THE EMPIRE LIFE INSURANCE COMPANY

THE EMPIRE LIFE INSURANCE COMPANY Condensed Interim Consolidated Financial Statements For the six months ended June 30, 2013 Unaudited Issue Date: August 9, 2013 These condensed interim consolidated financial statements have not been reviewed by external auditors.

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Empire Life Management s Discussion and Analysis 2nd Quarter, 2013 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 second 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 quarter 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 Second quarter Year to date (millions of dollars) 2013 2012 2013 2012 Shareholders' net income $ 40.6 $ 17.4 $ 50.9 $ 34.8 Empire Life reported second quarter shareholders net income of $40.6 million for 2013, compared to $17.4 million for 2012. Net income was higher relative to the second 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 long-term interest rate movements in 2013. Year to date shareholders net income was $50.9 million compared to $34.8 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 above mentioned long-term interest rate conditions. 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 twelve 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 DISCUSSION AND ANALYSIS The Empire Life Insurance Company Second Quarter 2013 1

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. 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 June 30 (millions of dollars) Wealth Employee Individual Capital and Management Benefits Insurance Surplus Total Q2 2013 Q2 2012 Q2 2013 Q2 2012 Q2 2013 Q2 2012 Q2 2013 Q2 2012 Q2 2013 Q2 2012 Revenue Net premium income $ 36 $ 36 $ 77 $ 72 $ 84 $ 85 $ - $ - $ 197 $ 193 Fee and other income 33 27 2 1 1 1 1 1 37 30 Investment income 12 16 1 1 36 45 9 9 58 71 Realized gain on FVTPL investments 3 3 - - - 1 - - 3 4 Realized gain on available for sale investments including impairment write downs - - - - - - 1 1 1 1 Fair value change in FVTPL investments (23) 2 (2) 2 (210) 65 - - (235) 69 61 84 78 76 (89) 197 11 11 61 368 Expenses Benefits and expenses 54 81 70 70 (125) 198 4 3 3 352 Income and other taxes 1-3 2 11 (2) 2 1 17 1 55 81 73 72 (114) 196 6 4 20 353 Net income after tax $ 6 $ 3 $ 5 $ 4 $ 25 $ 1 $ 5 $ 7 $ 41 $ 15 Policyholders' portion 1 (3) Shareholders' net income $ 40 $ 18 Assets under management General fund assets $ 1,117 $ 1,127 $ 6,056 $ 5,717 Segregated fund assets $ 5,223 $ 4,397 $ 20 $ 21 $ 5,243 $ 4,418 Mutual fund assets $ 20 $ 2 $ 20 $ 2 Annualized premium sales $ 14 $ 10 $ 11 $ 15 For the six months ended June 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 $ 81 $ 74 $ 152 $ 143 $ 171 $ 170 $ - $ - $ 404 $ 387 Fee and other income 66 55 4 3 1 1 1 1 72 60 Investment income 25 27 2 3 68 76 18 18 113 124 Realized gain on FVTPL investments 4 3 - - 14 7 - - 18 10 Realized gain on available for sale investments including impairment write downs - - - - - - 2 4 2 4 Fair value change in FVTPL investments (21) (2) (5) (1) (233) 1 - - (259) (2) 155 157 153 148 21 255 21 23 350 583 Expenses Benefits and expenses 146 152 142 139 (21) 244 8 7 275 542 Income and other taxes 1-5 4 14 2 3 3 23 9 147 152 147 143 (7) 246 11 10 298 551 Net income after tax $ 8 $ 5 $ 6 $ 5 $ 28 $ 9 $ 10 $ 13 $ 52 $ 32 Policyholders' portion 1 (3) Shareholders' net income $ 51 $ 35 Assets under management General fund assets $ 1,117 $ 1,127 $ 6,056 $ 5,717 Segregated fund assets $ 5,223 $ 4,397 $ 20 $ 21 $ 5,243 $ 4,418 Mutual fund assets $ 20 $ 2 $ 20 $ 2 Annualized premium sales $ 26 $ 20 $ 23 $ 30 2 The Empire Life Insurance Company Second Quarter 2013 MANAGEMENT S DISCUSSION AND ANALYSIS

Total Revenue Second quarter Year to date (millions of dollars) 2013 2012 2013 2012 Revenue Net premium income $ 197 $ 194 $ 404 $ 387 Investment income 58 70 113 124 Fair value change in FVTPL investments including realized amounts (232) 74 (241) 8 Realized gain on AFS investments including impairment write downs 1 1 2 4 Fee and other income 37 29 72 60 Total $ 61 $ 368 $ 350 $ 583 For the quarter, total revenue at Empire Life decreased by 83% to $61 million compared to $368 million in 2012. On a year to date basis, total revenue decreased by 40% to $350 million compared to $583 million in 2012. Major revenue items are discussed below. Net premium income for the quarter and year to date increased in 2013 relative to 2012. The increase for the quarter and the year to date related primarily to the Employee Benefits product line. Investment income for the quarter and year to date decreased in 2013 relative to 2012. The year to date decrease related primarily to lower dividend income in the Individual Insurance 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). In 2012 the gain was from primarily an increase in bond prices (due to a decrease in market interest rates). 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 on available for sale investments including impairment write downs was a lower gain for the year to date in 2013 relative to 2012. The decrease was due primarily to lower gains from the sale of AFS bonds in 2013 compared to 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 half of 2013 and GMWB price increases in 2013. MANAGEMENT S DISCUSSION AND ANALYSIS The Empire Life Insurance Company Second Quarter 2013 3

Total Benefits and Expenses Second quarter Year to date (millions of dollars) 2013 2012 2013 2012 Benefits and expenses Net benefits and claims $ 141 $ 131 $ 283 $ 273 Net change in insurance contract liabilities (224) 138 (181) 102 Change in investment contracts provision - - - - Policy dividends 6 6 11 11 Operating expenses 37 35 73 70 Net commissions 39 39 82 79 Interest expense 4 3 7 7 Total $ 3 $ 352 $ 275 $ 542 Total benefits and expenses at Empire Life for the quarter decreased by 99% to $3 million compared to $352 million in 2012. On a year to date basis, total benefits and expenses decreased by 49% to $275 million compared to $542 million in 2012. Major benefit and expense items are discussed below. 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 increase 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. Year to date commission expenses increased year over year due primarily to growth in segregated fund deposits, partly offset by lower Individual Insurance sales. 4 The Empire Life Insurance Company Second Quarter 2013 MANAGEMENT S DISCUSSION AND ANALYSIS

