 78,741 Dividend income received 8,461 7,639 23,870 36,294 The accompanying notes are an integral part of these consolidated financial statements. INTERIM CONSOLIDATED FINANCIAL STATEMENTS The Empire Life Insurance Company Third Quarter 2013 17

1. DESCRIPTION OF COMPANY AND SUMMARY OF OPERATIONS The Empire Life Insurance Company (the Company or Empire Life ) was founded in 1923 when it was organized under a provincial charter in Toronto. Authorization to continue as a federal corporation was obtained in 1987. The Company underwrites life and health insurance policies and provides segregated funds, mutual funds and annuity products for individuals and groups across Canada. The Company is a subsidiary of E-L Financial Corporation Limited (the Parent or E-L ). The head office, principal address and registered office of the Company are located at 259 King Street East, Kingston, Ontario, K7L 3A8. Empire Life is a Federally Regulated Financial Institution, regulated by the Office of the Superintendent of Financial Institutions, Canada (OSFI). The Company established a mutual fund subsidiary in 2011, Empire Life Investments Inc. (ELII). ELII became a registered Investment Funds Manager on January 5, 2012. The head office for ELII is located at 165 University Avenue, 9th Floor, Toronto, Ontario, M5H 3B8. These interim consolidated financial statements were approved by the Company s Board of Directors on October 31, 2013. 2. SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Preparation These unaudited condensed interim consolidated financial statements are prepared in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting as issued by the International Accounting Standards Board ( IASB ) and follow the same accounting policies and methods of computation as the most recent annual financial statements except as described in 2(c) below. These condensed interim consolidated financial statements do not include all of the disclosures required under International Financial Reporting Standards ( IFRS ) for annual financial statements and should be read in conjunction with the notes to the Company s audited consolidated financial statements for the year ended December 31, 2012. (b) Basis of Consolidation The Company s condensed interim consolidated financial statements include the assets, liabilities, results of operations and cash flows of the Company and its wholly-owned and controlled subsidiary, ELII. The Company owns 100% of the voting shares and maintains control of its subsidiary. An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The financial statements of its subsidiary are included in the Company s results from the day control was established, the commencement of operations, and will be deconsolidated should control cease. The financial statements of the subsidiary are prepared for the same reporting period as the Company, using consistent accounting policies. All significant inter-company transactions, balances, income and expenses are eliminated in full on consolidation. 18 The Empire Life Insurance Company Third Quarter 2013 NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

2. SIGNIFICANT ACCOUNTING POLICIES (continued) (c) Change in Accounting Policies (i) IAS 1 Presentation of Financial Statements The Company has adopted the amendments to IAS 1 effective January 1, 2013. These amendments require the Company to group other comprehensive income items by those that will be subsequently reclassified to net income and those that will not be reclassified. The Company has reclassified comprehensive income items of the comparative period. These changes did not result in any adjustments to other comprehensive income or comprehensive income. (ii) IFRS 10 Consolidated Financial Statements IFRS 10, Consolidated Financial Statements, replaces the guidance on control and consolidation in IAS 27, Consolidated and Separate Financial Statements, and SIC-12, Consolidation Special Purpose Entities. IFRS 10 requires consolidation of an investee only if the investor possesses power over the investee, has exposure to variable returns from its involvement with the investee and has the ability to use its power over the investee to affect its returns. Detailed guidance is provided on applying the definitions of control. The accounting requirements for consolidation have remained largely consistent with IAS 27. The Company assessed its consolidation conclusions on January 1, 2013 and determined that the adoption of IFRS 10 did not result in any change in the consolidation status of its subsidiary. (iii) IFRS 13 Fair Value Measurement IFRS 13 provides a single framework for measuring fair value. The measurement of the fair value of an asset or liability is based on assumptions that market participants would use when pricing the asset or liability under current market conditions, including assumptions about risk. The Company adopted IFRS 13 on January 1, 2013 on a prospective basis. In accordance with IFRS 13, at January 1, 2013, the Company began measuring the fair value of its Level 1 financial assets at closing market prices. The change in fair value from bid price to closing price did not result in any significant measurement adjustments as at January 1, 2013. Some ongoing interim disclosures of the fair value of financial instruments required by IAS 34 Interim Financial Reporting have been expanded. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS The Empire Life Insurance Company Third Quarter 2013 19

2. SIGNIFICANT ACCOUNTING POLICIES (continued) (iv) IAS 19R Employee Benefits IAS 19R requires the net defined benefit liability (asset) to be recognized on the balance sheet without any deferral of actuarial gains and losses and past service costs as previously allowed. Past service costs are recognized in net income when incurred. Expected returns on plan assets are no longer included in postemployment benefits expense. Instead, post-employment benefits expense includes the net interest on the net defined benefit liability (asset) calculated using a discount rate based on market yields on high quality bonds. Remeasurements consisting of actuarial gains and losses, the actual return on plan assets (excluding the net interest component) and any change in the asset ceiling are recognized in other comprehensive income. The Company immediately recognizes in AOCI all pension adjustments recognized in other comprehensive income. AOCI amounts related to IAS 19R will remain in AOCI and will not be reclassified to Net Income in the future. The Company recognizes interest expense (income) on net post-employment benefits liabilities (assets) in operating expense in the consolidated statement of operations. The Company adopted the amendments of IAS 19R retrospectively and adjusted its opening equity as at January 1, 2012 to recognize previously unamortized actuarial gains and losses. The operating expense for the comparable period has been adjusted to reflect the accounting changes for defined benefit plans. The adjustments for each financial statement line item affected are presented in the tables below. Post-employment assets are included in Other assets and Post-employment liabilities are included in Accounts payable and other liabilities on the statement of financial position. Impact of IAS 19R accounting policy changes on statement of financial position line items December 31, 2012 January 1, 2012 Before After Before After Accounting IAS 19R Accounting Accounting IAS 19R Accounting Changes Adjustment Changes Changes Adjustment Changes Assets Post-employment assets $ 12,338 $ (12,338) $ - $ 13,137 $ (13,137) $ - Deferred income tax assets - 4,596 4,596 - - - All other assets 10,911,202-10,911,202 10,005,988-10,005,988 Total Assets $ 10,923,540 $ (7,742) $ 10,915,798 $ 10,019,125 $ (13,137) $ 10,005,988 Liabilities Post-employment liabilities $ 11,744 $ 23,209 $ 34,953 $ 11,318 $ 10,166 $ 21,484 Deferred income tax liabilities 4,792 (4,792) - 6,586 (6,154) 432 All other liabilities 10,007,197-10,007,197 9,164,114-9,164,114 Total Liabilities 10,023,733 18,417 10,042,150 9,182,018 4,012 9,186,030 Equity Capital Stock 985-985 985-985 Contributed Surplus 19,387-19,387 19,387-19,387 Retained Earnings Participating Policyholders 47,127 (13) 47,114 53,724-53,724 Shareholders 812,898 (256) 812,642 732,479-732,479 Accumulated other comprehensive income Participating Policyholders 5,124 (1,260) 3,864 3,487 (854) 2,633 Shareholders 14,286 (24,630) (10,344) 27,045 (16,295) 10,750 Total Equity 899,807 (26,159) 873,648 837,107 (17,149) 819,958 Total Liabilities and Equity $ 10,923,540 $ (7,742) $ 10,915,798 $ 10,019,125 $ (13,137) $ 10,005,988 20 The Empire Life Insurance Company Third Quarter 2013 NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

