— Summary Annual Report, in Dutch, English, French and German; — Annual Report, in Dutch and English; — Annual Report ING in Society, in Dutch and English
(available in June 2003); — Annual Accounts, in Dutch and English; — Annual Report on Form 20-F, in English
Savings ING offers a full range of savings instruments from basic savings deposits to ING Direct’s high return, no-fees internet savings accounts and sophisticated products that combine savings and investments.
Private banking Private banking products and services offered include investment management, portfolio management, pension planning, lending, estate planning and trust services.
P RO D U C T S & S E RV I C E S
Mission, profile, strategy 10 years key figures, inside cover 2 MESSAGE FROM THE CHAIRMAN
5 Structure and composition of the boards 6 Information for shareholders 8 WORKING AT ING HOUSE
57 Events after the balance-sheet date 57 Auditor’s report 58 Summary annual figures 69 Additional information 70 - Embedded value 73 - Capital base 75 - Efficiency ratios 75 - Credit ratings 76 CORPORATE GOVERNANCE
Progress with special skills The operations in the Benelux continued their excellent track record and delivered the greater part of our profit. We also made good progress with our special skills: direct banking, insurance in developing markets and pensions. ING Direct benefited from the shift from investments to savings. Its client base doubled to five million and funds entrusted went up from EUR 24 to EUR 55 billion in 2002. Early in 2003, we were pleased to announce a further reinforcement of our direct banking operations though the acquisition of the German company Entrium, with an additional one million clients.
Our insurance companies and pension funds in developing markets again recorded doubledigit revenue and profit growth. In Russia, we were the first foreign company to launch a private pension fund. Pensions will be one of the spearheads in our commercial strategy in the years ahead.
Strategic alliances We entered strategic alliances in markets with attractive growth prospects. We strengthened our position as the leading insurer in South America by acquiring a 49% stake in Sul América, the second largest insurer in Brazil. ING also reinforced its ranking as the second largest foreign insurer in Asia
India and Korea, we strengthened the strategic alliances with local banks (Vysya Bank, Kookmin). We formed a joint venture with ANZ for funds management and life insurance in Australia and New
M E S S AG E F RO M T H E C H A I R M A N
With an operational net profit of EUR 4,253 million, which matched the good result for 2001, ING held up well in what turned out to be one of the most difficult years in our history.
The rough economic climate, mainly created by political uncertainties, put pressure on revenue growth and made loan losses rise to unprecedented levels. We also had to absorb a substantial depreciation of our investment portfolio, which reduced shareholders’ equity. We responded by taking a number of measures, both short and long term, to reinforce our capital base. Our broad business mix and geographical spread continued to prove their value in this difficult market environment. Revenues grew organically by 5%, operational net profit and profit per share equalled the high levels of 2001. Strict cost control, with organic expenses down by 3%, supported our results.
Although our capital base remained well above the legally required margins, we took a number of measures to reinforce it. They included the issue of EUR 1.1 billion perpetuals, the re-introduction of optional stock/cash dividend, the sale of EUR 650 million worth of ING shares that served to hedge employee stock options and a better allocation of capital.
Focus on core business In the next few years, our focus will be to continue to build our business for the future and further improve what we have. We will focus on our core activities, clients and countries. In other words: what we do well, we will try to do even better. We will sell, discontinue or reorganise businesses that structurally fail to meet our performance requirements or that are sub-scale. And we will exit countries and business lines that offer insufficient growth prospects. Maximising our performance is a pre-requisite for continued profit growth as well as for improving our ratings.
No more automatic increase in capital gains Capital is scarce, so we will invest it where the best return can be made, based on a careful evaluation of risk and reward. We discontinued our policy of automatically increasing the capital gains from equities by 15% each year. The realisation of capital gains from equities (and real estate) will from now on be determined on the basis of actual market developments.
Gaining strength through synergy Synergy remained a major topic in 2002. All the operations in the Netherlands are engaged in an extensive restructuring across the business units, grouping the activities by four divisions: retail, wholesale, intermediaries and operations/IT. We integrated the activities of ING Investment
Management into our three regional Executive Centres to bring our asset management business closer to our distribution channels. Many new shared service centres were established or completed.
Numerous projects are in progress in the field of operations/IT to improve customer service and at the same time lower the cost base.
Respond to the new reality Although the economic and political outlook for 2003 and beyond is full of uncertainties, I am optimistic that ING will successfully respond to the new reality of the current decade. We will work hard to continue our growth in the future. We are strongly positioned in markets and business lines that offer attractive growth prospects, even in times of economic adversity. Furthermore, there are still many opportunities for synergies within ING.
Management Committee of ING Netherlands the primary partner for the Dutch Central Workers
Confidence in our staff In conclusion, a word of thanks is due to our 115,000 employees around the world who have worked hard to pull ING through in 2002. We aim to be a good, modern employer for them with a humanresources policy in which diversity, permanent education and a healthy work/life balance are focal points of attention. With the transformation to a global brand and numerous integration and cooperation projects in progress, we clearly notice a growing pride among our employees that they are part of a successful, worldwide team. My colleagues and I have full confidence in our management and staff. They are dedicated to keep ING on course and ensure a continued, stable development that benefits all stakeholders.
A U D I T C O M M I T T E E
R E M U N E R AT I O N A N D
N O M I N AT I O N C O M M I T T E E
C O R P O R AT E G O V E R N A N C E C O M M I T T E E
Dividend policy ING will propose to the Annual General Meeting of Shareholders in April 2003 to introduce optional cash/stock dividend as from the final dividend 2002. ING intends to fully fund the cash element by selling the bearer depositary receipts that would have been issued if stock was chosen instead of cash. This policy change will enable
Rating agencies The deteriorated economic climate led to more frequent contacts between ING and the credit rating agencies. ING Groep N.V. and ING
Verzekeringen N.V. were downgraded one notch to A+ by Standard & Poor’s, while Moody’s stated at the end of December 2002 that it was in the process of reviewing its ratings, Aa2, for these two legal entities. Both Standard & Poor’s and Moody’s reconfirmed the rating for ING
Warrants B are listed on the Euronext Amsterdam and Brussels Stock Markets. Short-term and long-term options on ING Group depositary receipts for ordinary shares are traded on the
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Financial Officer, in his room in ING House, discussing the financials with the general management of Corporate
D I V I D E N D H I S T O RY
ING Amsterdam AEX-index New York Dow Jones-index 01/01 04/01 07/01 10/01 01/02 01/0304/02 07/02 10/02
S H A R E S A N D W A R R A N T S I N I S S U E
(Depositary receipts for) preference shares of EUR 1.20 nominal value 87.1 87.1
(Depositary receipts for) own ordinary shares held by ING Group and its subsidiaries 28.4 69.1
A U T H O R I S E D A N D I S S U E D C A P I TA L
P R I C E S D E P O S I TA RY R E C E I P T S F O R O R D I N A RY S H A R E S
rented a building for its headquarters. In 1999, the Executive Board invited young Dutch architects to submit a design for ING’s own head office. The demands were high. The building had to be stylish, elegant, moderate and innovative, fitting with its surroundings in the southern part of Amsterdam and with respect for the environment. It also needed to be an enjoyable place to work and flexible so that it can be adjusted to future developments in working methods. But above all the new head office needed to radiate what ING stands for as a financial services provider: innovation and transparency, dynamism and sustainability.
Schooten stood out immediately. The basic principles of ING are well reflected by the streamlined shape, the steel frame, the space, the light and the transparent construction in the form of glass walls and atriums, which allow one to look through the building, both from the inside and the outside. With its aerodynamic shape ING House looks more like a space ship than an office building. It has already been named the first building of the 21st century.
Home base for corporate staff The new head office exudes quality with the five theme gardens, the interior decoration and the materials that have been used. Air, light and space are the central themes. They make the building an attractive place to work in.
Alexander, the Dutch crown prince, performed the official opening ceremony on 16 September 2002.
ING House is in line with ING’s tradition as a property developer of landmark buildings. It is the perfect home base for the Executive Board and the approximately 400 staff members of the
ING House rests on sixteen steel legs. They stand freely on pins in large blocs of steel in the ground, a technique used in the construction of bridges.
ING is one of the leading financial institutions in Europe, delivering banking, insurance and asset management services to retail, corporate and institutional clients
In Central Europe ING is moving from regional leadership in life insurance and pensions to top-three bancassurance in each of the major countries.
Europe, is a European wholesale institution with a presence in the world’s major financial centres and emerging markets.
