Capital ratios ING Group debt/equity ratio 9.5% 9.0% 9.4% 10.2% 14.4%
TOTAL SHAREHOLDER RETURN ING’s Total Shareholder Return amounted to 74% over the four-year period 2004 – 2007 and to 37% over the three-year period 2005 – 2007.
LISTINGS The (depositary receipts for) ordinary shares ING Group are listed on the exchanges of Amsterdam, Brussels, Frankfurt, Paris, New York (NYSE) and the Swiss exchanges. The (depositary receipts for) preference shares are listed on Euronext Amsterdam by NYSE Euronext. Options on (depositary receipts for) ordinary shares ING Group are traded at the NYSE Euronext Amsterdam Derivative Markets and the Chicago Board Options Exchange.
(Depositary receipts for) ordinary shares of EUR 0.24 nominal value 2,226.4 2,205.1 (Depositary receipts for) own ordinary shares held by ING Group and its subsidiaries 126.8 53.8 (Depositary receipts for) ordinary shares outstanding in the market 2,099.6 2,151.3 (Depositary receipts for) preference shares of EUR 1.20 nominal value 16 63 (Depositary receipts for) own preference shares held by ING Group and its subsidiaries 10 – (Depositary receipts for) preference shares outstanding in the market 6 63
Payment date fi nal dividend 2008 Thursday, 8 May 2009 (NYSE Euronext) Thursday, 15 May 2009 (NYSE)
CAPITAL ADEQUACY The main task of the Group capital management function is to monitor, manage and plan the capital adequacy of ING Group, ING Bank and ING Insurance and to execute all related capital markets transactions. The benefi ts of a centralised capital management function are that maximum fi nancial fl exibility is created to pursue strategic objectives and to withstand fi nancial stress and that the different requirements of shareholders, regulators, rating agencies and internal economic capital models
ING’s approach to liquidity management requires a signifi cant surplus of liquid assets, rigorously tested contingency plans and close monitoring of market conditions. A number of liquidity problems have appeared in the market due to the US subprime concerns, including challenges rolling over short-term Asset-Backed Commercial Paper (ABCP) in the secondary market, increased credit spreads and shorter terms.
Capital at Risk (CaR) is the potential reduction of the current net asset value (based on fair values) of the balance sheet over the next year relative to the expected value during a moderate (i.e. ‘1 in 10’) stress scenario, and assuming no mitigating management action. The Capital at Risk fi gure tends to be dominated by ING Insurance and is mainly interest rate risk related to long-term client guarantees and equity risk. The overall risk appetite level for ING Group in 2007, measured as Capital at Risk/Available Financial Resources (AFR),
As ING is active across many countries and in different currency zones there are also inherent interest rate risks. There is a natural and structural diversifi cation of the interest rate position, particularly in the euro zone and in the US. This is further supported by diversifi cation across currencies and monthly hedging and rebalancing. Banking and insurance together also provide an inherent diversifi cation benefi t.
ING Real Estate, the world’s largest real estate investment manager, is mostly exposed to real estate risk through fi nancing, development and managing property funds. Real estate risk also diversifi es the overall risk profi le of the Group as there is a limited correlation between real estate risk and other types of risk.
Key points > Solid fi nancial performance in a challenging environment > Robust value creation in Central Europe accentuated by successful start of Romanian pension fund > Strong distribution footprint in mature Benelux market provides a competitive edge > Active capital management increases capital effi ciency
…and by leveraging the solid distribution power With access to brokers (NN), tied agents (RVS) and retail banks (ING Bank and Postbank), ING is well-positioned to take advantage of current trends such as increasing bank distribution and the strong distinction between commodity products and advisory products. As part of this multi-channel strategy, NN and RVS are partnering with the introduction of the employers distribution platform, offering personal fi nancial advice to individual employees covered by NN’s corporate contracts. RVS already interested more than 2,000 employers and started to generate around EUR 6 million of sales from this concept in 2007. Bank distribution is becoming increasingly important for standardised non-life products. This is evidenced by the successful launch by ING Bank Belgium of the sale of car insurance policies manufactured by NN, with more than 9,000 policies sold at the end of 2007. As a result of the reorientation of NN’s captive distribution channel, its scope will change from personal to business clients with a focus on high- quality advice. Postbank Insurance continued to be successful with its strategy of focusing on internet sales, lowering costs through simpler operational processes and consolidating the strong position in the mortgage-related insurance market. For example, in the term life market, sales have accelerated by 60% in 2007. The improved Postbank home insurance product has led to a 50% increase in home insurance sales compared to 2006, contributing to 25% overall sales growth.