Product Line Results - Wealth Management As at June 30 (millions of dollars) 2013 2012 Assets under management General fund annuities $ 1,117 $ 1,127 Segregated funds 5,223 4,397 Mutual funds 20 2 Second quarter Year to date (millions of dollars) 2013 2012 2013 2012 Selected financial information Fixed interest annuity premiums $ 36 $ 36 $ 81 $ 74 Segregated fund gross sales 221 182 514 373 Segregated fund net sales 39 8 103 - Segregated fund fee income 35 27 67 55 Mutual fund gross sales 3 1 6 2 Mutual fund net sales 2 1 5 2 Mutual fund fee income - - - - Net income after tax fixed income annuity portion $ 3 $ 2 $ 3 $ 3 Net income after tax segregated fund portion 4 2 7 4 Net loss after tax mutual fund portion (1) (1) (2) (2) Net income after tax $ 6 $ 3 $ 8 $ 5 Assets in Empire Life general fund annuities decreased by 1%, while segregated fund assets increased by 19% during the last twelve months. The increase over the last twelve 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 June 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 year to date, fixed interest annuity premiums were up 8% compared to 2012 due primarily to increased sales of fixed interest deferred annuities. For the quarter and year to date, segregated fund gross sales were up 21% and 38% respectively compared to 2012. Net sales for the quarter and year to date were higher than 2012 due to increased gross sales. This product line s gross sales growth is attributable primarily to 75% maturity guarantee segregated funds for the quarter, and to guaranteed minimum withdrawal benefit (GMWB) products for the year to date. 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. For the quarter and year to date, segregated fund fee income increased by 28% and 22% 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 half 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 122% and 169% respectively in 2013 compared to 2012. MANAGEMENT S DISCUSSION AND ANALYSIS The Empire Life Insurance Company Second Quarter 2013 5

During the second 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) Second quarter Year to date Wealth Management Net Income Analysis Net income after tax 2013 $ 6 $ 8 Net income after tax 2012 3 5 Increase net income after tax $ 3 $ 3 Components of increase Increase in inforce profit margins $ 3 $ 5 Improved investment experience 1 - Higher new business strain (1) (2) Total $ 3 $ 3 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. Lower net income from higher new business strain resulted from strong GMWB and 75% maturity guarantee sales in 2013 relative to 2012. 6 The Empire Life Insurance Company Second Quarter 2013 MANAGEMENT S DISCUSSION AND ANALYSIS

Product Line Results - Employee Benefits Second quarter Year to date (millions of dollars) 2013 2012 2013 2012 Selected financial information Annualized premium sales $ 14 $ 10 $ 26 $ 20 Premium income 77 72 152 143 Net income after tax $ 5 $ 4 $ 6 $ 5 For the quarter and year to date, sales in this product line increased by 29% and 25% 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 7% and 6% respectively relative to 2012 due to continuing growth of the inforce block. During the second 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) Second quarter Year to date Employee Benefits Net Income Analysis Net income after tax 2013 $ 5 $ 6 Net income after tax 2012 4 5 Increase in net income after tax $ 1 $ 1 Components of increase Improved claims experience $ 1 $ 1 Total $ 1 $ 1 In 2013 improved claims experience relates to group life claims results. MANAGEMENT S DISCUSSION AND ANALYSIS The Empire Life Insurance Company Second Quarter 2013 7

Product Line Results - Individual Insurance Second quarter Year to date (millions of dollars) 2013 2012 2013 2012 Selected financial information Annualized premium sales $ 11 $ 15 $ 23 $ 30 Premium income 84 85 171 170 Net income (loss) after tax Net income after tax shareholders' portion $ 25 $ 4 $ 28 $ 13 Net income (loss) after tax policyholders' portion - (3) - (4) Net income after tax $ 25 $ 1 $ 28 $ 9 For the quarter and year to date, annualized premium sales in this product line decreased by 31% and 25% respectively compared to 2012, and premium income decreased by less than 1% and increased by 1% respectively compared to 2012. This product line s second 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. During the second 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) Second quarter Year to date Individual Insurance Net Income Analysis Net income after tax 2013 $ 25 $ 28 Net income after tax 2012 1 9 Increase in net income after tax $ 24 $ 19 Components of income increase Improved investment experience $ 18 $ 8 Lower new business strain 2 6 Improved mortality, surrender and other experience 4 5 Total $ 24 $ 19 Investment experience improved strongly year over year. While market interest rates remain unusually low, they increased significantly 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 resulting in a $7 million increase in net income for this line of business. 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 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 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. 8 The Empire Life Insurance Company Second Quarter 2013 MANAGEMENT S DISCUSSION AND ANALYSIS

Results - Capital and Surplus Second quarter Year to date (millions of dollars) 2013 2012 2013 2012 Net income after tax Net income after tax shareholders' portion $ 5 $ 7 $ 9 $ 12 Net income after tax policyholders' portion - - 1 1 Net income after tax $ 5 $ 7 $ 10 $ 13 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 second 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) Second quarter Year to date Capital and Surplus Net Income Analysis Net income after tax 2013 $ 5 $ 10 Net income after tax 2012 $ 7 $ 13 Decrease in net income after tax $ (2) $ (3) Components of decrease Decreased net income from sale of investments $ (3) $ (4) Lower impairment write downs 1 1 Total $ (2) $ (3) Decreased net income from sale of investments was due primarily to lower gains from the sale of AFS bonds compared to 2012. Total Cash Flow Year to date (millions of dollars) 2013 2012 Cash Flow provided from (used for) Operating Activities $ 66 $ 88 Investing Activities (462) (129) Financing Activities 291 (7) Net change in cash and cash equivalents $ (105) $ (48) The decrease in cash provided by operating activities in 2013 relative to 2012 was due primarily to increased cash outflows related to income taxes. 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 equity 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 semi-annually, and a variable annual rate equal to the 3-month Bankers Acceptance Rate plus 1.05% for the last five years, payable quarterly. MANAGEMENT S DISCUSSION AND ANALYSIS The Empire Life Insurance Company Second Quarter 2013 9

Capital Resources June 30 Mar 31 Dec 31 Sept 30 June 30 2013* 2013* 2012 2012 2012 MCCSR Ratio 262% 212% 203% 203% 205% *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 262% as at June 30, 2013 continued to be well above requirements, and above minimum internal targets. The MCCSR ratio increased by 50 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. June 30 Mar 31 Dec 31 Sept 30 June 30 (millions of dollars) 2013* 2013* 2012 2012 2012 Available regulatory capital Tier 1 $ 775 $ 732 $ 756 $ 746 $ 730 Tier 2 521 335 327 331 321 Total $ 1,296 $ 1,067 $ 1,083 $ 1,077 $ 1,051 Required regulatory capital $ 494 $ 503 $ 533 $ 529 $ 512 *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 second quarter net income. For the year to date the increase was due primarily to year to date net income partly offset by the impact of implementation of IAS 19R Employee Benefits standards (related to employee defined benefit plans) in the first quarter 2013 which lowered Empire Life s available regulatory capital by $26 million, and decreased Empire Life s MCCSR ratio by 5 points. Tier 1 available regulatory capital was also maintained due to Empire Life s decision to retain cash to finance operations growth rather than paying a dividend to common shareholders in the first half of 2013. The increase in Tier 2 available regulatory capital from the previous quarter and 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. The increase in negative insurance contract liabilities in the second quarter resulted in a $4 million decrease in Tier 1 regulatory capital and a $4 million increase in Tier 2 regulatory capital. 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 due primarily to higher market interest rates, which lowered required regulatory capital related to lapse risk. For the year to date the increase was due primarily to the above mentioned higher interest rates 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. This was partly offset by higher investment exposures due primarily to increased investment in equities and bonds. 10 The Empire Life Insurance Company Second Quarter 2013 MANAGEMENT S DISCUSSION AND ANALYSIS