                   David Pollard and Felix Potvliege
(left), ING Europe Wholesale strategist. “This dynamism should be a catalyst to improve communications between units and levels throughout ING.”
ING Americas is a leading integrated financial services provider in selected countries in the Americas. Today, it serves 29 million customers throughout the region, using a broad sales platform consisting of approximately 250,000 points of distribution.
ING Americas is working to build a strong brand that is recognised as a hallmark of superior value and service.
business lines such as retirement savings, annuities and life reinsurance. With four million clients in Canada, ING
ING is the largest insurer in the region with well over 17 million customers. The largest businesses are in Mexico,
                    Bob Crispin and Sue Collins
“Everyone who sees this incredible building surely knows that ING is out in front of our competition.”
ING House has several inner gardens, varying from fullgrown pines to bamboo trees.
After a period of maternity leave, Bo Yang works fulltime as business analyst.
Sinologist by training, used to share an office with one or two other people.
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Asset management is ING’s third core activity alongside insurance and banking. Assets under management at ING
Strengthening the links between ING’s investment professionals and its distribution channels, this organisation change enables
ING to respond to regional and local market opportunities even better and faster than before. In addition, a Global
Not only the entrance hall and the façade, but also several elevators, ceilings, stairs and floors are made of glass, to accentuate the transparency of ING House.
             Eric Rivard and Jan Boogerd
“This building underlines what I have come to appreciate very much in my 31 years with ING: its openminded and innovative spirit”, says Jan Boogerd
Board. In January, the Medium Term Plan 20022004 was discussed. The main issues were the economic developments in the most important economic regions in the world and their consequences for ING. During the meetings in
February, May, August and November, the 2001 annual results and the quarterly and half-year results were discussed, respectively. In October and November, the Supervisory Board spoke about the developments in corporate governance and the choices that ING wanted to make. The Supervisory Board approved the proposals by the Executive Board. Some of these proposals will be submitted for the approval of the Annual General Meeting of Shareholders on
Other subjects the Supervisory Board and the Executive Board discussed in 2002 were management development, the remuneration of the Executive Board and the remuneration structure, the accounting and internal-control procedures, a number of smaller acquisitions and the profitability of individual business units.
Management Committee Netherlands and delegations of the Executive Board and the
R E P O RT O F T H E S U P E RV I S O RY B OA R D
Supervisory Board and the Executive Board had a number of intense discussions about the consequences of the worldwide economic malaise after the already difficult year 2001. The Supervisory Board is very appreciative of the fact that ING has succeeded in keeping the results for 2002 at an adequate level. At the same time, the Supervisory Board realises that the new economic reality poses big challenges.
Audit Committee meetings The Audit Committee met five times in 2002. In
accounting principles and the American accounting principles (US GAAP). The developments in regulations regarding risk management were also discussed.
Netherlands and Nationale-Nederlanden informed the Audit Committee about the back-office developments at their business units. In February and August respectively, the 2001 annual results and the results for the first six months of 2002 were discussed, as well as the reports of the internal auditor about the quality of the accounting and reporting procedures. The main issues of the meetings in October and November were the measures that needed to be taken to strengthen the capital base, which had deteriorated as a result of the malaise on the share markets.
Guaranteeing the independence of the external auditor and the relevant regulations were also items on the agenda.
Two committee members talked to all individual members of the Executive Board about its functioning after which an evaluation took place with the entire Executive Board and subsequently with the Supervisory Board. These evaluations take place annually with the intention to optimise the functioning of the
Regarding the structure of ING, it was decided to establish two Dutch holdings, one for the banking operations and one for the insurance operations. Both will have an Executive Board
Decisions taken on modernisation of corporate governance, resulting in proposals to Shareholders’
Board. It was also decided to give holders of depositary receipts the same rights as shareholders and to lift all voting-right restrictions.
Corporate Governance Committee. Its duties include monitoring international developments in the field of corporate governance and advising the Supervisory Board about the implementation of these developments within
In 2002, the Supervisory Board consisted of twelve members. In April, the Supervisory Board bade farewell to Jan Berghuis and Jan Kamminga, as was already announced in the previous annual report together with the appointment of
Wim Kok has been proposed for appointment because of his expertise and vision regarding global economic, social and political issues which he gained while serving as Minister of
Finance and Prime Minister of the Netherlands and in several previous positions. The Central
Board, will step down as of 1 July 2003 having reached the retirement age of 60. In 1983, he joined NMB Bank, the present ING Bank, where he was successively responsible for the domestic and international wholesale business. In 1995, he became a member of the Executive Board of
British investment bank Barings. In the following two years, Hessel Lindenbergh assumed the heavy responsibility of integrating these activities into the ING organisation. In 1998, he became vice-chairman of ING
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Because of her great expertise, strong involvement with ING and her thorough preparation of the meetings, Lutgart van den
Berghe has played a very active role as member of the Supervisory Board. Her critical questions were always accompanied by the expression of her vision on future developments, especially in the international insurance field and in the area of global developments regarding corporate governance. ING has benefited thoroughly from her drive and commitment.
Ververs was appointed member of the Supervisory Board of Nationale-Nederlanden in 1991.
His experience as CEO of Wolters-Kluwer always revealed itself in the wisdom he displayed when inspiring and supporting the Executive Board in its strategy and policy-making and also by being critical whenever necessary.
As per 1 July 2003, Hessel Lindenbergh will retire as member of the Executive Board.
Shareholders can take up their final dividend either in shares or in cash.
divestments and exchange rate fluctuations) was 4.7%. Insurance income rose 3.6% to EUR 65.3 billion (organically +5.7%). Life premiums increased organically by 4.6% to EUR 44.4 billion. Premium income from non-life insurance advanced by 34.1% to EUR 7.9 billion, mainly due to the acquisition of ING Comercial América in Mexico. The organic increase was 19.0%. Total income from banking increased 0.8% to
EUR 11.2 billion. A healthy rise in the interest result just outstripped a strong decrease in other income.
(organically -3.3%) as a result of restructuring, integration and tight cost control. The total number of staff rose by 2,700 to 115,800 full-time equivalents due to several consolidations such as ING Vysya Bank in India, DiBa in Germany and
Operating expenses in insurance decreased organically by 8.8% with the US operations achieving a 17.5% reduction. The difference between the premium growth and the expense growth was +16.1%-points (excluding GICs and the impact of the joint venture with ANZ in
Profit development At EUR 4,253 million, total operational net profit in 2002 equalled 2001’s high result of EUR
Operational net profit from insurance was 19.5% higher at EUR 3,358 million. Results in the
– i.e. before investment losses – increased by 27.8% to EUR 4,726 million. Gross investment losses on fixed income securities of the insurance operations were EUR 630 million – equalling 48 basis points of the total fixed-income investment portfolio – against EUR 376 million a year ago.
Operational net profit of the banking operations decreased by 37.9% to EUR 895 million. The decrease was caused by sharply higher risk costs. The gross result before taxation from banking – i.e. before risk costs –
Direct – were slightly higher. Risk costs were strongly higher throughout the year but especially in the fourth quarter. In the fourth quarter a provision was created regarding a potential loss on National Century Financial
Enterprises in the US. Total loan loss provisioning in 2002 was EUR 1,435 million, equal to 59 basis points of average credit-risk weighted assets compared to EUR 750 million (33 basis points) a year ago.
Starting in 2003, ING will realise capital gains on equities depending on market opportunities, thereby ending its policy of increasing these gains at a fixed and predetermined pace.
Dollar hedge The euro value of the results of ING’s life insurance operations in the US and Canada was protected from depreciation of the US and
EUR 55 million to operational net profit (2001: EUR 14 million).
Dividend For 2002, a total dividend is proposed of EUR 0.97 per (depositary receipt for an) ordinary share, which is equal to the 2001 dividend. Taking into account the interim dividend of EUR 0.48 made payable in September 2002, the final dividend will amount to EUR 0.49 per (depositary receipt for an) ordinary share. The payout ratio as a percentage of distributable net profit is 44.1%
Meeting of Shareholders on 15 April 2003 to approve the introduction of optional stock/cash dividend as from the final dividend 2002. ING
The decrease mainly reflects higher risk costs in banking and the impact of the restructuring provision with respect to international wholesale banking. Lower operating expenses and a higher interest result mitigated the decrease.
Both Postbank and ING Direct delivered excellent results as they capitalised on the strong growth in demand for savings products. The
German banking operations showed disappointing results. The result from insurance operations of ING Europe increased by 7.1%, among others due to the profit on the surrender of a large group life insurance contract.