2. SIGNIFICANT ACCOUNTING POLICIES (continued) Impact of IAS 19R accounting policy changes on statement of operations line items Three months ended September 30, 2012 Nine months ended September 30, 2012 Before After Before After Accounting IAS 19R Accounting Accounting IAS 19R Accounting Changes Adjustment Changes Changes Adjustment Changes Total Revenue $ 377,321 $ - $ 377,321 $ 960,851 $ - $ 960,851 Benefits and Expenses Operating expenses $ 31,291 $ 92 $ 31,383 $ 101,045 $ 276 $ 101,321 All other benefits & expenses 317,989-317,989 790,574-790,574 Other taxes 4,335-4,335 12,817-12,817 Net Income Before Income Taxes 23,706 (92) 23,614 56,415 (276) 56,139 Income taxes 4,454 (25) 4,429 4,860 (75) 4,785 Net Income $ 19,252 $ (67) $ 19,185 $ 51,555 $ (201) $ 51,354 Attributable to: Participating Policyholders (1,059) (3) (1,062) (3,692) (9) (3,701) Shareholders 20,311 (64) 20,247 55,247 (192) 55,055 19,252 (67) 19,185 51,555 (201) 51,354 Earnings per share $ 20.62 $ (0.07) $ 20.55 $ 56.08 $ (0.19) $ 55.89 Impact of IAS 19R accounting policy changes on statement of comprehensive income line items Three months ended September 30, 2012 Nine months ended September 30, 2012 Before After Before After Accounting IAS 19R Accounting Accounting IAS 19R Accounting Changes Adjustment Changes Changes Adjustment Changes Net Income $ 19,252 $ (67) $ 19,185 $ 51,555 $ (201) $ 51,354 Other Comprehensive Income (Loss), Net of Income Taxes Remeasurements of post-employment benefit liabilities - (4,058) (4,058) - (9,638) (9,638) All other comprehensive income 8,913-8,913 5,770-5,770 Total other comprehensive income (loss) 8,913 (4,058) 4,855 5,770 (9,638) (3,868) Comprehensive Income $ 28,165 $ (4,125) $ 24,040 $ 57,325 $ (9,839) $ 47,486 Attributable to: Participating Policyholders 328 (191) 137 (2,291) (456) (2,747) Shareholders 27,837 (3,934) 23,903 59,616 (9,383) 50,233 28,165 (4,125) 24,040 57,325 (9,839) 47,486 (d) Future Accounting Changes New standards and amendments that have been issued by the IASB and not yet effective for the fiscal year beginning January 1, 2013 are summarized in the Company s annual financial statements for the year ended December 31, 2012. In July 2013, the IASB decided to indefinitely defer the mandatory effective date of IFRS 9 Financial Instruments, pending the completion of re-deliberations on impairment, classification and measurement. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS The Empire Life Insurance Company Third Quarter 2013 21

3. FINANCIAL INSTRUMENTS (a) Summary of Cash and Investments The carrying values and fair values of cash and investments are as follows: As at September 30, 2013 Fair Value Total Total Through Profit Available Loans & Carrying Fair Asset category or Loss for Sale Receivables Value Value Cash and cash equivalents $ 101,704 $ - $ - 101,704 101,704 Short-term investments Canadian federal government 7,357 34,926-42,283 42,283 Canadian provincial governments - - - - - Corporate 14,982 - - 14,982 14,982 Total short-term investments 22,339 34,926-57,265 57,265 Bonds Bonds issued or guaranteed by: Canadian federal government 60,377 214,629-275,006 275,006 Canadian provincial and municipal governments 2,060,931 246,419-2,307,350 2,307,350 Total government bonds issued or guaranteed 2,121,308 461,048-2,582,356 2,582,356 Canadian corporate bonds by industry sector: Financial services 501,581 442,440-944,021 944,021 Infrastructure 225,161 25,599-250,760 250,760 Utilities 227,193 33,638-260,831 260,831 Communications 1,740 23,899-25,639 25,639 Energy 49,555 35,589-85,144 85,144 Consumer staples 67,462 10,664-78,126 78,126 Industrials 46,901 7,588-54,489 54,489 Health care 50,324 5,283-55,607 55,607 Materials 9,731 - - 9,731 9,731 Total Canadian corporate bonds 1,179,648 584,700-1,764,348 1,764,348 Total bonds 3,300,956 1,045,748-4,346,704 4,346,704 Preferred shares Canadian 219,782 109,578-329,360 329,360 Total preferred shares 219,782 109,578-329,360 329,360 Common shares Canadian Common shares 452,031 60,601-512,632 512,632 Real estate limited partnership units 39,585 - - 39,585 39,585 U.S. 87,208 - - 87,208 87,208 Other 11,502 - - 11,502 11,502 Total common shares 590,326 60,601-650,927 650,927 Mortgages - - 294,105 294,105 297,703 Loans on policies - - 43,821 43,821 43,821 Policy contract loans - - 90,955 90,955 90,955 Total $ 4,235,107 $ 1,250,853 $ 428,881 $ 5,914,841 $ 5,918,439 22 The Empire Life Insurance Company Third Quarter 2013 NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