On August 1, 2013 the Board of Directors of Empire Life approved the declaration of a common share dividend of $24.1 million payable in the third quarter of 2013. On a pro forma basis, after giving effect to the dividend payment, Empire Life estimates that, as at June 30, 2013, its MCCSR ratio would have decreased by 7 points. 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 June 30, 2013, its MCCSR ratio would have decreased by 15 points. Comprehensive Income Second quarter Year to date (millions of dollars) 2013 2012 2013 2012 Comprehensive income Shareholders' net income $ 40.6 $ 17.4 $ 50.9 $ 34.8 Unrealized investments gains (losses) (23.7) (0.8) (18.4) - Reclassification of net investments gains to net income (1.3) (1.3) (1.7) (3.4) Amortization of loss on derivative investments designated as cash flow hedges reclassified to net income 0.1 0.1 0.3 0.3 Remeasurements of defined benefit plans 6.1 (3.7) 7.5 (5.6) (18.8) (5.7) (12.3) (8.7) Less: Participating Policyholders 1.2 0.2 0.6 0.2 Other comprehensive income, attributable to shareholders (17.6) (5.5) (11.7) (8.5) Comprehensive income, attributable to shareholders $ 23.0 $ 11.9 $ 39.2 $ 26.3 During the second quarter of 2013, Empire Life incurred an other comprehensive loss of $18.8 million due primarily to unrealized investment losses relating to AFS bonds. During the second quarter of 2012 Empire Life incurred an other comprehensive loss of $5.7 million due primarily to the remeasurement of defined benefit ( DB ) plans. Year to date 2013, Empire Life incurred an other comprehensive loss of $12.3 million due primarily to unrealized investment losses relating to AFS bonds. Year to date 2012 Empire Life incurred an other comprehensive loss of $8.7 million due primarily to the remeasurement of defined benefit ( 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 second quarter and year to date of 2013 Empire Life experienced a $6.1 million and $7.5 million gain after tax respectively on its DB plans. These gains were due primarily to the impact of higher interest rates on DB plan liabilities. For the second quarter and year to date of 2012 Empire Life experienced a $3.7 million and $5.6 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 gains and losses 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 twelve quarters for MCCSR purposes. MANAGEMENT S DISCUSSION AND ANALYSIS The Empire Life Insurance Company Second Quarter 2013 11

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 June 30, 2013 Empire had $5.2 billion of segregated fund assets and liabilities. Of this amount, approximately $5.0 billion have guarantees. The following table provides a percentage breakdown by type of guarantee: June 30 Dec 31 2013 2012 Percentage of segregated fund liabilities with: 75% maturity guarantee and a 100% death benefit guarantee 60.4% 63.8% 100% maturity and death benefit guarantees (with a minimum of 15 years between deposit and maturity date) 5.0% 5.2% 100% maturity and death benefit guarantees (guaranteed minimum withdrawal benefit (GMWB)) 34.6% 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 June 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: June 30, 2013 MCCSR Ratio 0.0% 0.0% 0.0% -6.5% December 31, 2012 MCCSR Ratio -0.5% 0.0% -1.1% -12.2% The use of common equities 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 equity 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 equity assets increases. As of 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. 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 June 30, 2013 or December 31, 2012. 12 The Empire Life Insurance Company Second Quarter 2013 MANAGEMENT S DISCUSSION AND ANALYSIS

However, effective January 1, 2013 Empire Life has entered 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. 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 June 30, 2013 $ 103 $ 9 $ 1,339 $ 88 $ 326 $ nil $ nil December 31, 2012 $ 107 $ 11 $ 1,250 $ 112 $ 298 $ nil $ <1 The first four columns of 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 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 June 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 June 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 10 to the consolidated financial statements and in note 27 to the 2012 consolidated financial statements. MANAGEMENT S DISCUSSION AND ANALYSIS The Empire Life Insurance Company Second Quarter 2013 13

Quarterly Results The following table summarizes various financial results on a quarterly basis for the most recent eight quarters: (millions of dollars) Jun 30 Mar 31 Dec 31 Sept 30 June 30 Mar 31 Dec 31 Sept 30 2013 2013 2012 2012 2012 2012 2011 2011 Revenue $ 61 $ 289 $ 299 $ 377 $ 368 $ 215 $ 476 $ 499 Shareholders' Net income (loss) $ 40 $ 11 $ 25 $ 20 $ 18 $ 17 $ 8 $ (7) Revenue for the three months ended June 30, 2013 decreased to $61 million (2012 $368 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). 14 The Empire Life Insurance Company Second Quarter 2013 MANAGEMENT S DISCUSSION AND ANALYSIS

Interim Consolidated Statements of Financial Position (in thousands of Canadian dollars) UNAUDITED As at June 30, 2013 Assets December 31, 2012 (Restated - Note 2) January 1, 2012 (Restated - Note 2) Cash and cash equivalents $ 143,881 $ 248,382 $ 155,559 Investments Short-term investments (Note 3) 18,984 16,440 33,867 Bonds (Note 3) 4,392,119 4,227,329 4,063,897 Common and preferred shares (Note 3) 949,446 878,085 808,681 Mortgages (Note 3) 288,847 302,531 264,238 Loans on policies (Note 3) 44,076 43,071 41,981 Policy contract loans (Note 3) 94,665 95,461 113,118 Total investments 5,788,137 5,562,917 5,325,782 Accrued investment income 37,069 21,452 20,107 Insurance receivables 26,696 30,035 28,455 Current income taxes receivable 333-17,106 Deferred income taxes 2,985 4,596 - Other assets 29,919 9,126 21,330 Property and equipment 23,412 22,827 21,241 Intangible assets 3,128 2,071 1,090 Segregated fund assets (Note 4) 5,243,710 5,014,392 4,415,318 Total Assets $ 11,299,270 $ 10,915,798 $ 10,005,988 Liabilities Accounts payable and other liabilities $ 71,444 $ 69,875 80,266 Insurance payables 65,726 63,152 67,859 Current income taxes payable - 7,473 - Reinsurance liabilities 237,201 244,808 156,119 Insurance contract liabilities 4,201,959 4,375,441 4,199,501 Investment contract liabilities 14,201 14,591 15,076 Policyholders' funds on deposit 30,929 30,634 30,263 Provision for profits to policyholders 23,001 22,142 21,791 Deferred income taxes - - 432 Subordinated debt (Note 9) 498,061 199,642 199,405 Segregated fund policy liabilities 5,243,710 5,014,392 4,415,318 Equity 10,386,232 10,042,150 9,186,030 Capital stock 985 985 985 Contributed surplus 19,387 19,387 19,387 Retained earnings 911,495 859,756 786,203 Accumulated other comprehensive income (loss) (18,829) (6,480) 13,383 913,038 873,648 819,958 Total Liabilities and Equity $ 11,299,270 $ 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 Second Quarter 2013 15

