NN Group N.V., formerly called ING Insurance Topholding N.V., merged with ING Verzekeringen N.V. effective as of 1 March 2014. As a result the legal entity ING Verzekeringen N.V. ceased to exist and NN Group N.V. became the legal successor of ING Verzekeringen N.V. as the holding company of the European and Japanese insurance and investment management operations. In this Annual Report, NN Group will be used to indicate these operations.
Insurance Europe Insurance Europe primarily offers life insurance, mainly to retail, self-employed, SME and corporate customers in 11 countries: Poland, Turkey, Czech Republic, Slovak Republic, Romania, Hungary, Bulgaria, Belgium, Spain, Greece and Luxembourg. It also offers pensions in some of these markets and non-life insurance in Belgium and Spain, and healthcare insurance in Greece.
SOLVENCY II Throughout 2013, the insurance business worked towards meeting the European Union’s Solvency II Directive’s requirements, particularly with respect to adapting NN Group’s risk measurement, risk management and reporting to the levels required.
The result before tax was a gain of EUR 347 million in 2013, compared with a loss of EUR 313 million in 2012, driven by an improvement in non-operating items and lower adverse impact from special items as well as the increase in operating result.
Net result Netherlands Non-life amounts in millions of euros 2013 2012 Earned premiums, net of reinsurance 1,546 1,626 Investment income (net of investment expenses)
Conclusions and ambitions Insurance Europe made clear progress in improving the customer experience and broadening its distribution base in 2013. New products and value propositions were introduced. Its customer focus approach resulted in increasing NPS scores and several awards.
Administrative expenses were EUR 106 million in 2013, an 18.5% decrease compared with EUR 130 million in 2012, due to the depreciation of the Japanese yen against the euro. Excluding currency effects, administrative expenses remained broadly stable, increasing by 1.0% compared to 2012.
Solvency II provides ING Re with new opportunities to improve NN Group’s capital allocation. By reinsuring risks from NN Group’s business lines and pooling them centrally at ING Re, diversification benefits can be achieved, resulting in capital efficiencies for NN Group.
Business developments Japan Closed Block VA comprises NN Group’s closedblock single premium variable annuity (SPVA) individual life insurance portfolio in Japan. This portfolio consists of SPVA products with substantial minimum guarantee obligations sold predominantly from 2001 to 2009. In 2009 ING ceased the sale of these products and placed this portfolio in run-off. This portfolio has been classified as a closed-block and is managed as a separate segment.
BOARD COMPOSITION ING Group aims to have an adequate and balanced composition of the Management Board and Supervisory Board of NN Group N.V. and ING Groep N.V. (“Boards”). Thereto, annually, the Supervisory Board assesses the composition of the Boards. In the context of such assessment, ING Group aims to have a gender balance by having at least 30% men and at least 30% women amongst the members of the Management Board and the Supervisory Board. However, because of the fact that ING Group needs to balance several relevant selection criteria when composing the Boards, the composition of the Boards did not meet the above-mentioned gender balance in 2013. ING Group will continue to strive for an adequate and balanced composition of the Boards in future appointments, by taking into account all relevant selection criteria including but not limited to gender balance, executive experience, experience in corporate governance of large stock-listed companies and experience in the political and social environment.
Net result from disposal of discontinued operations 17 752 995 Total net result from discontinued operations 20 1,197 793
Items that will not be reclassified to the profit and loss account: Remeasurement of the net defined benefit asset/liability 38
Items that may be reclassified subsequently to the profit and loss account: Unrealised revaluations available-for-sale investments and other
Dividend –34 –34 Capital injection 10 10 Balance as at 31 December 2011 0 17,750 5,662 23,412 62 23,474
Changes in cash flow hedge reserve 665 665 665 Transfer to insurance liabilities/DAC –2,181 –2,181 –2,181 Other revaluations 10 10 10 Exchange rate difference –369 –369 –1 –370 Total amount recognised directly in equity (Other comprehensive income)
Net result from continuing and discontinued operations 1,038 1,038 27 1,065 Total comprehensive income 0 0 2,949 2,949 34 2,983
of NN Group amounts in millions of euros, unless stated otherwise
Property under development for which NN Group has the intention to sell the property under development after its completion and where there is a specifically negotiated contract, is valued using the percentage of completion method (pro rata profit recognition). The stage of completion is measured by reference to costs incurred to date as a percentage of total estimated costs for each contract.
NN Group as the lessee The leases entered into by NN Group are primarily operating leases. The total payments made under operating leases are recognised in the profit and loss account on a straight-line basis over the period of the lease.
Goodwill is only capitalised on acquisitions after the implementation date of IFRS-EU (1 January 2004). Accounting for acquisitions before that date has not been restated; goodwill and internally generated intangibles on these acquisitions were recognised directly in Shareholder’s equity. Goodwill is allocated to reporting units for the purpose of impairment testing. These reporting units represent the lowest level at which goodwill is monitored for internal management purposes. This test is performed annually or more frequently if there are indicators of impairment. Under the impairment tests, the carrying value of the reporting units (including goodwill) is compared to its recoverable amount which is the higher of its fair value less costs to sell and its value in use.
In addition, for certain specific products or components thereof, NN Group applies the option in IFRS 4 to measure (components of) the provisions for liabilities under insurance contracts using market consistent interest rates and other current estimates and assumptions. This relates mainly to certain guarantees embedded in insurance contracts in Japan.
Notes to the Consolidated annual accounts of NN Group continued 52 NN Group Annual Report 2013
Interest Interest income and expense are recognised in the profit and loss account using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, NN Group estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.
The majority of the short-term deposits reported, are held with ING Bank. Reference is made to Note 52 “Related parties” for an overview of all transactions with ING Bank.
Loans and advances to customers Total 2013 2012 2011 2013 2012 2011 2013 2012 2011 Government bonds 43,307 49,420 54,732 43,307 49,420 54,732 Covered bonds 721 996 1,118 721 996 1,118 Corporate bonds 6,436 43,072 45,260 6,436 43,072 45,260 Financial institution bonds 4,303 9,037 11,700 4,303 9,037 11,700 Bond portfolio (excluding ABS)
US agency RMBS 143 4,216 5,228 143 4,216 5,228 US prime RMBS 1 1,025 1,380 1 1,025 1,380 US Alt-A RMBS 5 284 295 5 284 295 US subprime RMBS 733 752 0 733 752 NON-US RMBS 210 215 513 3,410 3,745 4,515 3,620 3,960 5,028 CDO/CLO 39 130 183 197 290 505 236 420 688 Other ABS 218 1,440 1,459 2,531 1,997 1,346 2,749 3,437 2,805 CMBS 11 3,664 4,145 341 291 315 352 3,955 4,460 ABS portfolio 627 11,707 13,955 6,479 6,323 6,681 7,106 18,030 20,636
Further information on NN Group’s risk exposure with regard to Greece, Italy, Ireland, Portugal and Spain is provided in the “Risk management” section.
Reclassifications to Loans and advances to customers (2009) Reclassifications out of available-for-sale investments to loans and receivables are allowed under IFRS-EU as of the third quarter of 2008. In the second quarter of 2009 NN Group reclassified certain financial assets from Available-for-sale investments to Loans and advances to customers. NN Group identified assets, eligible for reclassification, for which at the reclassification date it had the intention to hold for the foreseeable future. The table below provides information on this reclassification made in second quarter of 2009. Information is provided for this reclassification (see column) as at the date of reclassification and as at the end of the subsequent reporting periods (see rows). This information is disclosed under IFRS-EU as long as the reclassified assets continue to be recognised in the balance sheet.
Write–offs –31 –39 –24 Recoveries 1 2 Increase in loan loss provisions 42 29 33 Exchange rate differences –1 1 –2 Closing balance 89 111 124
Accrued interest and rents includes EUR 1,272 million (2012: EUR 1,948 million; 2011: EUR 2,216 million) accrued interest on assets measured at amortised cost under the IAS 39 classification Loans and receivables.
Dividend restrictions NN Group N.V. and its Dutch group companies are subject to legal restrictions regarding the amount of dividends they can pay to their shareholders. The Dutch Civil Code contains the restriction that dividends can only be paid up to an amount equal to the excess of the company’s own funds over the sum of the paid–up capital, and reserves required by law. Additionally, certain group companies are subject to restrictions on the amount of funds they may transfer in the form of dividends or otherwise to the parent company.
Transfer to insurance liabilities/DAC includes the change in the deferred profit sharing liability (net of deferred tax). Reference is made to Note 17 “Insurance and investment contracts, reinsurance contracts”.
Loans contracted 1,740 815 4 663 3,222 Loans from credit institutions 3,306 60 854 4,220 5,046 815 0 60 4 1,517 7,442
In 2012, “Changes in the composition of the group and other changes” related mainly to the classification of the insurance and investment management businesses in Asia as held for sale. Reference is made to Note 11 “Assets and liabilities held for sale”.
NN Group has an outstanding balance of EUR 35 million as at 31 December 2013 (2012: EUR 36 million; 2011: EUR 35 million) relating to environmental and asbestos claims. In establishing the liability for unpaid claims and claims adjustment expenses related to asbestos related illness and toxic waste clean-up, management of NN Group considers facts currently known including current legislation and coverage litigation. Liabilities are recognised for IBNR claims and for known claims (including the costs of related litigation) when sufficient information has been obtained to indicate the involvement of a specific insurance policy, and management can reasonably estimate its liability. In addition, liabilities are reviewed and updated regularly.
Changes in investment contracts liabilities 2013 2012 2011 Opening balance 12,628 13,198 11,974 Changes in the composition of the group and other changes
Other liabilities by type 2013 2012 2011 Deferred tax liabilities 702 1,220 1,843 Income tax payable 86 379 53 Net defined benefit liability 51 666 631 Other post-employment benefits 40 77 74 Other staff-related liabilities 147 254 502 Other taxation and social security contributions 176 101 148 Deposits from reinsurers 58 869 1,015 Accrued interest 530 593 812 Costs payable 328 702 1,079 Amounts payable to brokers 4 50 72 Amounts payable to policyholders 464 2,139 2,171 Reorganisation provision 155 275 79 Other provisions 68 84 134 Amounts to be settled 772 2,687 3,874 Other 544 855 1,300 4,125 10,951 13,787
The amounts included in Other provisions are based on best estimates with regard to amounts and timing of cash flows required to settle the obligation.
Notes to the Consolidated annual accounts of NN Group continued 92 NN Group Annual Report 2013
Net result from discontinued operations consists of the net result (after tax) of the businesses classified as discontinued operations and is presented separately in the profit and loss account. Net result from ING U.S. included in Net result from discontinued operations covers the period from the beginning of the year, till 30 September 2013 when it was transferred to ING Groep N.V.
Administrative expenses 472 310 106 314 18 18 1,238 DAC amortisation and trail commissions
Result on divestments reflects the sale of NN Group’s direct interest in Sul América S.A. and the sale of ING Hipotecaria.
Technical margin 141 210 23 374 Operating income nonmodelled life business
Administrative expenses 495 334 130 321 13 22 1,315 DAC amortisation and trail commissions
Technical margin 278 206 –4 479 Operating income nonmodelled life business
Pension benefits 2013 2012 2011 Fair value of plan assets 6,457 7,542 6,644 Defined benefit obligation 6,125 7,538 5,803 Net defined benefit asset/(liability) recognised in the balance sheet (Funded status)
Notes to the Consolidated annual accounts of NN Group continued 104 NN Group Annual Report 2013 2011 – Effect of curtailment In 2011, effect of curtailment or settlement related mainly to a curtailment in relation to a change in one of the pension plans in the United States.
Discount rates – increase/ decrease of 1% –280 299 Mortality – increase/ decrease of 1 year 205 –211 Expected rates of salary increases (excluding promotion increases) – increase/ decrease of 0.25%
The Sensitivity analysis of key assumptions and Expected cash flows presented above does not take into consideration the subsequent event that was announced in February 2014 with regard to the transfer of all future funding and indexation obligations under ING’s current closed defined benefit plan in the Netherlands to the Dutch ING Pension Fund. Reference is made to Note 55 “Subsequent events” for information on this agreement.
Fair value of financial assets and liabilities Estimated fair value Balance sheet value 2013 2012 2011 2013 2012 2011 Financial assets Cash and cash equivalents 7,155 5,389 11,577 7,155 5,389 11,577 Financial assets at fair value through profit or loss: – trading assets 736 586 534 736 586 534 – investments for risk of policyholders 39,589 98,765 116,438 39,589 98,765 116,438 – non-trading derivatives 3,126 5,107 7,285 3,126 5,107 7,285 – designated as at fair value through profit or loss 482 2,000 2,616 482 2,000 2,616 Available-for-sale investments 61,014 119,305 133,604 61,014 119,305 133,604 Loans and advances to customers 26,114 26,873 33,385 25,319 25,823 32,928 Other assets (1) 3,180 6,177 7,819 3,180 6,177 7,819 141,396 264,202 313,258 140,601 263,152 312,801
Financial liabilities Subordinated loans 2,928 2,894 4,098 2,892 2,947 4,367 Debt securities in issue 2,082 3,480 1,910 3,436 Other borrowed funds 4,817 7,458 7,312 4,817 7,442 7,307 Investment contracts for risk of company 795 4,624 6,717 810 4,561 6,259 Investment contracts for risk of policyholders 1,588 8,067 6,939 1,588 8,067 6,939 Customer deposits and other funds on deposit 5,764 5,769 Financial liabilities at fair value through profit or loss: – non-trading derivatives 1,843 3,258 4,404 1,843 3,258 4,404 Other liabilities (2) 2,701 8,133 10,324 2,701 8,133 10,324 20,436 36,516 43,274 20,420 36,318 43,036
Fair value hierarchy NN Group has categorised its financial instruments that are either measured in the balance sheet at fair value or of which the fair value is disclosed, into a three level hierarchy based on the priority of the inputs to the valuation. The fair value hierarchy gives the highest priority to (unadjusted) quoted prices in active markets for identical assets or liabilities and the lowest priority to valuation techniques supported by unobservable inputs. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide reliable pricing information on an ongoing basis.
The fair value hierarchy consists of three levels, depending on whether the fair value is determined based on (unadjusted) quoted prices in an active market (Level 1), valuation techniques with observable inputs (Level 2) or valuation techniques that incorporate inputs which are unobservable and which have a more than insignificant impact on the fair value of the instrument (Level 3). Financial assets in Level 3 include, for example, illiquid debt securities, complex OTC and credit derivatives, certain complex loans (for which current market information about similar assets to use as observable, corroborated data for all significant inputs into a valuation model is not available), private equity instruments and investments in real estate funds.
In 2013, Changes in the composition of the group and other changes includes EUR –1,654 million as a result of the transfer of ING U.S. and nil as a result of the classification to continuing operations of NN Group’s business in Japan. Reference is made to Note 53 “Other events”.
Revaluation recognised in equity during the year 48 48 Purchase of assets 35 123 41 208 517 924 Sale of assets –21 –99 –82 –184 –261 –647 Maturity/settlement –405 –405 Transfers into Level 3 4 729 733 Transfers out of Level 3 –55 –6 –2,045 –2,106 Changes in the composition of the group and other changes
(1) Includes assets on demand. (2) Investments for risk of policyholders are managed on behalf of policyholders on a fair value basis. Although individual instruments may (or may not) have a maturity depending on their nature, this does not impact the liquidity position of NN Group. (3) Assets held for sale consist of the assets of the disposal groups classified as held for sale as disclosed in Note 11 “Assets and liabilities held for sale”. For these assets and liabilities, the underlying contractual maturities are no longer relevant to NN Group. For businesses for which a binding sale agreement exists, all related assets and liabilities held for sale are classified in accordance with the agreed or expected closing date. For other businesses, for which no sale agreement exists, assets and liabilities held for sale are included in “maturity not applicable”.
Financial liabilities at fair value through profit or loss: – non-trading derivatives 293 69 –26 –41 –2,290 3,838 1,843 Financial liabilities 3,986 1,883 460 1,558 –261 3,857 3,838 15,321
Other liabilities 1,906 475 4,093 3,891 2,016 1,122 13,503 Non-financial liabilities 4,693 2,263 14,439 42,925 107,528 120,488 0 292,336
Other items where offsetting is applied in the balance sheet 47 CONTINGENT LIABILITIES AND COMMITMENTS In the normal course of business NN Group is party to activities whose risks are not reflected in whole or in part in the consolidated financial statements. In response to the needs of its customers, NN Group offers financial products related to loans. These products include traditional off-balance sheet credit-related financial instruments.
Divestments effective in 2012 Insurance businesses in Malaysia In October 2012, An agreement with AIA Company Ltd. to sell the insurance operations in Malaysia, which included the life insurance business, the market-leading employee benefits business and the 60% interest in ING Public Takaful Ehsan Berhad, was reached. A total cash consideration of EUR 1.3 billion was received. In December 2012, the sale was completed with a net transaction gain of EUR 745 million after tax.
Notes to the Consolidated annual accounts of NN Group continued 138 NN Group Annual Report 2013 50 PRINCIPAL SUBSIDIARIES For the majority of NN Group’s principal subsidiaries, NN Group N.V. has control because it either directly or indirectly owns more than half of the voting power. For each of the subsidiaries listed below, the voting rights held equal the proportion of ownership interest. For subsidiaries in which the interest held is below 50%, control exists based on the combination of NN Group’s financial interest and its rights from other contractual arrangements which result in control over the operating and financial policies of the entity.
The structured entities over which NN Group can exercise control are consolidated. NN Group may provide support to these consolidated structured entities as and when appropriate, however this is fully reflected in the consolidated financial statements of NN Group as all assets and liabilities of these entities are included and off-balance sheet commitments are disclosed.
Third party managed structured entities As part of its investment activities, NN Group invests both in debt and equity instruments of structured entities originated by third parties.
 Revolving Credit Facility: On 1 July 2013, NN Bank (as Borrower) has entered into a senior revolving credit facility agreement with ING Bank (as Lender) in the aggregate amount of EUR 250 million (under which currently no amounts have been drawn). The maturity date of this facility is 30 June 2015.
For the year 2013, the Management Board ING Topholding N.V. consisted solely of the members of the Executive Board of ING Groep N.V. The remuneration of this Management Board is borne by ING Groep N.V. and disclosed separately in the below tables.
Amendments to the Restructuring Plan in 2012 The amendments to the 2009 Restructuring Plan as announced in November 2012 extended the time horizon and increased the flexibility for the completion of divestments and adjusted other commitments in light of the market circumstances, economic climate and more stringent regulatory requirements.
The total proceeds of these transactions were EUR 1,061 million (USD 1,385 million). The IPO reduced the ownership in ING U.S. from 100% to 71.25%.
In the 2012 and 2011 IFRS balance sheets, Assets and liabilities held for sale includes the insurance and investment management businesses in Asia (“Asia”) including NN Group’s business in Japan.
 In the third step, NN Group adds economic capital for operational risks and for business units that are not reflected in the internal model, without recognising any further diversification benefit. The economic capital for operational risk is based on the draft of the standard formula set out in Solvency II. Certain business units do not form part of NN Group’s internal model. Depending on the type of business, the economic capital for these business units is approximated using commercial capital requirements, the Insurance Group Directive, local regulatory capital requirements or IFRS equity net of intangibles. See “-Economic capital for entities outside of NN Group’s internal model”.