3. FINANCIAL INSTRUMENTS (continued) As at December 31, 2012 Fair Value Total Total Through Profit Available Loans & Carrying Fair Asset category or Loss for Sale Receivables Value Value Cash and cash equivalents $ 248,382 $ - $ - $ 248,382 $ 248,382 Short-term investments Canadian federal government 3,991 - - 3,991 3,991 Canadian provincial governments - - - - - Corporate 12,449 - - 12,449 12,449 Total short-term investments 16,440 - - 16,440 16,440 Bonds Bonds issued or guaranteed by: Canadian federal government 66,391 186,822-253,213 253,213 Canadian provincial and municipal governments 2,249,585 188,453-2,438,038 2,438,038 Total government bonds issued or guaranteed 2,315,976 375,275-2,691,251 2,691,251 Canadian corporate bonds by industry sector: Financial services 544,631 229,081-773,712 773,712 Infrastructure 239,394 36,418-275,812 275,812 Utilities 204,291 7,348-211,639 211,639 Communications - 9,986-9,986 9,986 Energy 37,559 31,898-69,457 69,457 Consumer staples 55,124 7,163-62,287 62,287 Industrials 44,935 6,404-51,339 51,339 Health care 75,944 5,881-81,825 81,825 Materials 21 - - 21 21 Total Canadian corporate bonds 1,201,899 334,179-1,536,078 1,536,078 Total bonds 3,517,875 709,454-4,227,329 4,227,329 Preferred shares Canadian 213,879 107,442-321,321 321,321 Total preferred shares 213,879 107,442-321,321 321,321 Common shares Canadian Common shares 471,080 53,877-524,957 524,957 Real estate limited partnership units 8,853 - - 8,853 8,853 U.S. 13,755 523-14,278 14,278 Other 8,676 - - 8,676 8,676 Total common shares 502,364 54,400-556,764 556,764 Mortgages - - 302,531 302,531 314,349 Loans on policies - - 43,071 43,071 43,071 Policy contract loans - - 95,461 95,461 95,461 Total $ 4,498,940 $ 871,296 $ 441,063 $ 5,811,299 $ 5,823,117 NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS The Empire Life Insurance Company Third Quarter 2013 23

3. FINANCIAL INSTRUMENTS (continued) (b) Impairments Management regularly reviews securities classified as available for sale (AFS) for evidence of impairment. Changes in the fair value of AFS assets are recorded in unrealized fair value change on available for sale investments in Other comprehensive income (OCI). Where there is objective evidence of a decline in fair value, the loss accumulated in Accumulated other comprehensive income (AOCI) is reclassified to realized gain (loss) on available for sale assets including impairment write-downs on the Statement of operations. In the third quarter of 2013, the Company reclassified a pre-tax loss of $56 due to write-downs of impaired available for sale common and preferred shares (third quarter 2012 $228). On a year to date basis the pre-tax write-downs are $195 (year to date 2012 $1,636). Management considers these assets to be impaired due to the length of time that the fair value was less than the cost or the extent or nature of the loss. As at September 30, 2013, financial assets past due, but not impaired were $493 (December 31, 2012 $6,248). (c) Fair Value of Financial Instruments The following tables present the investments measured on a recurring basis at fair value classified by the fair value hierarchy: As at September 30, 2013 Level 1 Level 2 Level 3 Total Fair Value Cash and cash equivalents $ 43,779 $ 57,925 $ - $ 101,704 Fair value through profit or loss: Bonds - 3,300,956-3,300,956 Common shares 550,741 39,585-590,326 Preferred shares 219,782 - - 219,782 Short-term investments - 22,339-22,339 Available for sale: Bonds - 1,045,748-1,045,748 Common shares 60,601 - - 60,601 Preferred shares 109,578 - - 109,578 Short-term investments - 34,926-34,926 Total $ 984,481 $ 4,501,479 $ - $ 5,485,960 As at December 31, 2012 Level 1 Level 2 Level 3 Total Fair Value Cash and cash equivalents $ 30,570 $ 217,812 $ - $ 248,382 Fair value through profit or loss: Bonds - 3,517,875-3,517,875 Common shares 493,511 8,853-502,364 Preferred shares 213,879 - - 213,879 Short-term investments - 16,440-16,440 Available for sale: Bonds - 709,454-709,454 Common shares 54,400 - - 54,400 Preferred shares 107,442 - - 107,442 Short-term investments - - - - Total $ 899,802 $ 4,470,434 $ - $ 5,370,236 24 The Empire Life Insurance Company Third Quarter 2013 NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

3. FINANCIAL INSTRUMENTS (continued) The classification of a financial instrument into a level is based on the lowest level of input that is significant to the determination of the fair value. There were no transfers between Level 1, Level 2 and Level 3 during the nine months ended September 30, 2013 or during the nine months ended September 30, 2012. For additional information on the composition of the Company s invested assets and analysis of the Company s risks arising from financial instruments refer to Notes 3(a) and 11. 4. SEGREGATED FUNDS (a) The following table identifies segregated fund assets by category of asset: As at September 30, 2013 December 31, 2012 Cash and cash equivalents $ 148,955 $ 192,581 Short-term investments 190,163 150,376 Bonds 1,305,226 1,204,163 Common and preferred shares 3,882,174 3,510,274 Net other assets (liabilities) (12,073) 28,127 5,514,445 5,085,521 Less segregated funds held within general fund investments (80,109) (71,129) Total $ 5,434,336 $ 5,014,392 (b) The following tables present the investments of the segregated funds measured on a recurring basis at fair value classified by the fair value hierarchy: As at September 30, 2013 Level 1 Level 2 Level 3 Total Cash and cash equivalents $ 107,574 $ 41,381 $ - $ 148,955 Common and preferred shares 3,882,174 - - 3,882,174 Bonds - 1,305,226-1,305,226 Short-term investments - 190,163-190,163 Total $ 3,989,748 $ 1,536,770 $ - $ 5,526,518 Derivative assets $ - $ - $ - $ - Derivative liabilities $ (371) $ (566) $ - $ (937) As at December 31, 2012 Level 1 Level 2 Level 3 Total Cash and cash equivalents $ 40,329 $ 152,252 $ - $ 192,581 Common and preferred shares 3,510,274 - - 3,510,274 Bonds - 1,204,163-1,204,163 Short-term investments - 150,376-150,376 Total $ 3,550,603 $ 1,506,791 $ - $ 5,057,394 Derivative assets $ - $ 848 $ - $ 848 Derivative liabilities $ - $ - $ - $ - NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS The Empire Life Insurance Company Third Quarter 2013 25