Interim Consolidated Statements of Operations (in thousands of Canadian dollars, except for per share amounts) UNAUDITED For the three months ended June 30 For the six months ended June 30 2012 2012 2013 (Restated - Note 2) 2013 (Restated - Note 2) Revenue Gross premiums $ 221,013 $ 216,275 $ 450,257 $ 430,511 Premiums ceded to reinsurers (24,420) (22,738) (46,603) (43,090) Net premiums (Note 5) 196,593 193,537 403,654 387,421 Investment income 58,455 70,061 113,502 123,590 Fair value change in fair value through profit or loss assets (235,591) 69,616 (259,194) (1,613) Realized gain (loss) on fair value through profit or loss assets sold 2,580 4,498 17,892 10,420 Realized gain (loss) on available for sale assets including impairment write downs 1,839 1,243 2,396 4,209 Fee income 37,308 29,485 71,965 59,503 61,184 368,440 350,215 583,530 Benefits and Expenses Gross benefits and claims paid (Note 6) 151,132 142,550 304,763 298,123 Claims recovery from reinsurers (Note 6) (9,794) (11,689) (21,843) (24,711) Gross change in insurance contract liabilities (Note 6) (211,036) 138,311 (173,482) 105,625 Change in insurance contract liabilities ceded (Note 6) (12,533) 506 (7,607) (2,983) Change in investment contracts provision 197 (151) 420 356 Policy dividends 5,713 5,625 10,660 10,579 Operating expenses 36,546 35,118 72,653 69,938 Commissions 39,872 39,666 83,547 79,905 Commission recovery from reinsurers (626) (609) (1,175) (1,137) Interest expense 4,176 3,415 7,557 6,828 Total benefits and expenses 3,647 352,742 275,493 542,523 Premium tax 3,376 3,326 6,796 6,607 Investment and capital tax 825 1,050 1,825 1,875 Net Income Before Income Taxes 53,336 11,322 66,101 32,525 Income taxes 12,320 (3,548) 14,362 356 Net Income $ 41,016 $ 14,870 $ 51,739 $ 32,169 Net Income (Loss) Attributable to: Participating Policyholders 395 (2,577) 864 (2,639) Shareholders 40,621 17,447 50,875 34,808 $ 41,016 $ 14,870 $ 51,739 $ 32,169 Earnings per share - basic and diluted $ 41.24 $ 17.71 $ 51.65 $ 35.34 (2,000,000 shares authorized; 985,076 shares outstanding) The accompanying notes are an integral part of these interim consolidated financial statements. 16 The Empire Life Insurance Company Second Quarter 2013 INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Interim Consolidated Statements of Comprehensive Income (in thousands of Canadian dollars) UNAUDITED For the three months ended June 30 For the six months ended June 30 2012 2012 2013 (Restated - Note 2) 2013 (Restated - Note 2) Net Income $ 41,016 $ 14,870 $ 51,739 $ 32,169 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) (23,742) (832) (18,437) (43) Fair value change on available for sale investments reclassified to net income, including impairment write downs (Note 8) (1,347) (1,258) (1,702) (3,361) Net unrealized fair value increase (decrease) (25,089) (2,090) (20,139) (3,404) Amortization of loss on derivative investments designated as cash flow hedges reclassified to net income (Note 8) 142 131 281 261 Items that will not be reclassified to net income: Remeasurements of post-employment benefit liabilities (Note 8) 6,056 (3,745) 7,509 (5,580) Total other comprehensive income (loss) (18,891) (5,704) (12,349) (8,723) Comprehensive Income $ 22,125 $ 9,166 $ 39,390 $ 23,446 Comprehensive income (loss) attributable to: Participating Policyholders $ (875) $ (2,788) $ 268 $ (2,884) Shareholders 23,000 11,954 39,122 26,330 $ 22,125 $ 9,166 $ 39,390 $ 23,446 The accompanying notes are an integral part of these interim consolidated financial statements. INTERIM CONSOLIDATED FINANCIAL STATEMENTS The Empire Life Insurance Company Second Quarter 2013 17

Interim Consolidated Statements of Changes in Equity (in thousands of Canadian dollars) UNAUDITED For the six months ended June 30, 2012 For the six months ended June 30, 2013 (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) 50,875 864 51,739 34,808 (2,639) 32,169 Retained earnings - end of period 863,517 47,978 911,495 767,287 51,085 818,372 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) (11,753) (596) (12,349) (8,478) (245) (8,723) Accumulated other comprehensive income (loss) - end of period (22,097) 3,268 (18,829) 2,272 2,388 4,660 Total equity $ 861,792 $ 51,246 $ 913,038 $ 789,931 $ 53,473 $ 843,404 Composition of Accumulated Comprehensive Income (Loss) - end of period Unrealized gain on available for sale financial assets $ (4,569) $ 4,646 $ 77 $ 24,579 $ 3,890 $ 28,469 Unamortized gain (loss) on cash flow hedges (526) - (526) (1,080) - (1,080) Remeasurements of post-employment benefit liabilities (17,466) (914) (18,380) (21,616) (1,113) (22,729) Shareholder portion of policyholders' accumulated other comprehensive income 464 (464) - 389 (389) - Total accumulated other comprehensive income (loss) $ (22,097) $ 3,268 $ (18,829) $ 2,272 $ 2,388 $ 4,660 The accompanying notes are an integral part of these interim consolidated financial statements. 18 The Empire Life Insurance Company Second 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 June 30 For the six months ended June 30 2012 2012 2013 (Restated - Note 2) 2013 (Restated - Note 2) Net income $ 41,016 $ 14,870 $ 51,739 $ 32,169 Non-cash items affecting net income Change in contract liabilities (210,839) 138,160 (173,062) 105,981 Change in reinsurance liability (12,533) 506 (7,607) (2,983) Fair value change in fair value through profit or loss assets 235,591 (69,616) 259,194 1,613 Realized (gain) loss on assets including impairment write downs on available for sale assets (4,419) (5,741) (20,288) (14,629) Amortization related to invested assets (17,741) (18,154) (34,710) (36,063) Amortization related to capital assets 1,250 976 2,161 1,827 Deferred income taxes 3,301 3,196 (1,077) (52) Other items (11,267) 18,547 (10,213) (11) Cash provided from operating activities 24,359 82,744 66,137 87,852 Investing Activities Portfolio investments Purchases and advances (904,362) (422,132) (1,445,343) (710,612) Sales and maturities 592,380 359,382 989,637 569,578 Loans on policies Advances (3,762) (2,007) (5,511) (3,974) Repayments 2,878 2,716 5,388 4,323 Decrease (increase) in short-term investments (4,491) 9,964 (2,544) 14,978 Net purchase of capital assets (2,718) (2,254) (3,803) (2,994) Cash provided from (used for) investing activities (320,075) (54,331) (462,176) (128,701) Financing Activities Dividends to common shareholders - - - - Interest paid on subordinated debt (6,730) (6,730) (6,730) (6,730) Debt issue (Note 9) 298,268-298,268 - Cash provided from (used for) financing activities 291,538 (6,730) 291,538 (6,730) Net Change in Cash and Cash Equivalents (4,178) 21,683 (104,501) (47,579) Cash and Cash Equivalents - Beginning of Period 148,059 86,297 248,382 155,559 Cash and Cash Equivalents - End of Period $ 143,881 $ 107,980 $ 143,881 $ 107,980 Supplementary cash flow information related to operating activities: Income taxes paid, net of (refunds) 4,732 830 $ 15,725 $ 1,760 Interest income received 32,998 34,322 50,954 50,388 Dividend income received 7,841 21,970 15,409 28,655 The accompanying notes are an integral part of these consolidated financial statements. INTERIM CONSOLIDATED FINANCIAL STATEMENTS The Empire Life Insurance Company Second Quarter 2013 19

