ING Group in accordance with IFRS-EU in EUR million unless otherwise indicated 2010 2009 2008 2007 2006
OUR STRATEGY To serve the interests of our stakeholders, increase management focus and create value for our shareholders, ING is moving towards separation of its banking and insurance operations. We believe the widespread demand for greater simplicity, reliability and transparency makes this the best course of action. In the future, ING Bank will build on its global presence and international network and capitalise on its leadership position in gathering savings, multi-channel distribution, simple propositions and marketing. ING Insurance has a strong position as a global provider of life insurance and retirement services. While moving towards the public offerings of a Europe-led and a US-focused business, ING Insurance will initially concentrate on further improving its operational performance. Both the Bank and the Insurer will focus on earning our customers’ trust through transparent products, value for money and superior service. This reflects ING’s universal customer ideal: saving and investing for the future should be easier.
Shareholders’ equity increased EUR 7.7 billion from EUR 33.9 billion at the end of 2009 to EUR 41.6 billion at year-end 2010. This increase was caused by a positive change in revaluation reserves, positive exchange rate differences and the addition of the net profit.
The Europe-led business will combine the cash generation ability of the Benelux with the attractive growth markets of Central Europe and Asia. It will thus have an attractive growth profile in comparison with its life insurance peers. The US-focused business will build on its strong Retirement Services and Life Insurance franchises, focus on the run-off of the closed variable annuities block, and restore profitability.
HELPING OUR CUSTOMERS MANAGE THEIR FINANCIAL FUTURE We have taken significant steps to ensure that every customer gets the right products and services, via the right distribution channels, and at the right returns. Therefore, we are evaluating our entire product portfolio and product approval procedures based on sharpened criteria for good customer care. Importantly, financial education – an essential pillar of our corporate responsibility – is embedded in our business strategy through tools and initiatives that empower customers to be good at money.
KEY PERFORMANCE INDICATORS 2010 ING has identified 10 KPIs for its CR reporting. These KPIs relate directly to the ING CR strategy and are used by ING to measure CR performance within ING.
(1) The audit firm Ernst & Young has audited the KPIs for reasonable assurance. (2) For a detailed overview, see the 2010 Corporate Responsibility Report. (3) Satisfaction scores are based on the American Customer Satisfaction Index
STAKEHOLDER ENGAGEMENT We work hard to understand our stakeholders and address their needs in a way that is sustainable for our businesses and society. Stakeholder management has always been an important element of ING’s overall strategy. However, the financial crisis fuelled the need for an intensification of our stakeholder management activities, in particular given the shifting demands and increased expectations of various stakeholder groups. Therefore, we stepped up our efforts to actively seek and maintain an ongoing dialogue with our customers and other stakeholders about ING’s role in society.
Financial regulation and accounting standards are in a state of flux, and ING is following the developments closely. Over the past year, our Insurance business has been preparing to implement the requirements of the Solvency II directive, the new capital framework for European insurers. Meanwhile, the Bank has started to prepare for the improved regulatory capital and liquidity framework for banks, commonly referred to as Basel III. ING is well positioned to operate under these new regulatory frameworks once they are in force.
HOW TO ATTRACT, DEVELOP, ASSESS AND RETAIN TALENT Graduate recruitment ING recognises the importance of attracting, developing, assessing and retaining talent in a competitive market. Graduate Recruitment helped the business recruit 52 young talents for future leadership positions in 2010. ING’s career website ranks 15th among the top 30 corporate career websites in Europe for attracting young talent online. In its fifth year, ING’s International Graduate Programme (IIGP) continued its work on early career and talent development. IIGP trained more than 650 participants.
ING Luxembourg ING Luxembourg, whose results are reported under Retail Belgium, is a full-service bank with three business lines: domestic retail banking, private banking and commercial banking. It serves private individuals, SMEs, large companies and institutions.
Despite the subdued market conditions, Commercial Banking continued to win some transformational mandates. These transactions show that cross-selling is an integral part of the client offering and that businesses worked closely together to deliver these highly tailored solutions for clients.