4. SEGREGATED FUNDS (continued) (c) The following table presents the change in segregated fund assets: For the 3 months ended September 30, For the 9 months ended September 30, 2013 2012 2013 2012 Segregated funds - beginning of period $ 5,243,710 $ 4,418,318 $ 5,014,392 $ 4,415,318 Additions to segregated funds: Amount received from policyholders 297,654 302,857 997,063 813,162 Interest 13,276 10,896 39,266 32,808 Dividends 30,219 25,353 85,420 76,850 Other income 6,203 4,599 17,470 13,331 Net realized gains on sale of investments 55,180 16,624 195,331 1,876 Net unrealized increase in fair value of investments 111,206 119,593 94,555 126,822 513,738 479,922 1,429,105 1,064,849 Deductions from segregated funds: Amounts withdrawn or transferred by policyholders 278,926 213,225 877,205 722,402 Net realized losses on sale of investments - - - - Net unrealized decrease in fair value of investments - - - - Management fees and other operating costs 42,229 34,182 122,976 101,807 321,155 247,407 1,000,181 824,209 Net change in segregated funds held within general fund investments (1,957) (2,698) (8,980) (7,823) Segregated funds - end of period $ 5,434,336 $ 4,648,135 $ 5,434,336 $ 4,648,135 (d) Empire Life s exposure to segregated fund guarantee risk Segregated fund products issued by Empire Life contain death and maturity guarantees. Market price fluctuations impact Empire Life s estimated liability for these guarantees. The impact of market price fluctuations in segregated funds on the shareholders net income is disclosed in the risk management Note 11(a)(i). 26 The Empire Life Insurance Company Third Quarter 2013 NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

5. INSURANCE PREMIUMS For the 3 months ended September 30, 2013 For the 3 months ended September 30, 2012 Reinsurance Reinsurance Gross Ceded Net Gross Ceded Net Life premiums $ 111,541 $ (18,100) $ 93,441 $ 108,328 $ (17,069) $ 91,259 Health premiums 80,459 (5,875) 74,584 75,666 (5,219) 70,447 Total life and health premiums 192,000 (23,975) 168,025 183,994 (22,288) 161,706 Annuity premiums 35,289 (111) 35,178 51,786-51,786 Total insurance premiums $ 227,289 $ (24,086) $ 203,203 $ 235,780 $ (22,288) $ 213,492 For the 9 months ended September 30, 2013 For the 9 months ended September 30, 2012 Reinsurance Reinsurance Gross Ceded Net Gross Ceded Net Life premiums $ 323,713 $ (53,516) $ 270,197 $ 317,952 $ (49,504) $ 268,448 Health premiums 237,724 (16,822) 220,902 222,160 (15,874) 206,286 Total life and health premiums 561,437 (70,338) 491,099 540,112 (65,378) 474,734 Annuity premiums 116,109 (351) 115,758 126,179-126,179 Total insurance premiums $ 677,546 $ (70,689) $ 606,857 $ 666,291 $ (65,378) $ 600,913 6. BENEFITS AND EXPENSES (a) Insurance Contract Benefits and Claims Paid For the 3 months ended September 30, 2013 For the 3 months ended September 30, 2012 Reinsurance Reinsurance Gross Ceded Net Gross Ceded Net Life claims $ 42,659 $ (9,394) $ 33,265 $ 34,173 $ (7,246) $ 26,927 Health claims 51,460 (2,949) 48,511 48,574 (2,551) 46,023 Total life and health claims 94,119 (12,343) 81,776 82,747 (9,797) 72,950 Annuity benefits 51,609 (960) 50,649 47,734 (1,103) 46,631 Total benefits and claims $ 145,728 $ (13,303) $ 132,425 $ 130,481 $ (10,900) $ 119,581 For the 9 months ended September 30, 2013 For the 9 months ended September 30, 2012 Reinsurance Reinsurance Gross Ceded Net Gross Ceded Net Life claims $ 119,428 $ (24,716) $ 94,712 $ 111,409 $ (24,562) $ 86,847 Health claims 162,191 (8,263) 153,928 155,978 (8,076) 147,902 Total life and health claims 281,619 (32,979) 248,640 267,387 (32,638) 234,749 Annuity benefits 168,872 (2,167) 166,705 161,217 (2,973) 158,244 Total benefits and claims $ 450,491 $ (35,146) $ 415,345 $ 428,604 $ (35,611) $ 392,993 NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS The Empire Life Insurance Company Third Quarter 2013 27

6. BENEFITS AND EXPENSES (continued) (b) Change in Insurance Contract Liabilities and Reinsurance Ceded For the 3 months ended September 30, 2013 For the 3 months ended September 30, 2012 Reinsurance Reinsurance Gross Ceded Net Gross Ceded Net Life $ (10,765) $ (4,634) $ (15,399) $ 122,264 $ 1,570 $ 123,834 Health 6,396 (1,388) 5,008 6,974 (2,289) 4,685 Total life and health (4,369) (6,022) (10,391) 129,238 (719) 128,519 Annuity (12,359) 74 (12,285) 19,064 258 19,322 Total change in insurance contract liabilities $ (16,728) $ (5,948) $ (22,676) $ 148,302 $ (461) $ 147,841 Change attributable to: New business $ 25,324 $ (946) $ 24,378 In-force business (42,052) (5,002) (47,054) Total change in insurance contract liabilities $ (16,728) $ (5,948) $ (22,676) For the 9 months ended September 30, 2013 For the 9 months ended September 30, 2012 Reinsurance Reinsurance Gross Ceded Net Gross Ceded Net Life $ (139,262) $ (16,752) $ (156,014) $ 239,298 $ (534) $ 238,764 Health (1,499) 1,468 (31) 8,505 (3,184) 5,321 Total life and health (140,761) (15,284) (156,045) 247,803 (3,718) 244,085 Annuity (49,449) 1,729 (47,720) 6,124 274 6,398 Total change in insurance contract liabilities $ (190,210) $ (13,555) $ (203,765) $ 253,927 $ (3,444) $ 250,483 Change attributable to: New business $ 74,331 $ (3,909) $ 70,422 In-force business (264,541) (9,646) (274,187) Total change in insurance contract liabilities $ (190,210) $ (13,555) $ (203,765) 7. SEGMENTED INFORMATION The Company operates in the Canadian life insurance industry and follows a product line management approach for internal reporting and decision-making. A description of the product lines is as follows: The Wealth Management product line includes segregated funds, mutual funds, guaranteed interest rate annuities and annuities providing income for life. The Employee Benefits product line offers group benefit plans to employers for medical, dental, disability, and life insurance coverage of their employees. The Individual Insurance product line includes both non-participating and participating individual life and health insurance products. 28 The Empire Life Insurance Company Third Quarter 2013 NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