ING Americas ING Americas’ pre-tax operational result increased by 20.0% to EUR 1,079 million. Mexico and Canada both reported higher profits. The results in the US improved due to lower operating and interest expenses and the release of contingent provisions associated with prior acquisitions. Higher investment losses and higher write-off of deferred acquisition costs in the US
The comparable result in 2001 was negatively impacted by the WTC losses.
to EUR 175 million. The functional operational result before taxation from all of ING’s asset management activities decreased by 51% to
Total assets under management declined 12.5% to EUR 449 billion. The net new inflow amounted to EUR 7.3 billion. Falling stock markets had a negative impact of EUR 36.7 billion. Lower exchange rates impacted assets under management by EUR 39.1 billion. In USD
Verzekeringen N.V. amounted to EUR 14.7 billion, well in excess (169%) of the legally required level of EUR 8.7 billion. The tier-1 ratio and the BIS ratio of ING Bank N.V. ended the year at 7.31% and 10.98% respectively, both well above the regulatory required levels. Both banking ratios improved considerably due to the issue of USD 600 million additional tier-1 securities and a EUR 3.7 billion securitisation programme. Total risk-weighted assets decreased sharply from EUR 257.5 billion at the end of
2. Optimise the existing portfolio Focus and execution are the key words in the plans to respond to the new economic environment. ING will focus more in terms of activities it wishes to expand or scale down and in terms of markets it wants to be in or withdraw from. No large acquisitions will be made in the near future. In markets where reinforcement of the distribution capacity is an immediate priority,
Focus on stable long-term development of the Group for the benefit of all stakeholders
Measures taken to reinforce capital base and to reduce dependency on stock markets
India and China, ING has started insurance operations in co-operation with local partners.
The same is true for the insurance operations in developing markets, which are contributing approximately 20% of the total insurance result. In the past few years, the total revenue and the result of these businesses have shown double-digit growth. Most of the embedded value from new insurance business is generated by these operations.
The pension funds in a number of developing economies are also rapidly increasing their client base and assets under management.
As a pension specialist, ING currently offers pension products in 30 countries around the globe and assists many governments struggling with the necessary reform of their pension systems.
5. Further lower the cost base In 2002, ING made much progress with lowering its cost base. The strict cost discipline will be maintained in the years ahead. Substantial future cost savings are expected from the rationalisation of the operations/IT activities. ING will continue to invest approximately EUR 1.1 billion in the shared service centres until 2005, while the total cost savings of integrating these back-office activities will amount to about EUR 2.7 billion.
Outlook As from 2003, ING has ended its policy of realising fixed and predetermined amounts of capital gains. In view of this and the current economic and political uncertainties, the
Strategy and market positions ING Europe focuses on boosting growth from the existing businesses by cross-selling and other forms of synergy, cutting costs and improving quality and by forging strategic partnerships.
In wholesale financial services, ING is positioned as a European institution with a presence in the world’s major financial centres of developed and emerging markets. It currently enjoys a strong position in the mid-corporate market in the Benelux countries. ING’s wholesale strategy is threefold. First, it will maintain its predominantly European focus. Secondly, it is targeting only a select group of international clients. Thirdly, it is focusing on a selected range of wholesale products. Core products are financial markets, merger and acquisition advisory, structured finance and payments and cash management. Employee benefits/pensions and asset management, also core strengths of
Benelux. International Corporate Financial Services, however, had to cope with high loan loss provisions. Additional restructuring measures were announced in order to restore profitability of international wholesale banking. Throughout
This flexibility enabled ING Europe to profit from the shift in demand to low-risk products.
Netherlands increased income and lowered distribution and IT costs. The tied agency company
Committee Europe in one of the meeting rooms on the top floor of ING House, overlooking Amsterdam.
Custody alliance with Bank of New York products through agent sales forces while it follows a full-fledged bancassurance strategy in Poland, Romania and Greece. The strategy is to convert those positions into a bancassurance leadership position in the most prominent
ING Wholesale Over the last few years, ING Wholesale has seen a consistently rising level of profitability but the adverse market circumstances in 2002 have brought an end to this upward trend. ING
Markets as well as in the wholesale markets of the Benelux. The structured finance business also had a very successful year. ING’s distinctly creative client proposition to the mid-corporate market continued to be very profitable.
Employee Benefits/Pensions retained its leading position in the Netherlands and improved its position across Europe, including Central Europe.
Services achieved an important strategic milestone by reaching a top-five position in Europe.
ING, BBL and BHF into one global network was completed. ING’s position as a top-tier wholesale bank in Central Europe was further strengthened.
In 2002, Financial Markets outperformed its 2001 result. The treasury and strategic trading businesses had a particularly good year.
Despite these achievements the adverse market circumstances had a severe impact on
ING Wholesale. The positive factors were insufficient to compensate for the effect of sharply higher risk costs in Corporate Financial
Wholesale International Amsterdam in order to achieve cost efficiencies and to focus on a defined client base within the relationship and product management areas in Amsterdam. It will provide increasingly centralised IT and settlement services for other wholesale entities.
Europe will ultimately have a series of service centres with attractive scale and capable of delivering high-speed and high-quality backoffice services to the business units.
EUR 90 billion in assets. ING Bank will provide sub-custody services to Bank of New York in the
Netherlands, Belgium (already in force), Germany and Central Europe. Another promising development is the closing of partnership agreements with leading software companies in India. The agreements cover the fields of IT application maintenance and software development.
During 2002, the Dutch business was engaged in an extensive restructuring whereby all activities are being re-grouped into four divisions: Retail,
This new structure is aimed at increasing crossselling, strengthening client focus, intensifying co-operation between business units and improving quality. In 2002, several important steps were taken in the restructuring process.
The new organisation will be fully operational in the course of 2003. Within Retail, client segmentation was further fine-tuned. ING Bank is now fully focused on affluent clients,
            
Countering low growth with expense reduction and quality improvement market with personal advice. CenE Bankiers and
The Intermediaries division also earned special attention during the year. The independent intermediaries constitute a crucial distribution channel in the Netherlands.
Nationale-Nederlanden is currently making substantial investments in order to enhance its service to the intermediaries it co-operates with.
The measures will eliminate backlogs and improve the quality of both front-office and back-office services.
In the field of operations/IT, several projects were initiated in order to develop common solutions for Europe-wide use at ING.
Other IT projects also succeeded in creating more synergy between business units. For example, the automated branches of BBL are now also accessible to clients of other ING business units in Belgium, and all BBL trades on Euronext Paris are now channelled through the brokerage ING
Central Europe Central Europe reported a strong growth in profits. Income exceeded EUR 2 billion and pretax profit amounted to more than EUR 200 million. ING now has six million clients in the region and confirmed its positions as the number one life insurer and number one pension fund provider. The ING Nationale-Nederlanden
ING pension fund. The fund ended the year with more than 1.8 million clients. With average monthly inflow into the fund of about EUR 45 million, assets under management have increased by almost 50% to EUR 1.75 billion. ING Bank
Central Europe met with considerable success across the region. A case in point is the employee benefits contract signed with the Czech Railways
Company, the largest private sector employer in the country. At year-end 2002, the contract already covered 50,000 of the company’s over 70,000 employees.
Effectively meeting these and other challenges will ensure a profitable future for the combined businesses of ING Europe.
ING well-placed to profit from savings boom, pension reform and EU
Challenges are to improve the profitability of wholesale banking and take advantage of the strength of ING
These goals were met to a large extent. The results of Canada,
Latin America (including Mexico) and the institutional businesses in the US were better than expected. However, the large US retail and worksite business was hampered by the continued adverse economic conditions and equity markets, and as a result ING Americas as a whole fell short of expectations. Costs in the US were significantly reduced, but not enough to offset the impact of the high asset impairments, lower fees earned on reduced assets under management, and deferred-acquisition-costs unlocking. In Mexico, major organisational changes resulted in sizeable cost savings, higher earnings and a more efficient business organisation. In Brazil, the Group took a major step forward by expanding its relationship with the insurer Sul América.
Strategy ING Americas’ goal is to become the leading integrated financial services provider in its key markets. To achieve that, ING is working to build strong earnings engines in each of its selected countries. ING Americas operates in seven primary countries, has 29 million customers throughout the region, and enjoys a broad sales platform consisting of approximately 250,000 points of distribution. Specific strategic imperatives are to convert ING’s current size into scale, increase the number of relationships with its customers and distributors, and improve efficiency.
Americas and making use of ING’s global investment management skills and expertise. The fifth key sub-strategy is building a common ING
ING Americas is working to build a single corporate culture that attracts and retains staff and is aligned with business objectives.
Market positions In the United States, ING serves 6.6 million customers through two core operating units: US
consists of the individual life, annuity and mutual funds businesses as well as the various worksite businesses (defined-contribution and pensions, group insurance and payout management business). USIB consists of individual and group reinsurance businesses, guaranteed investment contracts and other funding agreements.
ING distributes its financial products through a nation-wide network of various distribution channels that work with individuals, employers and institutions. ING owns the second-largest independent broker/dealer network in the US
US business lines. In the 403(b), 401(k) and 457 markets for retirement savings, ING is a top-five player in terms of assets under management.
EUR 2,094 million and a combined ratio of 97.7%. ING has relationships with 2,800 brokers and 4.4 million clients. The integration of the acquired Zurich Financial Services personal and small commercial lines into ING Canada has resulted in strong customer retention.
ING is number one in health and number six in life insurance through its 49% stake in Sul
América. In Peru, ING is the leading pension fund provider. In Argentina, ING Insurance is the number two individual life insurer.
Asia/Pacific. ING Americas now includes all three pillars of ING’s integrated financial services business strategy: banking, insurance and asset management. The new structure will intensify the co-operation between ING’s asset management units and the retail distribution channels in the Americas. ING Americas’ distribution channels are now well-positioned to capitalise on the manufacturing expertise of IIM, while maintaining worldwide expertise in other areas of asset management. For a discussion of IIM
Position strengthened in Brazil As part of its strategy to build its presence in markets with good long-term growth prospects,
now owns 49% of Sul América and is working to establish a wealth management platform, leveraging Sul América’s local presence and
Reinsurance During the year, the reinsurance operations eliminated lines of business with unacceptable risk levels, including workers’ compensation catastrophe exposure. In the remaining reinsurance lines, standards were established for improved identification and quantification of risk. The London and Copenhagen reinsurance offices were closed. The reinsurance business was profitable in 2002. Management has been active in improving the profitability of new business and this will be an ongoing focus.
ING also developed a fee-based advice service called Financial Horizons Advisory
US, a pilot has started whereby ING Direct is selling the US mutual funds. ING Direct’s core savings account is also being sold by some of
Outlook Looking ahead to 2003, ING Americas’ business will continue to be challenged by external factors. These include market volatility in the US
America. Performance in the coming year will be largely dependent on how well the equity and credit markets improve. Performance will also be determined by how well ING Americas balances its product mix and reduces its cost base. The retail and worksite business portfolio in the US is highly dependent on the ups and downs of the Standard & Poor’s index with about half of the customers’ separate account assets invested in equities. In 2003, efforts continue to be made to introduce greater diversity in the product mix in order to reduce the volatility of the portfolio.
As part of this effort, aggressive portfolio management will continue in order to properly address underperforming or non-core businesses.
Other priorities include completing the final projects in the integration of Aetna and
Asia/Pacific is a highly heterogeneous region in terms of market development. It is necessary to distinguish between mature markets such as Australia and Japan, semi-mature markets like Korea and Taiwan, and emerging markets like India and China. ING has set its strategic priorities with due consideration of each market’s maturity and business environment.
Market positions ING is a prominent international financial services provider in Asia/Pacific with six million retail clients. The portfolio comprises large businesses across six mature and semi-mature markets. It also includes four greenfields (China, India, Indonesia,
Australia, formerly known as Mercantile Mutual, enjoys a 10% market share in retail life insurance and 8% in retail wealth management business.
60,000 points of distribution and 6 million retail customers in Asia/Pacific region
To be a top player in the key markets of Australia, Hong Kong, Japan, Korea, Malaysia and Taiwan, while further developing the major greenfields in China and India.
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The year 2002 also saw the establishment of several regional shared service centres to improve synergy and lower the cost base.
In China, ING is positioned with two 50/50 joint venture operations in life insurance: Pacific
In his room on the ninth floor of ING House, Executive
Board member Fred Hubbell has bi-weekly meetings with the Asia/Pacific staff. Left of
India: Stake in Vysya Bank extended; life insurance joint venture did well
The year 2002 was marked by continued declines in global equity markets, but the aggregate financial result of Asia/Pacific showed a robustness against this market volatility. The main reason is that ING’s Asian insurance business is more traditional in nature and less susceptible to short-term movements in equity markets.
Portfolio management During the year, ING continued with portfolio management in order to reduce volatility and stem greenfield losses. In the Philippines, the life insurance activities were sold, and the medical business was managed out. In Indonesia, ING
initiative (web-based customer relationship management). ING Antai’s website was selected as Asia’s ‘insurance website of the year’ by the leading industry magazine Asia Insurance Review.
Kookmin Bank. ING and Kookmin will together engage in bancassurance and asset management activities. The bancassurance business, expected to be deregulated in 2003, will be conducted by setting up an independent bancassurance division within ING Life Korea.
Japan – Broadening niche position In Japan, ING enjoyed strong sales in single premium variable annuities thanks to distribution through the largest Japanese securities house,
Nomura. The local management is now actively broadening distribution through other securities houses and banks.
On the other hand, ING/Principal Pensions had to cope with disappointing sales in 2002 as the market for defined-contribution pensions has developed more slowly than anticipated.
Excellent starting point in China ING’s activities in China continue to grow. ING
It opened for business in December 2002 in the province of Dalian. ING Capital Life has begun by offering traditional life products – ING’s typical approach when setting up new retail
ING Asia/Pacific businesses in emerging markets. It expects to build a tied agency force of 1,000 by 2003. The joint venture makes ING the first foreign life insurance company in Dalian.
Key priorities in 2003: Improve operational efficiency, optimise existing channels and develop new ones, increase sales productivity
ING’s chosen business lines in the field of asset management are: institutional asset management, mutual funds, real estate, alternative assets and fund administration and trust services.
Investment performance As is normally the case in a highly volatile and depressed market environment, ING’s investment performance remained under pressure.
Still, in terms of long-term performance ING did relatively well compared to benchmarks and peers, benefiting from its broad diversity, both geographically and product-wise. More than 50% of assets of ING’s funds outperformed their relevant benchmark, and in comparison with peers more than 60% of ING’s fund assets showed an above-average performance.
EUR 449 million, mainly due to falling stock markets and weakening exchange rates
One of the sectors seriously affected by 2002’s difficult market environment was the asset management industry. Lower equity prices translated into lower fee income. In addition, investors switched from equities into lower-margin fixedincome products. Under these difficult circumstances, ING’s asset management business generated a pre-tax profit of
EUR 175 million – just 5% below last year. ING’s assets under management declined by 13% from EUR 513 billion to EUR 449 billion. The strong inflow of new funds (EUR 7 billion) did not offset losses from falling stock markets (EUR 37 billion) and weakening exchange rates against the euro (EUR 39 billion).
Management as a separate profit reporting unit as of 1 January 2003. A global asset management platform at Group level has been established to co-ordinate ING’s asset management strategy and operations. In addition, a Global ING Investment Management Board has been set up to preserve the efficiency of a global manufacturing platform and to ensure global consistency of the investment strategies adopted in each region.
ING Asset Management continues to pursue synergies and cost reductions across its business units by integrating or outsourcing back-office processes and by gradually reducing overlaps in product offerings in cases where there is no direct added value. For example, ING Investment
Management appointed Bank of New York as its global custodian, thereby achieving better service at lower cost.
Management continues to strengthen its risk management infrastructure and investment management processes. In 2002, ING Investment
Management became one of the first asset managers in the Benelux to comply with GIPS
and Baring Asset Management (EUR 31 billion in assets under management as at end of 2002)
                  
Alexander Rinnooy Kan was responsible for the realisation of ING’s new headquarters. ING House was designed by Meyer and Van
ING House are also connected by stairs between the outer and inner glass façade.
(enhanced) core portfolio that tracks the index, investors now increasingly allocate more specialist mandates to create outperformance.
ING Investment Management performed very well and won a number of prestigious new mandates. Using its expertise in derivatives, ING
ING Investment Management also provides asset management services to ING Insurance.
Asset Management also has a small but successful mutual fund business, managing EUR 5 billion.
ING Investment Management has responded to these challenges by interacting more closely with the distribution channels and by investing in its manufacturing platform, both to reduce recurring costs and to improve investment performance and client servicing. ING Investment Management signed a global licence with
Morningstar to use its ratings in order to enhance transparency with respect to investment performance reporting.