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited, in thousands of Canadian dollars except for per share amounts and where otherwise stated) 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 August 1, 2013. 2. SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Preparation These unaudited condensed interim consolidated financial statements are prepared in accordance with International Accounting Standard 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. 20 The Empire Life Insurance Company Second Quarter 2013 NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited, in thousands of Canadian dollars except for per share amounts and where otherwise stated) 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 Second Quarter 2013 21

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited, in thousands of Canadian dollars except for per share amounts and where otherwise stated) 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 post-employment 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 (loss) 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 22 The Empire Life Insurance Company Second Quarter 2013 NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited, in thousands of Canadian dollars except for per share amounts and where otherwise stated) 2. SIGNIFICANT ACCOUNTING POLICIES (continued) Impact of IAS 19R accounting policy changes on statement of operations line items Three months ended June 30, 2012 Six months ended June 30, 2012 Before After Before After Accounting IAS 19R Accounting Accounting IAS 19R Accounting Changes Adjustment Changes Changes Adjustment Changes Total Revenue $ 368,440 $ - $ 368,440 $ 583,530 $ - $ 583,530 Benefits and Expenses Operating expenses $ 35,026 $ 92 $ 35,118 $ 69,754 $ 184 $ 69,938 All other benefits & expenses 317,624-317,624 472,585-472,585 Other taxes 4,376-4,376 8,482-8,482 Net Income Before Income Taxes 11,414 (92) 11,322 32,709 (184) 32,525 Income taxes (3,523) (25) (3,548) 406 (50) 356 Net Income $ 14,937 $ (67) $ 14,870 $ 32,303 $ (134) $ 32,169 Attributable to: Participating Policyholders (2,574) (3) (2,577) (2,633) (6) (2,639) Shareholders 17,511 (64) 17,447 34,936 (128) 34,808 Earnings per share $ 17.78 $ (0.07) $ 17.71 $ 35.47 $ (0.13) $ 35.34 Impact of IAS 19R accounting policy changes on statement of comprehensive income line items Three months ended June 30, 2012 Six months ended June 30, 2012 Before After Before After Accounting IAS 19R Accounting Accounting IAS 19R Accounting Changes Adjustment Changes Changes Adjustment Changes Net Income $ 14,937 $ (67) $ 14,870 $ 32,303 $ (134) $ 32,169 Other Comprehensive Income (Loss), Net of Income Taxes Remeasurements of post-employment benefit liabilities - (3,745) (3,745) - (5,580) (5,580) All other comprehensive income (1,959) - (1,959) (3,143) - (3,143) Total other comprehensive income (loss) (1,959) (3,745) (5,704) (3,143) (5,580) (8,723) Comprehensive Income $ 12,978 $ (3,812) $ 9,166 $ 29,160 $ (5,714) $ 23,446 Attributable to: Participating Policyholders (2,611) (177) (2,788) (2,619) (265) (2,884) Shareholders 15,589 (3,635) 11,954 31,779 (5,449) 26,330 (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. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS The Empire Life Insurance Company Second Quarter 2013 23

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited, in thousands of Canadian dollars except for per share amounts and where otherwise stated) 3. FINANCIAL INSTRUMENTS (a) Summary of Cash and Investments The carrying values and fair values of cash and investments are as follows: As at June 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 $ 143,881 $ - $ - 143,881 143,881 Short-term investments Canadian federal government 3,982 - - 3,982 3,982 Canadian provincial governments - - - - - Corporate 15,002 - - 15,002 15,002 Total short-term investments 18,984 - - 18,984 18,984 Bonds Bonds issued or guaranteed by: Canadian federal government 60,725 209,736-270,461 270,461 Canadian provincial and municipal governments 2,116,363 248,683-2,365,046 2,365,046 Total government bonds issued or guaranteed 2,177,088 458,419-2,635,507 2,635,507 Canadian corporate bonds by industry sector: Financial services 516,456 450,333-966,789 966,789 Infrastructure 232,834 32,571-265,405 265,405 Utilities 192,517 13,590-206,107 206,107 Communications 1,528 24,184-25,712 25,712 Energy 36,139 35,793-71,932 71,932 Consumer staples 67,859 10,511-78,370 78,370 Industrials 43,504 9,952-53,456 53,456 Health care 70,981 5,424-76,405 76,405 Materials 9,969 2,467-12,436 12,436 Total Canadian corporate bonds 1,171,787 584,825-1,756,612 1,756,612 Total bonds 3,348,875 1,043,244-4,392,119 4,392,119 Preferred shares Canadian 231,306 115,978-347,284 347,284 Total preferred shares 231,306 115,978-347,284 347,284 Common shares Canadian Common shares 411,592 55,331-466,923 466,923 Real estate limited partnership units 39,359 - - 39,359 39,359 U.S. 84,627 - - 84,627 84,627 Other 11,253 - - 11,253 11,253 Total common shares 546,831 55,331-602,162 602,162 Mortgages - - 288,847 288,847 307,548 Loans on policies - - 44,076 44,076 44,076 Policy contract loans - - 94,665 94,665 94,665 Total $ 4,289,877 $ 1,214,553 $ 427,588 $ 5,932,018 $ 5,950,719 24 The Empire Life Insurance Company Second Quarter 2013 NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited, in thousands of Canadian dollars except for per share amounts and where otherwise stated) 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 Second Quarter 2013 25

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited, in thousands of Canadian dollars except for per share amounts and where otherwise stated) 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 second quarter of 2013, the Company reclassified a pre-tax loss of $100 due to write downs of impaired available for sale common and preferred shares (second quarter 2012 $1,408). On a year to date basis the pre-tax write downs are $139 (year to date 2012 $1,469). 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 June 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 June 30, 2013 Level 1 Level 2 Level 3 Total Fair Value Cash and cash equivalents $ 87,548 $ 56,333 $ - $ 143,881 Fair value through profit or loss: Bonds - 3,348,875-3,348,875 Common shares 507,472 39,359-546,831 Preferred shares 231,306 - - 231,306 Short-term investments - 18,984-18,984 Available for sale: Bonds - 1,043,244-1,043,244 Common shares 55,331 - - 55,331 Preferred shares 115,978 - - 115,978 Short-term investments - - - - Total $ 997,635 $ 4,506,795 $ - $ 5,504,430 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 26 The Empire Life Insurance Company Second Quarter 2013 NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited, in thousands of Canadian dollars except for per share amounts and where otherwise stated) 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 six months ended June 30, 2013 or during the six months ended June 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 June 30, 2013 December 31, 2012 Cash and cash equivalents $ 188,449 $ 192,581 Short-term investments 121,746 150,376 Bonds 1,344,044 1,204,163 Common and preferred shares 3,659,793 3,510,274 Net other assets (liabilities) 7,830 28,127 5,321,862 5,085,521 Less segregated funds held within general fund investments (78,152) (71,129) Total $ 5,243,710 $ 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 June 30, 2013 Level 1 Level 2 Level 3 Total Cash and cash equivalents $ 138,075 $ 50,374 $ - $ 188,449 Common and preferred shares 3,659,793 - - 3,659,793 Bonds - 1,344,044-1,344,044 Short-term investments - 121,746-121,746 Total $ 3,797,868 $ 1,516,164 $ - $ 5,314,032 Derivative assets $ - $ 236 $ - $ 236 Derivative liabilities $ (306) $ - $ - $ (306) 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 Second Quarter 2013 27