In Latin America life insurance, underlying profi t before tax increased 84.6% to EUR 216 million, following higher underwriting results across the region and investment gains in Mexico. Latin America’s operating expenses rose 19.0%, or 28.2% excluding currency impacts, primarily due to the integration of the new pension businesses and operating costs and business growth in Mexico.
HIGHLIGHTS ING continued to transform its business profi le in the region. Insurance Americas aims to be a leading provider of investment, life insurance and retirement services products across the Americas.
Also in early 2008, ING in the US won a Catalyst award for initiatives taken to support and advance women in business. ING’s Beyond Diversity: Building One ING Culture programme has led to a unifying culture within the workplace and has led to an increased number of women managers at the most senior levels of the business.
ING US Wealth Management has very broad, diversifi ed distribution channels with access to more than 200,000 independent points of distribution, including wirehouses, independent broker/dealers, banks, employees, and direct to customers.
Underlying profi t before tax 576 621 –7.2% Total profi t before tax* 576 636 –9.4%
The value of new business (VNB) written by Insurance Asia/Pacifi c was EUR 442 million, up 5.0% compared with 2006, driven by Taiwan, Australia and Rest of Asia. South Korea and Japan recorded lower VNB. The 2007 fi gures refl ect a change in VNB methodology for the greenfi eld business units in China, India and Thailand. This change removed start-up expenses from their VNB, which had a positive impact of EUR 16 million in 2007. The internal rate of return remained highly attractive at 16.8%, consistent with that in 2006. Despite lower fi nancial variances and operating assumption changes, the embedded value of the life business increased to EUR 2,204 million at the end of 2007 from EUR 1,343 million in 2006.
HIGHLIGHTS Economic growth in Asia continues to outpace other regions as more wealth is created. Consequently, life insurance in Asia is expected to grow more rapidly than in other regions in the coming years, both to accommodate the wealth accumulation of aging populations and to provide savings plans for the rising working classes. Insurance Asia/Pacifi c is well-positioned to benefi t from this long-term growth and build on its strong position in the markets in which it operates.
HIGHLIGHTS Wholesale Banking plays an integral role in ING, attracting new business and generating profi table growth through a number of channels, including general lending, leasing and structured fi nance. Wholesale Banking also offers the Group key skills in balance sheet management, including funding and liquidity management. In 2007, Wholesale Banking deepened its client relationships, closed a number of landmark deals, reduced costs and improved returns through more effi cient use of capital.
General Lending & PCM volumes growth Volumes increased in both General Lending and Payments & Cash Management over the year due to concerted efforts in the Benelux and growth initiatives in Central and Eastern Europe. The volume increases were largely offset by continued pricing pressure due to strong competition, with some of the pressure subsiding in the second half of the year.
In 2007, ING further integrated acquired companies Autoplan in France and Appleyard in the UK into ING Car Lease. Leasing launched commercial activities in Italy through General Lease and Car Lease.
At the same time, in developed markets, particularly in our home markets where we remain uniquely positioned, we will continue to provide core products and explore selective growth initiatives.
Investing capital for growth ING has been reallocating capital and making funds available selectively to protect and increase its revenue base. Wholesale banking has continued to invest in both existing and new products to improve returns and deliver profi table growth.
Priorities have been identifi ed to provide further growth and to retain and gain competitive advantages in a diffi cult business environment. Wholesale Banking seeks to increase effi ciencies and to further improve the cost/income ratio. ING will allocate further capital to support growth in key product areas and to ensure it maintains returns at attractive level.
* Total profi t before tax is defi ned as profi t before tax including divestments and special items
ING Private Banking benefi ted from the economic growth in Asia. The Private Banking activities in Asia are of increasing importance and now comprise almost 30% of the Private Banking result and 20% of the asset base. Total assets under management of Private Banking increased 14.9% to EUR 68.0 billion, while underlying profi t before tax, which is included in the regional results, grew by 8.7% to EUR 263 million.