Other significant developments during the year included: an increase in payment transactions compared to the previous year; PCM’s participation in the Net Promoter Score pilot which tracks customer feedback and an increase in cross- and deep-selling.
Insurance US began to implement a programme to narrow the strategic focus of the US business to life and retirement services while reducing annual expenses by EUR 100 million from 2011.
In 2010, ING IM focused on enhancing its global investment capabilities by establishing a skills-based multi-boutique structure.
Three major campaigns were launched, aimed at NN’s business and corporate pension clients. A corporate pension product that featured in one of the campaigns ‘NN Prestatiepensioen’ was chosen by Moneyview magazine as the most flexible pension product in the Netherlands.
According to the most recent DNB (the Dutch central bank) market share figures released in 2010, NN won back its market leader position in group life insurance (excluding health insurance) in the Netherlands in 2009, which included the SME and corporate pension businesses.
Within the combined company, the Dutch insurance businesses began work on creating a dedicated business unit to provide services to clients who bought insurance policies that are currently no longer sold: NN Services. This will further optimise customer service and efficiency in dealing with the ‘closed books’ while at the same time creating more room for innovation and product development elsewhere in the organisation.
Administrative expenses increased to EUR 904 million from EUR 791 million in 2009. The comparison with 2009 is impacted by accrual adjustments which lowered expenses in 2009 as well as currency effects. DAC amortisation and trail commissions increased to EUR 620 million from EUR 489 million in 2009 due to higher operating income and higher assets under management levels, resulting in higher trail commissions.
From 1 October, ING implemented a number of key changes with regard to the US Closed Block VA business to increase transparency, improve reserve adequacy, reduce earnings volatility, and to bring accounting and hedging more into line with US peers as the company prepares for a potential US-focused IPO. As part of these changes, ING began to report the US Closed Block VA business as a separate business line within ING Insurance/IM to improve transparency for both the Closed Block and ongoing businesses.
ING Life Japan continued to build on the success of its COLI (Corporate Owned Life Insurance) business. It has consistently maintained a market-leading position with a strong product line-up and extensive network of distribution partners. Sales were very strong in 2010 and were boosted early in the year with the launch of a new COLI cancer product and further supported by a new COLI increasing term product in the fourth quarter. ING will explore opportunities to expand its product offering in this market and plans to revive distribution relationships with a selected number of Japanese financial institutions to boost sales.
Claus Dieter Hoffmann will not apply for reappointment for one year and will retire from the Supervisory Board after the annual General Meeting in May 2011. The Supervisory Board has nominated three candidates for appointment: Sjoerd van Keulen, Joost Kuiper and Luc Vandewalle. For the proposed appointments approval has been obtained from the Dutch central bank.
DUTCH BANKING CODE The Banking Code is applicable to ING Bank N.V. and not to ING Group. The Banking Code can be downloaded from the website of the Dutch Banking Association (www.nvb.nl). The principles of the Banking Code as a whole are considered as a reference by ING Bank N.V. and their application is described in the publication ‘Application of the Dutch Banking Code by ING Bank N.V.’ on the website of the Company (www.ing.com).
Meetings are convened by public notice via the website of ING Group (www.ing.com) no later than on the forty-second day before the day of the general meeting. As of the date of convening a general meeting, all information relevant for shareholders and holders of depositary receipts is made available to them on this website and at the ING Group head office.
consequence of which ING Group or the group over which ING Group exercises central control ceases to engage in either insurance or banking activities.