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited, in thousands of Canadian dollars except for per share amounts and where otherwise stated) 4. SEGREGATED FUNDS (continued) (c) The following table presents the change in segregated fund assets: For the 3 months ended June 30, For the 6 months ended June 30, 2013 2012 2013 2012 Segregated funds - beginning of period $ 5,241,373 $ 4,515,717 $ 5,014,392 $ 4,415,318 Additions to segregated funds: Amount received from policyholders 305,669 235,115 699,409 510,305 Interest 13,525 11,432 25,990 21,912 Dividends 28,861 29,315 55,201 51,497 Other income 5,887 4,328 11,267 8,732 Net realized gains on sale of investments 22,660-140,151 - Net unrealized increase in fair value of investments - - - 7,229 376,602 280,190 932,018 599,675 Deductions from segregated funds: Amounts withdrawn or transferred by policyholders 267,129 225,576 598,279 509,177 Net realized losses on sale of investments - 21,461-14,748 Net unrealized decrease in fair value of investments 64,970 93,078 16,651 - Management fees and other operating costs 40,090 37,370 80,747 67,625 372,189 377,485 695,677 591,550 Net change in segregated funds held within general fund investments (2,076) (104) (7,023) (5,125) Segregated funds - end of period $ 5,243,710 $ 4,418,318 $ 5,243,710 $ 4,418,318 (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). 28 The Empire Life Insurance Company Second Quarter 2013 NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited, in thousands of Canadian dollars except for per share amounts and where otherwise stated) 5. INSURANCE PREMIUMS For the 3 months ended June 30, 2013 For the 3 months ended June 30, 2012 Reinsurance Reinsurance Gross Ceded Net Gross Ceded Net Life premiums $ 106,109 $ (18,700) $ 87,409 $ 106,575 $ (17,127) $ 89,448 Health premiums 79,154 (5,613) 73,541 72,301 (5,611) 66,690 Total life and health premiums 185,263 (24,313) 160,950 178,876 (22,738) 156,138 Annuity premiums 35,750 (107) 35,643 37,399-37,399 Total insurance premiums $ 221,013 $ (24,420) $ 196,593 $ 216,275 $ (22,738) $ 193,537 For the 6 months ended June 30, 2013 For the 6 months ended June 30, 2012 Reinsurance Reinsurance Gross Ceded Net Gross Ceded Net Life premiums $ 212,171 $ (35,416) $ 176,755 $ 209,624 $ (32,435) $ 177,189 Health premiums 157,265 (10,947) 146,318 146,494 (10,655) 135,839 Total life and health premiums 369,436 (46,363) 323,073 356,118 (43,090) 313,028 Annuity premiums 80,821 (240) 80,581 74,393-74,393 Total insurance premiums $ 450,257 $ (46,603) $ 403,654 $ 430,511 $ (43,090) $ 387,421 6. BENEFITS AND EXPENSES (a) Insurance Contract Benefits and Claims Paid For the 3 months ended June 30, 2013 For the 3 months ended June 30, 2012 Reinsurance Reinsurance Gross Ceded Net Gross Ceded Net Life claims $ 38,648 $ (6,475) $ 32,173 $ 34,515 $ (7,248) $ 27,267 Health claims 57,336 (2,690) 54,646 54,020 (3,239) 50,781 Total life and health claims 95,984 (9,165) 86,819 88,535 (10,487) 78,048 Annuity benefits 55,148 (629) 54,519 54,015 (1,202) 52,813 Total benefits and claims $ 151,132 $ (9,794) $ 141,338 $ 142,550 $ (11,689) $ 130,861 For the 6 months ended June 30, 2013 For the 6 months ended June 30, 2012 Reinsurance Reinsurance Gross Ceded Net Gross Ceded Net Life claims $ 76,768 $ (15,322) $ 61,446 $ 77,236 $ (17,316) $ 59,920 Health claims 110,731 (5,314) 105,417 107,404 (5,525) 101,879 Total life and health claims 187,499 (20,636) 166,863 184,640 (22,841) 161,799 Annuity benefits 117,264 (1,207) 116,057 113,483 (1,870) 111,613 Total benefits and claims $ 304,763 $ (21,843) $ 282,920 $ 298,123 $ (24,711) $ 273,412 NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS The Empire Life Insurance Company Second Quarter 2013 29

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited, in thousands of Canadian dollars except for per share amounts and where otherwise stated) 6. BENEFITS AND EXPENSES (continued) (b) Change in Insurance Contract Liabilities and Reinsurance Ceded For the 3 months ended June 30, 2013 For the 3 months ended June 30, 2012 Reinsurance Reinsurance Gross Ceded Net Gross Ceded Net Life $ (169,457) $ (14,958) $ (184,415) $ 131,927 $ 2,573 $ 134,500 Health (8,990) 1,999 (6,991) 4,247 (2,239) 2,008 Total life and health (178,447) (12,959) (191,406) 136,174 334 136,508 Annuity (32,589) 426 (32,163) 2,137 172 2,309 Total change in insurance contract liabilities $ (211,036) $ (12,533) $ (223,569) $ 138,311 $ 506 $ 138,817 Change attributable to: New business $ 10,089 $ 5,951 $ 16,040 In-force business (221,125) (18,484) (239,609) Total change in insurance contract liabilities $ (211,036) $ (12,533) $ (223,569) For the 6 months ended June 30, 2013 For the 6 months ended June 30, 2012 Reinsurance Reinsurance Gross Ceded Net Gross Ceded Net Life $ (128,500) $ (12,118) $ (140,618) $ 117,034 $ (2,104) $ 114,930 Health (7,895) 2,856 (5,039) 1,531 (895) 636 Total life and health (136,395) (9,262) (145,657) 118,565 (2,999) 115,566 Annuity (37,087) 1,655 (35,432) (12,940) 16 (12,924) Total change in insurance contract liabilities $ (173,482) $ (7,607) $ (181,089) $ 105,625 $ (2,983) $ 102,642 Change attributable to: New business $ 39,499 $ 4,381 $ 43,880 In-force business (212,981) (11,988) (224,969) Total change in insurance contract liabilities $ (173,482) $ (7,607) $ (181,089) 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. 30 The Empire Life Insurance Company Second Quarter 2013 NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited, in thousands of Canadian dollars except for per share amounts and where otherwise stated) 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 June 30, 2013 Wealth Employee Individual Capital & Management Benefits Insurance Surplus Total Net premiums from external customers $ 35,642 $ 76,143 $ 84,808 $ - $ 196,593 Interest income 10,410 1,403 30,774 8,148 50,735 Total investment income 13,303 1,139 34,829 9,184 58,455 Fair value change in fair value through profit or loss assets (23,943) (2,147) (209,501) - (235,591) Realized gain (loss) on fair value through profit or loss assets 2,032 122 426-2,580 Realized gain (loss) on available for sale assets including impairment write downs 91 110 87 1,551 1,839 Fee income from external customers 34,718 1,845 233 512 37,308 Net benefits and claims 54,522 56,095 30,721-141,338 Net change in insurance contract liabilities (32,165) (4,516) (186,888) - (223,569) Change in investment contract provision 197 - - - 197 Policy dividends - - 5,713-5,713 Amortization of capital assets 469 358 423-1,250 Total operating expenses 14,617 11,034 10,531 364 36,546 Net commission expense 16,260 7,423 15,563-39,246 Interest expense - - - 4,176 4,176 Premium tax - 1,639 1,737-3,376 Investment and capital tax - - 825-825 Income tax expense (recovery) 1,535 1,162 8,132 1,491 12,320 Net income (loss) after tax 6,877 4,375 24,548 5,216 41,016 NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS The Empire Life Insurance Company Second Quarter 2013 31

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited, in thousands of Canadian dollars except for per share amounts and where otherwise stated) 7. SEGMENTED INFORMATION (continued) For the 3 months ended June 30, 2012 Wealth Employee Individual Capital & Management Benefits Insurance Surplus Total Net premiums from external customers $ 37,399 $ 71,122 $ 85,016 $ - $ 193,537 Interest income 10,348 1,327 29,882 6,604 48,161 Total investment income 13,623 1,617 45,838 8,983 70,061 Fair value change in fair value through profit or loss assets 3,363 1,131 65,122-69,616 Realized gain (loss) on fair value through profit or loss assets 3,155 21 1,322-4,498 Realized gain (loss) on available for sale assets including impairment write downs 9 11 (25) 1,248 1,243 Fee income from external customers 27,062 1,724 296 403 29,485 Net benefits and claims 52,813 52,972 25,076-130,861 Net change in insurance contract liabilities 2,310 251 136,256-138,817 Change in investment contract provision (151) - - - (151) Policy dividends - - 5,625-5,625 Amortization of capital assets 340 257 380-977 Total operating expenses 12,257 10,235 12,354 272 35,118 Net commission expense 13,202 6,488 19,367-39,057 Interest expense - - - 3,415 3,415 Premium tax - 1,549 1,777-3,326 Investment and capital tax - - 1,050-1,050 Income tax expense (recovery) 380 831 (5,611) 852 (3,548) Net income (loss) after tax 3,800 3,300 1,675 6,095 14,870 For the 6 months ended June 30, 2013 Wealth Employee Individual Capital & Management Benefits Insurance Surplus Total Net premiums from external customers $ 80,580 $ 151,664 $ 171,410 $ - $ 403,654 Interest income 20,707 2,669 59,511 15,864 98,751 Total investment income 26,379 2,012 67,179 17,932 113,502 Fair value change in fair value through profit or loss assets (21,837) (4,654) (232,703) - (259,194) Realized gain (loss) on fair value through profit or loss assets 3,398 272 14,222-17,892 Realized gain (loss) on available for sale assets including impairment write downs 91 110 87 2,108 2,396 Fee income from external customers 66,832 3,640 567 926 71,965 Net benefits and claims 116,056 109,184 57,680-282,920 Net change in insurance contract liabilities (35,435) (2,955) (142,699) - (181,089) Change in investment contract provision 420 - - - 420 Policy dividends - - 10,660-10,660 Amortization of capital assets 813 616 733-2,162 Total operating expenses 29,384 21,227 21,320 722 72,653 Net commission expense 35,471 14,610 32,291-82,372 Interest expense - - - 7,557 7,557 Premium tax - 3,270 3,526-6,796 Investment and capital tax - - 1,825-1,825 Income tax expense (recovery) 1,254 1,968 8,282 2,858 14,362 Net income (loss) after tax 8,293 5,740 27,877 9,829 51,739 32 The Empire Life Insurance Company Second Quarter 2013 NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited, in thousands of Canadian dollars except for per share amounts and where otherwise stated) 7. SEGMENTED INFORMATION (continued) For the 6 months ended June 30, 2012 Wealth Employee Individual Capital & Management Benefits Insurance Surplus Total Net premiums from external customers $ 74,393 $ 142,612 $ 170,416 $ - $ 387,421 Interest income 20,925 2,638 58,601 13,270 95,434 Total investment income 26,576 3,158 76,349 17,507 123,590 Fair value change in fair value through profit or loss assets (1,119) (1,588) 1,094 - (1,613) Realized gain (loss) on fair value through profit or loss assets 3,097 212 7,111-10,420 Realized gain (loss) on available for sale assets including impairment write downs 9 11 (86) 4,275 4,209 Fee income from external customers 54,673 3,392 643 795 59,503 Net benefits and claims 111,613 106,796 55,003-273,412 Net change in insurance contract liabilities (12,922) (1,206) 116,770-102,642 Change in investment contract provision 356 - - - 356 Policy dividends - - 10,579-10,579 Amortization of capital assets 650 486 691-1,827 Total operating expenses 25,819 19,690 23,854 575 69,938 Net commission expense 27,051 13,357 38,360-78,768 Interest expense - - - 6,828 6,828 Premium tax - 3,080 3,527-6,607 Investment and capital tax - - 1,875-1,875 Income tax expense (recovery) 284 1,338 (3,883) 2,617 356 Net income (loss) after tax 5,428 4,742 9,442 12,557 32,169 Assets are segmented into three product lines along with the Company s capital and surplus as follows: As at June 30, 2013 Wealth Employee Individual Capital & Management Benefits Insurance Surplus Total Assets excluding segregated funds $ 1,117,131 $ 148,209 $ 3,343,960 $ 1,446,260 $ 6,055,560 Segregated funds 5,223,362-20,348-5,243,710 Total assets $ 6,340,493 $ 148,209 $ 3,364,308 $ 1,446,260 $ 11,299,270 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 Second Quarter 2013 33