Market value % of total Market value % of total 2013 2013 2012 2012 Fixed income 79,473 83% 79,104 83% Government bonds 44,251 46% 50,831 53% Financial bonds 4,452 5% 5,845 6% Corporate bonds 6,453 7% 7,503 8% Asset Backed Securities 7,199 7% 7,267 8% Mortgages 14,218 15% 5,398 6% Other Loans 2,900 3% 2,260 2% Non-Fixed income 10,436 11% 10,017 10% Common & Preferred Stock 2,500 3% 2,087 2% Private Equity 943 1% 855 1% Mutual Funds 2,336 2% 2,020 2% Real Estate 4,657 5% 5,055 5% Cash 6,749 7% 6,778 7% Total Investments 96,658 100% 95,899 100%
 Economic capital. To determine economic capital, NN Group uses a swap curve plus an illiquidity premium to discount the insurance liabilities. The illiquidity premium is treated as part of the credit spread risk. NN Group extrapolates the EUR swap curve from the 30 year point onwards to the UFR, as swap markets tend to be highly illiquid for durations longer than 30 years. To determine economic capital, all assets are valued at market value and therefore subject to interest rate risk. The economic capital for interest rate risk therefore primarily depends on the level of cash flow matching between assets and liabilities.
Variable Annuity Japan GMAB 317,402 13,150 2,841 3,064 4.2 Variable Annuity Japan GMDB (3) 60,050 3,744 1,346 253 9.5 Variable Annuity Europe 44,30 1,147 47 78 7.5
Risk mitigation NN currently hedges the value of the guarantees it provided under group pension contracts in the Netherlands. For this purpose, the exposure under such guarantees is discounted at the swap curve without the extrapolation to the UFR. The hedge program includes equity basket options, swaps and equity futures. Upon contract renewal, NN Group offers policyholders defined contribution products with investments in portfolios that NN Group can more easily hedge, thus reducing the risk to NN Group. As of August 2013, NN Group aims to hedge the full economic risk of the guarantee provided. Before August 2013, the hedge was aimed at mitigating a combination of IFRS earnings volatility and regulatory capital volatility.
REGULATORY CAPITAL AND IFRS RESULT BEFORE TAX SENSITIVITIES The following two sections will provide the sensitivities of regulatory capital and IFRS result before tax, which are also important risks monitored by management and can be different from economic sensitivities. The following table sets out the shocks to parameters used to assess the sensitivities.
P&C sensitivity is determined using a 1 in 10 P&C sensitivity of internal model
Equity –25% –747 –595 Equity +25% 748 652 Market risk and credit risk Real estate –10% –170 –192 FX –10% –106 –90 Credit spread –1,894 –1,902 Counterparty default –27 –7
NN Group reduced its financial leverage substantially, from 31% by the end of 2012 to 26% at the end of 2013. This was mainly driven by the proceeds from the sale of its Asian Insurance businesses o.w. Hong Kong, Korea, Thailand and India, a capital injection from ING Group, the transfer of the US business from NN Group to ING Group and dividends from operating companies, offset by capital injections into operating companies, including a cash capital requirement for IPO purposes and holding company interest costs and expenses. In September NN Group N.V. redeemed senior debt of EUR 0.7 billion and an intercompany loan from ING Group of EUR 1.3 billion. The redemptions were funded by a new short-term intercompany loan of EUR 2 billion from ING Group, which was reduced to EUR 1 billion in December following a capital injection from ING Group.
Realised gains/losses transferred to profit and loss 90 90 Changes in cash flow hedge reserve –832 –832 Transfer to insurance liabilities/DAC 2,154 2,154 Exchange rate difference –647 –647 Total amount recognised directly in equity (Other comprehensive income)
Changes in balance sheet values due to changes in the Revaluation reserves of associates are reflected in the Share of associates reserve, which forms part of Shareholder’s equity. Changes in balance sheet values due to the results of these associates, accounted for in accordance with NN Group accounting policies, are included in the profit and loss account. Other changes in the balance sheet value of these associates, other than those due to changes in share capital, are included in the Share of associates reserve.
THE SUPERVISORY BOARD J. (Jeroen) van der Veer, chairman P.A.F.W. (Peter) Elverding, vice-chairman J.P. (Tineke) Bahlmann H.W. (Henk) Breukink C.W. (Carin) Gorter J.H. (Jan) Holsboer J.Ch.L. (Joost) Kuiper H-J.M. (Hermann-Josef) Lamberti I. (Isabel) Martín Castellá R.W.P. (Robert) Reibestein Y.C.M.T. (Yvonne) van Rooy L.A.C.P. (Luc) Vandewalle