INFORMATION ON MEMBERS OF THE EXECUTIVE BOARD JAN H.M. HOMMEN, CHIEF EXECUTIVE OFFICER (Born 1943, Dutch nationality, male; appointed in 2009, term expires in 2013) Jan Hommen graduated with a master’s degree in Business Economics from Tilburg University. He was appointed a member of the Executive Board on 27 April 2009. He is also CEO of ING Bank N.V. and CEO of ING Verzekeringen N.V. Jan Hommen was a member of the Supervisory Board of ING Group as of 1 June 2005 and became chairman of the Supervisory Board of ING Group in January 2008. Until 1 May 2005, he was vice-chairman and chief financial officer of Koninklijke Philips Electronics N.V. From 1975 to 1997, he worked for Alcoa Inc. From 1978, he worked at the Alcoa head office in the US, becoming chief financial officer in 1991. Jan Hommen is a member of the board of Royal Concertgebouw Orchestra. Six Group staff departments report directly to Jan Hommen: Corporate Legal Department, Corporate Human 3Corporate governance
The current terms of appointment of Henk Breukink, Peter Elverding and Claus Dieter Hoffmann will expire at the end of the 2011 annual General Meeting. At this meeting, Henk Breukink and Peter Elverding will be nominated for reappointment.
The activities involved in the administration of shares are performed by Administratiekantoor van het Algemeen Administratie- en Trustkantoor B.V., Amsterdam.
For 2010, at least 40% of total variable compensation is based on predefined non-financial performance indicators. The incorporation of non-financial indicators in the overall assessment is particularly aimed at improving business performances within ING. These indicators depend on the specific responsibilities of the individual Executive Board member. For each Executive Board member a number of performance objectives were formulated relating to customer satisfaction, improve sustainable business practices, the diversity of the workforce, employee engagement and corporate responsibility. Early in 2011, the Remuneration Committee conducted an evaluation of each Executive Board member’s individual and collective performance against predefined objectives. Each Executive Board member was allotted a performance score, which was approved by the Supervisory Board. This performance score determined the payout factor. The Remuneration Committee concluded that 2010 was a good year in which above target financial performance had been achieved. The performance overall was at or above target for non-financial objectives, too. In general, all the Executive Board members performed well in their respective areas of responsibility. The overall bottom line results were well-balanced and either at or above target, which led to a payout of respectively 80% and 92% of base salary as shown in the table on page 82.
Long-term incentives awarded in previous years The long-term incentive plan (LTIP) at ING in place until 2010 included both stock options and performance shares. The ING stock options have a total term of ten years and a vesting period of three years after which they can be exercised for the remaining seven years.
(7) Piet Hoogendoorn retired in April 2010. The compensation figure for 2010 reflects the partial year as member of the Supervisory Board.
Loans and advances to members of the Supervisory Board Amount outstanding 31 December
Most recent appraisal in 2010 97 Most recent appraisal in 2009 3
Changes in the composition of the group –104 –5 58 –231 –5 –277
Actuarial gains and losses related to pensions and post-employment benefits for the year ended 31 December 2010 include EUR 1,085 million (2009: EUR 387 million; 2008: EUR –2,647 million; 2007: EUR –789 million; 2006: EUR –180 million) experience gain adjustments for assets and EUR 154 million (2009: EUR 172 million; 2008: EUR –70 million; 2007: EUR 83 million; 2006: EUR –163 million) experience gain adjustments for liabilities.
Gains and losses on derivatives designated under fair value hedge accounting are recognised in the profit and loss account. The effective portion of the fair value change on the hedged item is also recognised in the profit and loss account. As a result, only the net accounting ineffectiveness has an impact on the net result.
In August 2008, ING acquired approximately 97% of Interhyp AG, Germany’s largest independent residential mortgage distributor for a total consideration of EUR 418 million. Goodwill of EUR 371 million was recognised on the acquisition and is mainly attributable to the future potential for enhancing ING’s distribution platforms in Europe resulting from the acquisition.
Notes to the consolidated annual accounts of ING Group continued 31 LEGAL PROCEEDINGS ING Group companies are involved in litigation and arbitration proceedings in the Netherlands and in a number of foreign jurisdictions, including the United States, involving claims by and against them which arise in the ordinary course of their businesses, including in connection with their activities as insurers, lenders, employers, investors and taxpayers. In certain of such proceedings, very large or indeterminate amounts are sought, including punitive and other damages. While it is not feasible to predict or determine the ultimate outcome of all pending or threatened legal and regulatory proceedings, the Company’s management is of the opinion that neither it nor any of its subsidiaries is aware of any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Company is aware) which may have or have in the recent past had a significant effect on the financial position or profitability of the Company.
Proceedings in which ING is involved, include complaints and lawsuits concerning the performance of certain interest sensitive products that were sold by a former subsidiary of ING in Mexico. Proceedings also include lawsuits that have been filed by former employees of an Argentinean subsidiary, whose employment was terminated as a result the Republic of Argentina’s nationalisation of the mandatory pension business. Litigation has been filed by the purchaser of certain ING Mexican subsidiaries who claims that the financial condition of the subsidiaries was not accurately depicted. Further, purported class litigation has been filed in the United States District Court for the Southern District of New York alleging violations of the federal securities laws with respect to disclosures made in connection with the 2007 and 2008 offerings of ING’s Perpetual Hybrid Capital Securities. The Court has determined that the claims relating to the 2007 offerings were without merit and has dismissed them. The challenged disclosures that survived the Court’s ruling relate solely to the June 2008 offering, and primarily to ING Group’s investments in certain residential mortgage-backed securities. Additional purported class litigation challenges the operation of the ING Americas Savings Plan and ESOP and the ING 401(k) Plan for ILIAC Agents. Recently, an administrator of an ERISA plan filed a lawsuit seeking to represent a class of ERISA plan administrators claiming that an ING subsidiary had breached certain of its ERISA duties. These matters are being defended vigorously; however, at this time, ING is unable to assess their final outcome. Subject to court approval, litigation involving the interest crediting methodology used in connection with certain annuity products and disclosures about that methodology, in which a state court of appeals determined a nationwide class could be maintained, has been resolved.
The total number of stock options on ING Groep N.V. shares held by the Executive Board members of ING Group N.V. amounted to 164,689 as at 31 December 2010 (2009: 164,689) and total number of stock options on ING Groep N.V. shares held by Management Board members of ING Bank N.V. and ING Verzekeringen N.V. amounted to 2,676,675 as at 31 December 2010 (2009: 2,718,765). As at 31 December 2010, members of the Executive Board held 118,723 ING Groep N.V. shares (2009: 60,883) and members of the Management Boards of ING Bank N.V. and ING Verzekeringen N.V. held 284,995 ING Groep N.V. shares (2009: 266,239). As at 31 December 2010, members of the Supervisory Board held 167,407 ING Groep N.V. shares (2009: 137,407).
Other assets The carrying amount of other assets is not materially different from their fair value.
Other include commission fees of EUR 15 million (2009: EUR 18 million; 2008: EUR 21 million) in respect of underwriting syndication loans.
Distributions on account of interest or underwriting results 9 91 198 Bonuses added to policies 328 289 131 Deferred profit sharing expense 201 58 29
Effect of dilutive securities: Stock option and share plans 6.6 5.7 1.0
Notes to the consolidated annual accounts of ING Group continued 51 OPERATING SEGMENTS ING Group’s operating segments relate to the internal segmentation by business lines. During 2010 the internal management reporting structure was changed in order to improve transparency. The operating segments have changed accordingly. As at 31 December 2010, ING Group identifies the following operating segments: Operating segments of ING Group Banking Insurance
Fair value hierarchy of pressurised ABS bonds 2009 Level 1 Level 2 Level 3 Total
• The Risk Committee, which assists the Supervisory Board on matters related to risk governance, risk policies and risk appetite setting. It reports in the Supervisory Board on the main risk issues in the group.
Total capital requirement for equity price risk under the Simple Risk Weight Approach at 31 December 2010 results in EUR 310 million (2009: 364 million).
Risk management governance ING’s Insurance Risk Management (IRM) is organised along a functional line comprising three levels within the organisation: the corporate, business line and business unit levels. The General Manager of CIRM, the Chief Insurance Risk Officer, heads the functional line and reports to the ING Group CRO. Each of the business lines and business units has a similar function headed by a Chief Insurance Risk Officer (business line and business unit CRO/CIRO). This layered, functional approach ensures consistent application of guidelines and procedures, regular reporting and appropriate communication vertically through the risk management function, as well as providing ongoing support for the business. The scope, roles, responsibilities and authorities of the risk management function at different levels are clearly described in an Insurance Risk Management Governance Framework to which all consolidated business units and business lines must adhere.
The table below presents market risk sensitivity figures before diversification between risks and legal entities. The stress events are described in the Model Disclosure section. Interest rates are shocked 30% relative compared to the ten-year swap rate. The credit risk sensitivities are based on the new methodology introduced in 2010 which can be found in the Model Disclosure section. Equities are shocked 25% down. As the US regulatory capital sensitivities as described have only been set up during 2010 there are no 2009 comparable figures available. In 2009 the US Insurance Business was included in the Economic Capital framework which was used to manage the risk.
The second category can be divided on the one hand in minority stakes in Real Estate assets that are revalued through equity and on the other hand stakes in funds managed by ING and direct Real Estate revalued through P&L. Only for the last category will Real Estate price shocks have a direct impact on reported net profit.
(ii) Client behaviour risk relates to clients behaving differently than expected and the effect that this behaviour can have on customer deposits and mortgage pre-payments. The client behaviour risk is calculated by stressing the underlying assumptions in the models for behavioural assets and liabilities.
Equity 3 Share capital 919 919 Share premium 16,034 16,034 Non-voting equity securities 5,000 5,000
Adverse capital and credit market conditions may impact our ability to access liquidity and capital, as well as the cost of credit and capital. The capital and credit markets have been experiencing extreme volatility and disruption for more than two years. In the second half of 2008, the volatility and disruption reached unprecedented levels. In some cases, market developments have resulted in restrictions on the availability of liquidity and credit capacity for certain issuers.
Such impacts have arisen primarily as a result of valuation issues arising in connection with our investments in real estate (both in and outside the US) and private equity, exposures to US mortgage-related structured investment products, including sub-prime and Alt-A Residential and Commercial Mortgage-Backed Securities (‘RMBS’ and ‘CMBS’, respectively), Collateralised Debt Obligations (‘CDOs’) and Collateralised Loan Obligations (‘CLOs’), monoline insurer guarantees and other investments. In many cases, the markets for investments and instruments have been and remain highly illiquid, and issues relating to counterparty credit ratings and other factors have exacerbated pricing and valuation uncertainties. Valuation of such investments and instruments is a complex process involving the consideration of market transactions, pricing models, management judgment and other factors, and is also impacted by external factors such as underlying mortgage default rates, interest rates, rating agency actions and property valuations. We continue to monitor our exposures, however there can be no assurances that we will not experience further negative impacts to our shareholders’ equity or profit and loss accounts in future periods.
Our business may be negatively affected by a sustained increase in inflation. A sustained increase in the inflation rate in our principal markets would have multiple impacts on us and may negatively affect our business, solvency position and results of operations. For example, a sustained increase in the inflation rate may result in an increase in market interest rates which may (1) decrease the value of certain fixed income securities we hold in our investment portfolios resulting in reduced levels of unrealised capital gains available to us which could negatively impact our solvency position and net income, (2) result in increased surrenders of certain life & savings products, particularly, those with fixed rates below market rates, and (3) require us, as an issuer of securities, to pay higher interest rates on debt securities we issue in the financial markets from time to time to finance our operations which would increase our interest expenses and reduce our results of operations.
DEFINED CONTRIBUTION PLAN Post-employment benefit plans under which an enterprise pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods.
FINANCIAL ASSET Any asset that is: • cash; • an equity instrument of another company; • a contractual right to; • receive cash or another financial asset from another company; or