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited, in thousands of Canadian dollars except for per share amounts and where otherwise stated) 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 June 30, 2013 3 months ended June 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 $ (32,283) $ (8,541) $ (23,742) $ (1,129) $ (297) $ (832) Fair value change on available for sale investments reclassified to net income, including impairment write downs (1,838) (491) (1,347) (1,246) 12 (1,258) Amortization of loss on derivative investments designated as cash flow hedges reclassified to net income 210 68 142 195 64 131 Remeasurements of post-employment benefit liabilities 8,239 2,183 6,056 (5,089) (1,344) (3,745) Total other comprehensive income (loss) $ (25,672) $ (6,781) $ (18,891) $ (7,269) $ (1,565) $ (5,704) 6 months ended June 30, 2013 6 months ended June 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 $ (25,075) $ (6,638) $ (18,437) $ (58) $ (15) $ (43) Fair value change on available for sale investments reclassified to net income, including impairment write downs (2,396) (694) (1,702) (4,211) (850) (3,361) Amortization of loss on derivative investments designated as cash flow hedges reclassified to net income 416 135 281 387 126 261 Remeasurements of post-employment benefit liabilities 10,213 2,704 7,509 (7,583) (2,003) (5,580) Total other comprehensive income (loss) $ (16,842) $ (4,493) $ (12,349) $ (11,465) $ (2,742) $ (8,723) The following income tax amounts are included in each component of shareholders OCI: 3 months ended June 30, 2013 3 months ended June 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 $ (29,953) $ (7,925) $ (22,028) $ (722) $ (190) $ (532) Fair value change on available for sale investments reclassified to net income, including impairment write downs (1,860) (521) (1,339) (1,703) (186) (1,517) Amortization of loss on derivative investments designated as cash flow hedges reclassified to net income 210 68 142 195 64 131 Remeasurements of post-employment benefit liabilities 7,859 2,082 5,777 (4,853) (1,282) (3,571) Shareholder portion of policyholder other comprehensive income (loss) (231) (58) (173) 5 9 (4) Total other comprehensive income (loss) $ (23,975) $ (6,354) $ (17,621) $ (7,078) $ (1,585) $ (5,493) 6 months ended June 30, 2013 6 months ended June 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 $ (24,518) $ (6,490) $ (18,028) $ (53) $ (14) $ (39) Fair value change on available for sale investments reclassified to net income, including impairment write downs (1,510) (446) (1,064) (4,333) (952) (3,381) Amortization of loss on derivative investments designated as cash flow hedges reclassified to net income 416 135 281 387 126 261 Remeasurements of post-employment benefit liabilities 9,742 2,579 7,163 (7,231) (1,910) (5,321) Shareholder portion of policyholder other comprehensive income (loss) (144) (39) (105) 12 10 2 Total other comprehensive income (loss) $ (16,014) $ (4,261) $ (11,753) $ (11,218) $ (2,740) $ (8,478) 34 The Empire Life Insurance Company Second Quarter 2013 NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited, in thousands of Canadian dollars except for per share amounts and where otherwise stated) 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 June 30, 2013 3 months ended June 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 $ (2,330) $ (616) $ (1,714) $ (407) $ (107) $ (300) Fair value change on available for sale investments reclassified to net income, including impairment write downs 22 30 (8) 457 198 259 Remeasurements of post-employment benefit liabilities 380 101 279 (236) (62) (174) Shareholder portion of policyholder other comprehensive (income) loss 231 58 173 (5) (9) 4 Total other comprehensive income (loss) $ (1,697) $ (427) $ (1,270) $ (191) $ 20 $ (211) 6 months ended June 30, 2013 6 months ended June 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 $ (557) $ (148) $ (409) $ (5) $ (1) $ (4) Fair value change on available for sale investments reclassified to net income, including impairment write downs (886) (248) (638) 122 102 20 Remeasurements of post-employment benefit liabilities 471 125 346 (352) (93) (259) Shareholder portion of policyholder other comprehensive (income) loss 144 39 105 (12) (10) (2) Total other comprehensive income (loss) $ (828) $ (232) $ (596) $ (247) $ (2) $ (245) 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 semiannually 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 approval of OSFI. The holders have no rights 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 semiannually 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 $503,983 as of June 30, 2013 (December 31, 2012 $211,432). NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS The Empire Life Insurance Company Second Quarter 2013 35

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited, in thousands of Canadian dollars except for per share amounts and where otherwise stated) 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 June 30, 2013 and December 31, 2012 the Company was in compliance with these ratios. As at June 30, 2013* December 31, 2012 Tier 1 Regulatory Capital $ 774,569 $ 755,641 Tier 2 Regulatory Capital 521,067 327,187 Total Regulatory Capital $ 1,295,636 $ 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. 36 The Empire Life Insurance Company Second Quarter 2013 NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited, in thousands of Canadian dollars except for per share amounts and where otherwise stated) 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 June 30, 2013 10% Increase 10% Decrease 20% Increase 20% Decrease Shareholders' net income $ 13,676 $ (13,676) $ 27,386 $ (27,386) Policyholders' net income nil nil nil nil Shareholders' other comprehensive income $ 1,582 $ (1,582) $ 3,164 $ (3,164) Policyholders' other comprehensive income $ 2,487 $ (2,487) $ 4,974 $ (4,974) Segregated fund guarantee policy liabilities nil nil nil nil As at June 30, 2012 10% Increase 10% Decrease 20% Increase 20% Decrease Shareholders' net income $ 7,600 $ (7,600) $ 15,218 $ (27,500) Policyholders' net income nil nil nil nil Shareholders' other comprehensive income $ 12,975 $ (12,975) $ 25,950 $ (25,950) Policyholders' other comprehensive income $ 2,262 $ (2,262) $ 4,524 $ (4,524) Segregated fund guarantee policy liabilities nil nil nil nil The following table identifies the concentration of common equity holdings: As at June 30, 2013 December 31, 2012 Holdings of common equities in the 10 issuers to which the Company had the greatest exposure $ 231,793 $ 249,655 Percentage of total cash and investments 3.9% 4.3% Exposure to the largest single issuer of common equities $ 39,359 $ 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 Second Quarter 2013 37

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited, in thousands of Canadian dollars except for per share amounts and where otherwise stated) 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 June 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 $ (36,939) $ 46,198 $ (64,622) $ 101,659 Policyholders' other comprehensive income $ (2,196) $ 2,498 $ (4,088) $ 5,294 As at June 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 $ (20,174) $ 21,253 $ (39,304) $ 43,631 Policyholders' other comprehensive income $ (2,175) $ 2,289 $ (4,239) $ 4,694 (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 $1,263 (June 30, 2012 $997) on net income, $nil (June 30, 2012 $111) on shareholders OCI and $nil (June 30, 2012 $24) 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 June 30, 2013 December 31, 2012 Cash and cash equivalents $ 143,881 $ 248,382 Short-term investments 18,984 16,440 Bonds 4,392,119 4,227,329 Preferred shares 347,284 321,321 Mortgages 288,847 302,531 Loans on policies 44,076 43,071 Policy contract loans 94,665 95,461 Accrued investment income 37,069 21,452 Insurance receivables 26,696 30,035 Trade accounts receivable 26,083 5,757 Total $ 5,419,704 $ 5,311,779 38 The Empire Life Insurance Company Second Quarter 2013 NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited, in thousands of Canadian dollars except for per share amounts and where otherwise stated) 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 June 30, 2013 December 31, 2012 Fair Value % of Fair Value Fair Value % of Fair Value AAA $ 314,674 7% $ 266,832 6% AA 1,254,699 29% 1,274,244 30% A 2,260,754 51% 2,253,538 54% BBB 561,588 13% 432,535 10% BB 404 0% 180 0% Total $ 4,392,119 100% $ 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 June 30, 2013 December 31, 2012 Provincial bond holdings $ 2,257,541 $ 2,355,977 Percentage of total bond holdings 51% 56% The following table profiles the bond portfolio by contractual maturity, using the earliest contractual maturity date: As at June 30, 2013 December 31, 2012 Fair Value % of Fair Value Fair Value % of Fair Value 1 year or less $ 50,272 1% $ 53,360 1% 1-5 years 613,294 14% 434,762 10% 5-10 years 541,135 12% 510,229 12% Over 10 years 3,187,418 73% 3,228,978 77% Total $ 4,392,119 100% $ 4,227,329 100% NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS The Empire Life Insurance Company Second Quarter 2013 39

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited, in thousands of Canadian dollars except for per share amounts and where otherwise stated) 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 June 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 $ 2,935,744 $ 2,935,033 Percentage of total cash and investments 49.5% 50.4% Exposure to the largest single issuer of corporate bonds $ 131,657 $ 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 84% (December 31, 2012 86%) of these investments rated as P1 at June 30, 2013 and the remaining 16% (December 31, 2012 14%) rated as P2. (iii) Mortgages Mortgages in the province of Ontario represent the largest concentration with $284,635 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 June 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 11 months. 13. SUBSEQUENT EVENTS On August 1, 2013 the Board of Directors approved a dividend of $24,100 ($24.4652 per share) payable 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. 40 The Empire Life Insurance Company Second Quarter 2013 NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS