Result Banking result before taxation 6,028 5,830 –838 106 4,510 Insurance result before taxation 81 –1,902 –999 –1,855 6,366 Result before taxation from continuing operations 6,109 3,928 –1,837 –1,749 10,876
Price – year-end 5.56 7.28 6.90 Price/earnings ratio** 3.7 9.8 ***
Equity indices in the US and the eurozone decreased in the second and third quarter of 2011 and increased somewhat in the last quarter, but not enough to make up for the earlier downturn. In the eurozone, the FTSEurofirst 300 Index declined to levels last seen in the second quarter of 2009. The share prices of financial companies were particularly adversely affected. In these difficult market circumstances the performance of the ING share price was better than the FTSE 300 Banks Index but somewhat worse than the FTSE 300 Life Insurance Index over 2011, as shown in the ‘ING share’ chapter in this Annual Report.
ING GROUP FINANCIAL DEVELOPMENTS Operating conditions were challenging in 2011. The prolonged weakness of the economic recovery and its impact on local and capital markets were especially prominent in the fourth quarter. Despite this difficult context, ING Group’s full-year results improved compared with 2010. The full-year 2011 net result was EUR 5,766 million compared with a net result of EUR 2,810 million in 2010. The 2011 net result includes EUR 1,866 million gains on divestments, of which EUR 995 million was attributable to the sale of our Latin American insurance, pension and investment management business, EUR 347 million to the sale of ING Car Lease, and EUR 466 million to the sale of Real Estate Investment Management.
dditional inform ation of consumers by pooling their long-term risks and providing guarantees at affordable prices. Through the accumulation of premiums, insurance companies are also major institutional investors that provide long-term funding to companies and institutions via the capital markets. By spreading risks and extending long-term funding, the insurance industry thereby also plays an invaluable role for society as a whole in dampening volatility through economic cycles.
ING is convinced that the changes set in motion will make it a stronger company and partner for stakeholders, one that is better able to anticipate and address emerging issues. To underline the increasing importance of ethical, environmental and social considerations in our business strategy, the Sustainability department began to report directly to ING Group’s chief executive officer from 1 July 2011.
As maintaining income levels comes under more pressure we must renew efforts to reduce expenses across the Group to adapt to the leaner financial environment and maintain our competitive position. Despite volatile markets we continue to work towards the separation of our insurance/investment management companies so we will be ready to move ahead with the IPO(s) or other options when markets are favourable. We maintain an open mind on how the future of the insurance/investment management businesses will be shaped. The fact that market values for activities to be divested are very low, requires that we review all options available to us.
We provide high-quality products and services for the right price that meet the needs and expectations of our customers and are easy to access and understand. We are committed to fair, honest and lawful behaviour that earns our stakeholders’ trust. We foster an open, safe and stimulating place to work, where our employees are inspired to be the best they can be.
PREPARING FOR THE FULL SEPARATION OF ING BANK AND INSURANCE/IM Finally, Capital Management plays an important role in ensuring the creation of strong stand-alone companies in preparation for the full separation of the Group’s banking and insurance/investment management operations. Until completion of the restructuring process, all operating entities need to remain adequately capitalised according to all prevailing regulatory and rating agency requirements. Another important priority is to reduce interdependencies to a minimum, as the various entities of the Group should be able to independently access capital markets.
FINANCIAL DEVELOPMENTS Retail Banking’s underlying result before tax declined to EUR 2,944 million from EUR 3,601 million in 2010 mainly due to EUR 363 million of impairments on Greek government bonds and EUR 181 million of losses from selective de-risking of exposures at ING Direct. Net production in client balances was EUR 51.1 billion, including a net inflow of EUR 22.5 billion in funds entrusted and EUR 27.3 billion in lending, of which EUR 19.7 billion was in residential mortgages and EUR 7.6 billion in other lending. Assets under management reported a net inflow of EUR 1.3 billion.
ING Netherlands made good progress with its score in the AFM (the Netherlands Authority for the Financial Markets) customer centricity assessment. AFM examined ING’s policy on customer centricity and its execution on 10 criteria. On all criteria, such as transparency of product conditions and prices and complaint handling, ING scored similar to, or higher than, the market’s average and was complemented by AFM for the execution of its integral improvement plan.
BUSINESS DEVELOPMENTS ING Belgium (ING BE), the fourth biggest bank in the country, further improved its already solid position in a turbulent market. The business was able to gain momentum and increased its market share. It serves approximately 2.7 million customers and has 773 branches. In 2011, Retail Belgium (Retail BE) added more than 85,000 customers (net inflow) to its customer base.
In Retail Central Europe and Retail Asia, ING’s banking businesses will position themselves for future growth by fully focusing on customer centricity and excelling in business process management, while leading in innovation and distribution.
Risk costs decreased to EUR 476 million compared with EUR 489 million in 2010. Declines in Structured Finance and General Lending were partly offset by higher risk costs in Real Estate Finance and Leasing. In 2011, risk costs were 35 basis points of average risk-weighted assets up from 33 basis points in 2010.
Volumes gradually increased throughout the first half of 2011 and while margin pressures have increased, our average margin remains far above pre-crisis levels. ING has maintained its position as (co-) market leader in the Benelux market, and selectively increased its franchise within Central and Eastern Europe and other Western European markets.
New life sales (APE) amounted to EUR 4,200 million, an increase of EUR 31 million or 0.7% compared with 2010. Higher sales, mainly in Asia/Pacific, were partly offset by lower sales in the US.
During the year, NN worked on many customer-centric initiatives, including a new remuneration policy for 2012 which links variable remuneration more closely to client satisfaction. Other initiatives included a review of all products in terms of their importance and clarity to the customer, which began in 2011 and will take place every three years, as well as a culture programme for staff which emphasised the core role the customer should play in all business activities.
increased 7.2% compared to 2010, due to successful new product launches and improvements in multi-distribution and the tied agency channel. APE growth in Poland was 9.2%, in Romania 10.0%, in the Czech Republic 17.2%, in Slovakia 17.5%, and in Hungary it was 24.7%, due to a short-term savings-based insurance product. The regional increase was offset by 10.4% lower pension sales compared to 2010, reflecting the regulatory changes for pension funds in Poland and Hungary. Despite this, there was APE growth in pensions in some markets including Bulgaria (+25.1%), Turkey (+34.4%) and Romania (+159.4%).
> Solid business performance > Preparations continue for stand-alone future > Focus remains on customers and distribution partners
Improving and expanding distribution In 2011, IAP continued its efforts to further strengthen its multidistribution platform. In the tied agency channel, the ‘Orange Way of Life’, is being promoted in the region around the theme of ’quality’, which is designed to lift the standard of professionalism. These initiatives focused on the quality of the agents recruited, quality of the training and development given to agents, and the quality of advice and service given to customers.
In addition, ING broadened its reach in China with the opening of a branch in Tianjin, the seventh branch of ING’s Chinese life insurance joint venture (ING-BoB), and the first since the Bank of Beijing replaced Beijing Capital Group as a joint venture partner in 2010.
Strategic priorities IAP’s overarching strategic priority continues to be to strengthen its multi-distribution platform and to drive performance through customer-focused product innovation and country-specific growth strategies. The country-specific strategies are all gaining traction. For example, in South Korea, the tied agency channel improved productivity while new sales in KB Life were driven by rapid expansion of other distribution channels as well as continued strong performance in the bancassurance channel. In Japan, ING is working towards broadening its distribution channels and diversifying its product portfolio, while continuing to strengthen its leading position in the independent agency channel
In 2011, ING Investment Management (ING IM) continued to enhance its investment capabilities. ING IM used its investment expertise and strengths in products and distribution to deliver best-in-class performance and services for its customers.
ING IM ASIA/PACIFIC ING IM Asia/Pacific continued to focus on developing and launching emerging markets focused funds. It launched the first China leverage fund in South Korea and in Japan it launched the new ING Turkey Equity Fund, which along with the existing Indonesia Equity Fund, offer exposure to key non-BRIC emerging markets.
The collaboration with ING’s US retirement businesses enhanced relationships with key pension consultants, plan sponsors and financial intermediaries. The work with the retirement and annuity businesses also resulted in the transition of more than USD 3 billion in assets from outside sub-advisers to ING IM managers. In addition, efforts continued to build and strengthen the Institutional and Intermediary distribution organisations in anticipation of increased activity in 2012.
Shareholders and holders of depositary receipts who hold shares and/or depositary receipts for shares at the record date are entitled to attend the general meeting and to exercise other rights related to the general meeting in question on the basis of their holding at the record date, notwithstanding a subsequent sale or purchase of shares or depositary receipts for shares. The record date is published in the notice for the general meeting. In accordance with US requirements, the depositary sets a record date for the American Depositary Shares (‘ADSs’), which date determines which ADSs are entitled to give voting instructions. This record date can differ from the record date set by ING Group for shareholders and holders of depositary receipts.
JOOST CH.L. KUIPER (Born 1947, Dutch nationality; male; appointed in 2011, term expires in 2015) Former member of the Executive Board of ABN AMRO Bank N.V. Other business activities: chairman of the Supervisory Board of IMC B.V. Member of the Supervisory Board of each of Hespri Holding B.V., AutoBinck Holding N.V. and Nexus Institute. Board member of each of Stichting voor Ooglijders, Prins Bernhard Cultuurfonds and Stichting Democratie en Media. Treasurer of Mondriaan Stichting.
The external auditor may be questioned at the annual general meeting in relation to its audit opinion on the annual accounts. The external auditor will therefore attend and be entitled to address this meeting. The external auditor may only provide audit, audit related, tax and other services to ING Group and its subsidiaries with the permission of the Audit Committee. The Audit Committee generally pre-approves certain types of audit, audit-related, tax and nonaudit services to be provided by the external auditor on an annual basis. Services that have not been pre-approved by the Audit Committee should not be provided by the external auditor unless they are specifically pre-approved by the Audit Committee at the recommendation of local management.
After a maximum period of five years of performing the financial audit of ING Group or ING Verzekeringen N.V. or ING Bank N.V., the lead audit partners of the external audit firm and the audit partners responsible for reviewing the audits, have to be replaced 72 ING Group Annual Report 2011
receipts could use a chance majority of votes to the disadvantage of the shareholders and holders of depositary receipts present nor represented at a general meeting of ING Group.
Pensions Executive Board members Members of the Executive Board, who are employed on the basis of a Dutch employment contract, will participate in the defined contribution pension plans introduced in 2010 as part of the remuneration policy. Individual Board members participating in the pension plan that existed before the introduction of the 2010 plans were given the choice to keep their existing pension arrangement. This existing pension arrangement, approved by the 2006 AGM, is based on a defined contribution plan. Alternatively, they can switch to the 2010 arrangements.
(3) Koos Timmermans stepped down from the Executive Board as per 1 October 2011. The 2011 pension costs for this member reflect the partial year as an Executive Board member.
Compensation of the members of the Supervisory Board amounts in thousands of euros 2011 (1) 2010 (1) 2009 (1) (1) In 2010 and 2009 the remuneration and attendance fees for the membership of a committee have not been paid to the chairman and vice-chairman of the Supervisory Board. Effective 2011 remuneration and attendance fees for the membership of a committee are paid to the chairman and vice-chairman of the Supervisory Board.
Maximum credit risk exposure The maximum credit risk exposure for items on the balance sheet is generally the carrying value for the relevant financial assets. For the off-balance sheet items the maximum credit exposure is the maximum amount that could be required to be paid. Collateral received is not taken into account when determining the maximum credit risk exposure.
IMPAIRMENTS OF LOANS AND ADVANCES TO CUSTOMERS (LOAN LOSS PROVISIONS) ING Group assesses periodically and at each balance sheet date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset, but before the balance sheet date, (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The following circumstances, among others, are considered objective evidence that a financial asset or group of assets is impaired: • The borrower has sought or has been placed in bankruptcy or similar protection and this leads to the avoidance of or delays in repayment of the financial asset; • The borrower has failed in the repayment of principal, interest or fees and the payment failure has remained unsolved for a certain period; • The borrower has demonstrated significant financial difficulty, to the extent that it will have a negative impact on the expected future cash flows of the financial asset; • The credit obligation has been restructured for non-commercial reasons. ING Group has granted concessions, for economic or legal reasons relating to the borrower’s financial difficulty, the effect of which is a reduction in the expected future cash flows of the financial asset; and
Included in Interest income and interest expense on non-trading derivatives is EUR 2,966 million (2010: EUR 3,613 million) and EUR 2,959 million (2010: EUR 3,138 million), respectively, relating to derivatives used in cash flow hedges.
In July 2011, the Dutch ING Pensioners’ Collective Action Foundation (Stichting Collectieve Actie Pensioengerechtigden ING Nederland), together with two trade unions (FNV Bondgenoten and CNV Dienstenbond) and a number of individual pensioners, instituted legal proceedings against ING’s decision not to provide funding for indexing pensions insured with Stichting Pensioenfonds ING (the Dutch ING Pension Fund) per 1 January 2011. In July 2011, also the Interest Group ING General Managers’ Pensions (Belangenvereniging ING-Directiepensioenen), together with a number of individual retired Dutch General Managers of ING, instituted legal proceedings against ING’s decision not to provide funding for indexing Dutch General Managers’ pensions per 1 January 2011. It is not feasible to predict the ultimate outcome of these legal proceedings although legal proceedings instituted by Stichting Pensioenfonds ING on the same issue were ruled in ING’s favour. The ultimate outcome of these proceedings may result in liabilities and provisions for such liabilities which are different from the amounts recognised. At this moment it is not practicable to provide an estimate of the (potential) financial effect of such proceedings.
Under the terms of the transaction as agreed on 26 January 2009, the overall sales proceeds amounted to EUR 22.4 billion at the transaction date. The amortised cost (after prior impairments) at the transaction date was also approximately EUR 22.4 billion. The transaction resulted in a loss in the first quarter of 2009 of EUR 109 million after tax (the difference between the sales proceeds and the amortised cost). The fair value under IFRS-EU at the date of the transaction was EUR 15.2 billion.
In the framework of the transactions with the Dutch State disclosed in this note, certain arrangements with respect to corporate governance and executive remuneration were agreed with the Dutch State which will remain in place as long as the Dutch State owns at least 250 million non-voting equity securities or as long as the Illiquid Assets Back-up Facility is in place (whichever expires last). The arrangements set forth after the second and the fourth bullet hereunder remain valid as long as any of the Government Guaranteed Bonds is outstanding. These arrangements require that: • the Dutch State may recommend two candidates (the ‘State Nominees’) for appointment to the Supervisory Board. Certain decisions of the Supervisory Board require approval of the State Supervisory Board members; • ING Group must develop a sustainable remuneration policy for the Executive Board and Senior Management that is aligned to new international standards and submit this to its General Meeting for adoption. This remuneration policy shall include incentive schemes which are linked to long-term value creation, thereby taking account of risk and restricting the potential for ‘rewards for failure’. This new remuneration policy must, amongst others, include objectives relating to corporate and social responsibility; • members of the Executive Board may not receive any performance-related payment – either in cash, options, shares or bearer depositary receipts – for the years 2008 and 2009 until the adoption of the new remuneration policy in 2010; • severance payments to Executive Board members are limited to a maximum of one year’s fixed salary, in line with the Tabaksblat Code; • ING has undertaken to support the growth of lending to corporates and consumers (including mortgages) for an amount of EUR 25 billion, on market conforming terms; • ING agreed to pro-actively use EUR 10 billion of the Dutch Guarantee Scheme during 2009; • ING has committed itself to maintaining the Dutch payment system PIN on its payment debit cards as long as other market participants, representing a substantial market share, are still making use of this payment system; and • appointment of the Chief Executive Officer of the Executive Board requires approval of the State Nominees.
Financial assets Cash and balances with central banks 31,194 13,072 31,194 13,072 Amounts due from banks 45,269 51,651 45,323 51,828 Financial assets at fair value through profit and loss
– designated as at fair value through profit and loss 5,437 6,016 5,437 6,016 Investments
Fair value hierarchy of pressurised ABS bonds 2011 Level 1 Level 2 Level 3 Total
Corporate Line Insurance The Corporate Line Insurance includes items related to capital management, run-off portfolios and ING Re.
Underlying result before taxation 1,269 –510 759 Taxation 65 –95 –30
Special items –1,267 1,053 –1,759 IFRS-EU (continuing operations) 46,091 48,131 –1,100
Risk Management Function The risk management function is embedded in all levels of ING Bank organisation. The Chief Risk Officer, who is a MBB member, bears primary overall responsibility for the Risk management function. The CRO is responsible for the management and control of risk on a consolidated level to ensure that ING Bank’s risk profile is consistent with its financial resources and the risk appetite. The CRO is also responsible for establishing and maintaining a robust organisational basis for the management of risk throughout the organisation.
At least once a year business units and departments perform an integrated risk assessment with involvement of the business and their Operational Risk, Compliance, Legal and Finance departments.
The CRO delegates day-to-day Risk Management within ING Insurance Eurasia to the Deputy CRO. The Deputy CRO department consists of several risk functions that support the overall Risk Management function.
Mortality –19 –16 –7 –3 1 W ho w e are 2 Report of the Executive Board 3 C orporate governance 4 C onsolidated annual accounts 5 Parent com pany annual accounts 6 O ther inform ation 7 A
MARKET RISK ING Insurance US is exposed to market risk to the extent to which the market value of surpluses can be adversely impacted due to movements in financial markets. Changes in financial market prices impact the market value of ING Insurance US’s current asset portfolio and hedging derivatives directly as well as through the calculated market value of the insurance liabilities.
The table below shows the main risk categories for credit risk within ING Insurance US: Description Key Drivers
Rest of Europe 9.3% 6.8% Rest of Americas 4.4% 4.2% Asia/Pacific 3.0% 3.0% Rest of World 0.2% 0.1%
(1) Implied Volatility, FX and Real Estate sensitivities do not have a material impact. (2) Sensitivities are calculated at business unit level and cover US domiciled insurance entities. (3) Sensitivities shown are calculated relative to management targets that are a multiple of ‘Company Action Level’ RBC, and those shown in the 2010 annual report were based on ‘Company Action Level’ RBC.
(2) Hybrids issued by ING Group at amortised cost value consistent with IFRS carrying value. (3) Hybrids issued by ING Insurance at amortised cost value consistent with IFRS carrying value. (4) Includes net internal borrowings from the operating subsidiaries, net of cash and current tax liability at the holding level and current tax liabilities of the holding companies, mainly ING Verzekeringen N.V. and ING America Insurance Holdings Inc.
For ING Insurance in total, the capital base for financial leverage purposes is fully based on IFRS accounting, whereas the IGD capital is corrected for some regulatory adjustments. The table below provides a reconciliation.
The share price of ING shares has been, and may continue to be, volatile. The share price of our bearer depositary receipts has been volatile in the past, and the share price and trading volume of our bearer depositary receipts may continue to be subject to significant fluctuations due, in part, to changes in our actual or forecast operating results and the inability to fulfil the profit expectations of securities analysts, as well as to the high volatility in the securities markets generally and more particularly in shares of financial institutions. Other factors, besides our financial results, that may impact our share price include, but are not limited to: • market expectations of the performance and capital adequacy of financial institutions in general; • investor perception of the success and impact of our strategies; • investor perception of our positions and risks; • a downgrade or review of our credit ratings; • the implementation and outcome of our Restructuring Plan; • potential litigation or regulatory action involving ING or sectors we have exposure to through our insurance and banking activities; • announcements concerning financial problems or any investigations into the accounting practices of other financial institutions; and • general market circumstances.
AVAILABLE-FOR-SALE FINANCIAL ASSETS Those non-derivative financial assets that are designated as available-for-sale or are not classified as: • loans and receivables; • held-to-maturity investments; or • financial assets at fair value through profit and loss.