7. SEGMENTED INFORMATION (continued) The Capital and Surplus segment is made up of assets held in the shareholders and participating policyholders equity accounts. Operating results are segmented into three product lines along with the Company s capital and surplus segment as follows: For the 3 months ended September 30, 2013 Wealth Employee Individual Capital & Management Benefits Insurance Surplus Total Net premiums from external customers $ 35,178 $ 76,824 $ 91,201 $ - $ 203,203 Interest income 10,512 1,496 31,562 10,759 54,329 Total investment income 13,240 1,205 35,893 11,960 62,298 Fair value change in fair value through profit or loss assets (11,074) (1,139) (70,390) - (82,603) Realized gain (loss) on fair value through profit or loss assets 3,237 18 12,591-15,846 Realized gain (loss) on available for sale assets including impairment write downs 114 137 51 (3,011) (2,709) Fee income from external customers 35,625 1,858 329 529 38,341 Net benefits and claims 50,649 50,800 30,976-132,425 Net change in insurance contract liabilities (12,285) 5,537 (15,928) - (22,676) Change in investment contract provision 208 - - - 208 Policy dividends - - 5,241-5,241 Amortization of capital assets 425 291 369-1,085 Total operating expenses 11,498 9,754 9,073 345 30,670 Net commission expense 15,173 7,624 16,181-38,978 Interest expense - - - 5,709 5,709 Premium tax - 1,665 1,884-3,549 Investment and capital tax - - 1,000-1,000 Income tax expense (recovery) 2,159 851 4,604 626 8,240 Net income (loss) after tax 8,918 2,672 16,644 2,798 31,032 NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS The Empire Life Insurance Company Third Quarter 2013 29

7. SEGMENTED INFORMATION (continued) For the 3 months ended September 30, 2012 Wealth Employee Individual Capital & Management Benefits Insurance Surplus Total Net premiums from external customers $ 51,787 $ 72,639 $ 89,066 $ - $ 213,492 Interest income 10,496 1,306 30,540 6,345 48,687 Total investment income 12,739 1,417 32,776 8,622 55,554 Fair value change in fair value through profit or loss assets 5,451 495 62,960-68,906 Realized gain (loss) on fair value through profit or loss assets 135 267 6,537-6,939 Realized gain (loss) on available for sale assets including impairment write downs 173 188 153 775 1,289 Fee income from external customers 28,615 1,908 199 419 31,141 Net benefits and claims 46,631 46,989 25,961-119,581 Net change in insurance contract liabilities 19,322 2,143 126,376-147,841 Change in investment contract provision 209 - - - 209 Policy dividends - - 5,227-5,227 Amortization of capital assets 293 251 328-872 Total operating expenses 11,015 9,750 10,392 226 31,383 Net commission expense 16,695 6,989 17,995-41,679 Interest expense - - - 3,452 3,452 Premium tax - 1,569 1,828-3,397 Investment and capital tax - - 938-938 Income tax expense (recovery) 657 2,420 105 1,247 4,429 Net income (loss) after tax 4,374 7,054 2,866 4,891 19,185 For the 9 months ended September 30, 2013 Wealth Employee Individual Capital & Management Benefits Insurance Surplus Total Net premiums from external customers $ 115,758 $ 228,488 $ 262,611 $ - $ 606,857 Interest income 31,219 4,165 91,073 26,623 153,080 Total investment income 39,619 3,217 103,072 29,892 175,800 Fair value change in fair value through profit or loss assets (32,911) (5,793) (303,093) - (341,797) Realized gain (loss) on fair value through profit or loss assets 6,635 290 26,813-33,738 Realized gain (loss) on available for sale assets including impairment write downs 205 247 138 (903) (313) Fee income from external customers 102,457 5,498 896 1,455 110,306 Net benefits and claims 166,705 159,984 88,656-415,345 Net change in insurance contract liabilities (47,720) 2,582 (158,627) - (203,765) Change in investment contract provision 628 628 Policy dividends - - 15,901-15,901 Amortization of capital assets 1,238 907 1,102-3,247 Total operating expenses 40,882 30,981 30,393 1,067 103,323 Net commission expense 50,644 22,234 48,472-121,350 Interest expense - - - 13,266 13,266 Premium tax - 4,935 5,410-10,345 Investment and capital tax - - 2,825-2,825 Income tax expense (recovery) 3,413 2,819 12,886 3,484 22,602 Net income (loss) after tax 17,211 8,412 44,521 12,627 82,771 30 The Empire Life Insurance Company Third Quarter 2013 NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