Internet banking is growing fast in the Netherlands. Three million internet clients use Postbank’s web facilities regularly. In 2007, 440,000 new internet clients were registered. Research indicates that on average, clients use the online banking services three times a week. ING Bank’s internet site, Mijn ING Bank.nl, also attracted more customers in 2007: 150,000 new clients were added, bringing the total to 350,000.
Record Bank, ING’s second bank in Belgium, offers savings and investment products via banking agents, and loans through various channels. In 2007, Record Bank fully benefi ted from its successful integration of various smaller business entities it has acquired over the past years.
ING expanded in Central and Eastern Europe and Asia, gaining momentum in Poland and Romania and starting preparations to open a new operation in Ukraine. The acquisition of Oyak Bank in Turkey gives ING a strong platform in this important market. The 30%-stake in TMB in Thailand enables ING to extend its footprint in the fast growing Asian market, including in Private Banking. With respect to Private Banking, ING performed well, in particular in Asia.
The addition to the provision for loan losses increased to EUR 68 million from EUR 57 million refl ecting the increased volume of the mortgage portfolio. The addition was 9 basis points of average credit-risk-weighted assets, up from 7 basis points in 2006.
Payment accounts Payment accounts were launched in Spain and the US and re-introduced in the third quarter in Germany, resulting in 598,000 new accounts and bringing the total to 853,000 accounts at year-end. Payment accounts are an important product category as they deepen relationships with customers and offer opportunities to cross-sell additional products. ING Direct plans to launch payment accounts in three other countries in 2008.
Investment products ING Direct extended its retail investment product range in 2007. ING Direct France and ING Direct UK launched guaranteed investment products in August, following the success of earlier launches in Spain and Germany. In the US, ShareBuilder was acquired to accelerate the growth of our brokerage and investment product offering.
To build scale and market position, ING IM acquired the full ownership of Landmark Investment Management Company Ltd (Landmark) in Korea on 30 August 2007 and subsequently completed the merger with ING Investment Management Korea Ltd on 1 October. This created the 10th largest asset management company in Korea, managing assets of EUR 8.27 billion at year-end.
LEADERSHIP AND TALENT MANAGEMENT As a company that is eager to grow and with the ‘war for talent’ being intensifi ed, ING has invested considerably in enhancing its attractiveness as an employer of choice on a global scale. The ING Employer Brand, introduced in 2006, was activated across borders and business lines during 2007. The number of graduates applying to ING increased, as did the number of people looking at careers pages on ING websites. In various key markets and in Europe in particular, ING moved up considerably in the ‘best employer’ benchmarks.
Enhancing HR basics To support ING’s business objectives, Global HR focused on improving several basic activities in 2007, including IT services and management information in particular. In IT, HR is increasingly sharing its systems and processes across its various operations. There was a breakthrough in accessing the ING Learning Centre, a shared online platform used for educational purposes, which can now be accessed worldwide. As for management information, Global HR has been tapping into the HR systems of all the different business lines and gathering data.
Business units have discovered the importance of F1 branding efforts to generate revenues and commercial growth. In all, 42 business ‘activations’ took place, including ING Direct F1themed promotions that brought in more than 100,000 new accounts, F1-themed credit cards, and retail promotions that netted tens of thousands of new business leads.
Carbon neutral ING pledged to take action across its business operations and became ‘carbon neutral’ in 2007, further diminishing its direct impact on the environment. By reducing and/or compensating its global carbon emissions, ING succeeded in bringing its net CO2 emission to zero by energy effi ciency measures, by purchasing green energy and by extending our current offset programme.
Lending policies now public Over the past few years, ING has developed a strong framework of corporate responsibility policies to guide our conduct. The most important are the ING Business Principles. They apply to the entire
COMMITMENT TO COMMUNITY ING is involved in the communities in which it operates and we feel it is important to contribute to society in a positive way. To improve the fi nancial situation of the most needy people, we believe structural help is most effective. We also believe that engaging employees in community development improves our corporate culture and performance.
Supervisory Board meetings The strategy of ING was a frequent topic for the Supervisory Board meetings, especially the growth strategy in the light of increasing consolidation among Europe’s fi nancial institutions.
New legislation The Netherlands implemented the EU Takeover Directive in 2007. Under the implementation act, Dutch listed companies may opt to be unprotected against takeovers. If companies want the ‘unprotected regime’, they must state in their Articles of Association that either (1) the implementation of anti-takeover measures should be subject to approval of the General Meeting of Shareholders or (2) that a shareholder with an interest of 75% or more as a result of a public bid may change the supervisory board and the executive board shortly after completion of the bid.
Approval by the General Meeting of Shareholders would be required for any share issues exceeding these limits.
The board of the Trust Offi ce comprises six members who are independent of ING Group. No ING Group employees or Supervisory Board members are on the board of the Trust Offi ce. The board of the Trust Offi ce appoints its own members, without any requirement for approval by ING Group.
Ancillary positions/Confl icting interests To avoid potential confl icts of interest, ING Group has a policy that members of its Executive Board do not accept corporate directorships with listed companies outside ING. The only exception is currently Jacques de Vaucleroy, who is on the Board of Directors of Delhaize Group in Belgium. He held this position prior to his appointment to the Executive Board of ING Group.
The Trust Offi ce may consult depositary-receipt holders in a separate meeting. This possibility was not made use of. Holders of depositary receipts are invited to attend the annual General Meeting of Shareholders and look after their own interests.
This chapter sets out the remuneration for the Executive Board and the Supervisory Board. The remuneration policy was adopted by the annual General Meeting of Shareholders on 27 April 2004. In 2006, the Executive Board pension scheme was revised in alignment with the approved amendment to the remuneration policy. The revised Executive Board pension scheme is further described on page 78. There were no changes to this policy in 2007 and therefore, the approval of the 2006 annual General Meeting of Shareholders still applies for 2007. The chapter starts with the general policy for senior-management remuneration, followed by the Executive Board compensation for 2007 and the compensation structure for 2008. In addition, information is included on loans and advances to the Executive Board and Supervisory Board members as well as ING depositary receipts for shares held by members of both boards.
Employment contract for newly appointed Board members The contract of employment for Executive Board members appointed after 1 January 2004 provides for an appointment for a period of four years (the appointment period) and allows for reappointment by the General Meeting of Shareholders.
Information on the options outstanding and the movements during the fi nancial year of options held by the members of the Executive Board as at 31 December 2007 number of options
(4) John Hele’s and Tom McInerney’s pension costs have been translated from US dollars to euros at the average exchange rate for that year.
Pension costs of former members of the Executive Board who are not included in the above table amounted to nil in 2007, EUR 4,506 thousand in 2006 and EUR 1,184 thousand in 2005.
For 2008 the Supervisory Board has determined that the Executive Board’s short-term incentive award for the Group performance should be measured using three financial criteria: underlying net profit per share, underlying operating expenses and economic profit/embedded value profit (excluding financial variances).
As was the case in 2007, the total LTI value in stock options and provisional performance shares to be granted to the Executive Board members will be determined by the Supervisory Board at the end of 2008, based on the extent to which each of the three pre-defined financial objectives set out in the 2008 short-term incentive plan have been achieved.
Derivatives used in: – fair value hedges 1,952 1,080 – cash fl ow hedges 3,417 3,617 – hedges for net investments in foreign operations 281 3 Other non-trading derivatives 1,987 1,821
Increase in loan loss provisions 8 4 125 103 133 107 Exchange rate differences –1 –2 –19 –67 –20 –69 Other changes –1 –8 48 –1 47 –9
ING Offi ce Fund Australia 6 69 83 2,134 763 443 152 Retail Property Fund France Belgium (RPFFB) 15 81 1,597 1,069 304 189 ING Logistics Property Fund Europe 25 78 574 263 76 31
Changes in the composition of the group 10 –7 16 –1 26 –8 Disposals –24 –9 –44 –63 –68 –72 Depreciation –164 –177 –216 –222 –380 –399 Impairments –1 –1 –1 –2 –1 Exchange rate differences –3 –6 –17 –26 –20 –32
The total amount of borrowing costs relating to Property under development for third parties, capitalised in 2007 is nil (2006: EUR 2 million).
Concentration of holders of depository receipts for shares As at 31 December 2007, AllianceBernstein Corporation had an interest in depository receipts (for ordinary shares of ING Groep N.V. of between 5% and 10%.
Profi t for the year 8,894 347 9,241 Unrealised revaluations after taxation –98 –98 Changes in treasury shares –2,304 –2,304 Dividend –2,826 –173 –2,999 Employee stock options and share plans 104 104 Other 153 –153
Subordinated loans of group companies 66 542 1,052 429 1,632 9,942 13,663 Preference shares of group companies 1,014 1,014
As at 31 December 2007, trading liabilities include amounts payable of EUR 86,759 million (2006: EUR 67,114 million) with regard to repurchase transactions.
The amounts included in other provisions are based on best estimates with regard to amounts and timing of cash fl ows required to settle the obligation.
For the year ended 31 December 2007, ING Group recognised in the profi t and loss account EUR 697 million (2006: EUR 41 million) of fair value changes on derivatives designated under fair value hedge accounting. This amount was partly offset by EUR 663 million (2006: EUR –8 million) fair value changes recognised on hedged items. This resulted in EUR 34 million (2006: EUR 49 million) net accounting ineffectiveness recognised in the profi t and loss account. At 31 December 2007, the fair values of outstanding derivatives designated under fair value hedge accounting was EUR 994 million (2006: EUR 474 million), presented in the balance sheet as EUR 1,952 million (2006: EUR 1,080 million) positive fair values under assets and EUR 958 million (2006: EUR 606 million) negative fair values under liabilities.
Hedges of net investments in foreign operations ING Group’s net investment hedges principally consist of derivatives (including currency forwards and swaps) and non-derivative fi nancial instruments such as foreign currency denominated funding that are used to protect against foreign currency exposures on foreign subsidiaries.
2.1 Consolidated annual accounts 29 COMPANIES ACQUIRED AND COMPANIES DISPOSED The initial accounting for the fair value of the net assets of the companies acquired during the year has been determined only provisionally at 31 December 2007 given the proximity of the dates of acquisition to the year end. Also, the analysis of the contributory factors relating to goodwill will only be performed once the fi nal values have been determined. The initial accounting shall be completed within a year of acquisition in accordance with IFRS 3 and the policies, procedures and risk management of the companies acquired shall be brought in line with ING during 2008.
In October 2006 ING acquired 56% of Summit Real Estate Investment Trust (Summit REIT) for an amount of EUR 2,132 million. Summit REIT owns a portfolio of high-quality light industrial properties in major markets across Canada.
Financial liabilities designated at fair value through profi t and loss 7,723 6,159 13,882 Investment contracts (for contracts carried at fair value) 12,074 2,058 14,132
Sensitivities of fair values Reasonably likely changes in the assumptions used in the valuation techniques not supported by recent market transactions would not have a signifi cant impact on equity and net profi t.
Results from securities trading includes the results of making markets in instruments such as government securities, equity securities, corporate debt securities, money-market instruments, and interest rate derivatives such as swaps, options, futures and forward contracts. Results from foreign currency exchange transactions include gains and losses from spot and forward contracts, options, futures, and translated foreign currency assets and liabilities.
Expenditure from investment contracts Costs of acquiring investment contracts 19 31 53 Profi t sharing and rebates 16 64 17 Other changes in investment contract liabilities 985 1,272 1,268
Other operating expenses include lease and sublease payments in respect to operating leases, of EUR 156 million (2006: EUR 229 million; 2005: EUR 50 million) in which ING is the lessee.
Result before taxation 11,043 9,940 8,894 Weighted average statutory tax rate 28.7% 30.9% 31.8% Weighted average statutory tax amount 3,169 3,071 2,831
Each business line is headed by a member of the Executive Board. The Executive Board sets the performance targets and approves and monitors the budgets prepared by the business lines. Business lines formulate strategic, commercial and fi nancial policy in conformity with the strategy and performance targets set by the Executive Board.
ING has systematically invested in improving its risk management capabilities over the past years, including investments in people, governance, processes, measurement tools and systems, etc. Recent examples are the introduction of the risk dashboard (discussed below) at the ING Group level, the company-wide embedding of the Compliance and Financial Economic Crime policies, the implementation of advanced measurement methods under Basel II (Credit Risk Internal Rating Based and Operational Risk Advanced Measurement Approach (AMA)) for the Bank and the roll-out of an intranet-based Economic Capital reporting system based on replicating portfolio techniques (ECAPS ) to consistently calculate Economic Capital for insurance businesses. The addition of the position of Chief Risk Offi cer as part of the Executive Board in April 2007 provides a strong commitment to ensuring that risk is a key component of management decisions. To show the commitment and improvements to its risk management ING chose risk management as its theme for its 14th Investor Relations Symposium in London on 20 September 2007.
Developments during the year relating to ING Group’s involvement in securitisation and asset backed commercial paper vehicles are described in Note 27 ‘Special Purpose Entities and Securitisation’.
In addition two staff departments report to the CRO: The Risk Integration and Analytics department is responsible for inter-risk aggregation processes and for providing Group-wide risk information to the CRO and Executive Board. The Model Validation department reviews the performance of all material risk models applied within ING. This department carries out periodic model validations of all risk models used by ING. To ensure independence from the business and the other risk departments, the head of this department reports directly to the CRO.
The increase in EaR for ING Insurance is mainly the result of increases in equity risk due to higher potential equity impairments and modelling refi nements as mentioned in the EaR section above. The increase in CaR for ING Insurance is mostly driven by increased interest rate risk in the US as rates have decreased leading to higher risk related to guarantees embedded in liabilities, lower interest rate risk netting across the US and Europe, and higher equity risk in the US from the refi ned modelling.
The growth of the Economic Capital fi gure for the Wholesale Banking business line can be mainly explained by the credit risk model enhancements, whereas the risk profi le is relatively stable.
For those transactions where DVP settlement is not possible, ING establishes settlement limits through the credit approval process. Settlement risk is then monitored and managed by the credit risk management units. Risk is further mitigated by operational procedures requiring trade confi rmations to counterparties with all transaction details, and entering into internationally accepted documentation, such as International Swaps and Derivatives Association (ISDA) Master Agreements for derivative transactions. Additionally, ING regularly participates in projects with other fi nancial institutions to improve and develop new clearing systems and clearing mechanisms to further reduce the level of settlement risk. Due to the very short term nature of settlement exposure (daily), settlement risks do not attract economic or regulatory capital and are excluded from risk reporting disclosures.
For the banking operations, ING uses various market pricing and measurement techniques to determine the amount of credit risk on presettlement activities. These techniques estimate ING’s potential future exposure on individual and portfolios of trades. Master agreements and collateral agreements are frequently entered into to reduce these credit risks.
This total is split in Business and Consumer clients as follows: Renegotiated business loans that would otherwise be past due or impaired
Increase/(decrease) in loan loss provision –115 –118 172 161 68 60 125 103 Exchange differences –23 –55 5 –7 –1 –5 -19 –67
Wholesale Banking Retail Banking ING Direct (2) Total ING Bank 17-22 (CCC & Problem
Total –1,790 –1,888 (1) The impact of the newly acquired Oyak Bank has not been included in the tables for interest rate risk in the banking books
During 2007, the FX VaR increased mainly for two reasons. Firstly, the IPO of the Bank of Beijing in November resulted in a EUR 1.6 billion value increase in exposure to Chinese Yuan, and consequently, a rise in the FX VaR. Secondly, the acquisition of the Turkish Oyak Bank in December resulted in a signifi cant Turkish lira position.
Risk classes: ING Insurance portfolio, as % of total outstandings Insurance Americas Insurance Europe Insurance Asia/Pacifi c Total ING Insurance
(1) Only covers total exposures in excess of EUR 5 billion, including intercompany exposure with ING Bank.
Compliance management is fundamental to driving value. The pursuit of long term business sustainability requires proper conduct of business activities in accordance with the high ethical standards of ING’s Business Principles. These principles not only refl ect laws and regulations, but are also based on ING’s core values: integrity, entrepreneurship, professionalism, responsiveness and teamwork.
A Compliance Programme Offi ce was set up to support ING’s continuing focus on building a culture where compliance is an integral part of ’how business is done’. To increase compliance awareness, a global communication programme was set up commencing with strong messages from the Executive Board.
The OISRM function actively measures and monitors information risk within the key risk areas noted below. The result of this process is used by ING Business Units to budget, plan, and implement appropriate risk mitigation actions.
The analyses set out in the risk management section provide a valuable guide to investors as to the risk profi le of ING Group. Users of the information should bear in mind that the analyses provided are forward looking measures that rely on assumptions and estimates of future events, some of which are considered extreme and therefore unlikely to occur. In the normal course of business, ING Group continues to develop, recalibrate and refi ne the various models that support risk metrics, which may result in changes to the risk metrics as disclosed.
This Economic Capital defi nition is in line with the net market value (or surplus) defi nition. The process of Economic Capital modelling enables ING Bank to allocate Economic Capital to the business units and support risk adjusted performance measurement (RAROC). By comparing Economic Capital fi gures with ING’s available fi nancial resources, adequate capital buffers can be ensured.
ING applies three main capital defi nitions: AFR – This is a market value concept, defi ned as market value of assets less the market value of liabilities on the balance sheet. The liabilities do not include the hybrid capital which is accounted for as equity. In the absence of a full market value balance sheet for ING Bank, AFR Bank is defi ned as Tier 1 capital plus the revaluation reserve for equity securities, less the difference between expected loss and loan loss provisions. AFR is used as the measure of available capital in comparison with EC employed. EC, or Economic Capital, is the amount of capital that is required to absorb unexpected losses in times of severe stress given ING Group’s ‘AA’ target rating. Adjusted Equity – This rating agency concept is defi ned as shareholders’ equity adjusted for hybrids, prudential fi lters and the Value in Force and Deferred Acquisition Cost. See ‘Capital Base’ disclosures below. This capital defi nition is applied in comparing available capital to core debt (leverage) for ING Group and ING Insurance. Tier 1 capital – Tier 1 capital and total BIS capital are regulatory concepts applicable to ING Bank. Tier 1 capital is defi ned as shareholders’ equity plus hybrid capital less certain prudential fi lters and deductible items. Tier 1 and BIS capital divided by risk weighted assets equals the Tier 1 and BIS ratio respectively.
The above capital defi nitions and policies have been approved by the ING Group Executive Board.
Adjustments to equity: – Revaluation reserves fi xed income & other (3) –289 –2,097 –759 –1,350 –963 –3,352 – Revaluation reserves excluded from Tier-1 (4) –2,952 –1,256 – Insurance hybrid capital (5) 2,250 2,250
The total amount of Equity in the parent company annual accounts equals Shareholders’ equity (parent) in the consolidated annual accounts. Certain components within equity are different, as a result of the following presentation differences between the parent company accounts and consolidated accounts: Unrealised revaluations within consolidated group companies, presented in the Revaluation reserve in the consolidated accounts, are presented in the Reserve for associates in the parent company accounts; Foreign currency translation on consolidated group companies, presented in the Currency translation reserve in the consolidated accounts, is presented in the Reserve for associates in the parent company accounts; Revaluations on investment property and certain participations recognised in income and consequently presented in Retained earnings in the consolidated accounts, is presented in the reserve for associates in the parent company accounts.
It is proposed to declare a dividend of EUR 1.48 per ordinary share of EUR 0.24.
Annual Premiums single IRR Value Annual Premiums single IRR Value 2007 2006
BASIS RISK Arises from imperfect correlation in the adjustment of the rates earned and paid on different fi nancial instruments. Examples of products in which these risks are inherent are demand deposits, saving accounts and mortgages with prepayment options.
PLAN ASSETS Comprise assets held by a long-term employee benefi t fund and qualifying insurance policies. Assets held by a long-term employee benefi t fund are assets (other than non-transferable fi nancial instruments issued by the reporting enterprise) that: are held by an entity (a fund) that is legally separate from the reporting enterprise and exists solely to pay or fund employee benefi ts; and are available to be used only to pay or fund employee benefi ts, are not available to the reporting enterprise’s own creditors (even in bankruptcy), and cannot be returned to the reporting enterprise, unless either the remaining assets of the fund are suffi cient to meet all the related employee benefi t obligations of the plan or the reporting enterprise or the assets are returned to the reporting enterprise to reimburse it for employee benefi ts already paid.
RECOGNITION The process of incorporating in the balance sheet or profi t and loss account an item that meets the defi nition of an element and satisfi es the following criteria for recognition: it is probable that any future economic benefi t associated with the item will fl ow to or from the enterprise; and the item has a cost or value that can be measured reliably.
ING Publications Annual Review, in Dutch and English Annual Report, in Dutch and English Corporate Responsibility Brochure, in Dutch and English Annual Report on Form 20-F, in English (in accordance with SEC guidelines)