China Merchants Securities, was the first international joint venture to receive an operational license. As mutual funds are a relatively new concept in China, the company will start with simple and easy-to-understand funds investing in mainland bond and equity markets.
The real estate market was characterised by a general softening of demand, especially in the office sector, leading to higher vacancy rates and, in certain cases, lower rents. Despite the softening of the market, investors continued to allocate money to real estate as the asset class easily outperformed equities and credit throughout the year. Although in certain sectors and regions signs of a bubble are appearing, the asset class is expected to perform well due to the attractive borrowing environment and limited speculative building. Nevertheless, ING Real
Estate has positioned itself for more difficult market conditions by optimising the portfolios with respect to quality of properties, tenant credit quality and lease expiry schedules.
Industrial Trust in the US to strengthen its capabilities in managing industrial properties in this region. In Spain, full control of Promodeico,
New funds were launched, for example the successful ING Logistics Property Fund Europe and the ING Retail Property Fund Australia. ING
Dutch wholesale market for real estate financing with a loan portfolio of EUR 11 billion.
ING’s fund administration business. For this business economies of scale also apply, resulting in a further consolidation of the industry. From offices in London, Guernsey,
In the short term the business remains vulnerable to adverse market price developments, but longer term it is expected that the asset management industry will continue to expand rapidly at profitable margins. ING Asset
Financial Services Group now has EUR 62 billion assets under administration
The distribution strategy of ING Direct focuses on two major distribution channels, the call centre and the internet. The call centre is the pulse of the business for ING Direct. The internet and the Intelligent Voice Response (IVR) are two other main channels and they process an increasing number of transactions. On average, 40% of the new accounts are activated via the internet and more than 60% of the incoming contacts with existing clients are fully automated
ING Direct reached a break-even result in the third quarter of 2002, one year earlier than expected. In the course of 2002, five of the seven business units (Canada, Australia, Spain, the USA
The mature business units Canada and Australia already exceeded ING Group’s RAROC hurdle rate of 18.5%.
To be the world’s leading direct distributor of simple, value-added retail financial products through a standardised, high-volume and low-cost operation.
2002 unfolded as an exceptional year. Due to the ongoing momentum and heavy usage of the internet and the shift to favourable savings market conditions, 2.5 million new clients joined ING Direct to bring the total to more than five million clients. The total of funds entrusted increased by EUR 31 billion to EUR 55 billion. Brand awareness developed strongly in all countries and acquisition costs declined to an average of below EUR 100 per new account in 2002. In total, ING Direct reached profitability in the fourth quarter of 2002, a year earlier than expected. ING Direct is a low-cost, high-value financial services provider active in seven large countries
5 million clients and EUR 55 billion funds entrusted at year-end 2002
40% of new accounts via internet; 60% of customer service handled via internet/voice response
Mortgage Corporation (a mortgage broker) and started advertising in the Quebec market with a bi-lingual call centre in Ottawa.
ING Direct acquired an additional 21% stake in DiBa (Germany), increasing its participation to
DiBa bought the Degussa Bank (an employee benefits and mortgage bank in Germany), with 60,000 clients and EUR 2.4 billion in retail balances.
ING Direct USA extended its market footprint north from New York to include Boston. In
to 60 basis points and this decreasing trend is expected to continue. This represents a real sustainable competitive advantage to existing branch banks that have normally a ratio of approximately 250 basis points.
The savings deposits are invested in the following broad, fixed-income, investment categories: retail mortgaged and mortgage-backed securities (54%), government and governmentrelated bonds (19%), internal deposits within
Outlook ING Direct will focus on growing all the business units to the necessary scale in savings and bringing all the business units in profit mode.
R A P I D G R O W T H O F I N G D I R E C T
Clients ING also took steps to improve its dialogue with and service to clients. Postbank opened new service points in rural areas in response to growing dissatisfaction with the dwindling presence of bank branches in the countryside.
The so-called ‘financiële bijsluiter’, a mandatory information sheet for certain financial products, was introduced in 2002 in response to new legislation in the Netherlands aimed at making retail financial products and services more transparent and easier to understand. The ING
global sustainable equity funds once again outperformed their benchmark, the MSCI World.
The funds benefited from a relatively defensive portfolio. ING also advises private and
          
ING in Society institutional clients on socially responsible and sustainable investment options.
Shareholders During the year, ING laid the groundwork for a major overhaul of its corporate governance structure. The changes, made public in early 2003 (see page 76), are designed to enhance transparency and give shareholders more power, while also safeguarding the long-term interests of the Group. ING’s environmental, social and ethical performance achieved good ratings during the year by asset managers of various sustainable funds. The Dow Jones and the FTSE
RSI and absenteeism in the financial sector. The covenant demonstrates that ING takes these issues seriously and underscores the Group’s commitment to actively combat these conditions. Another highlight was the covenant signed by the Executive Board and the European
Workers Council. The covenant articulates common guidelines for social policy and labour management in the 14 European countries where ING operates.
Group made donations to various institutions in Amsterdam, including the Artis Zoo, the VU
Sustainability In 2002, ING’s traditional Christmas package for all its employees in the Netherlands consisted exclusively of sustainable and environmentallyfriendly products. And as another sign of ING’s commitment to sustainable business practices,
Havelaar brand stands for fair trade and decent wages for small-scale coffee growers in developing countries.
Johannesburg in September 2002, ING, together with other peers in the World Business Council for Sustainable Development (WBCSD), launched a CEO statement comprising four specific CSR
Human rights During 2002, ING continued to refine its business principles, which form the starting point for all behaviour and business relationships at ING. A
project was started to investigate the possibility of adding two new business principles on human rights and sustainability. A business principle on human rights is deemed necessary in order to provide more guidance on some of the human rights dilemmas ING faces in doing business around the world. ING is preparing an internal survey among its international management on various human-rights issues.
ING also regularly holds bilateral discussions with leading international human-rights organisations and specialists. In formulating the new human rights business principle – expected to be finalised in 2003 – this feedback will be taken into account.
ING will continue in 2003 to harmonise global reporting on non-financial issues in order to present a more unified view on sustainability issues within the company. The ING in Society
A natural stream of air along the façade will provide cooling. Additionally, cool water from a reservoir 120 metres below the building is led to the climate ceilings of ING House by means of a water pump.
IT systems. In 2002, an international programme team was established to support this process and to explore all opportunities for synergy and cooperation within the Group. It is felt that HR is of strategic importance throughout ING, in particular in adverse economic times.
The overall goals are to integrate people, new processes and systems to create an efficient, service-oriented organisation that supports
ING’s future strategic business goals. These goals have been formulated with a view to lower costs and to ensure faster, client-oriented, flexible service and high-quality information.
This resulted in the introduction of selfservice e-tools on the intranet which are already in use in Belgium and the Netherlands. These tools enable employees and managers to easily access information such as company HR policies.
The change is a consequence of the modernisation of ING’s corporate governance.
Human Resources site currently attracts some 1,000 visitors per day. It is an integrated part of ing.com and a first step of a Recruitment Employer Branding plan.
Group site and individual country pages. The global site consists of several employer-related topics, such as training and development. Specific
ING themes that are highlighted are the Group’s commitment to diversity and the importance of a sound balance between professional career and private life.
Talent management The key priorities with respect to talent management include expanding the Group’s management recruitment search capabilities, improving management training programmes and enhancing the effectiveness of career development. In 2003, the talent management tool ING Talent Track (Phase II) will be launched.
‘ING Leadership Expedition’ for senior leaders and a new programme called ING Interactive
Performance and reward ING will take the development of performancerelated pay several steps further. Performance measurement will be improved by installing a system of ING Group metrics. In addition, guidance and education of the regions with respect to performance management will be intensified. Furthermore, the ING Employee
Equity programme will be completely redesigned. Finally, ING leadership across the globe will continue to share some common objectives.
Diversity In 2001, ING announced that diversity would become a natural part of its medium term plans.
employees from around the world has delivered a detailed measurable plan to increase the diversity level of workforce and management.
Regional diversity councils are now being established and will be instrumental in reaching the Group’s objectives in the coming years. The diversity councils in the US are already active, the Asian council is starting up and soon one will begin work in Europe. The primary accountability for achieving these diversity objectives lies with our leadership.
Workers Council, it was decided to link employee participation more strongly to the
Dutch operations. As work regulations, labour laws and compensation philosophies differ widely around the world, employee participation will generally take place on a regional or country basis.
In the United States, for example, it is felt that employees are best served by ongoing direct communication with their management/leadership. An ombudsman programme has been instituted within the ING
Asia, where ING continues to try to get input from employees on what they feel most strongly about.
Credit Risk ING’s policy is to maintain an internationally diversified loan and bond portfolio, while avoiding large risk concentrations. The emphasis is on managing business developments within the regions by means of top-down concentration limits for countries, individual borrowers and industry sectors. The aim is expanding relationship banking activities, while maintaining stringent internal risk/return guidelines. For the investment portfolios backing the insurance liabilities, ING’s policy is to maintain a fixed-income investment portfolio with a diversified credit portfolio within acceptable internally and externally driven parameters.
Credit analysis is risk/reward-oriented whereby the level of credit analysis is determined by the risk amount, tenor, structure (e.g. covers received) of the facility, and the risks entered into. Analysts make use of publicly available information in combination with in-house analysis based on information provided by the customer, peer group comparisons, industry comparisons and other quantitative tools.
Credit risks are managed by limits for countries, individual borrowers and industry sectors
Internal banking risk rating models were converted from a ten-risk class scale to a twenty-two risk class scale
A D D I T I O N S T O T H E P R O V I S I O N F O R L O A N L O S S E S
The regions are related to the risk country of the underlying credit r isk. Previously the country of the reporting unit was shown in this table. The numbers for 2001 have been restated in conformance with this new methodology.
Provisions for loan losses increased substantially due to weak economic conditions and the bankruptcy of NCFE
In countries where ING is active, the risk profile is regularly evaluated
For Poland an additional provision for local and foreign currency loans of EUR 99 million was taken in 2002. The total provisions on local and foreign currency loans in Poland is EUR 458 million. Total exposure on local and foreign currency denominated loans in Poland is
DEBTOR PROVIS IONING For insurance credit risks, a provision for loan losses is maintained that is considered adequate to absorb losses arising from the existing insurance investment portfolios. The provisions are reviewed on a quarterly basis. They amounted to EUR 155 million at the end of 2002 compared with EUR
165 million at the end of 2001. Similar to the practice in the banking activities, the outstanding debt and any suspense balances are written off when there is no prospect of recovering the principal.
Risk measures the maximum overnight loss that could occur under normal market circumstances due to changes in risk factors (e.g. interest rate, foreign exchange rate, equity prices) if the trading positions remain unchanged for a time interval of one day.
amounts in millions of euros GROSS TRANSFER PROVIS IONS ON FOREIGN COUNTRY
VA L U E - AT- R I S K B Y C AT E G O RY
EUR 65 million, compared with EUR 104 million at year-end 2001.
Through scenario-analysis the sensitivity of a 1% upward movement in interest rates and a 1% downward movement in interest rates on the
increase can have an adverse effect of EUR 14 million (year-end 2002)
Risk Management budgeted 2003 pre-tax results for the insurance operations has been estimated. A simultaneous decrease in interest rates of 1% from current levels would have a negative effect of 4% (2002: 2%) on budgeted pre-tax results for the insurance operations for 2003. A simultaneous increase in interest rates of 1% from current levels would have a positive effect of 3% (2002: 2%) on budgeted pre-tax results for the insurance operations for 2003.
E Q U I T Y R I S K The insurance operations are exposed to movements in equity markets since they have an impact on the level of charges deducted for unit-linked and variable business. A 10% decrease in stock market prices would lower the pre-tax budgeted result for the insurance operations in 2003 by 9% (2002: 3%).
Once the revaluation reserve is nil, any further decrease in stock-market prices will increase the 9%. The impact of a 10% change in equities increased over 2001, generally because of a change in accounting methodology and growth assumptions used in the amortisation of the
Insurance and insurance business units, particularly those that have a significant exposure in equity investments, i.e. business units in the
Benelux. The solvency ratio of ING insurance stands at 169% of EU target surplus as of 31
December 2002. The nature of ING’s current insurance investments (which include EUR 11 billion equity and EUR 7.2 billion in real estate)
Actuarial and underwriting risks Regarding insurance risks ING is exposed to life and non-life risks. Life risks include a broad range of participating and non-participating traditional life products, unit-linked, fixed and variable annuities, universal life, group life and pension products and guaranteed investment products. Non-life risks includes all lines of nonlife business – fire, automobile, accident and health, third party liability and disability.
Consequently pricing reflects the cost of the guarantees and appropriate reserves are established accordingly. ING is of the opinion that its insurance provisions are adequate.
Corporate Insurance Risk Management Department being responsible for monitoring the actuarial and underwriting risk as defined above.
Corporate Insurance Risk Management provides guidelines for product design, reserving, underwriting, pricing criteria and reinsurance strategy.
A 10% decrease in stock market prices would lower the insurance pre-tax result by 9% in 2003. Once the revaluation reserve is nil, any further decrease in stock-market prices will increase the 9%.
The insurance actuarial and underwriting risks are controlled at Group level
With regard to operational risk a quarterly incident reporting process was implemented in 2002
Bank and a likewise process is being developed for ING Insurance. ING strengthened the audit findings action tracking and the Risk & Control
E WA L D K I S T, C H A I R M A N
M I C H E L T I L M A N T, V I C E -C H A I R M A N
F R E D H U B B E L L
H E S S E L L I N D E N B E R G H
C E E S M A A S , C H I E F F I N A N C I A L O F F I C E R
Risk Management departments aim at supporting general management, and leading and co-ordinating the operational risk management efforts. The operational risk management framework is further supported by various specialised departments, like
                   Summary of annual figures and Additional information
(SEC) has been included in the annual accounts. The formal filing with the SEC in accordance with US
      ’       We have audited the summary annual figures of ING Groep N.V., Amsterdam, for the year 2002 as incorporated in this annual report on pages 58 to 68. This summary annual figures was derived from the annual accounts of ING Groep N.V. for 2002. In our auditor’s report dated 10 March 2003 we expressed an unqualified opinion on these annual accounts.
For a better understanding of the company’s financial position and the result of its operations for the period and of the scope of our audit, the summary annual figures should be read in conjunction with the annual accounts from which the summary annual figures was derived and our auditor’s report thereon.
Accrued liabilities 10,791 12,903 * See notes starting on page 63.
CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEARS ENDED 31 DECEMBER amounts in millions of euros
CONSOLIDATED STATEMENT OF COMPREHENSIVE NET PROFIT amounts in millions of euros
Realised revaluations released to the profit and loss account -1 ,051 -1 ,233
In 2002, ING Group acquired a 49% stake in Sul América, a leading insurance company in Brazil thus strengthening the existing partnership. As a result of the transaction ING’s total investment in Sul
In 2002, ING Group and ANZ, one of Australia’s major banks, have formed a funds management and life insurance joint venture called ING Australia. The company is 51%-owned by ING and 49%-owned by ANZ. As part of the transaction, the new joint venture acquired net assets from ANZ. This resulted in goodwill of EUR 169 million that is charged to Shareholders’ equity. Furthermore, ING Group contributed net assets to the new joint venture, which resulted in a net result of EUR 469 million.
ING Group currently enjoys management control, ING Vysya Bank has been consolidated.
Loans guaranteed by credit institutions 1,184 6,782 7,966 940 6,286 7,226
B R E A K D O W N I N V E S T M E N T S
Provision for life policy liabilities 125,945 129,420 5,085 8,511 120,860 120,909
Insurance provisions for policies for which the policyholders bear the investment risk and for
NOTES TO THE CONSOLIDATED PROFIT AND LOSS ACCOUNT amounts in millions of euros
Interest result from the banking operations* 7,646 6,072 -56 -49 7,702 6,121
Operational net profit for the period 3,358 2,810 895 1,442 4,253 4,252
The non-operational results can be specified as follows: Result on sale of investments in shares regarding financing of acquisitions 280 325 280 325
B R E A K D O W N I N C O M E F R O M I N V E S T M E N T S O F T H E I N S U R A N C E O P E R AT I O N S
Income from land and buildings includes an amount in respect of rental income allocated to business units of ING Group (the same amount is included in Other expenses) of EUR 50 million (2001: EUR 51 million).
Income from investments for risk of policyholders of EUR -10,642 million (2001: EUR -7,864 million) is not included in Income from investments of the insurance operations.