7. SEGMENTED INFORMATION (continued) For the 9 months ended September 30, 2012 Wealth Employee Individual Capital & Management Benefits Insurance Surplus Total Net premiums from external customers $ 126,180 $ 215,251 $ 259,482 $ - $ 600,913 Interest income 31,421 3,944 89,141 19,615 144,121 Total investment income 39,315 4,575 109,125 26,129 179,144 Fair value change in fair value through profit or loss assets 4,332 (1,093) 64,054-67,293 Realized gain (loss) on fair value through profit or loss assets 3,232 479 13,648-17,359 Realized gain (loss) on available for sale assets including impairment write downs 182 199 67 5,050 5,498 Fee income from external customers 83,288 5,300 842 1,214 90,644 Net benefits and claims 158,244 153,785 80,964-392,993 Net change in insurance contract liabilities 6,398 937 243,148-250,483 Change in investment contract provision 565 - - - 565 Policy dividends - - 15,806-15,806 Amortization of capital assets 943 737 1,019-2,699 Total operating expenses 36,834 29,440 34,246 801 101,321 Net commission expense 43,746 20,346 56,355-120,447 Interest expense - - - 10,280 10,280 Premium tax - 4,649 5,355-10,004 Investment and capital tax - - 2,813-2,813 Income tax expense (recovery) 941 3,758 (3,778) 3,864 4,785 Net income (loss) after tax 9,802 11,796 12,308 17,448 51,354 Assets are segmented into three product lines along with the Company s capital and surplus as follows: As at September 30, 2013 Wealth Employee Individual Capital & Management Benefits Insurance Surplus Total Assets excluding segregated funds $ 1,102,656 $ 154,246 $ 3,318,734 $ 1,450,752 $ 6,026,388 Segregated funds 5,413,621-20,715-5,434,336 Total assets $ 6,516,277 $ 154,246 $ 3,339,449 $ 1,450,752 $ 11,460,724 As at December 31, 2012 Wealth Employee Individual Capital & Management Benefits Insurance Surplus Total Assets excluding segregated funds $ 1,147,098 $ 150,149 $ 3,482,334 $ 1,121,825 $ 5,901,406 Segregated funds 4,993,338-21,054-5,014,392 Total assets $ 6,140,436 $ 150,149 $ 3,503,388 $ 1,121,825 $ 10,915,798 While specific general fund assets are nominally matched against specific types of general fund liabilities or held in the shareholders and policyholders equity accounts, all general fund assets are available to pay all general fund liabilities if required. Segregated fund assets are not available to pay liabilities of the general fund. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS The Empire Life Insurance Company Third Quarter 2013 31

8. INCOME TAXES INCLUDED IN OTHER COMPREHENSIVE INCOME (LOSS) Other comprehensive income (loss) is presented net of income taxes. The following Income tax amounts are included in each component of total OCI. 3 months ended Sept. 30, 2013 3 months ended Sept. 30, 2012 Tax Tax Before Provision After Before Provision After Tax (Recovery) Tax Tax (Recovery) Tax Unrealized fair value change on available for sale investments $ (2,197) $ (580) $ (1,617) $ 12,864 $ 3,397 $ 9,467 Fair value change on available for sale investments reclassified to net income, including impairment write downs 2,709 723 1,986 (1,289) (600) (689) Amortization of loss on derivative investments designated as cash flow hedges reclassified to net income 214 70 144 200 65 135 Remeasurements of post-employment benefit liabilities 7,465 1,975 5,490 (5,514) (1,456) (4,058) Total other comprehensive income (loss) $ 8,191 $ 2,188 $ 6,003 $ 6,261 $ 1,406 $ 4,855 9 months ended Sept. 30, 2013 9 months ended Sept. 30, 2012 Tax Tax Before Provision After Before Provision After Tax (Recovery) Tax Tax (Recovery) Tax Unrealized fair value change on available for sale investments $ (27,272) $ (7,218) $ (20,054) $ 12,806 $ 3,382 $ 9,424 Fair value change on available for sale investments reclassified to net income, including impairment write downs 313 29 284 (5,498) (1,448) (4,050) Amortization of loss on derivative investments designated as cash flow hedges reclassified to net income 630 205 425 587 191 396 Remeasurements of post-employment benefit liabilities 17,678 4,679 12,999 (13,097) (3,459) (9,638) Total other comprehensive income (loss) $ (8,651) $ (2,305) $ (6,346) $ (5,202) $ (1,334) $ (3,868) The following income tax amounts are included in each component of shareholders OCI: 3 months ended Sept. 30, 2013 3 months ended Sept. 30, 2012 Tax Tax Before Provision After Before Provision After Tax (Recovery) Tax Tax (Recovery) Tax Unrealized fair value change on available for sale investments $ (4,576) $ (1,211) $ (3,365) $ 10,749 $ 2,839 $ 7,910 Fair value change on available for sale investments reclassified to net income, including impairment write downs 2,734 735 1,999 (1,223) (550) (673) Amortization of loss on derivative investments designated as cash flow hedges reclassified to net income 214 70 144 200 65 135 Remeasurements of post-employment benefit liabilities 7,120 1,884 5,236 (5,258) (1,388) (3,870) Shareholder portion of policyholder other comprehensive income (loss) 235 61 174 205 51 154 Total other comprehensive income (loss) $ 5,727 $ 1,539 $ 4,188 $ 4,673 $ 1,017 $ 3,656 9 months ended Sept. 30, 2013 9 months ended Sept. 30, 2012 Tax Tax Before Provision After Before Provision After Tax (Recovery) Tax Tax (Recovery) Tax Unrealized fair value change on available for sale investments $ (29,094) $ (7,701) $ (21,393) $ 10,696 $ 2,825 $ 7,871 Fair value change on available for sale investments reclassified to net income, including impairment write downs 1,224 289 935 (5,554) (1,500) (4,054) Amortization of loss on derivative investments designated as cash flow hedges reclassified to net income 630 205 425 587 191 396 Remeasurements of post-employment benefit liabilities 16,862 4,463 12,399 (12,489) (3,298) (9,191) Shareholder portion of policyholder other comprehensive income (loss) 91 22 69 217 61 156 Total other comprehensive income (loss) $ (10,287) $ (2,722) $ (7,565) $ (6,543) $ (1,721) $ (4,822) 32 The Empire Life Insurance Company Third Quarter 2013 NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

8. INCOME TAXES INCLUDED IN OTHER COMPREHENSIVE INCOME (LOSS) (continued) The following income tax amounts are included in each component of policyholders OCI: 3 months ended Sept. 30, 2013 3 months ended Sept. 30, 2012 Tax Tax Before Provision After Before Provision After Tax (Recovery) Tax Tax (Recovery) Tax Unrealized fair value change on available for sale investments $ 2,379 $ 631 $ 1,748 $ 2,115 $ 558 $ 1,557 Fair value change on available for sale investments reclassified to net income, including impairment write downs (25) (12) (13) (66) (50) (16) Remeasurements of post-employment benefit liabilities 345 91 254 (256) (68) (188) Shareholder portion of policyholder other comprehensive (income) loss (235) (61) (174) (205) (51) (154) Total other comprehensive income (loss) $ 2,464 $ 649 $ 1,815 $ 1,588 $ 389 $ 1,199 9 months ended Sept. 30, 2013 9 months ended Sept. 30, 2012 Tax Tax Before Provision After Before Provision After Tax (Recovery) Tax Tax (Recovery) Tax Unrealized fair value change on available for sale investments $ 1,822 $ 483 $ 1,339 $ 2,110 $ 557 $ 1,553 Fair value change on available for sale investments reclassified to net income, including impairment write downs (911) (260) (651) 56 52 4 Remeasurements of post-employment benefit liabilities 816 216 600 (608) (161) (447) Shareholder portion of policyholder other comprehensive (income) loss (91) (22) (69) (217) (61) (156) Total other comprehensive income (loss) $ 1,636 $ 417 $ 1,219 $ 1,341 $ 387 $ 954 9. SUBORDINATED DEBT On May 31, 2013, the Company issued $300,000 principal amount of unsecured subordinated debentures with a maturity date of May 31, 2023. The interest rate from May 31, 2013 until May 31, 2018 is 2.870%, and the rate from May 31, 2018 until May 31, 2023 will be equal to the 3-month Canadian Deposit Offering Rate plus 1.05%. Interest is payable semi-annually at May 31 and November 30 until May 31, 2018, quarterly thereafter with the first such payment on August 31, 2018. The Company may call for redemption of the debentures on or after May 31, 2018 subject to the approval of OSFI. The holders have no right of redemption. On May 20, 2009, the Company issued $200,000 principal amount of unsecured subordinated debentures with a maturity date of May 20, 2019. The interest rate from May 20, 2009 until May 20, 2014 is 6.73%, and the rate from May 20, 2014 until May 20, 2019 will be equal to the 3-month Canadian Deposit Offering Rate plus 5.75%. Interest is payable semi-annually at May 20 and November 20 until May 20, 2014, quarterly thereafter with the first such payment on August 20, 2014. The Company may call for redemption of the debentures at any time subject to the approval of OSFI. The holders have no right of redemption. The debentures are subordinated in right of payment to all policy contract liabilities of the Company and all other senior indebtedness of the Company. The debentures are recorded at amortized cost using the effective interest rate method. The fair value of these debentures was $502,336 as of September 30, 2013 (December 31, 2012 $211,432). NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS The Empire Life Insurance Company Third Quarter 2013 33

10. CAPITAL MANAGEMENT The Company aims to manage its regulatory capital in order to meet the regulatory capital adequacy requirements of the Insurance Companies Act (Canada) as established and monitored by OSFI. Under the guidelines established by OSFI, the Company s regulatory capital consists of two tiers. The Company s Tier 1 regulatory capital includes common shares, contributed surplus, retained earnings and participating policyholders equity. Tier 2 regulatory capital includes the accumulated unrealized gains on AFS equity securities, net of tax, negative reserves on insurance contract liabilities and subordinated debt. OSFI s target Tier 1 and total regulatory capital ratios for Canadian life insurance companies are 105% and 150% respectively. As at September 30, 2013 and December 31, 2012 the Company was in compliance with these ratios. As at September 30, 2013* December 31, 2012 Tier 1 Regulatory Capital $ 784,734 $ 755,641 Tier 2 Regulatory Capital 523,086 327,187 Total Regulatory Capital $ 1,307,820 $ 1,082,828 * Reflects adoption of IAS 19R on January 1, 2013 11. RISK MANAGEMENT The objective of the Company s risk management process is to ensure that the operations of the Company that expose it to risk are consistent with the Company s objectives and risk philosophy while maintaining an appropriate risk/reward balance. In support of this, the Company has created a Risk Management Policy. Oversight and management of this policy falls under the responsibility of the Management Risk Committee, a multi-disciplinary management committee with representation from all functional areas of the Company, chaired by the Chief Actuary and reporting directly to the Board. All risk management policies and procedures are regularly reviewed for relevance and changes in the risk environment and are presented to the Board on an annual basis. The Company is exposed to financial risks arising from its investing activities and its insurance operations and to general reputation risk associated with its activities and ability to manage specific risk. Financial risks arising from its investing activities are updated on a quarterly basis and are disclosed below. Financial risks arising from insurance operations are disclosed annually and are located in Note 27 (b) of the Annual Report. 34 The Empire Life Insurance Company Third Quarter 2013 NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

11. RISK MANAGEMENT (continued) (a) Market Risk (i) Market Price Fluctuations The following table summarizes the potential impact on the Company of a change in global equity markets. The Company uses a 10% increase or decrease in equity markets as a reasonably possible change in equity markets. The Company has also disclosed the impact of a 20% increase or decrease in its equity market sensitivity. For segregated fund guarantee policy liabilities the level of sensitivity is highly dependent on the level of the stock market at the time of performing the estimate. If period end equity markets are high relative to market levels at the time that segregated fund policies were issued, the sensitivity is reduced. If period end equity markets are low relative to market levels at the time that segregated fund policies were issued, the sensitivity is increased. The amounts shown below for segregated fund guarantee policy liabilities represent the impact on shareholders net income. As at September 30, 2013 10% Increase 10% Decrease 20% Increase 20% Decrease Shareholders' net income $ 14,855 $ (14,855) $ 29,732 $ (29,732) Policyholders' net income nil nil nil nil Shareholders' other comprehensive income $ 1,667 $ (1,667) $ 3,334 $ (3,334) Policyholders' other comprehensive income $ 2,789 $ (2,789) $ 5,578 $ (5,578) Segregated fund guarantee policy liabilities nil nil nil nil As at September 30, 2012 10% Increase 10% Decrease 20% Increase 20% Decrease Shareholders' net income $ 8,131 $ (8,131) $ 16,280 $ (16,280) Policyholders' net income nil nil nil nil Shareholders' other comprehensive income $ 14,126 $ (14,126) $ 28,252 $ (28,252) Policyholders' other comprehensive income $ 2,471 $ (2,471) $ 4,942 $ (4,942) Segregated fund guarantee policy liabilities nil nil nil nil The following table identifies the concentration of common equity holdings: As at September 30, 2013 December 31, 2012 Holdings of common equities in the 10 issuers to which the Company had the greatest exposure $ 245,950 $ 249,655 Percentage of total cash and investments 4.2% 4.3% Exposure to the largest single issuer of common equities $ 39,585 $ 39,328 Percentage of total cash and investments 0.7% 0.7% NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS The Empire Life Insurance Company Third Quarter 2013 35