O P E R AT I O N A L I N C O M E B Y G E O G R A P H I C A L A R E A
B R E A K D O W N O F T H E O P E R AT I O N A L R E S U LT B E F O R E TA X AT I O N
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The risk-adjusted return is based on similar valuation principles as applied in the financial accounts, with two important exceptions: the credit risk provisioning is replaced by expected losses reflecting statistically calculated average credit losses over the entire economic cycle; and secondly the P&L is adjusted for effects that relate to replacing actual book capital by economic capital.
Economic capital is defined as the amount of capital required to support the economic risks created by the activities employed and at the company’s desired level of comfort. ING uses a confidence interval of 99.95% – consistent with the target debt rating (AA/Aa2 long term) – and a one-year time horizon. Economic capital can be regarded as the capital one should have to comply with all debt obligations.
The total banking operations pre-tax RAROC corresponds to an after-tax RAROC of 10.3% (excluding
Transfer risk is the risk of losses due to the inability of a borrower or counterparty to obtain foreign currency to meet its financial obligations.
Business risk is the risk of losses due to unfavourable changes in business volumes, margins and costs.
Embedded value is an indicator of the economic value creation as a consequence of selling and managing long-term contracts such as life insurance, annuities and pensions. It is defined as the present value of the future earnings arising from the business on the books at the valuation date plus the free portion of capital and surplus. The value of new business provides insight into the expected profitability of the 2002 new sales. Underlying assumptions (expenses, interest rates, mortality, lapse, etc.) reflect best estimates of future expected experience. Future earnings are discounted at a rate representing the cost of capital.
The value of new business written during 2002 was EUR 519 million, a substantial increase over the 2001 level of EUR 336 million (revised). During 2002 ING invested EUR 1,841 million to write new life insurance business. The overall rate of return expected on this investment is 11.5%. This compares to an overall return of 11.2% in 2001. The expected internal rate of return in developing markets is 15.4%.
E M B E D D E D VA L U E B Y E X E C U T I V E C E N T R E / M A N A G E M E N T C E N T R E
Comments with regard to the 2002 change in value can be made as follows: — A substantial portion of the free surplus is invested in equities. The investment return on free surplus over the year was EUR -1,212 million primarily as a result of decreases in the equity portfolio.
— The required return of EUR 1,849 million is the rollup of the discount rate on the beginning value of inforce business and on the value of new business.
— Actual results for 2002 were EUR 2,055 million less than expected. Primary contributors were a fall in the equity portfolio backing general account liabilities in the Executive Centre ING Europe, a fall in the equity portfolio backing separate account liabilities in the Executive Centre ING Americas and credit related losses in the US.
— Discount rates decreased by 0.8% overall to better reflect ING’s weighted average cost of capital.
— Assumption changes reduced value by EUR 1,817 million. Major assumption changes included lower assumed investment income, lower assumed separate account growth rates and higher assumed credit defaults in the Executive Centre ING Americas.
C H A N G E I N E M B E D D E D VA L U E O F T H E L I F E O P E R AT I O N S
B R E A K D O W N C A P I TA L B A S E
C A P I TA L P O S I T I O N O F T H E B A N K I N G O P E R AT I O N S
BANKING OPERATIONS The required capital for the banking operations in accordance with the BIS requirements amounts to 8% of all risk-weighted assets, off-balance sheet items and market risk associated with trading portfolios (known as the ‘BIS ratio’).
Watson Wyatt has also performed limited high level checks on the results of the calculations and has discovered no material issues. Watson Wyatt has not, however, performed detailed checks on the models and processes used.
R E G U L AT O RY R E Q U I R E D C A P I TA L I N G G R O U P
ING GROUP According to an agreement (‘Protocol’) between the Dutch Central Bank and the Pension & Insurance
B R E A K D O W N E F F I C I E N C Y R AT I O S O F ( O P E R AT I O N A L ) B A N K I N G A C T I V I T I E S B Y E X E C U T I V E C E N T R E
ING Europe (excluding ING Direct and the restructuring provision for international wholesale banking) 70.6 71.3
The claims ratio expresses the claims, including claims handling expenses, as a percentage of net premiums earned. The cost ratio expresses the costs as a percentage of net premiums written. The claims ratio and the cost ratio together form the combined ratio, which, if less than 100%, means that there was an underwriting profit to be added to income from investments.
December 2002, the Executive Board, the management of ING Netherlands and the Central
Group to be held on 15 April 2003 to amend the
If this proposal is adopted, the Conditions of Administration for the depositary receipts will be amended to the effect that holders of depositary receipts may obtain a voting proxy for the full number of their depositary receipts, without any limitation, whether they attend the
Stichting Administratiekantoor ING Groep will only exercise a vote to its own discretion for those depositary receipts the holders of which neither attend the Annual General Meeting, nor gave a voting proxy to another person, nor gave a voting instruction to the Stichting Administratiekantoor ING Groep itself. This way, ING aims to intensify the commitment of providers of capital to the company.
Stichting resolved that it will consider voting instructions given by holders of depositary receipts for the 2003 Annual General Meeting of
A G E N D A F O R T H E M E E T I N G O F S H A R E-
H O L D E R S The Executive Board and the Supervisory Board draw up the agenda for the
Association, providers of capital (shareholders and holders of depositary receipts for shares) who alone or together represent at least 0.1% of the issued share capital are entitled to have items included on the agenda, provided the request is submitted at least 50 days prior to the meeting.
Furthermore, the Supervisory Board decided to create a Corporate Governance Committee, in addition to its present Committees: the Audit
Nomination Committee. All Committees will – by nature – be totally independent from ING. Each of these committees will have its own charter
Committee, the Stichting will in future publicly explain its voting behaviour at the Annual
Board of ING can no longer have a seat on the
D E P O S I TA RY R E C E I P T S In order to promote balanced decision-making in the General Meeting of Shareholders, ING Group’s ordinary and preference shares are available in the form of non-voting bearer depositary receipts. The voting rights attached to the ordinary and preference shares are exercised by the Stichting Administratiekantoor ING Groep, an independent trust office. The Stichting (which will be renamed
Stichting ING Aandelen) will vote in accordance with the interests of the shareholders and the depositary-receipt holders, but also with a view to the interests of all others concerned with ING. The report of the Stichting for 2002 is included on page 89. The non-voting depositary receipts of ordinary and preference shares can currently be exchanged for the underlying registered shares with full voting rights to a maximum of 1% of the share capital. This restriction will be lifted. In order to be able to exercise voting rights at the
Stichting currently grants proxies only under normal circumstances (i.e. in ‘peacetime’ only) to holders of bearer depositary receipts who attend the Annual General Meeting of Shareholders in person, subject to a maximum of 1% of the relevant part of the issued share capital. These restrictions will be lifted as well.
The Supervisory Board of ING Group has drawn up a profile to serve as a benchmark for its composition and to ensure its independent position from ING. This profile was approved by the Central Workers Council and the Annual
General Meeting of Shareholders in 2002. The profile is available at the company’s offices in
[www.ing.com]. No more than one former member of the Executive Board can be appointed to the Supervisory Board for every five Supervisory Board members. Former
Board. Former ING Executive Board members will, in case of an appointment to the Supervisory Board, observe a waiting period of one year following their retirement from the
They can only be appointed chairman of such a committee after a period of four years following their retirement from the Executive Board.
R U L E S The Supervisory Board has drawn up a set of rules governing the manner in which it functions. These rules also set forth the duties of the three Supervisory Board Committees: the
Governance Committee. These rules and the charters for the committees are being modernised in connection with the adoption of the new corporate governance regime for ING.
R E A P P O I N T M E N T O F S U P E R V I S O RY B O A R D
Meeting on the basis of binding recommendations by the Supervisory Board.
O T H E R O F F I C E S H E L D / I N D E P E N D E N C E O F
General Meeting of Shareholders and is not dependent on the company’s results. For the remuneration paid to members of the Supervisory Board in 2002, reference is made to pages
Supervisory Board members hold ING options that were granted in their former capacity as member of the ING Executive Board, these options are subject to the ING stock option plan (see page 86) and insider trading rules prevailing within ING.
Principal former position: Chairman Committee of Managing Directors Royal Dutch/Shell Group.
First appointment Supervisory Board ING Group: May 1998, Chairman as of May 1999. Chairman of the Remuneration & Nomination Committee and the Corporate Governance Committee.
Group: May 1994; Vice-Chairman as of May 1996; temporary chairmanship for more than two years as of November 1996. Resumed vicechairmanship in May 1999. Chairman of the
Principal present positions: Executive Director of the Vlerick Leuven Gent Management School and Professor at the University of Gent (Belgium).
Remuneration & Nomination Committee and the Corporate Governance Committee. Current term of office: until the 2003 AGM in which he will be proposed for reappointment.
Board ING Bank and ING Group. First appointment Supervisory Board ING Group: April 2001, one year after his retirement from the chairmanship of the Executive Board of ING
First appointment Supervisory Board ING Group: October 1996. Member of the Remuneration &
Governance Committee. Current term of office: until the 2003 AGM in which he will be proposed for reappointment.
Minister of the Netherlands – is based on his extensive expertise and experience with regard to national, European and global economic, social and political issues.
Appointment Executive Board ING Group: May 2000. Joined ING (after merger with Equitable of
Appointment Executive Board ING Group: January 1995. Joined ING (NMB Bank) in 1983.
Appointment Executive Board ING Group: July 1992. Chief Financial Officer as of July 1996.
General Ministry of Finance. Main responsibilities: Control & Finance, Tax, Legal & Compliance,
General policy ING’s remuneration policy for the members of the Executive Board is consistent with that for other senior executives within the Group. Its objectives are to attract and retain high-quality people and motivate them towards excellent performance, in accordance with ING’s strategic and financial goals. The remuneration of the
Key recommendations in this report include that variable (performance-driven) rewards should be more strongly emphasized over fixed pay and benefits. Short-term incentives should be linked to a combination of targeted financial and nonfinancial drivers and not solely to growth in earnings per share, while long-term incentives should be linked to long-term drivers and sustained shareholder value creation. The longterm incentives should be realised through a combination of stock options and shares in ING
Group. In the near future, the Supervisory Board expects to complete its review and to put a compensation philosophy in place that will guide Executive Board rewards from 2003 onwards and be applied, as appropriate, to the reward structure of other senior executives in the Group.
It was decided not to change the base salaries for 2002 compared with 2001. The base salaries of the non-Dutch Executive Board members are related to their respective home-country practices.
Board so far was linked to the growth in earnings per share (EPS) of ING Group as an objectively measurable criterion and to the collective and individual performance of the members of the Executive Board. The EPS part of the formula currently in place would result in zero variable payment over 2002.
Group in 2003 out of a total pool of 50,000 ING
Board. If granted, the Executive Board members must hold the conditional shares for a minimum period of two years from the grant date, and they will lapse in case the member concerned will leave the employ of the company (other than through a scheduled retirement) within this period. The terms of this arrangement and the grant date are subject to regulatory and compliance restrictions.
Excutive Board are based on defined benefit plans, which are insured through a contract with
Nationale-Nederlanden Levensverzekering Maatschappij N.V. Members of the Excutive Board retire by the end of the month in which they reach the age of 60. By mutual agreement the retirement date can be extended to the end of the month in which they reach the age of 61 or 62. Their prospective pensions amount to a maximum of 60% of their base salaries. Just as for the other ING employees in the Netherlands, the pension rights of the members of the
Dutch members of the Excutive Board have a pension plan related to their home-country practices.
L O A N S A N D A D VA N C E S T O T H E M E M B E R S O F T H E E X E C U T I V E B O A R D
(2001: 1,053,000) of which 405,000 (2001: 405,000) are held in a trust. Other members of the Executive Board (including direct family) did not hold ING Group shares.
31 DEC 2001 IN 2002 IN 2002(1) 31 DEC 2002 PRICE DATE DATE
I N F O R M AT I O N O N T H E O P T I O N S O U T S TA N D I N G A N D T H E M O V E M E N T S D U R I N G T H E F I N A N C I A L Y E A R O F
In 2002, the remuneration of the members and former members of the Supervisory Board amounted to EUR 0.6 million (2001: EUR 0.6 million).
The remuneration of the chairman and vicechairman amounted to EUR 68,100; other members received a remuneration of EUR 38,600. Members of a Supervisory Board Committee not being chairman or vice-chairman of the Supervisory
(2) Including a compensation to match his former remuneration as a member of the BBL Supervisory Board.
R E M U N E R AT I O N O F T H E M E M B E R S A N D F O R M E R M E M B E R S O F T H E S U P E R V I S O RY B O A R D
Jacobs. No loans and advances were outstanding to other members of the Supervisory Board. In 2001, the total amount of outstanding loans and advances to members and former members of the Supervisory Board was EUR 4.6 million at an average interest rate of 5.4%.
Supervisory Board held option rights that were granted in earlier years when they were members of the Executive Board, specified in the table below.
31 DEC 2001 IN 2002(1) 31 DEC 2002 PRICE DATE DATE
Board), to all ING Group staff in the Netherlands and to a considerable number of employees outside the Netherlands. The purpose of the option scheme, apart from promoting a lasting growth of ING Group, is to attract, retain and motivate senior executives and staff.
The option rights are valid for a period of five or ten years. Option rights that are not exercised within this period lapse.
(1) ING Group shares of direct family included; members of the Supervisory Board ( including direct family) not mentioned in this table did not hold ING Group shares.
A N D E X E R C I S E P R I C E
Net profit (in millions of euros) 4,500 4,386 4,577 4,427 11,984 11,834
Diluted profit per share (in euros) 2.32 2.27 2.35 2.29 6.18 6.12
M O V E M E N T S I N T H E O P T I O N R I G H T S
The weighted average fair value of options granted in 2002 was EUR 6.78 (2001: EUR 8.71; 2000: EUR 8.67).
Group does not intentionally create a position and occurring positions are closed as soon as possible. If option rights expire, the results on the (sale of) shares which were bought to hedge these option rights are either debited or credited to Shareholders’ equity.
The fair values have been determined by using an option-pricing model. This model takes the risk free interest rate into account, as well as the expected life of the options granted, the expected volatility of the certificates of ING
A depositary-receipt holder who does not attend the General Meeting of Shareholders is entitled to give binding voting instructions to the Stichting.
Ververs. The latter two members will resign once the amendment to the Articles of Association of the Stichting ING Aandelen takes effect, which is expected to take place after the Annual General
B O A R D O F S T I C H T I N G
R E P O RT S O F T H E ‘S T I C H T I N G E N’
Whenever the Stichting acquires cumulative preference shares, it may acquire any number of cumulative preference shares in such a way that immediately after these cumulative preference shares have been issued, no more than one third of the total issued share capital of ING Groep
ING Groep N.V. hereby declare that in their joint opinion the requirements concerning the independence of the members of the Board of
B O A R D O F S T I C H T I N G C U M U L AT I E F
E X E C U T I V E B O A R D O F I N G G R O E P N.V.
Annual Report are statements of future expectations and other forward-looking statements. These expectations are based on management’s current views and assumptions and involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those in such statements due to, among other things,
(i) general economic conditions, in particular economic conditions in ING’s core markets,
Personal loans and mortgages From a credit limit on a current account to a mortgage loan tied to a securities portfolio, ING can provide the ideal financial solution for most situations in all countries where it offers full retail banking services.
Corporate and investment banking ING offers corporate clients all types of credit: from a current account overdraft facility to a bridge loan for a take-over deal. Specialisations are trade and commodity finance and structured finance. In addition, ING supports its corporate clients with a range of investment-banking products, mainly focusing on M&A advisory.
Financial markets Corporate and institutional clients can rely on ING for sales, trading and distribution of equity and debt-market products, including research, treasury, foreign exchange, money markets and derivatives. ING also offers integrated brokerage, cash and derivatives clearing, settlement and securities lending. European custody and administration of securities portfolios are provided in partnership with Bank of New York.
Private equity and alternative assets ING has several specialised units that offer opportunities to make direct or indirect investments in unlisted securities. Hedge funds and products such as collateralised debt obligations can produce attractive returns.
The publications can be ordered on the internet: www.ing.com, by fax: +31 411 652125 or by mail: P.O. Box 258, 5280 AG Boxtel, the Netherlands.
Mission ING’s mission is to be a leading, global, clientfocused, innovative and low-cost provider of financial services through the distribution channels of the client’s preference in markets where ING can create value.
ING’s core values: responsiveness to the needs of customers, entrepreneurship, professionalism, teamwork and integrity.
Strategy Given the prospect of low or even zero economic growth, the Executive Board has decided on the following Group strategic objectives for the years 2003-2005: 1. Strengthen the capital base and improve other key ratios to maintain a solid financial foundation; 2. Optimise the existing portfolio of businesses; 3. Create value for the clients with a multiproduct /multi-channel approach; 4. Develop ING’s special skills – direct banking, insurance in developing markets, employee benefits and pensions; 5. Further lower the cost base.