11. RISK MANAGEMENT (continued) (ii) Interest Rate Risk The following tables summarize the immediate financial impact on Net income and Other comprehensive income as a result of a change in interest rates. As at September 30, 2013 100bps Increase 100bps Decrease 200bps Increase 200bps Decrease Shareholders' net income $ nil $ nil $ nil $ nil Policyholders' net income $ nil $ nil $ nil $ nil Shareholders' other comprehensive income $ (35,177) $ 44,087 $ (61,464) $ 97,105 Policyholders' other comprehensive income $ (2,266) $ 2,568 $ (4,231) $ 5,437 As at September 30, 2012 100bps Increase 100bps Decrease 200bps Increase 200bps Decrease Shareholders' net income $ nil $ nil $ nil $ nil Policyholders' net income $ nil $ nil $ nil $ nil Shareholders' other comprehensive income $ (20,058) $ 21,115 $ (39,063) $ 43,372 Policyholders' other comprehensive income $ (2,296) $ 2,425 $ (4,472) $ 4,990 (iii) Foreign Currency Risk The Company s primary foreign currency exposure arises from portfolio investments denominated in US dollars. A 10% fluctuation in the US dollar would have an impact of approximately $1,181 (September 30, 2012 $1,063) on net income, $nil (September 30, 2012 $182) on shareholders OCI and $nil (September 30, 2012 $40) on policyholders OCI. The Company has no significant foreign currency exposure in its financial liabilities. (b) Credit Risk The Company has the following assets that are exposed to credit risk: As at September 30, 2013 December 31, 2012 Cash and cash equivalents $ 101,704 $ 248,382 Short-term investments 57,265 16,440 Bonds 4,346,704 4,227,329 Preferred shares 329,360 321,321 Mortgages 294,105 302,531 Loans on policies 43,821 43,071 Policy contract loans 90,955 95,461 Accrued investment income 37,840 21,452 Insurance receivables 31,294 30,035 Trade accounts receivable 12,360 5,757 Total $ 5,345,408 $ 5,311,779 36 The Empire Life Insurance Company Third Quarter 2013 NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

11. RISK MANAGEMENT (continued) Concentration of Credit Risk (i) Bonds and Debentures The concentration of the Company s bond portfolio by investment grade is as follows: As at September 30, 2013 December 31, 2012 Fair Value % of Fair Value Fair Value % of Fair Value AAA $ 313,205 7% $ 266,832 6% AA 1,214,569 28% 1,274,244 30% A 2,240,710 52% 2,253,538 54% BBB 577,746 13% 432,535 10% BB 474 0% 180 0% Total $ 4,346,704 100% $ 4,227,329 100% Credit ratings are normally obtained from Standard & Poor s (S&P) and Dominion Bond Rating Service (DBRS). In the event of a split rating, the lower rating is used. Issues not rated by a recognized rating agency (i.e. S&P, DBRS or Moody s) are rated internally by the Investment Department. The internal rating assessment is documented referencing suitable comparables rated by recognized rating agencies and/or methodologies used by recognized rating agencies. Provincial bonds represent the largest concentration in the bond portfolio, as follows: As at September 30, 2013 December 31, 2012 Provincial bond holdings $ 2,192,551 $ 2,355,977 Percentage of total bond holdings 50% 56% The following table profiles the bond portfolio by contractual maturity, using the earliest contractual maturity date: As at September 30, 2013 December 31, 2012 Fair Value % of Fair Value Fair Value % of Fair Value 1 year or less $ 39,148 1% $ 53,360 1% 1-5 years 591,531 14% 434,762 10% 5-10 years 569,754 13% 510,229 12% Over 10 years 3,146,271 72% 3,228,978 77% Total $ 4,346,704 100% $ 4,227,329 100% NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS The Empire Life Insurance Company Third Quarter 2013 37

11. RISK MANAGEMENT (continued) The following table discloses the holdings of fixed income securities in the 10 issuers (excluding the federal government) to which the Company had the greatest exposure, as well as exposure to the largest single issuer of corporate bonds. As at September 30, 2013 December 31, 2012 Holdings of fixed income securities* in the 10 issuers (excluding federal governments) to which the Company had the greatest exposure $ 2,863,609 $ 2,935,033 Percentage of total cash and investments 48.4% 50.4% Exposure to the largest single issuer of corporate bonds $ 127,547 $ 139,727 Percentage of total cash and investments 2.2% 2.4% *Fixed income securities includes bonds, debentures, preferred shares and short term investments. (ii) Preferred Shares The Company s preferred share investments are all issued by Canadian companies, with 88% (December 31, 2012 86%) of these investments rated as P1 at September 30, 2013 and the remaining 12% (December 31, 2012 14%) rated as P2. (iii) Mortgages Mortgages in the province of Ontario represent the largest concentration with $290,340 or 99% (December 31, 2012 $298,432 or 99%) of the total mortgage portfolio. 12. INVESTMENT COMMITMENTS In the normal course of business, investment commitments are outstanding which are not reflected in the consolidated financial statements. At September 30, 2013 there were $11,430 (December 31, 2012 $41,281) of outstanding commitments to purchase units in a Canadian real estate limited partnership. These commitments are payable on demand and mature within 8 months. 13. DIVIDENDS The Company approved and paid a dividend of $24,100 (2012 $nil) ($24.4652 per share (2012 $nil)) in the third quarter of 2013. 14. COMPARATIVE FIGURES Certain comparative figures in Note 4 c) have been reclassified to conform with financial statement presentation adopted in 2013. 38 The Empire Life Insurance Company Third Quarter 2013 NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS