COMPOSITION OF THE BOARDS From 1 March 2014 onwards (as part of the legal merger between ING Insurance Topholding N.V. and ING Verzekeringen N.V. (whereby ING Verzekeringen N.V. ceased to exist and ING Insurance Topholding N.V. was renamed NN Group N.V.) all members of the Management Board of ING Verzekeringen N.V. have been appointed as members of the Management Board of NN Group N.V. and all members of the Supervisory Board of ING Verzekeringen N.V. have been appointed members of the Supervisory Board of NN Group N.V. The composition of the Management Board and the Supervisory Board of NN Group currently is, and the composition of the Management Board and the Supervisory Board of ING Verzekeringen N.V. as at 31 December 2013 was, as follows.
Remuneration Committee P.A.F.W. (Peter) Elverding, chairman H.W. (Henk) Breukink Y.C.M.T. (Yvonne) van Rooy J. (Jeroen) van der Veer
Nomination Committee J. (Jeroen) van der Veer, chairman H.W. (Henk) Breukink P.A.F.W. (Peter) Elverding Y.C.M.T. (Yvonne) van Rooy
Insurance Europe Committee (2) J.H. (Jan) Holsboer, chairman Y.C.M.T. (Yvonne) van Rooy J.C.L. (Joost) Kuiper, temporary member R.W.P. (Robert) Reibestein, temporary member
(1) The current composition of the Supervisory Board Committees can be found on the ING Group’s website (www.ing.com). (2) This is a temporary committee.
NN GROUP IS PART OF ING GROUP ING’S MISSION To set the standard in helping our customers manage their financial future. ING aims to deliver financial products and services in the way our customers want them: with exemplary service, convenience and at competitive prices.
ING’S PROFILE ING is a global financial institution of Dutch origin, currently offering banking, investments, life insurance and retirement services. We draw on our experience and expertise, our commitment to excellent service and our global scale to meet the needs of a broad customer base, comprising individuals, families, small businesses, large corporations, institutions and governments. The strength of the company is, among other things, based on its relatively high customer satisfaction levels, solid financial position, multi-channel distribution strategy and international network. Moreover, ING is a sustainability leader in its sector.
ING’S FOCUS ING’s focus is on increasing customer satisfaction, simplifying its organisation and product offering, strengthening its financial position and solidifying the sustainability of its business model.
ING’S STAKEHOLDERS ING conducts business on the basis of clearly defined business principles. In all our activities, we carefully weigh the interests of our various stakeholders such as customers, employees, supervisors, shareholders, civil society organisations and regulators.
ING Group’s strategic priorities up to 2013 have been: strengthening our financial position, restructuring, repaying the remaining state aid and building both stronger and sustainable banking and insurance/investment management (IM) businesses.
NN GROUP SEGMENTS Netherlands Life Netherlands Life offers a range of group life and individual life insurance products. Its group life policies are primarily group pension products. Its individual life insurance business primarily consists of the closed-block operation of the individual life portfolios (comprising a range of discontinued products sold prior to 2012) of Nationale-Nederlanden, RVS and ING Verzekeringen Retail, formerly known as Postbank Insurance. Netherlands Life also provides pension administration and management services through its AZL brand.
ING Re is NN Group’s internal reinsurer located in the Netherlands. ING Re primarily offers reinsurance to NN Group’s businesses. It manages its risks through ceding excess insurance risk to external reinsurers and hedging (a major part of) its market risks. ING Re also reinsures the minimum guarantee obligations of the Japan Closed Block VA.
NN Group is a leading insurance and investment management company with a predominantly European presence in 18 countries. Its purpose is to help customers secure their financial futures: helping them manage and protect their assets and income through pensions, investments, insurance, savings and mortgages. Its strategy is to deliver an excellent customer experience by offering appealing and transparent products and services, multi-access distribution, efficient and effective operations, and to maintain a solid balance sheet that keeps customers’ money safe and delivers shareholder value.
In October, future plans were announced to rebrand the insurance and investment management activities in Europe and Japan as NN. This new identity links the company’s heritage and Dutch roots with the requirements of an international forward-looking brand. Local business descriptors will be added to the NN brand in different countries. Investment Management will rebrand as NN Investment Partners. The operational rebranding process is scheduled to begin after NN Group has been successfully brought to the market.
ASIAN DIVESTMENT Good progress was made in 2013 in divesting the Asian Insurance and Investment Management businesses. By year-end, most of these businesses, including ING’s life insurance companies in South Korea, Hong Kong, Macau and Thailand, its 26% interest in ING Vysya Life Insurance Company Ltd and its 49% stake in South Korean insurer KB Life had been divested. An agreement had also been announced to sell a 50% stake in the Chinese insurance joint venture ING-BOB Life Insurance Company. It also completed the sale of its 33% stake in China Merchants Fund, as announced in 2012. Investment Management businesses in Malaysia, Thailand and South Korea were also sold. The sale of the interest in the joint venture ING Financial Services Private Limited to Hathway Investments was completed. In early 2014, an agreement was reached to sell the investment management business in Taiwan. ING resolved the remaining divestment of its Asian insurance and investment management operations with the inclusion of ING Life Japan in the base case IPO of NN Group.
AMERICAN DIVESTMENT In May, ING U.S. listed on the New York Stock Exchange and began operating as a publicly traded company. The listing initially reduced ING Group’s stake in ING U.S. to 71%. In September, the remaining stake in ING U.S. was transferred from NN Group to ING Group. Later in the year, ING Group successfully sold a second tranche of shares, reducing its stake further to 57%. The 2012 Amended Restructuring Plan requires ING Group to divest at least 25% of ING U.S. by 31 December 2013; more than 50% by 31 December 2014; and 100% by 31 December 2016.
CUSTOMER EXPERIENCE NN Group’s aim is to help customers secure their financial future. NN Group’s strategy focuses on offering appealing and easy-to-understand products and services, multi-access distribution and efficient and effective operations. In line with its ambition to be a leading, responsible and customer-centric organisation.
The NN Group corporate values, introduced in 2013, form a key component in its approach towards customer centricity. They are connected to the company’s roots, heritage and common purpose:  We care: we see our customers as the starting point of everything we do. We respect each other and believe that working together leads to better results. We take our role in society seriously.
 We are clear: easy to understand, transparent and accessible. We listen carefully and take action accordingly. We keep our promises.
In November, a major milestone was reached in Brussels. The European Parliament, Council and European Commission reached a political deal on the Omnibus II Directive – amending the 2009 Solvency II Framework Directive. Solvency II’s implementation is planned for coming into force on 1 January 2016.
2013 was a year of major transition for the insurance and investment management operations in the Netherlands. As announced in November 2012, the transformation programme in the Netherlands is expected to result in an estimated headcount reduction of 1,350 FTEs over the period 2013-2014. By the end of 2013, a reduction of 818 FTE was realised. The restructuring has resulted in stronger governance and better integrated support functions and three distinct Dutch business lines: Netherlands Life, Netherlands Non-life and NationaleNederlanden Bank. Supporting employees through this transition was a key priority for the company.
A three year collective labour agreement was signed, which included the goal of stabilising labour costs as well as integrating WestlandUtrecht employees into Nationale-Nederlanden Bank. Despite the turbulence of the past few years, employee engagement remained high. This was also reflected in employees’ willingness to involve themselves in community activities outside the company in many countries.
SUSTAINABILITY Embedding sustainability in core activities and processes remained a key priority. The businesses strive – in their daily actions and decision making – to strike a balance between financial interest and their impact on society and the environment. This entails – amongst others – offering products and services that are suitable, transparent and contribute to the financial wellbeing of our customers.
In the field of responsible investing, Investment Management has taken significant steps in integrating environmental, social and governance (“ESG”) aspects into the investment process. Sustainable assets under management increased by 8.3% to EUR 3.5 billion. In line with being an active investor, Investment Management also attends shareholder meetings of its investee companies. In 2013 it introduced the publication of quarterly Active Ownership reports on its voting and engagement activities. For more information on these and other sustainability-related subjects, please refer to the ING Group Sustainability Report.
OPERATING RESULT BY SEGMENT FOR THE YEARS ENDED 31 DECEMBER 2013 AND 2012 The operating result ongoing business of NN Group was EUR 905 million in 2013, a 6.2% increase compared with EUR 852 million in 2012, mainly driven by higher operating results for Netherlands Life, Investment Management and the Other segment. This improvement was partially offset by lower operating results for Insurance Europe, Japan Life and Netherlands Non-life.
NETHERLANDS LIFE Netherlands Life’s aim is help its customers make the right decisions about their financial future, by providing effective and easy-to-understand products. In 2013, the individual life insurance market continued to go through major change. In response to this, Netherlands Life is lowering costs by streamlining its processes and systems. In pensions it is well positioned to capture more opportunities in the growing Defined Contribution market. In all its businesses, Netherlands Life is committed to improving the customer experience.
Revaluations improved to a gain of EUR 27 million in 2013 compared to a loss of EUR 296 million in 2012. Negative real estate revaluations in 2013 were more than offset by positive revaluations of private equity. The loss in 2012 included a EUR 206 million loss on equity hedges and a EUR 149 million negative revaluation of real estate, partly offset by a EUR 20 million positive revaluation of private equity.
The 2013 loss of EUR 329 million in market and other impacts, was mainly a result of the change in the provision for guarantees on separate account pension contracts (net of hedging). This included a non-recurring loss of EUR 177 million from a refinement of the market interest rate assumption to further align the accounting and the hedging for the separate account pension business. In 2012, the loss from the change in the provision for guarantees on separate account pension contracts (net of hedging) was EUR 530 million.
Business developments Netherlands Life offers a range of group life and individual life insurance products. Its group life policies are primarily group pension products. Its individual life insurance business primarily consists of the closed-block operation of the individual life portfolios (comprising a range of discontinued products sold prior to 2012) of Nationale-Nederlanden, RVS and ING Verzekeringen Retail, formerly known as Postbank Insurance. Netherlands Life also provides pension administration and management services through its AZL brand.
Customer experience Netherlands Life measures and analyses its Net Promoter Score (NPS) results and complaints. It adjusts processes in line with customers’ feedback and expectations.
In group life, Netherlands Life is increasingly offering DC propositions, both insured and non-insured, alongside its full service Defined Benefit (DB) pension solutions. Furthermore, due to the greater use of digital tools, processes are becoming more efficient for customers.
Netherlands Life was the largest life insurer in the Netherlands as measured by Gross Written Premiums (GWP) in 2012, the most recent year of official figures, collected by DNB.
In 2012, Netherlands Life stepped up its efforts in compensating customers with individual unit-linked policies based on the compensation scheme with two consumer protection organisations and also based on additional measures (“flankerend beleid”) that comply with the “Best in Class” criteria as formulated by the Dutch Minister of Finance. By early 2013, all policyholders of an individual unit-linked policy were informed about their compensation. The agreements with the two consumer protection organisations are not binding on policyholders. For more information, please refer to “Legal proceedings” in the Accounts section of this Annual Report.
Conclusions and ambitions Netherlands Life’s ambition is to help its customers make the right decisions about their financial future and it will achieve this by guiding them through effective and easyto -understand products.
Acquisition costs 241 248 Administrative expenses 332 313 Acquisition costs and administrative expenses
Expenditure 1,651 1,741 Operating result 79 103 Non-operating items: 4 –15 – of which gains/losses and impairments
The operating result for Netherlands Non-life was EUR 79 million in 2013, a 23.3% decline compared with EUR 103 million in 2012, mainly due to a lower operating result in the Property & Casualty (P&C) segment partly offset by a higher operating result in the Disability & Accident (D&A) segment.
Operating income was EUR 1,729 million in 2013, a 6.2% decrease compared with EUR 1,844 million in 2012. This decrease was largely driven by lower earned premiums in the SME P&C and D&A segments due to the challenging economic conditions and an underwriting focus on value and return over volume. Other income comprising commission income earned by NN Group’s wholly-owned insurance brokers, Mandema and Zicht, showed a decrease as a result of the new legislation prohibiting insurance companies to pay commissions to brokers, which became effective in 2013.
Operating income life insurance 824 866 Administrative expenses 310 334 DAC amortisation and trail commissions
The investment margin for 2013 was EUR 105 million, compared with EUR 122 million for 2012. This decline reflects lower re-investment yields and the impact of a regulatory change, both in the Czech Republic.
Products and services Netherlands Non-life broadened its non-life insurance package for companies in 2013. It introduced, for example, cover for disruption to web shops such as cybercrime, and launched an insurance package to protect employers and their businesses against illness and disability. The broadened range of insurance also supports intermediaries who are able to offer their business clients more insurance options.
In the retail space, Netherlands Non-life began to offer online travel insurance and cover against unexpected legal expenses.
A new website was launched for intermediaries (www.adviseur.nn.nl) which includes a tool to select customers for mailing promotions.
Distribution developments Netherlands Non-life continues to distribute its products through third-party channels, but in 2012 it started to provide retail products via its own direct channels, and it enhanced these channels in 2013. In the SME market for income protection and for property and casualty products, the intermediary channel remained the dominant distribution channel because of the complexity and the need-for-advice nature of the products. Distribution via ING Bank continued to deliver encouraging results in the Property and Casualty market.
INSURANCE EUROPE In spite of the challenging macroeconomic environment in many European countries, Insurance Europe achieved growth in 2013 by increasing multi-channel distribution and improving service levels, which resulted in higher NPS scores. Insurance Europe has a strong focus on profitable growth.
Business developments Insurance Europe offers life insurance, mainly to retail, self-employed, SME and corporate customers in 11 countries: Poland, Turkey, Czech Republic, Slovak Republic, Romania, Hungary, Bulgaria, Belgium, Spain, Greece and Luxembourg. It also offers pensions in some of these markets and non-life insurance in Belgium and Spain and healthcare insurance in Greece.
Customer focus Insurance Europe is making clear progress in improving the customer experience and received awards for this in several countries. In Poland an electronic application for customers significantly reduced online claims handling and service time. In Romania new functions in My ING, the first self-service portal in the local life insurance market, were introduced. Spain launched a new customer website including a self-service portal with improved functionality; policies can now be delivered within two days from application.
In Bulgaria annual pension statements can now be received by email, which brings convenience and reduces paper usage.
Products Insurance Europe offers both protection and investment products. It introduced several customer initiatives in 2013 in line with its strategy to improve the customer experience. In January Greece launched its new health product, Orange Cross, with plain language, illustrations and an easy-to-use manual. In December 2012, ING in the Czech Republic launched For You, breast cancer insurance cover for women which includes online access to information and help about cancer prevention. For You has been well received by customers, achieving an excellent NPS score. In 2013 Spain became the second country to offer For You.
Distribution Insurance Europe is building a multi-channel distribution platform to serve customers across all channels. It continues to invest in tied agents via the Tangerine programme which pools ING’s regional know-how and provides a best-practice template on how to run a tied agent sales force. Tangerine is being introduced countryby -country and is already increasing tied agent productivity. Insurance Europe is also investing in the broker channel, especially in Turkey.
In bancassurance, Insurance Europe is signing up more banking partners as well as working closer with existing partners. In November a partnership was announced with Anadolubank in Turkey, where bancassurance arrangements performed well in 2013. NN in Luxembourg is building partnerships in France and Italy.
Turkey launched a pilot network of retail insurance shops selling ING products and those of its competitors. In Spain a pilot network of insurance agents (Orange Points) in the country’s smaller cities was established to reach new and existing customers not covered by the company’s branch network, which is located in the large cities.
The operating result for Japan Life was EUR 162 million in 2013, a 17.3% decline compared with EUR 196 million in 2012, due to the 27% depreciation of the Japanese yen against the euro in 2013.
DAC amortisation and trail commissions decreased to EUR 177 million in 2013 compared to EUR 197 million in 2012. Excluding currency effects, DAC amortisation and trail commissions increased by 11.7% due to higher inforce volume.
Business developments In Japan, NN Group primarily offers a range of COLI (Corporate-Owned Life Insurance) products to SMEs and owners and employees of SMEs through independent agents and bancassurance. COLI products are traditional life insurance policies that a company, typically an SME, takes out on the lives of executives or employees, whereby the company is both the policyholder and the beneficiary of the policy. COLI products are designed to address the protection, savings, and retirement preparation needs of SMEs and owners and employees of SMEs in a tax-efficient manner.
JAPAN LIFE The Japanese life insurance market is the second largest market in the world. Although it is mature, it has attractive growth opportunities in some large segments and channels. In November 2013, ING announced Japan Life would be included within the base case IPO of NN Group.
Net result Japan Life amounts in millions of euros 2013 2012 Investment margin 7 10 Fees and premium-based revenues 436 490 Technical margin 2 23 Operating income 445 523 Administrative expenses 106 130 DAC amortisation and trail commissions
Fees and premium-based revenues were EUR 436 million in 2013, an 11.0% decrease compared with EUR 490 million in 2012, due to the depreciation of the Japanese yen against the euro. Excluding this currency effect, fees and premium based revenues increased by 10.0% driven by strong COLI sales and favourable persistency.
Japan Life believes that customer centricity is crucial to its success. Continuously improving the customer experience is one of its priorities. Key improvements in 2013 included the redesign of approximately 200 application and request forms, and the improvement of the interactive voice response process at the call centre.
INVESTMENT MANAGEMENT Investment Management operates from a strong middle and back office, enabling solid investment performance and room for further growth in assets under management. It is preparing for the base case IPO of NN Group, making its business simpler by streamlining its governance and divesting several activities in Asia.
The operating result for Investment Management was EUR 131 million in 2013, a 20.2% increase compared with EUR 109 million in 2012, driven by higher fees and lower administrative expenses.
During the year, ING completed the divestment of its 33.3% stake in China Merchant Fund, ING Funds Berhad in Malaysia, ING IM Thailand, and ING IM Korea. It also closed down its regional office in Hong Kong. The offices in Singapore and Japan are part of the Investment Management organisation and as such included in the base case IPO. In early 2014, an agreement was reached to sell the investment management business in Taiwan.
Products and distribution Investment Management produces and distributes its products globally. It operates from a modern middle and back office with sufficient capacity to increase its operations without infrastructure constraints. It has a global distribution network across various distribution channels. This network will help it grow its third-party business in the future.
Investing responsibly In managing investments, Investment Management is committed to the UN Principles for Responsible Investment. In 2013, it integrated environmental, social and governance (ESG) factors as a screening criterion into all its investment strategies. These factors can have a significant impact on long-term performance.
Conclusions and ambitions Investment Management aims to partner with its clients for the long run. It will continue to focus on delivering best-in-class performance and services for its customers. It has a strong focus on growing its third-party business. Its future name will be NN Investment Partners which signifies its ambition to be a partner to its clients rather than a general supplier of products.
Non-operating items was a gain of EUR 29 million in 2013, compared with a loss of EUR 24 million in 2012, due to improvements in gains/losses and impairments, reflecting the reallocation of the investment portfolio of ING Re in 2013, and lower losses from revaluations.
OTHER “Other” comprises the business of NationaleNederlanden Bank and ING Re (NN Group’s internal reinsurer) and the results of the holding and other results.
Nationale-Nederlanden Bank accelerated efforts to become a one-stop shop for integrated financial solutions for retail customers, supported by the integration with a part of WestlandUtrecht Bank (WUB) as well as the launch of new savings products. As of 1 July 2013, the profitable operations of WUB, including assets and liabilities, were partially transferred to NationaleNederlanden Bank. Solvency II will provide ING Re with new business opportunities.
Net result Other amounts in millions of euros 2013 2012 Interest on hybrids and debt –167 –217 Amortisation of intangible assets –7 –11 Investment income and fees 8 –2 Holding expenses –183 –179 Holding result –348 –410 Operating result reinsurance business –15 22 Operating result NationaleNederlanden Bank
Operating result of Nationale-Nederlanden Bank was a loss of EUR 11 million in 2013, compared with a loss of EUR 14 million in 2012, due to start-up and integration expenses.
In June, Nationale-Nederlanden Bank launched two savings products: one with a floating interest rate and the other with fixed interest rate and term. It also introduced an innovative mortgage pledge service (Hypotheektoezegging), where customers are given a mortgage commitment before buying a house. The commitment is conditional upon the absence of subsequent changes in the personal circumstances and the acceptance of the house as collateral for the mortgage.
In 2013 found that consumers increasingly favoured selfdirected business, execution-only services via call centres and online rather than financial advice-related services.
In 2013, ING Re reviewed its key processes and strengthened its governance in preparation for Solvency II and to increase efficiency.
Conclusions and ambitions Nationale-Nederlanden Bank aims to become a one-stop shop for integrated financial solutions for retail customers. With its portfolio of integrated solutions, a strong brand and its extensive distribution base it aims to have a competitive presence in the Dutch financial sector. ING Re will continue to support NN Group businesses by providing reinsurance services.
Fees and premium based revenues were EUR 136 million in 2013, a decrease of 8.1% compared with EUR 148 million in 2012 due to the 27% depreciation of the Japanese yen against the euro during 2013. Excluding currency effects, operating income increased by 15.0% due to the strong performance of the Japanese equity markets which boosted the account value of the closed-block annuity portfolio.
Non-operating items were a loss of EUR 749 million in 2013 compared with a gain of EUR 21 million in 2012. The loss in 2013 was primarily the result of the EUR 575 million charge taken to bring the reserve adequacy of the business line to the 50% confidence level as of 1 October 2013.
Conclusions The majority of the closed-block SPVA portfolio is projected to run off relatively quickly. The focus is on prudently managing risks via hedging to release capital, as well as on cost and efficiency management.
INSURANCE OTHER Insurance Other reflects the share in the result of the Brazilian insurer Sul América and overhead expenses of ING Group allocated to NN Group. As of 2014, Insurance Other will cease to exist.
The tax expense in 2013 as well as in 2012 was a tax receivable, as it related to the allocated ING Group expenses only. The result in divestments as well as the net result in Sul América were tax-exempt under the Dutch participation exemption.
The result before tax of the Insurance Other segment increased to EUR 111 million in 2013 from EUR 59 million in 2012. This increase was mainly due to a higher result on divestments.
Result on divestments reflects NN Group’s share in Sul América’s net result from operations and the net result from the disposal of part of NN Group’s share in the entity. In 2013, NN Group reduced its share in Sul América from 36.5% to 21.3% through two separate transactions. The total transaction result was a net gain of EUR 64 million. NN Group’s share in Sul América’s net result from operations was 18.8% lower at EUR 65 million in 2013 compared with EUR 80 million in 2012. The decline was due to the 12.6% depreciation of the Brazilian real against the euro and NN Group’s decreasing equity stake in Sul América’s results.
Nomination Committee meetings The Nomination Committee met six times in 2013 with no absentees, to discuss succession matters for the Executive Board, specifically the CEO succession and the Management Boards. A specific committee for the CEO succession reported to the Nomination Committee and the Supervisory Board in January and February 2013. The Nomination Committee advised to nominate Ralph Hamers as a member of the Executive Board, Management Board Banking and Management Board NN Group as per the AGM of 13 May 2013 and CEO of ING Bank, NN Group and ING Group as per 1 October 2013.
Remuneration Committee meetings In 2013, the Remuneration Committee met seven times with one absentee at one meeting. Throughout the year the Remuneration Committee approved Identified Staff related remuneration matters, based upon the governance framework. The functioning of the Executive Board and the Management Boards was discussed regularly. The proposed 2013 performance objectives for the Board were reviewed and positively advised in January.
Report of the Supervisory Board continued 22 NN Group Annual Report 2013
APPRECIATION FOR THE EXECUTIVE BOARD AND ING EMPLOYEES The Supervisory Board would like to express its gratitude to the members of the Executive Board and the Management Boards for their work in 2013. During 2013 decisive steps were once more taken in executing the European Commission restructuring agreement. The Supervisory Board would also like to thank all employees of ING and NN Group who continue to serve the interests of customers, shareholders and other stakeholders of ING and NN Group and have shown continued commitment in the past year.
FINANCIAL REPORTING PROCESS As NN Group N.V. is a consolidated subsidiary of ING Groep N.V. (“ING Group”) its policies and procedures for establishing and maintaining adequate internal control over financial reporting are the same as those applied by ING Group for its consolidated financial statements with respect to NN Group N.V. and the entities included in the latter’s own consolidated financial statements.
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 attended the meetings of the Audit Committee and of the Risk Committee functioning for NN Group N.V. as well, and attended and addressed the 2013 annual General Meeting, wherein the external auditor was questioned on the audit opinion.
After a maximum period of five years of performing the financial audit of NN Group N.V., the lead audit partners of the external audit firm and the audit partners responsible for reviewing the audits, have to be replaced by other partners of the external audit firm. The Audit Committee provides recommendations to the Supervisory Board regarding these replacements based, among other things, on an annual evaluation of the provided services. In line with this requirement, the lead audit partner of EY was succeeded after the year-end audit 2011. The rotation of other partners involved with the audit of the financial statements of ING is subject to applicable independence legislation.
As required by section 5:25c paragraph 2(c) of the Dutch Financial Supervision Act, each of the signatories hereby confirms that to the best of his or her knowledge:  the NN Group N.V. 2013 Annual Accounts give a true and fair view of the assets, liabilities, financial position and profit or loss of NN Group N.V. and the enterprises included in the consolidation taken as a whole;  the NN Group N.V. 2013 Annual Report gives a true and fair view of the position at the balance sheet date, the development and performance of the business during the financial year 2013 of NN Group N.V. and the enterprises included in the consolidation taken as a whole, together with a description of the principal risks NN Group N.V. is being confronted with.
– non-trading derivatives 1,843 3,258 4,404 Liabilities held for sale 11 466 55,655 Other liabilities 20 4,125 10,951 13,787 Total liabilities 131,463 312,113 312,134
The amounts for 2011 and 2012 have been restated to reflect the change in accounting policy for defined benefit plans as disclosed in the section “Changes in accounting policies in 2013” on page 33.
Consolidated profit and loss account of NN Group for the year ended 31 December
NN Group Annual Report 2013 27 amounts in millions of euros 2013 2013 2012 2012 2011 2011 Continuing operations Gross premium income 21 9,530 10,705 11,292 Investment income 22 3,619 3,739 3,483 Result on disposals of group companies 23 –45 –4 Gross commission income 956 924 1,337 Commission expense –330 –331 –700 Commission income 24 626 593 637 Valuation results on non-trading derivatives 25 –2,891 –2,574 1,025 Foreign currency results and net trading income 26 186 539 –117 Share of result from associates 6 97 37 190 Other income 27 39 –22 110 Total income 11,161 13,017 16,616
Discontinued operations 33 Net result from discontinued operations 45 839 –202 Net result from classification as discontinued operations
Total net result from discontinued operations attributable to: Shareholder of the parent 28 1,191 787 Minority interests –8 6 6 2013 2012 2011 Total amount of dividend paid (in millions of euros) 13 882 0 0
Cash and cash equivalents at beginning of year 6,717 11,577 8,646 Effect of exchange rate changes on cash and cash equivalents 182 35 –56 Cash and cash equivalents at end of year 2 7,235 6,717 11,577
NN Group Annual Report 2013 31 amounts in millions of euros
Unrealised revaluations property in own use 2 2 2 Unrealised revaluations available-for-sale investments and other
Employee stock option and share plans 55 55 55 Changes in composition of the group and other changes
Unrealised revaluations property in own use –13 –13 –13 Unrealised revaluations available-for-sale investments and other
Employee stock option and share plans 62 62 62 Changes in composition of the group and other changes
Dividend –6 –6 Balance as at 31 December 2012 0 17,750 8,673 26,423 217 26,640
(1) NN Group has an issued share capital of EUR 45,000. Reference is made to Note 13 “Equity”. (2) The change in accounting policy for defined benefit plans is disclosed in the section “Changes in accounting policies in 2013” on page 33.
Unrealised revaluations property in own use –1 –1 –1 Unrealised revaluations available-for-sale investments and other
Realised gains/losses transferred to profit and loss 90 90 90 Changes in cash flow hedge reserve –832 –832 –832 Transfer to insurance liabilities/DAC 2,154 2,154 2,154 Exchange rate difference –647 –647 –97 –744 Total amount recognised directly in equity (Other comprehensive income)
Impact of IPO ING U.S. 53 –1,958 –1,958 2,954 996 Dividend 13 –649 –233 –882 –4 –886 Balance as at 31 December 2013 0 11,605 2,622 14,227 68 14,295
1 ACCOUNTING POLICIES NN Group applies International Financial Reporting Standards as adopted by the European Union (“IFRS-EU”). In the annual accounts the term “IFRS-EU” is used to refer to these standards, including the decisions NN Group made with regard to the options available under IFRS-EU.
IFRS-EU provides a number of options in accounting policies. The key areas in which IFRS-EU allows accounting policy choices, and the related NN Group accounting policy, are summarised as follows:  Under IFRS 4, an insurer may continue to apply its existing pre-IFRS accounting policies for insurance contracts, provided that certain minimum requirements are met. Upon adoption of IFRS in 2005, NN Group decided to continue the then existing accounting principles for insurance contracts. NN Group operates in different countries and the accounting principles for insurance contracts follow local practice in these countries. For NN Group’s businesses in the Netherlands, NN Group for example applies accounting standards generally accepted in the Netherlands (Dutch GAAP) for its provisions for liabilities under insurance contracts;  NN Group’s accounting policy for Real estate investments is fair value, with changes in the fair value reflected immediately in the Consolidated profit and loss account;  NN Group’s accounting policy for Property for own use is fair value, with changes in the fair value reflected, after tax, in the revaluation reserve in equity (“Other comprehensive income”). A net negative revaluation on individual properties is reflected immediately in the Consolidated profit and loss account; and
 NN Group’s accounting policy for joint ventures is proportionate consolidation.
NN Group’s accounting policies under IFRS-EU and its decision on the options available are included in the section “Principles of valuation and determination of results” below. Except for the options included above, the principles in section “Principles of valuation and determination of results” are IFRS-EU and do not include other significant accounting policy choices made by ING. The accounting policies that are most significant to NN Group are included in section “Critical accounting policies”.
CHANGES IN ACCOUNTING POLICIES IN 2013 The following new and/or amended IFRS-EU standards were implemented by NN Group in 2013:  Amendments to IAS 19 “Employee Benefits”;  Amendments to IAS 1 “Presentation of Financial Statements”;  Amendments to IFRS 7 “Financial instruments: Disclosures”; and  IFRS 13 “Fair Value Measurement”.
Amendments to IAS 19 “Employee Benefits” The most significant change in the revised IAS 19 “Employee Benefits” relates to the accounting for defined benefit pension obligations and the corresponding plan assets. The amendments require immediate recognition in Other comprehensive income (i.e. in equity) of changes in the defined benefit obligation and in the fair value of plan assets due to actuarial gains and losses. The deferral of actuarial gains and losses through the “corridor approach”, which was applied under the previous version of IAS 19 until the end of 2012, is no longer allowed. As a related consequence, deferred actuarial gains and losses are no longer released to the Consolidated profit and loss account upon curtailment. Furthermore, the amendments require the return on plan assets for the purpose of calculating the pension expense to be determined using a high-quality corporate bond rate, equal to the discount rate of the defined benefit obligation; until the end of December 2012 management’s best estimate was applied. The amendments also introduce a number of other changes and extended disclosure requirements. The implementation of the amendments to IAS 19 resulted in the recognition of accumulated actuarial gains and losses in equity as at 1 January 2013. As a result, Shareholder’s equity decreased with EUR –0.9 billion (after tax) (EUR –1.2 billion before tax) at 1 January 2013. The recognition of actuarial gains and losses in equity will create volatility in Total equity going forward. The changes in IAS 19 are implemented retrospectively; as a result, comparative amounts for previous periods have been restated and are presented as if the new requirements were always applied.
Tax effect 351 68 209 Shareholder’s equity (after change in accounting policy) 26,423 23,412 19,639
OTHER SIGNIFICANT CHANGES IN 2013 The comparison of balance sheet items between 31 December 2013 and 31 December 2012 is impacted by the Initial Public Offering (“IPO”) of ING U.S., Inc. the U.S.-based retirement, investment and insurance business (“ING U.S.”),the transfer of ING U.S. to ING Groep N.V., the classification to continuing operations of ING Life Japan and the Japanese Closed Block VA guarantees reinsured to ING RE (“NN Group’s business in Japan”), the divestment of companies as disclosed in Note 49 “Companies and businesses acquired and divested” and by the held for sale classification as disclosed in Note 11 “Assets and liabilities held for sale” and Note 33 “Discontinued operations”.
ING U.S. In May 2013, ING U.S. was successfully listed on the New York Stock Exchange (NYSE). As a result of the IPO, ING’s ownership interest in ING U.S. was reduced from 100% to 71.25%. At 30 September 2013, the remaining interest in ING U.S. was transferred to ING Groep N.V. by way of dividend in kind. As of the date of transfer, ING U.S. ceased to be consolidated; the results for the period until transfer are presented as discontinued operations.
Based on the above events, changes were made to the segment reporting as disclosed in Note 36 “Segments”.
Accounting for GMDB in Japan Closed Block VA NN Group applies fair value accounting to the reserves for Guaranteed Minimum Death Benefits (GMDB) of the Japan Closed Block VA from 1 January 2014. Reference is made to Note 55 “Subsequent events”.
IFRS 10 “Consolidated Financial Statements” IFRS 10 “Consolidated Financial Statements” introduces amendments to the criteria for consolidation. Similar to the requirements that are applicable until the end of 2013, all entities controlled by NN Group will be included in the Consolidated annual accounts. However, IFRS 10 redefines control as being exposed to variable returns and having the ability to affect those returns through power over the investee. The requirements of IFRS 10 are generally similar to the policies and interpretations that NN Group applied prior to the introduction of IFRS 10. Therefore the implementation of the standard as at 1 January 2014 will not have a significant impact on Shareholder’s equity, Net result and/or Other comprehensive income.
IFRS 11 “Joint Arrangements” and amendments to IAS 28 “Investments in Associates and Joint Ventures” IFRS 11 “Joint Arrangements” and the related amendments to IAS 28 “Investments in Associates and Joint Ventures” eliminate the proportionate consolidation method for joint ventures that was applied by NN Group. Under the new requirements, all joint ventures will be reported using the equity method of accounting (similar to the accounting that is already applied for Investments in associates). The implementation of IFRS 11 as at 1 January 2014 will not have a significant impact on Shareholder’s equity, Net result and/or Other comprehensive income. The impact of the application of IFRS 11 “Joint Arrangements” is included in the table below.
IFRS 9 “Financial Instruments” IFRS 9 “Financial Instruments” was originally issued in November 2009, reissued in October 2010, and then amended in November 2013. Further amendments are expected to be finalised in 2014. The current version of IFRS 9 does not include a mandatory effective date. An effective date will be added when all phases of the project are complete and a final version of IFRS 9 is issued. The mandatory effective date of IFRS 9 is expected to be 2018. IFRS 9 is also not yet endorsed by the EU. Implementation of IFRS 9, if and when finalised and endorsed by the EU, may have a significant impact on Shareholder’s equity, Net result and/or Other comprehensive income.
The process of defining methodologies and assumptions for insurance provisions, DAC and VOBA is governed by risk management of NN Group as described in the “Risk management” section.
Market conditions in recent years have led to a reduced level of real estate transactions. Consequently, the fair value presented may not be indicative of the net realisable value. In addition, the calculation of the estimated fair value is based on market conditions at a specific point in time and may not be indicative of the future fair value. Transaction values were significantly impacted by low volumes of actual transactions. As a result comparable market transactions have been used less in valuing NN Group’s real estate investments by independent qualified valuers. More emphasis has been placed on discounted cash flow analysis and capitalisation of income method.
Notes to the Consolidated annual accounts of NN Group continued 38 NN Group Annual Report 2013
The use of different assumptions and techniques could produce significantly different valuations. To illustrate the uncertainty of the real estate investments valuation, a sensitivity analysis on the changes in fair value of real estate is provided in the “Risk management” section.
Valuation techniques are subjective in nature and significant judgement is involved in establishing the fair value for certain financial assets and liabilities. Valuation techniques involve various assumptions regarding pricing factors. The use of different valuation techniques and assumptions could produce significantly different estimates of the fair value.
IMPAIRMENTS Impairment evaluation is a complex process that inherently involves significant judgements and uncertainties that may have an impact on NN Group’s Consolidated annual accounts. Impairments are especially relevant in two areas: Availablefor -sale debt and equity securities and Goodwill/Intangible assets.
Impairments on other debt instruments (Loans and advances to customers) are part of the loan loss provision as described below.
The actuarial assumptions may differ significantly from the actual parameters due to changes in market conditions, economic and mortality trends, and other assumptions. Any changes in these assumptions could have a significant impact on the net defined benefit asset/liability and future pension costs. Reference is made to Note 38 “Pension and other postemployment benefits” for the weighted averages of basic actuarial assumptions in connection with pension and other postemployment benefits.
A list of principal subsidiaries is included in Note 50 “Principal subsidiaries”.
The results of the operations and the net assets of subsidiaries are included in the profit and loss account and the balance sheet from the date control is obtained until the date control is lost. On disposal, the difference between the sales proceeds, net of directly attributable transaction costs, and the net assets is included in Net result.
NN Group N.V. and its Dutch group companies are subject to legal restrictions regarding the amount of dividends they can pay to their shareholders. The Dutch Civil Code contains the restriction that dividends can only be paid up to an amount equal to the excess of the company’s own funds over the sum of the paid–up capital, and reserves required by law. Additionally, certain group companies are subject to restrictions on the amount of funds they may transfer in the form of dividends, or otherwise, to the parent company.
Notes to the Consolidated annual accounts of NN Group continued 40 NN Group Annual Report 2013
NN Group’s interests in jointly controlled entities are accounted for using proportionate consolidation. NN Group proportionately consolidates its share of the joint ventures’ individual income and expenses, assets and liabilities, and cash flows on a line-by-line basis with similar items in NN Group’s financial statements. NN Group recognises the portion of gains or losses on the sale of assets to the joint venture that is attributable to the other venturers. NN Group does not recognise its share of profits or losses from the joint venture that results from the purchase of assets by NN Group from the joint venture until it resells the assets to a third party. However, if a loss on the transaction provides evidence of a reduction in the net realisable value of current assets or an impairment loss, the loss is recognised immediately.
Disposal groups classified as held for sale or discontinued operations Disposal groups (and groups of non-current assets) are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This is only the case when the sale is highly probable and the disposal group (or group of assets) is available for immediate sale in its present condition; management must be committed to the sale, which is expected to occur within one year from the date of classification as held for sale.
SEGMENT REPORTING A segment is a distinguishable component of NN Group, engaged in providing products or services, subject to risks and returns that are different from those of other segments. A geographical area is a distinguishable component of NN Group engaged in providing products or services within a particular economic environment that is subject to risks and returns that are different from those of segments operating in other economic environments. The geographical analyses are based on the location of the office from which the transactions are originated.
ANALYSIS OF INSURANCE BUSINESS Where amounts are analysed into “life” or “non-life”, health and disability insurance business which is similar in nature to life insurance business is included in “life”.
FOREIGN CURRENCY TRANSLATION Functional and presentation currency Items included in the financial statements of each of NN Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in euros, which is NN Group’s functional and presentation currency.
Exchange rate differences on non-monetary items, measured at fair value through profit or loss are reported as part of the fair value gain or loss. Non-monetary items are translated at each date the fair value is determined. Exchange rate differences on non-monetary items measured at fair value through OCI are included in the revaluation reserve in equity.
On consolidation, exchange rate differences arising from the translation of a monetary item that form part of the net investment in a foreign operation, and of borrowings and other instruments designated as hedges of such investments, are taken to Shareholder’s equity. When a foreign operation is sold the corresponding exchange rate differences are recognised in the profit and loss account as part of the gain or loss on sale.
The fair value of financial instruments that are not traded in an active market are determined using valuation techniques. NN Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date.
Reference is made to Note 40 “Fair value of assets and liabilities” for the basis of determination of the fair value of financial instruments.
RECOGNITION AND DERECOGNITION OF FINANCIAL INSTRUMENTS Recognition of financial assets All purchases and sales of financial assets classified as fair value through profit and loss (excluding investments for risk of policyholders) or available-for-sale that require delivery within the time frame established by regulation or market convention (“regular way” purchases and sales) are recognised at trade date, which is the date on which NN Group commits to purchase or sell the asset. Loans and receivables are recognised at settlement date, which is the date on which NN Group receives or delivers the asset.
Derecognition of financial assets Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or where NN Group has transferred substantially all risks and rewards of ownership. If NN Group neither transfers nor retains substantially all the risks and rewards of ownership of a financial asset, it derecognises the financial asset if it no longer has control over the asset.
Realised gains and losses on investments Realised gains and losses on investments are determined as the difference between the sale proceeds and (amortised) cost. For equity securities the cost is determined using a weighted average per portfolio. For debt securities, the cost is determined by specific identification.
A financial asset is classified as at fair value through profit or loss if acquired principally for the purpose of selling in the short term or if designated by management as such. Management will make this designation only if this eliminates a measurement inconsistency or if the related assets and liabilities are managed on a fair value basis.
Transaction costs on initial recognition are expensed as incurred. Interest income from debt securities and loans and receivables classified as at fair value through profit or loss is recognised in Investment income in the profit and loss account using the effective interest method.
Dividend income from equity instruments classified as at fair value through profit or loss is generally recognised in Investment income in the profit and loss account when dividend has been declared. Investment result from investments for risk of policyholders is recognised in Investment result for risk of policyholders. For derivatives reference is made to the “Derivatives and hedge accounting” section. For all other financial assets classified as at fair value through profit or loss, changes in fair value are recognised in Net trading income.
Available-for-sale investments Investments (including loans quoted in active markets) classified as available-for-sale are initially recognised at fair value plus transaction costs. Investment securities and actively traded loans intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices, are classified as available-for-sale.
Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are initially recognised at fair value plus transaction costs. Subsequently, they are carried at amortised cost using the effective interest method less any impairment losses. Loans and receivables include Loans and advances to customers and Other assets and are reflected in these balance sheet line items. Interest income from loans and receivables is recognised in Investment income in the profit and loss account using the effective interest method.
 Settlement risk arises when there is an exchange of value (funds, instruments or commodities) for the same or different value dates and receipt is not verified or expected until NN Group has paid or delivered its side of the trade. Settlement risk mainly relates to the risk arising on disposal of financial instruments that are classified in the balance sheet as Financial assets at fair value through profit or loss (trading assets and non-trading derivatives) and Available-for-sale investments.
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. Reference is made to Note 47 “Contingent liabilities and commitments” for these off-balance sheet items. Collateral received is not taken into account when determining the maximum credit risk exposure.
The manner in which NN Group manages credit risk and determines credit risk exposures for that purpose is explained in the “Risk management” section.
Cash flow hedges The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in equity in the cash flow hedge reserve. The gain or loss relating to the ineffective portion is recognised immediately in the profit and loss account. Amounts accumulated in equity are recycled to the profit and loss account in the periods in which the hedged item affects Net result. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the profit and loss account. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is transferred immediately to the profit and loss account.
Net investment hedges Hedges of net investments in foreign operations are accounted for in a similar way to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in equity in the cash flow hedge reserve and the gain or loss relating to the ineffective portion is recognised immediately in the profit and loss account. Gains and losses accumulated in equity are included in the profit and loss account when the foreign operation is disposed.
If there is objective evidence that an impairment loss on an asset carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account (“Loan loss provision”) and the amount of the loss is recognised in the profit and loss account under “Investment income”. If the asset has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract.
IMPAIRMENT OF OTHER FINANCIAL ASSETS At each balance sheet date NN Group assesses whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the specific case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the assets are impaired. “Significant” and “prolonged” are interpreted on a case-by-case basis for specific equity securities; generally 25% and 6 months are used as triggers. If any objective evidence exists for available-for-sale debt and equity investments, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in Net result – is removed from equity and recognised in the profit and loss account. Impairment losses recognised on equity instruments can never be reversed. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in the profit and loss account, the impairment loss is reversed through the profit and loss account.
NN Group’s investment in associates (net of any accumulated impairment loss) includes goodwill identified on acquisition. NN Group’s share of its associates’ post-acquisition profits or losses is recognised in the profit and loss account, and its share of post-acquisition changes in reserves is recognised in equity. The cumulative post-acquisition changes are adjusted against the carrying amount of the investment. When NN Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, NN Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.
Unrealised gains on transactions between NN Group and its associates are eliminated to the extent of NN Group’s interest in the associates. Unrealised losses are also eliminated unless they provide evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by NN Group. The reporting dates of all significant associates are consistent with the reporting date of NN Group.
The fair value of real estate investments is based on regular appraisals by independent qualified valuers. For each reporting period every property is valued either by an independent valuer or internally. Indexation is used when a property is valued internally. The index is based on the results of the independent valuations carried out in that period. Market transactions and disposals made by NN Group are monitored as part of the validation procedures to test the indexation methodology. Valuations performed earlier in the year are updated if necessary to reflect the situation at the year-end. All properties are valued independently at least every five years and more frequently if necessary.
NN Group owns a real estate portfolio, diversified by region, by investment segment (Office, Retail and Residential) and by investment type. The valuation of different investments is performed using different discount rates (“yields”), dependent on specific characteristics of each property, including occupancy, quality of rent payments and specific local market circumstances. For NN Group’s main direct properties in its main locations, the yields applied in the 2013 year-end valuation generally are in the range of 5% to 8%.
The fair value of land and buildings are based on regular appraisals by independent qualified valuers or internally, similar to appraisals of real estate investments. Subsequent expenditure is included in the asset’s carrying amount when it is probable that future economic benefits associated with the item will flow to NN Group and the cost of the item can be measured reliably.
Property under development Property developed and under development for which NN Group has the intention to sell the property after its completion is included in Other assets – Property development and obtained from foreclosures.
Property under development is stated at fair value (with changes in fair value recognised in the profit and loss account) if NN Group has the intention to recognise the property under development after completion as real estate investments.
Notes to the Consolidated annual accounts of NN Group continued 48 NN Group Annual Report 2013
ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS Acquisitions and goodwill NN Group’s acquisitions are accounted for using the acquisition method of accounting. The consideration for each acquisition is measured at the aggregate of the fair value (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued in exchange for control of the acquiree. Goodwill, being the difference between the cost of the acquisition (including assumed debt) and NN Group’s interest in the fair value of the acquired assets, liabilities and contingent liabilities as at the date of acquisition, is capitalised as an intangible asset. The results of the operations of the acquired companies are included in the profit and loss account from the date control is obtained.
Where a business combination is achieved in stages, NN Group’s previously held interests in the assets and liabilities of the acquired entity are remeasured to fair value at the acquisition date (i.e. the date NN Group obtains control) and the resulting gain or loss, if any, is recognised in the profit and loss account. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to the profit and loss account, where such treatment would be appropriate if that interest were disposed of. Acquisition-related costs are recognised in the profit and loss account as incurred and presented in the profit and loss account as Other operating expenses.
Value of business acquired (VOBA) VOBA is an asset that represents the present value of estimated net cash flows embedded in the insurance contracts of an acquired company, which existed at the time the company was acquired. It represents the difference between the fair value of insurance liabilities and their carrying value. VOBA is amortised in a similar manner to the amortisation of deferred acquisition costs as described in the section “Deferred acquisition costs”.
DAC is evaluated for recoverability at issue. Subsequently it is tested on a regular basis together with the provision for life insurance liabilities and VOBA. The test for recoverability is described in the section “Insurance, Investment and Reinsurance Contracts”.
TAXATION Income tax on the result for the year comprises current and deferred tax. Income tax is recognised in the profit and loss account but is recognised directly in equity if the tax relates to items that are recognised directly in equity.
FINANCIAL LIABILITIES Financial liabilities at amortised cost Financial liabilities at amortised cost include the following sub-categories: Other borrowed funds, debt securities in issue and subordinated loans. Borrowings are recognised initially at their issue proceeds (fair value of consideration received) net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between proceeds net of transaction costs, and the redemption value is recognised in the profit and loss account over the period of the borrowings using the effective interest method.
If NN Group purchases its own debt, it is removed from the balance sheet, and the difference between the carrying amount of the liability and the consideration paid is included in the profit and loss account.
Changes in those local accounting standards (including Dutch GAAP) subsequent to the adoption of IFRS-EU are considered for adoption on a case-by-case basis. If adopted, the impact thereof is accounted for as a change in accounting policy under IFRS-EU.
Provision for life insurance The Provision for life insurance is generally calculated on the basis of a prudent prospective actuarial method, taking into account the conditions for current insurance contracts. Specific methodologies may differ between business units as they may reflect local regulatory requirements and local practices for specific product features in the local markets.
Insurance provisions on traditional life policies are calculated using various assumptions, including assumptions on mortality, morbidity, expenses, investment returns and surrenders. Assumptions for insurance provisions on traditional life insurance contracts, including traditional whole life and term life insurance contracts, are based on best estimate assumptions including margins for adverse deviations. Generally the assumptions are set initially at the policy issue date and remain constant throughout the life of the policy.
The change in the deferred profit sharing amount on unrealised revaluation (net of deferred tax) is recognised in equity in the revaluation reserve.
Reinsurance contracts Reinsurance premiums, commissions and claim settlements, as well as the reinsurance element of insurance contracts are accounted for in the same way as the original contracts for which the reinsurance was concluded. If the reinsurers are unable to meet their obligations, NN Group remains liable to its policyholders for the portion reinsured. Consequently, provisions are made for receivables on reinsurance contracts which are deemed uncollectable.
If, for any business unit, it is determined using a best estimate (50%) confidence level, that a shortfall exists, and there are no offsetting amounts within other business units in the same segment (Business Line), the shortfall is recognised immediately in the profit and loss account.
If, for any business unit, the net insurance liabilities are not adequate using a prudent (90%) confidence level, but there are offsetting amounts within other business units, then the business unit is allowed to take measures to strengthen the net insurance liabilities over a period no longer than the expected life of the policies. To the extent that there are no offsetting amounts within other business units, any shortfall at the 90% confidence level is recognised immediately in the profit and loss account.
The adequacy test continues to be applied to businesses that are presented as discontinued operations but have not been divested yet; the relevant businesses continue to be evaluated as part of the adequacy test of the business line in which these were included before classification as discontinued operations.
Investment contracts Insurance policies without discretionary participation features which do not bear significant insurance risk are presented as Investment contracts. Provisions for liabilities under investment contracts are determined either at amortised cost, using the effective interest method (including certain initial acquisition expenses), or at fair value.
Plan assets are measured at fair value at the balance sheet date. For determining the pension expense, the expected return on plan assets is determined using a high quality corporate bond rate identical to the discount rate used in determining the defined benefit obligation.
Changes in the defined benefit obligation that effects Shareholder’s equity and/or Net result, include mainly: ● service cost which are recognised as staff costs in the profit and loss account; ● interest expenses using a high quality corporate bond rate at the start of the period which are recognised as staff costs in the profit and loss account; and ● remeasurements which are recognised in Other comprehensive income (equity).
Remeasurements recognised in Other comprehensive income are not recycled to the profit and loss account. Any past service cost relating to a plan amendment is recognised in profit or loss in the period of the plan amendment. Gains and losses on curtailments and settlements are recognised in the profit and loss account when the curtailment or settlement occurs.
Other post-employment obligations Some NN Group companies provide post-employment healthcare and other benefits to certain employees and former employees. The entitlement to these benefits is usually conditional on the employee remaining in service up to retirement age and the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment using an accounting methodology similar to that for defined benefit pension plans.
Other provisions A provision involves a present obligation arising from past events, the settlement of which is expected to result in an outflow from the company of resources embodying economic benefits, however the timing or the amount is uncertain. Provisions are discounted when the effect of the time value of money is significant, using a before tax discount rate. The determination of provisions is an inherently uncertain process involving estimates regarding amounts and timing of cash flows.
Reorganisation provisions include employee termination benefits when NN Group is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal, or providing termination benefits as a result of an offer made to encourage voluntary redundancy.
Fees and commissions Fees and commissions are generally recognised as the service is provided. Portfolio and other management advisory and service fees are recognised based on the applicable service contracts as the service is provided. Asset management fees related to investment funds and investment contract fees are recognised on a pro-rata basis over the period the service is provided. The same principle is applied for wealth management, financial planning and custody services that are continuously provided over an extended period of time.
FIDUCIARY ACTIVITIES NN Group commonly acts as trustee and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals, trusts, retirement benefit plans and other institutions. These assets and income arising thereon are excluded from these financial statements, as they are not assets of NN Group.
For the purposes of the statement of cash flows, Cash and cash equivalents comprise balances with less than three months’ maturity from the date of acquisition. Investments qualify as a cash equivalent if they are readily convertible to a known amount of cash and are not subject to significant risk of changes in value.
Financial assets at fair value through profit or loss 2013 2012 2011 Trading assets 736 586 534 Investments for risk of policyholders 39,589 98,765 116,438 Non-trading derivatives 3,126 5,107 7,285 Designated as at fair value through profit or loss 482 2,000 2,616 43,933 106,458 126,873
In 2012, the change in “Investments for risk of policyholders” was mainly the result of the income for the year as well as the classification as held for sale of the insurance and investment management business in Asia. Reference is made to Note 11 “Assets and liabilities held for sale” and Note 28 “Underwriting expenditure”.
Non-trading derivatives by type 2013 2012 2011 Derivatives used in: – fair value hedges 1 – cash flow hedges 1,433 2,450 2,572 – hedges of net investments in foreign operations 2 5 Other non-trading derivatives 1,692 2,655 4,708 3,126 5,107 7,285
Other non-trading derivatives mainly includes interest rate swaps for which no hedge accounting is applied.
Designated as at fair value through profit or loss by type 2013 2012 2011 Equity securities 427 15 Debt securities 43 1,096 1,159 Other 12 904 1,442 482 2,000 2,616
Notes to the Consolidated annual accounts of NN Group continued 56 NN Group Annual Report 2013
NN Group’s total exposure to debt securities included in Available-for-sale investments and assets at amortised cost of EUR 61,873 million (2012: EUR 120,555 million; 2011: EUR 133,446 million) is specified as follows by type of exposure: Debt securities by type and balance sheet line – Available-for-sale investments and Assets at amortised cost
reserve US Subprime RMBS 32 –765 733 –32 US Alt-A RMBS 5 –49 –230 284 49 CDO/CLOs 236 –2 5 –189 420 –7 CMBS 352 –3 –41 –3,649 4,042 38 Total ABS 593 –5 –53 0 –4,833 5,479 48
In 2013, “Other changes” mainly relate to the transfer of ING U.S. Reference is made to Note 53 “Other events”.
reserve US Subprime RMBS 733 –32 158 –177 752 –190 US Alt-A RMBS 284 49 31 –2 –40 295 18 CDO/CLOs 420 –7 16 –284 688 –23 CMBS 4,042 38 445 2 –956 4,551 –407 Total ABS 5,479 48 650 0 –1,457 6,286 –602
In 2012, “Other changes” mainly relate to the de-risking program of NN Group and includes sales and redemptions of certain ABS bonds.
The revaluation reserve on debt securities in 2013 includes EUR 3,280 million (before tax) related to Government bonds. This amount comprises EUR 158 million revaluation reserve for Government bonds from Greece, Italy, Ireland, Portugal and Spain.
At 31 December 2012, NN Group’s balance sheet value of “Government bonds” and “Unsecured Financial institutions” bonds to Greece, Italy, Ireland, Portugal and Spain and the related revaluation reserve in equity (before tax) was as follows: Greece, Italy, Ireland, Portugal and Spain – Government bonds and Unsecured Financial institutions’ bonds (1)
Amortised cost value Greece Government bonds available-for-sale 76 40 36 Italy Government bonds available-for-sale 1,377 32 1,345 Financial institutions available-for-sale 51 –1 52 Ireland Government bonds available-for-sale 55 1 54 Financial institutions available-for-sale 15 15 Portugal Government bonds available-for-sale 7 –3 10 Financial institutions available-for-sale 40 2 38 Spain Government bonds available-for-sale 872 –97 969 Financial institutions available-for-sale 96 –2 –11 109 Total 2,589 –28 –11 2,628
The revaluation reserve on debt securities in 2012 included EUR 6,298 million (before tax) related to Government bonds. This amount comprises EUR 27 million negative revaluation reserve for Government bonds from Greece, Italy, Ireland, Portugal and Spain, which is more than offset by EUR 6,325 million positive revaluation reserves for Government bonds from other countries.
The revaluation reserve on debt securities in 2011 included EUR 3,868 million (before tax) related to Government bonds. This amount comprised EUR 435 million negative revaluation reserve for Government bonds from Greece, Italy, Ireland, Portugal and Spain, which was more than offset by EUR 4,303 million positive revaluation reserves for Government bonds from other countries.
In 2012, the agreement under the PSI to exchange Greek Government bonds into new instruments was executed. Under this exchange NN Group received new listed Greek Government bonds (for a notional amount of 31.5% of the notional of the exchanged bonds, maturities between 2023 and 2042), listed European Financial Stability Facility (“EFSF”) notes (for a notional amount of 15% of the notional of the exchanged bonds, maturities of one to two years) and listed short-term EFSF notes (maturity of 6 months, in discharge of all unpaid interest accrued on the exchanged bonds). These new securities were recognised as available-for-sale instruments. Furthermore, NN Group received listed GDP-linked securities issued by Greece (notional equal to notional of the new Greek Government bonds, maturity 2042). The exchange was executed on 12 March 2012. The exchanged bonds were derecognised and the new instruments were recognised at fair value on the exchange date. The exchange resulted in a loss of EUR 7 million in 2012, being the difference between amortised cost (net of cumulative impairments) of the exchanged bonds and fair value of the new instruments at the date of exchange. This result was included in “Investment income”.
Changes in available-for-sale investments Equity securities Debt securities Total 2013 2012 2011 2013 2012 2011 2013 2012 2011 Opening balance 5,073 6,839 7,013 114,232 126,765 116,334 119,305 133,604 123,347 Additions 908 1,474 1,391 45,005 70,884 67,149 45,913 72,358 68,540 Amortisation –581 –304 –395 –581 –304 –395 Transfers and reclassifications 904 0 0 904 Changes in the composition of the group and other changes
Recognised fair value gains (losses) in shareholder’s equity (before tax) in the year prior to reclassification –971 Recognised impairment (before tax) between the beginning of the year in which the reclassification took place and the reclassification date nil
Effect on result (before tax) if reclassification had not been made nil nil nil nil nil
Effect on result (before tax) after the reclassification until 31 December(mainly interest income)
Effect on result (before tax) for the year (interest income and sales results)
NN Group Annual Report 2013 61 5 LOANS AND ADVANCES TO CUSTOMERS
Loans and advances to customers by type Netherlands International Total 2013 2012 2011 2013 2012 2011 2013 2012 2011 Policy loans 33 38 44 146 1,704 3,308 179 1,742 3,352 Loans secured by mortgages 15,365 6,376 6,450 9 7,327 7,692 15,374 13,703 14,142 Unsecured loans 2,457 2,070 2,143 70 1,231 5,135 2,527 3,301 7,278 Asset backed securities 6,479 6,323 6,681 6,479 6,323 6,681 Other 835 338 355 14 527 1,244 849 865 1,599 25,169 15,145 15,673 239 10,789 17,379 25,408 25,934 33,052
In 2013, Changes in the composition of the group and other changes includes EUR 5 million as a result of the transfer of ING U.S. and nil as a result of the classification to continuing operations of NN Group’s business in Japan. Reference is made to Note 53 “Other events”. Furthermore Changes in the composition of the group and other changes relates to the sale of ING’s mortgage business in Mexico. Reference is made to Note 49 “Companies and businesses acquired and divested”.
Sul América S.A. 21 332 186 4,656 3,787 2,752 2,692 CBRE Lionbrook Property Partnership LP 29 146 567 55 79 28 CBRE Retail Property Fund Iberica LP 29 118 1,322 902 67 CBRE Property Fund Central Europe LP 25 100 851 450 45 39 CBRE Retail Property Fund France Belgium C.V.
Significant influence exists for associates in which the interest held is below 20%, based on the combination of NN Group’s financial interest for own risk and other arrangements, such as participation in the advisory board.
The values presented in the table above could differ from the values presented in the individual annual accounts of the associates, due to the fact that the individual values have been brought in line with NN Group’s accounting principles.
In general the reporting dates of all significant associates are consistent with the reporting date of NN Group. However the reporting dates of certain associates can differ from the reporting date of NN Group, but is no more than three months.
Where the listed fair value is lower than the balance sheet value, an impairment review and an evaluation of the going concern basis has been performed.
The associates of NN Group are subject to legal and regulatory restrictions regarding the amount of dividends it can pay to NN Group. These restrictions are for example dependant on the laws in the country of incorporation for declaring dividends or as a result of minimum capital requirements that are imposed by industry regulators in the countries in which the associates operate. In addition, the associates also consider other factors in determining the appropriate levels of equity needed. These factors and limitations include, but are not limited to, rating agency and regulatory views, which can change over time.
Sul América S.A. 36 641 394 5,353 4,292 3,941 3,662 CBRE Retail Property Fund Iberica LP 29 147 1,666 1,146 96 65 CBRE Lionbrook Property Partnership LP 20 102 604 92 50 17 CBRE Property Fund Central Europe LP 25 90 897 536 87 4 CBRE French Residential Fund C.V. 42 78 249 65 24 8 The Capital (London) Fund 20 77 387 3 14 3 CBRE Retail Property Fund France Belgium C.V.
CBRE Nordic Property Fund FGR 14 60 1,079 662 92 67 CBRE Property Fund Central and Eastern Europe
Changes in investments in associates 2013 2012 2011 Opening balance 1,352 1,526 2,428 Additions 48 23 118 Changes in the composition of the group and other changes
In 2013, Changes in the composition of the group and other changes includes EUR –64 million as a result of the transfer of ING U.S. and EUR –17 million as a result of the classification to continuing operations of NN Group’s business in Japan. Reference is made to Note 53 “Other events”.
On 7 January 2014, the sale to Swiss Re Group of 37.7 million units in Sul América S.A. was completed. The transaction further reduced the interest in the Brazilian insurance holding to approximately 10%. A total cash consideration of EUR 176 million was received. The transaction resulted in a net gain of EUR 56 million which represents the difference between the carrying value and the fair value for both the 11.3% interest in scope of the transaction with Swiss Re and the retained 10% interest. The net gain will be recognised in the first quarter of 2014. In 2014, the remaining interest was transferred to ING Group by way of dividend in kind .Together with a dividend paid to ING Group for the proceeds of the 11% divestment, this resulted in a dividend of EUR 315 million in 2014.
In 2013, Exchange rate differences includes EUR –42 million (2012: EUR –42 million; 2011: EUR –32 million) relating to Sul América S.A. and the remainder to individually not significant associates.
Transfers to and from Other assets –2 Fair value gains/(losses) –6 –48 2 Disposals –229 –71 –35 Exchange rate differences 3 –6 Closing balance 764 805 954
Notes to the Consolidated annual accounts of NN Group continued 64 NN Group Annual Report 2013
The total amount of rental income recognised in the profit and loss account for the year ended 31 December 2013 is EUR 63 million (2012: EUR 69 million; 2011: EUR 65 million). No contingent rent was recognised in the Consolidated profit and loss account.
The total amount of direct operating expenses (including repairs and maintenance) in relation to Real estate investments that generated rental income for the year ended 31 December 2013 is EUR 13 million (2012: EUR 14 million; 2011: EUR 17 million). The total amount of direct operating expenses (including repairs and maintenance) incurred on Real estate investments that did not generate rental income for the year ended 31 December 2013 is nil (2012: EUR 3 million; 2011: EUR 1 million).
Property and equipment – property in own use 100 220 292 Investments – available-for-sale 1,358 1,412 1,511 3,032 3,378 3,785
Changes in property in own use 2013 2012 2011 Opening balance 220 292 313 Additions 5 3 Changes in the composition of the group and other changes
Gross carrying amount as at 31 December 133 255 327 Accumulated depreciation as at 31 December –29 –32 –32 Accumulated impairments as at 31 December –4 –3 –3 Net carrying value as at 31 December 100 220 292
Revaluation surplus Opening balance 27 44 43 Revaluation in year –2 –16 1 Released in year –16 –1 Closing balance 9 27 44
In 2013, Changes in the composition of the group and other changes includes EUR –104 million as a result of the transfer of ING U.S. and nil as a result of the classification to continuing operations of NN Group’s business in Japan. Reference is made to Note 53 “Other events”.
In percentages 2013 2012 2011 Most recent appraisal in current year 76 84 45 Most recent appraisal one year ago 21 16 Most recent appraisal two years ago 1 15 Most recent appraisal three years ago 39 Most recent appraisal four years ago 2 1 100 100 100
Notes to the Consolidated annual accounts of NN Group continued 66 NN Group Annual Report 2013
Opening balance 513 277 108 120 1,018 Additions 43 43 Capitalised expenses 50 18 68 Amortisation and unlocking –25 –55 –13 –93 Impairments –2 –2 Effect of unrealised revaluations in equity 308 308 Changes in the composition of the group and other changes
Exchange rate differences –7 –13 –2 –3 –25 Disposals –8 –8 Closing balance 20 264 76 32 392
In 2013, Changes in the composition of the group and other changes includes EUR –909 million as a result of the transfer of ING U.S. and EUR 4 million as a result of the classification to continuing operations of NN Group’s business in Japan. Reference is made to Note 53 “Other events”.
Exchange rate differences –5 16 1 12 Disposals –7 –7 Closing balance 513 277 108 120 1,018
Opening balance 1,320 1,425 166 345 3,256 Additions 8 73 1 82 Capitalised expenses 81 2 83 Amortisation and unlocking –244 –59 –48 –351 Impairments –34 –34 Effect of unrealised revaluations in equity –250 –250 Changes in the composition of the group and other changes
Exchange rate differences 7 –72 –2 –10 –77 Disposals –9 –9 Closing balance 871 786 135 180 1,972
Gross carrying amount as at 31 December 2,244 1,471 818 369 4,902 Accumulated amortisation as at 31 December –1,373 –646 –143 –2,162 Accumulated impairments as at 31 December –685 –37 –46 –768 Net carrying value as at 31 December 871 786 135 180 1,972
Allocation of Goodwill to reporting units After the above changes, the remaining goodwill is allocated to goodwill reporting units as follows: Goodwill allocation to reporting units 2013 2012 2011 Netherlands Life 56 Insurance Europe 101 114 112 Investment Management (IM) 163 163 382 Other 236 Total Insurance 264 277 786
Goodwill impairment testing Goodwill is tested for impairment at the lowest level at which it is monitored for internal management purposes. This level is defined as the so called “reporting units” as set out above. The changes in reportable segments as disclosed in Note 36 “Segments” resulted in the above reporting units but did not impact the outcome of the impairment test. Goodwill is tested for impairment by comparing the carrying value of the reporting unit to the best estimate of the recoverable amount of that reporting unit. The carrying value is determined as the IFRS-EU net asset value including goodwill. The recoverable amount is estimated as the higher of fair value less cost to sell and value in use. Several methodologies are applied to arrive at the best estimate of the recoverable amount.
Changes in deferred acquisition costs Life insurance Non-life insurance Total 2013 2012 2011 2013 2012 2011 2013 2012 2011 Opening balance 4,513 10,165 10,457 36 39 42 4,549 10,204 10,499 Capitalised 616 1,659 1,575 8 15 12 624 1,674 1,587 Amortisation and unlocking –1,885 –1,051 –1,689 –7 –15 –13 –1,892 –1,066 –1,702 Effect of unrealised revaluations in equity
For flexible life insurance contracts the growth rate assumption used to calculate the amortisation of the deferred acquisition costs for 2013 is 6.0% gross and is 4.3% net of investment management fees (2012: 8.1% gross and 7.3% net of investment management fees; 2011: 8.1% gross and 7.4% net of investment management fees). Percentages are based on the portfolios from continuing operations for the respective years.
In 2011, Amortisation and unlocking includes EUR 488 million related to the assumption review for the Insurance US Closed Block Variable Annuity (VA) business. This effect has been included as part of Net result from discontinued operations in the Consolidated profit and loss account.
11 ASSETS AND LIABILITIES HELD FOR SALE Assets and liabilities held for sale includes disposal groups whose carrying amount will be recovered principally through a sale transaction rather than through continuing operations. This relates to businesses for which a sale is agreed upon but for which the transaction has not yet closed or a sale is highly probable at the balance sheet date but for which no sale has yet been agreed.
After carefully exploring and evaluating the options available for the divestment of ING Life Japan, it was concluded that ING Life Japan will be included with NN Group’s European insurance and investment management businesses in the base case IPO of NN Group in 2014. As a result, ING Life Japan and the Japanese Closed Block VA guarantees reinsured to ING Re (“NN Group’s business in Japan”) are no longer classified as held for sale as at 31 December 2013. Reference is made to Note 53 “Other events”.
During 2013, the divestments of the insurance businesses in Hong Kong, Macau and Thailand, the investment management business in Malaysia and Thailand and the joint ventures in South Korea and India, closed. During 2012, the divestment of the insurance business in Malaysia closed. As a result these businesses are no longer consolidated.
Furthermore, some divestments were agreed that are expected to close or closed in 2014, including ING-BOB Life and the Taiwanese investment management businesses; these remain to be classified as held for sale as at 31 December 2013. Reference is made to Note 49 “Companies and businesses acquired and divested”.
Notes to the Consolidated annual accounts of NN Group continued 70 NN Group Annual Report 2013
Assets held for sale 2013 2012 Cash and cash equivalents 80 1,328 Financial assets at fair value through profit or loss 16 26,688 Available-for-sale investments 297 24,805 Loans and advances to customers 156 2,084 Reinsurance contracts 98 Investments in associates 37 Property and equipment 3 33 Intangible assets 176 Deferred acquisition costs 27 5,124 Other assets 51 1,318 630 61,691
Liabilities held for sale 2013 2012 Insurance and investments contracts 418 51,198 Financial liabilities at fair value through profit or loss 2,073 Other liabilities 48 2,384 466 55,655
Included in Shareholder’s equity is cumulative other comprehensive income of EUR 5 million (2012: EUR 1,585 million; 2011: nil) related to Assets and liabilities held for sale.
Goodwill At 31 December 2013, there was no goodwill presented under Assets held for sale (2012: EUR 469 million; 2011: nil). In 2012, EUR 469 million goodwill was reclassified to Assets held for sale. This related to Insurance Korea (EUR 200 million), Investment Management Korea (EUR 180 million), Insurance India (EUR 41 million) and Investment Management Taiwan (EUR 48 million).
For businesses classified as held for sale, the related goodwill is no longer evaluated at the level of the reporting unit to which it was allocated in the regular goodwill impairment test. Instead, it is reviewed as part of the valuation of the disposal unit that is presented as held for sale. In 2012, goodwill of EUR 180 million related to Investment Management Korea, EUR 200 million related to ING Life Korea and EUR 15 million related to ING Vysya Life Insurance was written off, as the related businesses were expected to be sold below carrying value. In 2013, goodwill of EUR 42 million related to Investment Management Taiwan was written off. The developments in the sales process of Investment Management Taiwan during 2013 (resulting in a sale in January 2014) indicated that the expected sales proceeds were no longer above the carrying value. The related charges were included in the Consolidated profit and loss account in Net result from classification as discontinued operations.
Fair value measurement The fair value hierarchy of assets and liabilities measured at fair value, that are presented as held for sale is included below. The fair value hierarchy consists of three levels, depending upon whether fair value were determined based on unadjusted quoted prices in an active market (Level 1), valuation techniques supported by observable inputs (Level 2) or valuation techniques that incorporate inputs which are unobservable and which have a more than insignificant impact on the fair value of the instrument (Level 3). Reference is made to Note 40 “Fair value of assets and liabilities” for more details on the methods applied in determining the fair value.
Methods applied in determining the fair value of financial assets and liabilities – Held for sale 2013 Level 1 Level 2 Level 3 Total Financial Assets Trading assets 14 14 Investments for risk of policyholders 2 2 Available-for-sale investments 296 1 297 312 1 0 313
Liabilities Non-trading derivatives 287 1,786 2,073 Investment contracts (for contracts carried at fair value)
Other assets by type 2013 2012 2011 Reinsurance and insurance receivables 642 1,763 1,971 Deferred tax assets 51 76 186 Property development and obtained from foreclosures 3 72 72 Income tax receivable 137 44 82 Accrued interest and rents 1,741 2,448 2,999 Other accrued assets 274 1,040 1,670 Net defined benefit asset 383 670 1,472 Other 523 622 1,179 3,754 6,735 9,631
Reinsurance and insurance receivables 2013 2012 2011 Receivables on account of direct insurance from: – policyholders 500 1,083 1,238 – intermediaries 51 50 67 Reinsurance receivables 91 630 666 642 1,763 1,971
The allowance for uncollectable reinsurance and insurance receivables amounts to EUR 53 million as at 31 December 2013 (2012: EUR 50 million; 2011: EUR 66 million). The allowance is deducted from this receivable.
Notes to the Consolidated annual accounts of NN Group continued 72 NN Group Annual Report 2013
Ordinary shares All shares are in registered form. No share certificates have been issued. Shares may be transferred by means of a deed of transfer, subject to the approval of the Management Board NN Group. The par value of ordinary shares is EUR 1.00.
Opening balance 29 1,749 1,567 3,345 Unrealised revaluations 2 2,084 2,086 Realised gains/losses transferred to profit and loss 317 317 Change in cash flow hedge reserve 1,316 1,316 Transfer to insurance liabilities/DAC –2,004 –2,004 Closing balance 31 2,146 2,883 5,060
Unrealised revaluations 132 –25 –90 Realised gains/losses transferred to profit and loss 213 –68 156 Exchange rate differences –647 –369 243 Closing balance –252 –331 131
reserve Total Opening balance 1,331 340 1,671 Result for the year 10 10 Transfer to share of associates reserve –118 118 0 Changes in the composition of the group and other changes
Dividend In connection with the divestments of ING Life Korea and the 7.9% share of interest in Sul América, dividend declared and paid was EUR 882 million in 2013, of which EUR 649 million was charged to Share premium and EUR 233 million to Retained earnings.
These above presented subordinated bonds have been issued to raise hybrid capital. Under IFRS-EU these bonds are classified as liabilities. They are considered capital for regulatory purposes. EUR 2,401 million (2012: EUR 2,451 million; 2011: EUR 2,616 million) has been issued to ING Group.
Due to the transfer of ING U.S., all USD denominated subordinated loans have been converted into Euro denominated loans. Reference is made to Note 53 “Other Events”.
The decrease in “Subordinated loans” in the year 2012 reflects the redemption of the 2001, Variable interest rate, EUR 1,250 million hybrid security in December 2012.
On 12 December 2011, ING announced the launch of three separate exchange offers in Europe and tender offers in the United States of America, on a total of seven series of outstanding subordinated securities of ING entities with a total nominal value of approximately EUR 5.8 billion. Of this amount, EUR 1.0 billion related to securities originally issued by ING Verzekeringen N.V. All tender and exchange offers announced on 12 December 2011 were successfully completed on 23 December 2011. The participation for these bonds was 52% and resulted in a total gain of EUR 95 million (EUR 71 million after tax) including related hedge results and transaction costs. This gain was recognised in Other income in 2011.
15 DEBT SECURITIES IN ISSUE Debt securities in issue relate to debentures and other issued debt securities with either fixed interest rates or interest rates based on interest rate levels, such as certificates of deposit and accepted bills originally issued by ING Verzekeringen N.V., except for subordinated items. Debt securities in issue do not include debt securities presented as Financial liabilities at fair value through profit or loss. NN Group does not have debt securities that are issued on terms other than those available in the normal course of business. The maturities of the debt securities are as follows: Debt securities in issue – maturities 2013 2012 2011 Fixed rate debt securities Within 1 year 530 849 More than 1 year but less than 2 years 1,114 More than 5 years 1,110 473 Total fixed rate debt securities 0 1,640 2,436
Mainly as a result of the transfer of ING U.S., NN Group does not have debt securities in issue as at 31 December 2013.
NN Group Annual Report 2013 77 17 INSURANCE AND INVESTMENT CONTRACTS, REINSURANCE CONTRACTS The Provision for insurance and investment contracts, net of reinsurance (i.e. the provision for NN Group’s own account) is presented gross in the balance sheet as “Insurance and investment contracts”. The related reinsurance is presented as “Reinsurance contracts” under Assets in the balance sheet.
Notes to the Consolidated annual accounts of NN Group continued 78 NN Group Annual Report 2013
Provisions for life insurance for risk of policyholder (net of reinsurance )
Prior year provisions: – benefit payments to policyholders –17,361 –15,466 –756 –33,583 – interest accrual and changes in fair value of liabilities 3,932 35 3,967 – valuation changes for risk to policyholders 13,519 13,519 – effect of changes in other assumptions 151 –2 149 –13,278 –1,947 –723 –15,948
Opening balance 146,868 109,487 5,774 262,129 Changes in the composition of the group and other changes
Exchange rate differences 3,087 2,797 185 6,069 Closing balance 146,868 109,487 5,774 262,129
Where discounting is used in the calculation of life insurance provision, the rate is within the range of 2.3% to 4.0% (2012: 3.0% to 5.1%; 2011: 2.8% to 5.5%) based on weighted averages. The change is mainly due to a change in the composition of the portfolio.
Insurance provisions include a provision for the estimated cost of the agreement with regard to unit-linked policies. For more information reference is made to Note 48 “Legal proceedings”.
In 2013, Changes in the composition of the group and other changes includes EUR –129,516 million as a result of the transfer of ING U.S. and EUR 29,445 million as a result of the classification to continuing operations of NN Group’s business in Japan. Reference is made to Note 53 “Other events”.
“Effect of changes in other assumptions” relates mainly to the assumption refinement for the Insurance U.S. Closed Block VA business. This effect has been included as part of net result from discontinued operations in the Consolidated profit and loss account.
To the extent that the assuming reinsurers are unable to meet their obligations, NN Group is liable to its policyholders for the portion reinsured. Consequently, provisions are made for receivables on reinsurance contracts which are deemed uncollectable. The life reinsurance market is highly concentrated and, therefore, diversification of exposure is inherently difficult. To minimise its exposure to significant losses from reinsurer insolvencies, NN Group evaluates the financial condition of its reinsurers, monitors concentrations of credit risk arising from similar geographical regions, activities or economic characteristics of the reinsurer and maintains collateral. Reference is also made to the “Risk management” section.
As at 31 December 2013, the total Reinsurance exposure, including Reinsurance contracts and Receivables from reinsurers (presented in Other assets) amounts to EUR 343 million (2012: EUR 5,920 million; 2011: EUR 6,536 million). There was no provision for uncollectable reinsurance in 2013, 2012 and 2011.
Premiums written 1,642 1,693 1,682 40 40 43 1,682 1,733 1,725 Premiums earned during the year
Changes in claims provisions Provision net of reinsurance Reinsurance contracts Claims provision 2013 2012 2011 2013 2012 2011 2013 2012 2011 Opening balance 3,179 3,113 3,103 84 92 100 3,263 3,205 3,203 Changes in the composition of the group and other changes
Additions: – for the current year 1,176 1,213 1,166 9 6 10 1,185 1,219 1,176 – for prior years –86 –39 –71 2 –11 –86 –37 –82 – interest accrual of provision 40 45 40 40 45 40 1,130 1,219 1,135 9 8 –1 1,139 1,227 1,134
Claim settlements and claim settlement costs: – for the current year –452 –473 –472 –1 –1 –1 –453 –474 –473 – for prior years –618 –643 –665 –13 –13 –6 –631 –656 –671 –1,070 –1,116 –1,137 –14 –14 –7 –1,084 –1,130 –1,144
Exchange rate differences –59 –176 380 Closing balance 2,398 12,628 13,198
Effect of discounting –6 –13 –15 –24 –30 –32 –39 –54 –50 –34 –297 Liability recognised 108 87 114 146 191 230 252 344 433 730 2,635
Other non-trading derivatives mainly include interest rate swaps for which no hedge accounting is applied.
Disclosures in respect of Net defined benefit liabilities are provided in Note 38 “Pension and other post-employment benefits” and deferred tax liabilities are provided in Note 39 “Taxation”.
The change in Other liabilities includes EUR –4,451 million as a result of the transfer of ING U.S. and EUR 1,093 million as a result of the classification to continuing operations of NN Group’s business in Japan. Reference is made to Note 53 “Other events”.
Changes in reorganisation provisions 2013 2012 2011 Opening balance 275 79 101 Changes in the composition of the group and other changes
In 2013 EUR 63 million from the reorganisation provision has been used as a result of the workforce reduction. The remaining provision at the balance sheet date represents the best estimate of the expected redundancy costs and are expected to be sufficient to cover the remaining costs of the transformation program. The remaining costs are costs for redundant employees in the mobility centre and future redundancies.
Changes in other provisions Litigation Other Total 2013 2012 2011 2013 2012 2011 2013 2012 2011 Opening balance 21 41 54 63 93 90 84 134 144 Changes in the composition of the group and other changes
Gross premium income 2013 2012 2011 Gross premium income from life insurance policies 7,848 8,972 9,597 Gross premium income from non-life insurance policies
Effect of reinsurance on premiums written Non-Life Life Total 2013 2012 2011 2013 2012 2011 2013 2012 2011 Direct gross premiums written 1,656 1,709 1,672 7,842 8,973 9,592 9,498 10,682 11,264 Reinsurance assumed gross premiums written
Effect of reinsurance on non-life premiums earned 2013 2012 2011 Direct gross premiums earned 1,657 1,731 1,699 Reinsurance gross assumed premiums earned 26 24 23 Total gross premiums earned 1,683 1,755 1,722
Notes to the Consolidated annual accounts of NN Group continued 86 NN Group Annual Report 2013 22 INVESTMENT INCOME
Interest income from investments in debt securities 1,922 2,088 2,146 Interest income from loans: – unsecured loans 176 235 293 – mortgage loans 416 442 444 – policy loans 8 9 9 – other 119 40 117 Interest income from investments in debt securities and loans
Realised gains/losses on disposal of equity securities 127 444 368 Impairments of available-for-sale equity securities –172 –144 –173 Realised gains/losses and impairments of equity securities
Change in fair value of real estate investments –6 –49 1 Investment income 3,619 3,739 3,483
In 2013, an impairment of nil (2012: nil; 2011: EUR 390 million) was recognised on Greek government bonds and an impairment of nil (2012: nil; 2011: EUR 189 million) was recognised on subordinated debt from Irish banks. Both are included in Impairments of available-for-sale debt securities. Reference is made to the “Risk management” section for further information on these impairments.
Gross fee and commission income 2013 2012 2011 Insurance broking 89 97 99 Asset management fees 716 687 755 Brokerage and advisory fees 4 7 6 Other 147 133 477 956 924 1,337
Asset management fees related to the management of investments held for the risk of policyholders of EUR 36 million (2012: EUR 41 million; 2011: EUR 46 million) are included in Commission Income.
Valuation results on non-trading derivatives 2013 2012 2011 Change in fair value of derivatives relating to: – fair value hedges –6 6 –3 – cash flow hedges (ineffective portion) 50 –13 –16 – other non-trading derivatives –2,662 –2,285 1,042 Net result on non-trading derivatives –2,618 –2,292 1,023
Included in Valuation results on non-trading derivatives are the fair value movements on derivatives used to economically hedge exposures, but for which no hedge accounting is applied. These derivatives hedge exposures in insurance contract liabilities. The fair value movements on the derivatives are influenced by changes in the market conditions, such as stock The change in fair value insurance contract liabilities, which are included in Underwriting expenditure. Reference is made to Note 28 “Underwriting expenditure”.
Valuation results on non-trading derivatives are reflected in the Consolidated statement of cash flows in the section “Result before tax”, in the line item “Adjusted for: other”.
Notes to the Consolidated annual accounts of NN Group continued 88 NN Group Annual Report 2013 26 FOREIGN CURRENCY RESULTS AND NET TRADING INCOME
Foreign currency results and Net trading income 2013 2012 2011 Foreign currency results 108 481 –180 Net trading income 108 91 37 Other –30 –33 26 186 539 –117
Net trading income mainly relates to private equity investments at fair value through profit or loss.
The investment income and valuation results regarding investments for risk of policyholders is EUR 4,930 million (2012: EUR 5,517 million; 2011: EUR 206 million). This amount is not recognised in “Investment income” nor “Valuation results on assets and liabilities designated as at fair value through profit or loss” but are in Underwriting expenditure. As a result it is shown together with the equal amount of related change in insurance provisions for risk of policyholders.
Underwriting expenditure by class 2013 2012 2011 Expenditure from life underwriting Reinsurance and retrocession premiums 103 100 103 Gross benefits 11,576 10,860 9,250 Reinsurance recoveries –58 –61 –72 Change in life insurance provisions –6,429 –2,592 1,830 Costs of acquiring insurance business 1,863 496 474 Other underwriting expenditure 92 75 84 Profit sharing and rebates 51 24 112 7,198 8,902 11,781
The total Cost of acquiring insurance business (life and non-life) and investment contracts amounted to EUR 2,122 million (2012: EUR 761 million; 2011: EUR 738 million). This includes amortisation and unlocking of DAC of EUR 1,892 million (2012: EUR 1,066 million; 2011: EUR 1,702 million) and the net amount of commissions paid of EUR 854 million (2012: EUR 1,369 million; 2011: EUR 623 million) and commissions capitalised in DAC of EUR 624 million (2012: EUR 1,674 million; 2011: EUR 1,587 million). In 2013, Cost of acquiring insurance business includes the reduction of DAC of EUR 1,405 million for Japan Closed Block VA as explained below.
In 2013, “Change in life insurance provisions” includes an amount of EUR 177 million as a result of the refined market interest rate assumption that is used in determining certain components of the insurance liabilities for the separate account pension business in the Netherlands.
Notes to the Consolidated annual accounts of NN Group continued 90 NN Group Annual Report 2013
Intangible amortisation and (reversals of) other impairments 2013 2012 2011 Property and equipment 1 1 1 Goodwill 56 Software and other intangible assets 2 2 34 (Reversals of) other impairments 3 59 35
Impairment on Loans and advances to customers are presented under Investment income. Reference is made to the “Risk management” section for further information on impairments.
In 2013 and 2012, the Dutch Government imposed an additional tax charge of 16% on income in excess of EUR 150,000 of each employee, subject to Dutch income tax. The tax is charged to NN Group and does not affect the remuneration of involved staff. The tax imposed on NN Group for relevant employees amounts to EUR 6.0 million (2012:EUR 5.8 million) which is included in the amounts in the table above.
Remuneration of senior management, Management Board and Supervisory Board Reference is made to Note 52 “Related parties”.
As at 31 December 2013, no own shares were held in order to fulfil its obligations with regard to the existing stock option plan. As at 31 December 2012: 26,429,948 own shares (2011: 42,126,329) were held in connection with the option plan.
The tables below disclose the option rights outstanding for employees of NN Group.
Options outstanding (in number) Weighted average exercise price (in euros) 2013 2012 2011 2013 2012 2011 Opening balance 33,821,638 44,189,864 49,162,987 14.68 14.71 14.97 Exercised or transferred –19,602,450 –1,993,691 2,170,169 14.56 3.42 21.49 Forfeited –553,906 –1,021,065 –1,259,217 14.43 10.62 12.68 Expired –3,477,340 –7,353,470 –5,884,075 11.48 18.40 20.06 Closing balance 10,187,942 33,821,638 44,189,864 15.99 14.68 14.71
In 2013, “Exercised or transferred” includes 16,750,023 option rights related to ING U.S., which was transferred to ING Group. Reference is made to Note 53 “Other events”.
As at 31 December 2013 total options outstanding consists of 3,302,570 options (2012: 29,804,428; 2011: 39,333,056) relating to equity-settled share-based payment arrangements and 6,885,372 options (2012: 4,017,210; 2011: 4,856,808) relating to cash-settled share-based payment arrangements.
Options non-vested (in number) Weighted average grant date fair value (in euros)
2013 2012 2011 2013 2012 2011 Opening balance 6,180,625 14,164,245 21,552,537 3.27 2.61 3.01 Vested or transferred –6,012,595 –7,333,710 –6,580,861 3.27 2.05 3.88 Forfeited –168,030 –649,910 –807,431 3.27 2.74 3.03 Closing balance 0 6,180,625 14,164,245 0.00 3.27 2.61
As at 31 December 2013, the aggregate intrinsic value of options outstanding and exercisable are EUR 12 million and EUR 12 million, respectively (2012: EUR 19 million and EUR 19 million respectively and 2011: EUR 18 million and nil respectively).
As at 31 December 2013, unrecognised compensation costs related to stock options amounted to nil (2012: EUR 1 million; 2011: EUR 10 million).
The fair value of options granted is recognised as an expense in staff expenses and is allocated over the vesting period of the options. The fair value of the option awards have been determined by using a Monte Carlo simulation model. This model takes the risk free interest rate into account (2.0% to 4.6%), as well as the expected life of the options granted (from 5 to 9 years), the exercise price, the current share price (EUR 2.90 – EUR 26.05), the expected volatility of the certificates of ING Groep N.V. shares (25% – 84%) and the expected dividend yield (0.94% – 8.99%).
The source for implied volatilities used for the valuation of the stock options is ING Group’s trading system. The implied volatilities in this system are determined by ING Group’s traders and are based on market data implied volatilities, not on historical volatilities.
Notes to the Consolidated annual accounts of NN Group continued 94 NN Group Annual Report 2013 32 OTHER OPERATING EXPENSE
Other operating expense 2013 2012 2011 Depreciation of property and equipment 37 31 29 Amortisation of software 54 50 36 Computer costs 219 203 173 Office expense 133 138 144 Travel and accommodation expenses 17 23 35 Advertising and public relations 51 52 49 External advisory fees 116 172 198 Postal charges 9 3 –1 Addition/(releases) of provision for reorganisations and relocations
For Addition/(releases) of provision for reorganisation and relocations reference is made to the disclosure on the reorganisation provision in Note 20 “Other liabilities”.
In 2011, the pension, life insurance and investment management activities in Latin America (“Latin America”) were classified as discontinued operations. The divestment of Latin America was completed in December 2011.
Taxation 135 92 –7 Net result from discontinued operations 45 839 –202
In 2013, “Net result from classification as discontinued operations Asia” included a goodwill write-off of EUR 42 million in Investment Management Taiwan. In 2012, “Net result from classification as discontinued operations Asia” included goodwill write-offs of EUR 200 million in ING Life Korea, EUR 180 million in Investment Management Korea and EUR 15 million in ING Vysya Life Insurance. Reference is made to Note 11 “Assets and liabilities held for sale”.
The net cash flow from discontinued operations was as follows: Net cash flow from discontinued operations 2013 2012 2011 Operating cash flow –5,751 1,171 3,655 Investing cash flow 3,961 –2,075 929 Financing cash flow –642 1,351 –4,613 Net cash flow –2,432 447 –29
Sales proceeds in cash are presented in the Consolidated statement of cash flows under “Net cash flow from investment activities – Disposals and redemptions: group companies”. The proceeds relating to the IPO of ING U.S. are presented in the Consolidated statement of cash flows under “Proceeds of IPO ING U.S.”. These proceeds are not included in the table above.
The activities of ING U.S. were, prior to the transfer of ING U.S., reported in the segments Insurance United States, Insurance Closed Block VA, Investment management US and in the Corporate line US. Due to the transfer, these segments ceased to exist.
STATEMENT OF CASH FLOWS 34 NET CASH FLOW FROM INVESTING ACTIVITIES Information on the impact of companies acquired or divested is presented in Note 49 “Companies and businesses acquired and divested”.
Interest received, interest paid and dividends received are included in operating activities in the Consolidated statement of cash flows. Dividend paid is included in financing activities in the Consolidated statement of cash flows.
The accounting policies of the segments are the same as those described in Note 1 “Accounting policies”. Transfer prices for inter-segment transactions are set at arm’s length. Corporate expenses are allocated to business lines based on time spent by head office personnel, the relative number of staff, or on the basis of income and/or assets of the segment.
As of 2013, NN Group evaluates the results of its segments using a financial performance measure called operating result. Operating result is defined as result under IFRS-EU excluding the impact of non-operating items, divestments, discontinued operations and special items. Disclosures on comparative years also reflect the impact of current year’s divestments. Non-operating items include realised capital gains/losses and impairments on debt and equity securities, revaluations on assets marked-to-market through the profit and loss account and other non-operating market impacts. Special items include items of income or expense that are significant and arise from events or transactions that are clearly distinct from the ordinary operating activities.
The operating result of NN Group’s segments is reconciled to the Net result as reported in the IFRS-EU Consolidated profit and loss account below.
business Investment Management (IM) Income from investment management activities. Other Income from banking activities in the Netherlands, corporate reinsurance and items related to capital management. Japan Closed Block VA Consists of the closed block single premium variable annuity individual life insurance portfolio in Japan, including the internally reinsured minimum guarantee risk, which has been closed to new business and which is now being managed in run-off.
Operating result (before tax) is used by NN Group to evaluate the financial performance of its segments. Each segment’s operating result is calculated by adjusting the reported result before tax for the following items:  Non-operating items: related to (general account) investments that are held for own risk (net of policyholder profit sharing): - Capital gains/losses and impairments: realised gains and losses as well as impairments on financial assets that are classified as available for sale. These investments include debt and equity securities (including fixed income and equity funds), private equity (< 20% ownership), real estate funds as well as loans quoted in active markets.
- Market & other impacts: these impacts mainly comprise the change in the provision for guarantees on separate account pension contracts (net of hedging) in the Netherlands, the equity related and other deferred acquisition costs unlocking for Japan Closed-Block VA as well as the accounting volatility related to the reinsurance of minimum guaranteed benefits of Japan Closed-Block VA.
 Result on divestments: result before tax related to divested operations.  Special items before tax: items of income or expense that are significant and arise from events or transactions that are clearly distinct from the ordinary business activities and therefore are not expected to recur frequently or regularly. This includes for instance restructuring expenses, goodwill impairments, results related to early retirement of debt and gains/losses from employee pension plan amendments or curtailments.
Notes to the Consolidated annual accounts of NN Group continued 98 NN Group Annual Report 2013
Investment margin 557 105 7 1 669 Fees and premium based revenues
Taxation 65 14 77 71 34 –93 –214 –4 –50 Minority interests 6 9 16 Net result from continuing operations
Special items before tax –225 –140 –38 –6 –43 –451 Result on divestments –23 –7 80 50 Result before tax from continuing operations
Special items in 2012 includes costs mainly related to the strategic reorganisation measures of approximately EUR 207 million, the separation and IPO preparation of EUR 221 million, which is partly offset by a pension curtailment of EUR 100 million following the new Dutch employee pension scheme announced in 2012.
Investment margin 596 159 2 3 760 Fees and premium based revenues
Result on divestments in 2011 reflects the results on the sale of IIM Australia and Pacific Antai Life Insurance Company Ltd.
Special items in 2011 includes mainly, an adjustment of the Illiquid Assets Back-up Facility based on higher prepayment behaviour in the underlying Alt-A securities, the result on the repurchase of subordinated loans executed in December 2011 as disclosed in Note 27 “Other income” and Note 14 “Subordinated loans”, and restructuring expenses.
NN Group provides other post-employment employee benefits to certain employees and former employees. These are primarily post-employment healthcare benefits and post-employment defined benefit early-retirement plans.
The most recent actuarial valuations of the plan assets and the defined benefit obligation were carried out at 31 December 2013. The defined benefit obligation, and the related current service cost and past service cost, were determined using the projected unit credit method.
Exchange rate differences –6 –18 31 Closing balance 6,457 7,542 6,644
Remeasurements: Actuarial gains and losses arising from changes in financial assumptions
Benefits paid –220 –232 –250 –4 –4 Past service cost 1 Changes in the composition of the group and other changes
Effect of curtailment or settlement –100 –133 –64 Exchange rate differences –17 –35 52 –1 –1 1 Closing balance 6,125 7,538 5,803 40 77 74
The key elements of the new scheme are:  NN Group contributes a yearly pre-defined premium to the fund. The employee contribution to the new scheme will gradually increase to one-third of the base pension premium;  The minimum salary level at which pensions are provided will be lowered to EUR 15,000;  Pension benefit will be based on average wage over period of employment with a 2% annual accrual rate;  The pension fund, not NN Group, will bear responsibility for funding adequacy; NN Group to pay an additional risk premium;  Responsibility for inflation indexation will move to the new fund; and  Standard retirement age will be raised to 67.
Amounts recognised directly in Other comprehensive income (equity) were as follows: Remeasurement of the net defined benefit asset/liability 2013 2012 2011 Remeasurement of plan assets –274 580 482 Actuarial gains and losses arising from changes in demographic assumptions
Weighted averages of basic actuarial assumptions in annual % as at 31 December Net defined benefit asset/liability Other post-employment benefits 2013 2012 2011 2013 2012 2011 Discount rates 3.70 3.80 5.30 2.80 2.30 4.10 Mortality rates 0.80 0.80 1.00 0.80 0.80 1.00 Expected rates of salary increases (excluding promotion increases)
For 2014 the expected contributions to pension plans are EUR 46 million.
Notes to the Consolidated annual accounts of NN Group continued 106 NN Group Annual Report 2013
Net defined benefit asset/liability Other postemployment benefits Other Total 2013 2012 2011 2013 2012 2011 2013 2012 2011 2013 2012 2011 Current service cost 90 76 81 –7 7 5 83 83 86 Past service cost 1 0 0 1 Net interest cost –26 –93 –47 –26 –93 –47 Effect of curtailment or settlement –3 –133 –3 –133 0 Other –1 2 1 –1 26 –2 –2 28 –1 Defined benefit plans 60 –150 35 –7 9 6 –1 26 –2 52 –115 39
Additional information on the closed defined benefit plan in the Netherlands The largest defined benefit plan is in the Netherlands (94% of the total defined benefit obligation). The defined benefit plan is administered by a fund (PFI) that is legally separated from NN Group. The board of the pension fund is required by law or by articles of association to act in the interest of the fund and of all relevant stakeholders in the scheme, i.e. active employees, inactive employees, retirees and the employer. The board of the pension fund is responsible for the investment policy with regard to the assets of the fund, including the asset-liability matching strategies of the plan. The plan in the Netherlands typically exposes NN Group to risks such as: investment risk, interest rate risk and longevity risk. The primary financial objective of the plan in the Netherlands is to secure accumulated participant retirement benefits.
Since the plan will be closed for new pension accruals as of 1 January 2014, no premiums will be paid into the plan. However, ING decides annually whether or not to grant a lump sum payment for indexation of the accrued pensions.
In February 2014, ING reached an agreement with the various stakeholders to transfer all future funding and indexation obligations under the current closed defined benefit plan in the Netherlands to the Dutch ING Pension Fund. The agreement will make the Dutch ING Pension Fund financially independent.
Debt securities (fixed income investments): – Governments bonds 2,985 2,652 2,174 2,985 2,652 2,174 – Corporate bonds 461 462 440 461 462 440 – Other bonds (developing markets)
Equity security investments: – Equity securities in developed markets developing markets
Notes to the Consolidated annual accounts of NN Group continued 108 NN Group Annual Report 2013
Investments 3,105 –1,775 –711 334 –16 937 Real estate investments 347 –22 –42 283 Financial assets and liabilities at fair value through profit or loss
Deferred acquisition costs and VOBA 1,351 339 –332 –893 –153 312 Depreciation –4 –2 1 –5 Insurance provisions –3,986 692 1,133 821 25 –1,315 Cash flow hedges 1,183 –279 15 919 Pension and post-employment benefits –222 48 52 240 7 125 Other provisions 38 2 2 42 Receivables –39 3 9 –3 –30 Loans and advances to customers 16 –3 –12 1 Unused tax losses carried forward –682 161 –16 2 –535 Other 63 –46 –10 –98 25 –66 1,144 –1,021 271 370 –113 651
In 2013, Changes in the composition of the group and other changes includes EUR 158 million as a result of the transfer of ING U.S. and EUR 551 million as a result of the classification to continuing operations of NN Group’s business in Japan. Reference is made to Note 53 “Other events”.
Deferred acquisition costs and VOBA 2,731 –147 166 –1,301 –98 1,351 Depreciation –4 –4 Insurance provisions –3,350 –803 –293 408 52 –3,986 Cash flow hedges 955 235 –7 1,183 Pension and post-employment benefits 18 –320 31 39 10 –222 Other provisions –161 317 –134 16 38 Receivables –31 1 –8 –1 –39 Loans and advances to customers 14 –2 3 1 16 Unused tax losses carried forward –674 –48 36 4 –682 Other 61 9 –135 111 17 63 1,657 952 –69 –1,346 –50 1,144
Net liability 2011 (1) Investments –13 1,267 469 –62 75 1,736 Real estate investments 383 –10 5 378 Financial assets and liabilities at fair value through profit or loss
Presented in the balance sheet as: – deferred tax liabilities 1,197 1,843 – deferred tax assets –179 –186 1,018 1,657
Notes to the Consolidated annual accounts of NN Group continued 110 NN Group Annual Report 2013
Unused tax losses carried forward recognised as a deferred tax asset
Average tax rate 24.9% 27.0% 29.7% Deferred tax asset 535 682 674
The following tax losses carried forward and tax credits will expire as follows as at 31 December: Total unused tax losses carried forward analysed by expiry terms No deferred tax asset recognised Deferred tax asset recognised 2013 2012 2011 2013 2012 2011 Within 1 year 1 19 11 11 15 40 More than 1 year but less than 5 years 123 132 229 9 166 404 More than 5 years but less than 10 years 27 111 507 1,313 2,113 1,075 More than 10 years but less than 20 years 1,969 2,885 295 192 Unlimited 14 15 520 228 561 165 2,231 3,647 2,148 2,522 2,272
The deferred tax asset includes balances for which the utilisation is dependent on future taxable profits whilst the related entities have incurred losses in either the current year or the preceding year. The aggregate amount for the most significant entities to which this applies is EUR 94 million (2012: EUR 129 million; 2011: EUR 209 million).
This can be specified by jurisdiction as follows: Breakdown by jurisdiction
As at 31 December 2013, 31 December 2012 and 31 December 2011, NN Group had no significant temporary differences associated with the parent company’s investments in subsidiaries, branches and associates and interest in joint ventures as any economic benefit from those investments will not be taxable at parent company level.
The effective tax rate in 2013 was higher (favourable in a tax loss situation) than the weighted average statutory tax rate. This is mainly caused by non-taxable income which is only partly offset by non-deductible expenses, tax rate changes and prior year adjustments.
The effective tax rate in 2011 was lower than the weighted average statutory tax rate. This was mainly caused by exempt income which is only partly offset by non-deductible expenses.
The 2013 taxation in the Netherlands changed with EUR 130 million to EUR –104 million from EUR –234 million in the previous year mainly caused by higher result before tax compared with 2012. Also, the higher result before tax in 2013 was comprised of lower non-taxable profit items compared with 2012.
The weighted average statutory tax rate in 2012 differs significantly from 2011. This is mainly a result of the composition of the result before tax from continuing operations in 2012 and 2011. In 2012 relatively more profits were taxable in countries with high rates while relatively more losses were incurred in countries with lower tax rates.
The effective tax rate in 2012 was higher (favourable in a tax loss situation) than the negative weighted average statutory tax rate. This is mainly caused by non-taxable income which is only partly offset by non-deductible expenses.
Changes in cash flow hedge reserve 275 –236 –467 Transfer to insurance liabilities/DAC –879 911 847 Exchange rate differences and other changes –82 –1 Total income tax related to components of other comprehensive income 1,013 –1,021 –1,008
Notes to the Consolidated annual accounts of NN Group continued 112 NN Group Annual Report 2013 40 FAIR VALUE OF ASSETS AND LIABILITIES
FINANCIAL ASSETS AND LIABILITIES The following table presents the estimated fair value of NN Group’s financial assets and liabilities. Certain balance sheet items are not included in the table, as they do not meet the definition of a financial asset or liability. The aggregation of the fair value presented below does not represent, and should not be construed as representing, the underlying value of NN Group.
The following methods and assumptions were used by NN Group to estimate the fair value of the financial instruments: Financial assets Cash and cash equivalents Cash and cash equivalents are recorded at their nominal value that approximates its fair value.
Equity securities The fair value of publicly traded equity securities is based on quoted market prices when available. Where no quoted market prices are available, fair value is determined based on quoted prices for similar securities or other valuation techniques. The fair value of private equity is based on quoted market prices, if available. In the absence of quoted prices in an active market, fair value is estimated on the basis of an analysis of the investee’s financial position and results, risk profile, prospects, price, earnings comparisons and revenue multiples and by reference to market valuations for similar entities quoted in an active market.
Loans and advances to customers For loans and advances that are repriced frequently and have had no significant changes in credit risk, carrying amounts represent a reasonable estimate of the fair value. The fair value of other loans is estimated by discounting expected future cash flows using interest rates offered for similar loans to borrowers with similar credit ratings.
The fair value of mortgage loans is estimated by taking into account prepayment behaviour and discounting future cash flows using interest rates currently being offered for similar loans to borrowers with similar credit ratings. The fair value of fixed rate policy loans is estimated by discounting cash flows at the interest rates charged on policy loans of similar policies currently being issued. Loans with similar characteristics are aggregated for calculations purposes. The book values of variable rate policy loans approximate their fair value.
Investment contracts For investment contracts for risk of the company the fair value have been estimated using a discounted cash flow approach based on interest rates currently being offered for similar contracts with maturities consistent with those remaining for the contracts being valued. For investment contracts for risk of policyholders the fair value generally equals the fair value of the underlying assets. For other investment-type contracts, the fair value is estimated based on the cash surrender values.
Level 2 – Valuation technique supported by observable inputs This category includes financial instruments whose fair value is determined using a valuation technique (e.g. a model), where inputs in the model are taken from an active market or are observable. If certain inputs in the model are unobservable the instrument is still classified in this category, provided that the impact of those unobservable inputs elements on the overall valuation is insignificant. Included in this category are items whose value is derived from quoted prices of similar instruments, but for which the prices are modified based on other market observable external data and items whose value is derived from quoted prices but for which there was insufficient evidence of an active market.
Financial liabilities Non-trading derivatives 114 1,729 1,843 Investment contracts (for contracts at fair value) 1,588 1,588 1,702 1,729 0 3,431
The fair value of the financial instruments carried at fair value was determined as follows: Methods applied in determining the fair value of financial assets and liabilities 2013 Level 1 Level 2 Level 3 Total Financial assets Trading assets 13 3 720 736 Investments for risk of policyholders 38,228 1,113 248 39,589 Non-trading derivatives 3 3,123 3,126 Financial assets designated as at fair value through profit or loss
Main changes in fair value hierarchy in 2013 There were no significant transfers between Level 1 and 2.
Notes to the Consolidated annual accounts of NN Group continued 116 NN Group Annual Report 2013
Methods applied in determining the fair value of financial assets and liabilities 2011 Level 1 Level 2 Level 3 Total Financial assets Trading assets 47 84 403 534 Investments for risk of policyholders 111,203 5,094 141 116,438 Non-trading derivatives 1,430 5,690 165 7,285 Financial assets designated as at fair value through profit or loss
Financial liabilities Non-trading derivatives 1,017 2,071 1,316 4,404 Investment contracts (for contracts at fair value) 3,279 3,648 12 6,939 4,296 5,719 1,328 11,343
Financial assets and liabilities in Level 3 include both assets and liabilities for which the fair value was determined using valuation techniques that incorporate unobservable inputs and assets and liabilities for which the fair value was determined using quoted prices, but for which the market was not actively trading at or around the balance sheet date. Unobservable inputs are inputs which are based on NN Group’s own assumptions about the factors that market participants would use in pricing an asset or liability, developed based on the best information available in the circumstances. Unobservable inputs may include volatility, correlation, spreads to discount rates, default rates and recovery rates, prepayment rates and certain credit spreads. Fair values that are determined using valuation techniques using unobservable inputs are sensitive to the inputs used. Fair values that are determined using quoted prices are not sensitive to unobservable inputs, as the valuation is based on unadjusted external price quotes. These are classified in Level 3 as a result of the illiquidity in the relevant market, but are not significantly sensitive to NN Group’s own unobservable inputs.
Of the total amount of financial assets classified as Level 3 as at 31 December 2013 of EUR 3.1 billion, an amount of EUR 2.4 billion is based on unadjusted quoted prices in inactive markets. This includes for example debt securities and shares in real estate investment funds and private equity investment funds for which the fair value is determined using quoted prices for the securities or quoted prices obtained from the asset managers of the funds. As ING does generally not adjust quoted prices using its own inputs, there is no significant sensitivity to ING’s own unobservable inputs.
The remaining EUR 0.7 billion Level 3 financial assets are private equity investments that are recognised at fair value. Fair value is determined using both market-based and investment-specific inputs. In the absence of an active market, fair values are estimated on the basis of the analysis of the invested companies’ financial position, future prospects and other factors, considering valuations of similar positions and other market information. Given the bespoke nature of the analysis in respect of most significant positions, it is not practical to quote a range of key unobservable inputs or provide a sensitivity analysis on such unobservable inputs.
Exchange rate differences 39 –4 35 Closing balance 720 248 0 0 2,109 3,077
Opening balance 519 150 57 893 2,897 4,516 Amounts recognised in the profit and loss account during the year
Opening balance 403 141 165 1,423 3,473 5,605 Amounts recognised in the profit and loss account during the year
Notes to the Consolidated annual accounts of NN Group continued 118 NN Group Annual Report 2013
Opening balance 464 136 145 1,293 3,506 5,544 Amounts recognised in the profit and loss account during the year
Changes in the composition of the group and other changes includes the increase of the Level 3 assets in relation to shares in real estate investment funds; this increase includes mainly the reclassification of associates to available-for-sale investments as disclosed in Note 6 “Investments in associates”, as well as the reclassification of equity securities in certain real estate companies into Level 3.
Opening balance 1,186 12 1,198 Amounts recognised in the profit and loss account during the year
Issue of liabilities 7 7 Early repayment of liabilities –8 –8 Transfers into Level 3 2 2 Transfers out of Level 3 –8 –8 Changes in the composition of the group and other changes
Opening balance 1,316 12 1,328 Amounts recognised in the profit and loss account during the year
Opening balance 1,142 17 1,159 Amounts recognised in the profit and loss account during the year
Recognition of unrealised gains and losses in Level 3 Unrealised gains and losses that relate to Level 3 financial assets and liabilities are included in the profit and loss account as follows: ● those relating to trading assets and trading liabilities are included in Net trading income; ● those relating to investments for risk of policyholders are included in Underwriting expenditure; ● those relating to non-trading derivatives are included in Valuation results on non-trading derivatives; and ● those relating to financial assets and liabilities designated as at fair value through profit or loss are included in
Fair value of the financial instruments carried at amortised cost The fair value of the financial instruments carried at amortised cost in the balance sheet (where fair value are disclosed) were determined as follows: Consolidated annual accounts 4
Financial liabilities Subordinated loans 2,928 2,928 Other borrowed funds 456 2,632 1,729 4,817 Investment contracts for risk of company 20 775 795 Investment contracts for risk of policyholders 1,588 1,588 Customer deposits and other funds on deposit 5,764 5,764 2,064 8,396 5,432 15,892
Fair value hierarchy of certain ABS bonds 2012 Level 1 Level 2 Level 3 Total US Subprime RMBS 733 733 US Alt-A RMBS 284 284 CDO/CLOs 129 129 CMBS 3,750 3,750 Total certain ABS 0 4,767 129 4,896
Methods applied in determining the fair value of financial assets and liabilities 2013 Level 1 Level 2 Level 3 Total Financial assets Cash and cash equivalents 7,155 7,155 Loans and advances to customers 9 1,893 24,212 26,114 7,164 1,893 24,212 33,269
Notes to the Consolidated annual accounts of NN Group continued 122 NN Group Annual Report 2013
Classification of bonds in Level 2 is mainly a result of low trading liquidity in the relevant markets.
Fair value hierarchy of Greek, Italian, Irish, Portuguese and Spanish bonds at fair value 2011 Level 1 Level 2 Level 3 Total Greece Government bonds available-for-sale 104 104 Italy Government bonds available-for-sale 1,207 1,207 Financial institutions available-for-sale 83 83 Ireland Government bonds available-for-sale 43 43 Financial institutions available-for-sale 15 15 Portugal Government bonds available-for-sale 95 95 Financial institutions available-for-sale 30 17 47 Spain Government bonds available–for-sale 866 866 Financial institutions available-for-sale 163 163 Total 2,502 121 0 2,623
NON-FINANCIAL ASSETS AND LIABILITIES In addition to financial assets and liabilities, the following table presents the estimated fair value of NN Group’s nonfinancial assets and liabilities that are measured at fair value in the balance sheet. Reference is made to Note 1 “Accounting policies” in the sections “Real estate investments” and “Property in own use” for the methods and assumptions used by NN Group to estimate the fair value of the non-financial assets.
The accounting treatment of hedge transactions varies according to the nature of the instrument hedged and whether the hedge qualifies under the IFRS-EU hedge accounting rules. Derivatives that qualify for hedge accounting under IFRS-EU are classified and reported in accordance with the nature of the instrument hedged and the type of IFRS-EU hedge model that is applicable. The three models applicable under IFRS-EU are: fair value hedge accounting, cash flow hedge accounting and net investment hedge accounting. These are described under the relevant headings below. The company’s detailed accounting policies for these three hedge models are set out in Note 1 “Accounting policies” in the section on “Principles of valuation and determination of results”.
Notes to the Consolidated annual accounts of NN Group continued 124 NN Group Annual Report 2013
Fair value hedge accounting NN Group’s fair value hedges principally consist of interest rate swaps and cross-currency interest rate swaps that are used to protect against changes in the fair value of fixed-rate instruments due to movements in market interest rates.
For the year ended 31 December 2013, NN Group recognised EUR –6 million (2012: EUR 6 million; 2011: EUR –3 million) of fair value changes on derivatives designated under fair value hedge accounting in the profit and loss account. This amount was offset by EUR 3 million (2012: EUR –6 million; 2011: EUR 3 million) fair value changes recognised on hedged items. This resulted in EUR –3 million (2012: nil; 2011: nil) net accounting ineffectiveness recognised in the profit and loss account. As at 31 December 2013, the fair value of outstanding derivatives designated under fair value hedge accounting was EUR 1 million (2012: EUR –203 million; 2011: EUR –264 million), presented in the balance sheet as EUR 1 million (2012: nil; 2011: nil) positive fair value under assets and nil (2012: EUR 203 million; 2011: EUR 264 million) negative fair value under liabilities.
As at 31 December 2013, the fair value of outstanding derivatives designated under net investment hedge accounting was EUR –8 million (2012: EUR 2 million; 2011: EUR –7 million), presented in the balance sheet as nil (2012: EUR 2 million; 2011: EUR 5 million) positive fair value under assets and EUR 8 million (2012: nil; 2011: EUR 12 million) negative fair value under liabilities.
There was no accounting ineffectiveness recognised in the profit and loss account for the year ended 31 December 2013, 2012 and 2011 on derivatives and non-derivatives designated under net investment hedge accounting.
Maturity not applicable Total Assets Cash and cash equivalents 7,155 7,155 Financial assets at fair value through profit or loss: – trading assets 736 736 – investments for risk of policyholders (2) 39,589 39,589 – non-trading derivatives 44 12 24 1,019 2,032 –5 3,126 – designated as at fair value through profit or loss 401 42 13 26 482 Available-for-sale investments 353 422 1,834 10,383 42,402 5,620 61,014 Loans and advances to customers 417 524 1,774 4,651 17,746 207 25,319 Reinsurance contracts 10 24 30 10 79 99 252 Intangible assets 3 7 14 81 4 283 392 Deferred acquisition costs 20 17 91 198 1,027 1,353 Assets held for sale (3) 58 572 630 Other assets 1,234 554 988 385 573 20 3,754 Remaining assets (for which maturities are not applicable) (4)
Less than 1 months 3–12 months 1–5 years Over 5 years
NN Group Annual Report 2013 127 43 LIABILITIES BY MATURITY The tables below include all financial liabilities by maturity based on contractual, undiscounted cash flows. Furthermore, the undiscounted future coupon interest on financial liabilities payable will be included in a separate line and in the relevant maturity bucket. Derivative liabilities are included on a net basis if cash flows are settled net. For other derivative liabilities the contractual gross cash flow payable is included.
Non-financial liabilities are included based on a breakdown of the balance sheet amounts by expected maturity. Reference is made to the Liquidity Risk paragraph in the “Risk management” section for a description on how liquidity risk is managed.
(2) Liabilities held for sale consist of the liabilities of the disposal groups classified as held for sale as disclosed in Note 11 “Assets and liabilities held for sale”. For these assets and liabilities, the underlying contractual maturities are no longer relevant to NN Group. For businesses for which a binding sale agreement exists, all related assets and liabilities held for sale are classified in accordance with the agreed or expected closing date. For other businesses, for which no sale agreement exists, assets and liabilities held for sale are included in “maturity not applicable”.
Liabilities held for sale (2) 14 452 466 Other liabilities 1,419 –1 918 318 1,107 364 4,125 Non-financial liabilities 2,239 1,114 6,856 17,904 48,145 39,884 0 116,142
(1) This column reconciles the contractual undiscounted cash flow on financial liabilities to the balance sheet values. The adjustments mainly relate to the impact of discounting and, for derivatives, to the fact that the contractual cash flows are presented gross basis (unless the cash flows are actually settled net).
Notes to the Consolidated annual accounts of NN Group continued 128 NN Group Annual Report 2013
Liabilities Subordinated loans 476 2,438 33 2,947 Debt securities in issue 1 799 1,116 –6 1,910 Other borrowed funds 3,476 32 1,539 969 1,426 7,442 Financial liabilities at fair value through profit or loss: – non-trading derivatives 292 96 313 1,289 751 1,145 –628 3,258 Financial liabilities 3,769 128 2,651 2,258 3,769 3,583 –601 15,557
44 ASSETS NOT FREELY DISPOSABLE The assets not freely disposable relate primarily to investments of EUR 54 million (2012: EUR 238 million; 2011: EUR 251 million) provided as guarantees for certain contingent liabilities. There are no significant terms and conditions relating to the collateral represented by such guarantees.
Assets relating to securities lending are disclosed in Note 45 “Transfer of financial assets”.
Transfer of financial assets not qualifying for derecognition Securities lending 2011 Equity Debt Transferred assets at carrying amount Available-for-sale investments 8,745
The table above does not include assets transferred to consolidated securitisation entities, as the related assets remain recognised in the Consolidated balance sheet. Reference is made to Note 51 “Structured entities”.
46 OFFSETTING FINANCIAL ASSETS AND LIABILITIES The following tables include information about rights to offset and the related arrangements. The amounts included consist of all recognised financial instruments that are presented net in the balance sheet under the IFRS-EU offsetting requirements (legal right to offset and intention to net settle) and amounts presented gross in the balance sheet but subject to enforceable master netting arrangements or similar arrangement.
Notes to the Consolidated annual accounts of NN Group continued 130 NN Group Annual Report 2013
NN Group has issued certain guarantees, which are expected to expire without being drawn on and therefore do not necessarily represent future cash outflows. In addition to the items included in contingent liabilities, NN Group has issued guarantees as a participant in collective arrangements of national industry bodies and as a participant in government required collective guarantee schemes which apply in different countries.
Furthermore, NN Group leases assets from third parties under operating leases as lessee. The future rental commitments to be paid under non-cancellable operating leases are as follows: Consolidated annual accounts 4
Because of the geographic spread of its business, NN Group may be subject to tax audits in numerous jurisdictions at any point in time. Although NN Group believes that it has adequately provided for all its tax positions, the ultimate resolution of these audits may result in liabilities which are different from the amounts recognised.
In proceedings pending before the District Court in Rotterdam, the Court has upon the request of the parties, including NN Group, submitted prejudicial questions to the European Court of Justice to obtain clarity on principal legal questions with respect to cost transparency related to unit-linked policies. The main prejudicial question is whether European law allows for the application of information requirements based on general principles of Dutch law that extend beyond information requirements as explicitly prescribed by laws and regulations in force at the time the policy was written. Although the European Court does not decide on the applicable standards in specific cases, NN Group believes the ruling of the Court of Justice can give clarification on this question of legal principle which is subject of other legal proceedings in the Netherlands. It is expected that the European Court of Justice will render its judgment at the earliest in 2014.
NN Group’s Dutch insurance subsidiaries have issued, sold or advised on approximately one million individual unit-linked policies. There has been for some time and there continues to be political, regulatory and public attention focused on the unit-linked issue in general. Elements of unit-linked policies are being challenged or may be challenged on multiple legal grounds in current and future legal proceedings. There is a risk that one or more of these legal challenges will succeed. The financial consequences of any of the aforementioned factors or a combination thereof can be substantial for the Dutch insurance business of NN Group and may affect NN Group, both financially and reputationally. However, these consequences cannot be reliably estimated or quantified at this point.
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 the Dutch ING Pension Fund (Stichting Pensioenfonds ING) in 2009, 2010 and 2011. This claim was rejected by the district court of Amsterdam on 9 November 2012. An appeal was lodged against this court decision. 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 directly insured with Nationale-Nederlanden in 2010 and 2011. This claim was rejected by the district court of Amsterdam on 22 October 2012. An appeal was lodged against this court decision. It is not feasible to predict the ultimate outcome of these legal proceedings. 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.
In April 2013, the ING Pension Fund started arbitration proceedings to adjudicate a dispute with ING concerning the adjusted mortality tables used in the calculation of premiums and provisions. In 2013 ING decided to lower its contributions by 1.7% as a result of ING not accepting the adjustments made by the ING Pension Fund resulting from the mortality tables used. In February 2014 the ING Pension Fund and ING agreed that the ING Pension Fund will remain using a surcharge of 1.7% and the ING Pension Fund and ING will share the costs of the 1.7% surcharge over 2013. The payment of 50% of the surcharge 2013 by ING is included in the payment by ING of the one-time lump sum to the ING Pension Fund, which was closed for the accrual of new pension benefits as of 1 January 2014, of EUR 379 million to release ING from future financial obligations. More information is provided in Note 53 “Other events”.
In July 2013, the ING Pension Fund started arbitration proceedings against ING’s decision not to provide funding (for a total amount of EUR 197.5 million) for indexing pensions insured with the ING Pension Fund as of 1 January 2013. During the arbitration proceedings the ING Pension Fund added a claim in the amount of EUR 38.8 million for funding the indexation as of 1 August 2013. On 20 December 2013 the arbitrators ruled in favour of the ING Pension Fund and concluded that ING will have to provide full funding for both the indexation as of 1 January 2013 and the indexation as of 1 August 2013. The outcome of the arbitration is reflected in the 2013 Annual Accounts.
Divestments in 2013 ING U.S. In 2013, the remaining interest in its subsidiary ING U.S., Inc. (“ING U.S.”) was transferred to ING Groep N.V. by way of dividend in kind. Reference is made to Note 53 “Other events” for more details on the transaction.
Notes to the Consolidated annual accounts of NN Group continued 134 NN Group Annual Report 2013
Joint venture KB Life In April 2013, the 49% interest in Korean insurance venture KB Life Insurance Company Ltd. (KB Life) was agreed to be sold to joint venture partner KB Financial Group Inc. A total cash consideration of EUR 115 million (KRW 166.5 billion) was received for its 49% interest in KB Life. The transaction closed 20 June 2013.
Joint venture ING-BOB Life In July 2013, the 50% interest in the Chinese insurance joint venture ING-BOB Life Insurance Company was agreed to be sold to BNP Paribas Cardif, the insurance arm of BNP Paribas. The transaction is not expected to have a significant impact on Net result. This transaction is subject to regulatory approvals and is expected to close in the first half of 2014.
The investment management business in South Korea In July 2013, the investment management business in South Korea was agreed to be sold to Macquarie Group. The transaction did not have a significant impact on Net results. The transaction closed on 2 December 2013.
ING Life Korea In August 2013, ING Life Korea, the wholly-owned life insurance business in South Korea, was agreed to be sold to MBK Partners for a total consideration of EUR 1.24 billion (KRW 1.84 trillion). Under the terms of the agreement, NN Group will continue to hold an indirect interest of approximately 10% in ING Life Korea for an amount of EUR 80 million (KRW 120 billion). ING has also reached a licensing agreement that will allow ING Life Korea to continue to operate under the ING brand for a maximum period of five years. In addition, over the course of one year, NN Group will continue to provide technical support and advice to ING Life Korea. The transaction resulted in an after tax loss of approximately EUR 1.0 billion. This transaction closed on 24 December 2013.
ING Hipotecaria In June 2013, ING Hipotecaria, S.A. de C.V. the mortgage business in Mexico, was agreed to be sold to Banco Santander (México) S.A. This transaction resulted in a net loss of EUR 64 million which is recognised in 2013. The transaction closed on 29 November 2013.
(2) The remaining interest in ING U.S. was transferred to ING Groep N.V. by way of dividend in kind. (3) The gain/loss on divestments comprises the sales proceeds, the net assets divested, the expenses directly related to the disposal and the realisation of unrealised reserves.
Sales proceeds Cash proceeds (1) 1,630 1,235 2,865 Non-cash proceeds Sales proceeds 0 1,630 1,235 2,865
Assets Cash and cash equivalents 1,367 103 171 1,641 Financial assets at fair value through profit and loss 78,101 763 4,292 83,156 Available-for-sale investments 55,501 3,503 9,874 68,878 Loans and advances to customers 8,270 163 1,523 9,956 Reinsurance contracts 4,482 70 17 4,569 Real estate investments 6 6 Intangible assets 894 66 32 992 Deferred acquisition costs 4,416 601 1,848 6,865 Miscellaneous other assets 2,687 162 396 3,245
(1) Cash outflow / inflow on group companies in the cash flow statement includes cash outflows / inflows on individually insignificant disposals in addition to the cash flow presented.
Assets Cash and cash equivalents 86 Investments 3,293 Loans and advances to customers 539 Financial assets at fair value through profit or loss 224 Real estate investments 87 Miscellaneous other assets 899
(1) The gain on divestments comprises the sales proceeds, the net assets divested, the expenses directly related to the divestment and the realisation of unrealised reserves.
The Latin American operations were previously included in the segments Insurance Latin America and Investment Management before they classified as discontinued operations. The segment Insurance Latin America ceased to exist following this transaction as the majority of the assets and activities in this segment have been sold. The net result from discontinued operations was presented separately in the consolidated profit and loss account. Reference is made to Note 33 “Discontinued operations” for more detailed disclosures.
Assets Cash and cash equivalents 7 80 87 Investments 146 644 790 Loans and advances to customers 54 6 60 Financial assets at fair value through profit or loss 10 679 689 Miscellaneous other assets 48 1,491 1,539
(2) Comprises various entities as explained in the description of the divestment. (3) The gain on divestments comprises the sales proceeds, the net assets divested, the expenses directly related to the divestment and the realisation of unrealised reserves.
The principal subsidiaries and their statutory place of incorporation or primary place of business are as follows: Entities that are part of the insurance operations
Group 2013 2012 Subsidiary Nationale-Nederlanden Levensverzekering Maatschappij N.V. The Netherlands 100% 100% Nationale-Nederlanden Schadeverzekering Maatschappij N.V. The Netherlands 100% 100% Parcom Capital B.V. The Netherlands 100% 100% Nationale-Nederlanden Services N.V. The Netherlands 100% 100% Movir N.V. The Netherlands 100% 100% ING Re (Netherlands) N.V. The Netherlands 100% 100% Nationale-Nederlanden Bank N.V. The Netherlands 100% 100% ING Investment Management Holdings N.V. The Netherlands 100% 100% ING Pojistovna a.s. Czech Republic 100% 100% ING Ž á ’ovna a.s. Slovakia 100% 100% ING Uslugi Finansowe S.A. Poland 100% 100% ING Powszechne Towarzystwo Emerytalne S.A. Poland 80% 80% ING Asigurari de Viata S.A. Romania 100% 100% ING Greek Life Insurance Company S.A. Greece 100% 100% ING Biztosító Zártkörûen Mûködõ Részvénytársaság Hungary 100% 100% ING Pensionno-Osigoritelno Druzestvo EAD Bulgary 100% 100% ING Life Belgium N.V. Belgium 100% 100% ING Non Life Belgium N.V. Belgium 100% 100% ING Life Luxembourg S.A. Luxembourg 100% 100% Nationale-Nederlanden Vida, Compañia de Seguros y Reaseguros S.A. Spain 100% 100% Nationale-Nederlanden Generales, Compañia de Seguros y Reaseguros S.A. Spain 100% 100% ING Emeklilik A.S. Turkey 100% 100% ING Life Insurance Company Limited Japan 100% 100%
NN Group’s activities involving structured entities are explained below in the following categories:  Consolidated NN Group originated Liquidity management securitisation programmes (Hypenn);  Investments – NN Group managed Investment funds; and  Investments – Third party managed structured entities.
NN Group managed Investment funds NN Group originates investment funds. NN Group may hold investments in these funds for its own account through the general account investment portfolio of the insurance operations. Other investments in these funds may be held for the account of policyholders or by third parties. For the majority of these funds, NN Group also acts as the fund manager. NN Group considers both NN Group’s financial interests for own risk and its role as investment manager to establish whether control exists and whether the fund is consolidated. In general, NN Group maintains a minority interest in these funds and NN Group receives a fixed fee over assets under management, at arm’s length basis, for its asset management activities. These funds are therefore generally not included in the Consolidated annual accounts of NN Group.
Most of the debt investments relate to asset backed securities (ABS). Reference is made to Note 4 “Available-for-sale investments” where the ABS portfolio is disclosed.
NN Group has significant influence for some of its real estate investment funds as disclosed in Note 6 “Investments in associates”.
52 RELATED PARTIES In the normal course of business, NN Group enters into various transactions with related parties. Parties are considered to be related if one party has the ability to control or exercise significant influence over the other party in making financial or operating decisions. Related parties of NN Group include, amongst others, its joint ventures, associates, key management personnel and the defined benefit and contribution plans. Transactions between related parties have taken place on an arm’s length basis, and include distribution agreements, transitional services, sourcing and procurement agreements, human resources-related arrangements, transfer pricing agreements, rendering and receiving of services, leases, transfers under finance arrangements and provisions of guarantees or collateral. There are no significant provisions for doubtful debts or individually significant bad debt expenses recognised on outstanding balances with related parties.
Notes to the Consolidated annual accounts of NN Group continued 140 NN Group Annual Report 2013
Rentestelsel”) with ING Bank, to arrange for a current account deficit facility, and debit/credit interest on a set of pooled bank accounts of NN Group, whereby obligations of NN Group are secured by a right of pledge on bank accounts in favour of ING Bank.
above; and any - outstanding debt obligations under WUB’s Debt Issuance Programme of 1997.
Subsequently, NN Group has entered into certain unlimited indemnity agreements with ING Bank and ING Groep under which NN Group is indemnified by ING Bank for its obligations under each of the guarantees referred to above. The expiry date of last outstanding obligations covered by the guarantees is 25 March 2032. Under these guarantees in aggregate EUR 213 million was outstanding as at 31 December 2013.
 Senior Bridge Loan: On 18 September 2013, NN Group (as Borrower) has entered into a senior loan agreement with ING Groep (as Lender), currently in the aggregate amount of EUR 1,000 million. The maturity date of this loan is 18 March 2014.
 Senior Unsecured Notes: On 1 July 2013, NN Bank N.V. has issued senior unsecured notes and placed the notes with ING Bank in the aggregate amount of EUR 270 million. The maturity date of these notes is 30 June 2023.
 Pledge Financial Collateral Agreement: On 20 December 2012, NN Group (as Pledgee) has entered into a Financial Collateral Pledge Agreement with ING Bank by which a right of pledge was created in favour of NN Group on certain securities held by ING Bank. The pledge serves as security for the duly repayment of cash deposits that NN Group has placed with ING Bank. This agreement will expire as of 20 March 2014.
 Derivative transactions: For general hedging purposes, NN Group has entered into derivative transactions with ING Bank on the basis of standard legal (master) derivative documentation.
 Securities Lending: NN Group (as Lenders) has entered into securities lending transactions with ING Bank N.V. (as Borrower) on the basis of customary legal (master) documents, lending debt securities, that are classified as available-for-sale instruments in the Consolidated balance sheet, to ING Bank in the aggregate amount of EUR 700 million during 2013, for general investment purposes. These debt securities remain to be recognised on the Consolidated balance sheet.
 Securitisations: NN Bank has entered into a Residential Mortgage-Backed Securities (RMBS) -transaction with ING Bank N.V. for the aggregate amount of EUR 400 million (of which currently EUR 400 million is outstanding).
 NN Bank has entered into a service agreement with Westland/Utrecht Hypotheekbedrijf N.V. and RVS Hypotheekbank N.V. on 1 July 2013, for providing certain management services in relation to a housing mortgage loan portfolio of Westland/Utrecht Bank N.V.
 In 2013 EUR 1.9 billion (2012: EUR 1.9 billion; 2011: EUR 1.8 billion) ING Bank mortgages were sold through the NN Group intermediary sales agents.
Master claim agreement In 2012, ING Groep N.V., ING U.S., Inc. and ING Insurance Eurasia N.V. entered into a master claim agreement to (a) allocate existing claims between these three parties and (b) agree on criteria for how to allocate future claims between the three parties. The master claim agreement contains further details on claim handling, conduct of litigation and dispute resolution. In 2014, NN Group replaced ING Insurance Eurasia N.V. as a party to the agreement.
Indemnification and allocation agreement with ING Insurance Eurasia N.V. ING Groep N.V. and NN Group N.V. have entered into an indemnification and allocation agreement, in which ING Group has agreed to indemnify NN Group for certain liabilities that relate to the business of or control over certain (former) U.S. and Latin American subsidiaries of NN Group in the period until 30 September 2013 or, if the relevant subsidiary was divested by NN Group after 30 September 2013, such later date of divestment. These liabilities mainly include contingent liabilities that may arise as a result of the initial public offering of ING U.S. (such as prospectus liability) and the sales of the Latin American businesses (such as claims under warranties and other buyer protection clauses), and the liabilities for the claims concerning the performance of certain interest-sensitive products that were sold by a former subsidiary of NN Group in Mexico and the claims filed by the purchaser of certain Mexican subsidiaries of NN Group claiming that the financial condition of the subsidiaries was not accurately depicted.
The governance of the insurance operations has changed during the reporting period and in early 2014. In 2013, all members of the Management Board ING Insurance Eurasia N.V. have become members of the Management Board ING Verzekeringen N.V. From 1 March 2014 onwards, due to the legal merger between ING Verzekeringen N.V. and ING Topholding N.V. and the subsequent change of the name of the entity to NN Group, all members of the Management Board ING Verzekeringen N.V. have become members of the Management Board NN Group. The disclosures in the below tables therefore are based on the members of the Management Board NN Group.
In 2013 and 2012, the Dutch Government imposed an additional tax charge of 16% on income in excess of EUR 150,000 of each employee, subject to Dutch income tax. The tax is charged to NN Group and does not affect the remuneration of involved staff. The tax imposed on NN Group for relevant members of the Executive Board and Management Board amounts to EUR 1.6 million (2012; EUR 0.9 million), which is not included in the amounts in the table below.
Three of the Management Board members of NN Group are also Executive Board members of ING Groep N.V. The total remuneration of the Executive Board of ING Groep N.V. and Supervisory Board is borne by ING Groep N.V. The remuneration of the members and former members of the Executive Board and Supervisory Board are charged in full by ING Group to its subsidiaries, on the basis of a general allocation formula.
Due to the transfer of ING U.S. in 2013, the Executive Officers of ING U.S., Inc. are no longer considered key management personnel of NN Group.
(2) The members of the Executive Board of ING Groep N.V. were also members of the Management Board ING Topholding N.V. for the year 2013. (3) Excluding members that are also members of the Executive Board of ING Groep N.V.
Notes to the Consolidated annual accounts of NN Group continued 142 NN Group Annual Report 2013
(2,3,4) Total Fixed compensation – Base salary 2,572 4,897 7,469 – Pension costs 311 893 1,204 – Termination benefits 1,873 1,873 Variable compensation – Upfront cash 2,296 2,296 – Upfront shares 160 160 – Deferred cash 240 240 – Deferred shares 2,604 2,604 – Other 339 339 Total compensation 2,883 13,302 16,185
(1) The members of the Executive Board of ING Groep N.V. were also members of the Management Board ING Topholding N.V. for the year 2013. (2) Excluding members that are also members of the Executive Board of ING Groep N.V. (3) Besides the compensation in his capacity as Board member, one of the Management Board members received a “buy-out” for the compensation that he would have received had he not resigned from his former employer. The buy-out consists of a cash amount and shares with a total value of EUR 500.000 at the grant date, which vests in the years 2012-2015.
Board (2) Total Fixed compensation – Base salary 2,666 2,560 5,226 – Pension costs 315 481 796 Variable compensation – Upfront cash 643 643 – Upfront shares 341 341 – Deferred cash 511 511 – Deferred shares 945 945 Total compensation 2,981 5,481 8,462
(1) The members of the Executive Board of ING Groep N.V. were also members of the Management Board ING Topholding N.V. for the year 2013. (2) Excluding members that are also members of the Executive Board of ING Groep N.V.
In 2013, the total remuneration costs amounted to EUR 3.9 million (2012: EUR 2.9 million; 2011: EUR 3.0 million) for members and former members of the Executive Board, of these remuneration costs EUR 1.9 million (2012: EUR 1.4 million; 2011: EUR 1.5 million) was allocated to NN Group. The total remuneration costs amounted EUR 1.1 million (2012: EUR 0.8 million; 2011: EUR 0.9 million) for members and former members of the Supervisory Board, of these remuneration costs EUR 0.5 million (2012: EUR 0.4 million; 2011: EUR 0.4 million) was allocated to NN Group.
amounts in thousands of euros 2013 2012 2011 Base salary 1,065 806 857 Total compensation 1,065 806 857
The disclosures relating to remuneration of the Supervisory Board reflect the amounts relating to ING Group as a whole. The table above shows the fixed remuneration, expense allowances and attendance fees for the Supervisory Board for 2013, 2012 and 2011. From 1 January 2013, new VAT legislation became effective based on which Dutch members of the Supervisory Board are considered as self-employed persons who’s compensation is subject to VAT in the Netherlands. The table presented above is including VAT of EUR 0.1 million for 2013.
Amount outstanding 31 December Average interest rate Repayments amounts in thousands of euros 2013 2012 2011 2013 2012 2011 2013 2012 2011 Executive Board members 3,347 2,338 1,968 2.7% 3.3% 3.6% 500 Members of the Management Board
The valuation method of the 20% Alt-A securities in the IFRS balance sheet is not impacted by the IABF. The methodology used to determine the fair value for these assets in the balance sheet under IFRS-EU is disclosed in Note 40 “Fair value of financial assets and liabilities”.
In order to obtain approval from the European Commission on ING Groep N.V.’s Restructuring Plan (see below), ING agreed to make additional Illiquid Assets Back-up Facility payments as part of the overall agreement with the European Commission to the Dutch State corresponding to an adjustment of the fees for the Illiquid Assets Back-up Facility. In total, these additional Illiquid Assets Back-up Facility payments as part of the overall agreement with the European Commission amounted to a net present value of EUR 1.3 billion before tax, which was recognised as a one-off charge for ING Groep N.V. in the fourth quarter of 2009.
In connection with the sale of ING Direct USA, ING has reached an agreement with the Dutch State to adjust the structure of the Illiquid Assets Back-up Facility (IABF). This adjustment served to de-link the IABF from ING Direct USA by putting ING Bank in its place as counterparty for the Dutch State and became effective at the closing of the sale in February 2012. Under the terms of the original transaction ING Direct USA held on its balance the remaining 20% of the Alt-A portfolio, ensuring an alignment of interests between ING and the Dutch state regarding the performance of the portfolio.
Notes to the Consolidated annual accounts of NN Group continued 144 NN Group Annual Report 2013
Upon closing of the sale ING provided a counter guarantee to the Dutch State covering 25% of the 80% part of the Dutch State. This guarantee covered realised cash losses if they would exceed the 35% that is implied by the market value of the portfolio in June 2011. This adjustment therefore lowered the risk exposure for the Dutch State.
The total nominal value of the portfolio of securities held by the Dutch state decreased to EUR 4.6 billion at 31 December 2013 as a result of regular repayments on the underlying mortgages by homeowners and the first tranche of the divestment of securities with a notional outstanding amount of EUR 3.7 billion following the termination of the IABF. The remaining nominal value of the portfolio of securities held by the Dutch state as at 31 December 2013 was sold in January and early February 2014.
The State used all repayments and net fees received to pay off the loan from ING, reducing the amount outstanding to EUR 2.7 billion at 31 December 2013 (2012: EUR 7.8 billion). This remaining amount was fully repaid in January 2014.
These restrictions will apply for the shorter period of three years or until the non-voting equity securities have been repaid in full to the Dutch State:  an agreement with the Dutch State to alter the repayment terms of 50% of the non-voting equity securities;  repayment of EUR 5 billion of the non-voting equity securities issued in November 2008 to the Dutch State;  additional Illiquid Assets Back-up Facility payments as part of the overall agreement with the European Commission will have to be made to the Dutch State in the form of fee adjustments relating to the Illiquid Assets Back-Up Facility which resulted in a one-off pre-tax charge to ING of EUR 1.3 billion in the fourth quarter of 2009;  launch of a EUR 7.5 billion rights issue, in order to finance the repayment of 50% of the non-voting equity securities and a mitigation of the capital impact of the additional Illiquid Assets Back-up Facility payment as part of the overall agreement with the European Commission to the Dutch State of EUR 1.3 billion;  execution of the Restructuring Plan before the end of 2013;  if the overall return on the (remaining) non-voting equity securities (core Tier 1 securities) issued to the Dutch State is expected to be lower than 10% p.a., the European Commission may consider the imposition of additional behavioural constraints; and
Under the terms of the 2009 Restructuring Plan, ING was required to divest WestlandUtrecht Bank. However, due to market circumstances and changing regulatory requirements, a divestment of WestlandUtrecht did not occurred. Instead, under the 2012 amended Restructuring Plan, the commercial operations of WestlandUtrecht Bank were combined with the retail banking activities of NN Bank, which is to be divested as part of ING’s insurance and investment management operations in Europe. The result has to be that NN Bank is a viable and competitive business, which stands alone and is separate from the businesses retained by ING. To this end ING already needs to ring-fence NN Bank up to the divestment of more than 50% of the European insurance and investment management activities.
The price leadership restrictions in Europe have been amended to reflect specific conditions in various local markets. Under the amendments, the constraint no longer applied in the Netherlands, but ING Direct in the EU will refrain from offering more favourable prices than its best priced direct competitor among the ten financial institutions having the largest market share in the respective countries.
The 2012 amended Restructuring Plan was formally approved by the European Commission, by decision of 16 November 2012. As a result, the Commission closed its formal investigations as announced on 11 May 2012 and ING also withdrew its appeal at the General Court of the European Union, filed in July 2012. For principal legal reasons, the European Commission has continued with its appeal against the General Court ruling of March 2012. However, ING, the Dutch State and the European Commission agreed that any outcome of this procedure will not affect the approval of the amended Restructuring Plan. It is expected that this judgment will be rendered in April 2014.
Amendments to the Restructuring Plan in 2013 In November 2013 further amendments to the Restructuring Plan were announced. It was announced that the scope of the intended Initial Public Offering (IPO) of NN Group is expanded to include ING Life Japan. In that context, ING and the Dutch State have reached an agreement with the European Commission on revised timelines for the divestment process of ING Life Japan and ING’s European insurance and investment management activities.
Credit Guarantee Scheme As part of the measures adopted to protect the financial sector, the Dutch State introduced a EUR 200 billion credit guarantee scheme for the issuance of medium term debt instruments by banks (the Credit Guarantee Scheme). ING Bank N.V. issued government guaranteed debt instruments under this Credit Guarantee Scheme (“Government Guaranteed Bonds”) as part of its regular medium-term funding operations. The relevant Rules of the Credit Guarantee Scheme set forth the rules applicable to any issues under the Credit Guarantee Scheme and include information such as scope, denomination, tenor and fees payable by the banks. ING Group pays a fee of 84 basis points over the issued bonds to the Dutch State to participate in the Credit Guarantee Scheme. Reference is made to Note 15 “Debt securities in issue”.
NN Group Annual Report 2013 147 53 OTHER EVENTS ING U.S. IPO of ING U.S. in May 2013 In May 2013, approximately 65.2 million ordinary shares were sold in the Initial Public Offering (“IPO”) of ING U.S., Inc., the U.S.-based retirement, investment and insurance business (“ING U.S.”). Furthermore, on 29 May 2013, the underwriters of the IPO exercised in full their option to purchase approximately 9.8 million additional shares of ING U.S.
These transactions did not impact the profit and loss account, as ING U.S. continued to be fully consolidated at that date. The transactions had a negative impact of approximately EUR 1,958 million on Shareholders’ equity (parent), including EUR 19 million transaction costs after tax. This amount reflected the difference between the net proceeds of this offering and the IFRS-EU carrying value of the 28.75% interest divested in this IPO. This amount was recognised in “Other reserves”.
Due to the transfer, the segments Insurance United States (US), Insurance US Closed Block VA, Investment Management US and the Corporate Line US ceased to exist.
NN Group’s business in Japan After carefully exploring and evaluating the options available for the divestment of ING Life Japan, it was concluded that a standalone divestment of ING Life Japan, including its Corporate Owned Life Insurance (COLI) and Closed Block VA businesses, is not feasible in a manner that would appropriately meet the demands of regulators and other stakeholders in ING Group and ING Life Japan. Therefore, ING Life Japan will be included with NN Group’s European insurance and investment management businesses in the base case IPO of NN Group in 2014.
As a result, ING Life Japan and the Japanese Closed Block VA guarantees reinsured to ING Re (“NN Group’s business in Japan”) are no longer classified as held for sale and discontinued operations. The individual assets and liabilities of NN Group’s business in Japan are therefore classified out of Assets and liabilities held for sale and presented in the usual consolidated balance sheet line items. The individual income and expenses of NN Group’s business in Japan are classified out of Net result from discontinued operations and presented in the usual consolidated profit and loss account line items.
NN Group has adjusted its reporting structure to better align its segmentation according to the businesses that it comprises, their governance and internal management, and to reflect the decision to divest ING Life Japan with the IPO of NN Group. The new reporting segments for NN Group are as follows:  Netherlands Life  Netherlands Non-life  Insurance Europe  Japan Life  Investment Management (IM)  Other  Japan Closed Block VA
The comparative periods for the balance sheet have not been restated and therefore the assets and liabilities of NN Group’s business in Japan are still included in Assets and liabilities held for sale for the year 2012. All comparative periods in the Consolidated profit and loss account have been restated for this decision and therefore income and expenses of NN Group’s business in Japan are included in the continuing operations part of the statement for the years 2012 and 2011.
Notes to the Consolidated annual accounts of NN Group continued 148 NN Group Annual Report 2013
Australia In 2013, ING Australia Holdings Limited was transferred to ING Bank at carrying value. ING Australia Holdings Limited does not have operating activities.
Reclassified Reclassified IFRS IFRS 2013 2012 2011 2012 2011 Assets Cash and cash equivalents 7,155 4,347 9,707 5,389 11,577 Financial assets at fair value through profit or loss: – trading assets 736 586 503 586 534 – investments for risk of policyholders 39,589 43,821 43,075 98,765 116,438 – non-trading derivatives 3,126 4,662 5,157 5,107 7,285 – designated as at fair value through profit or loss 482 2,696 29 2,000 2,616 Available-for-sale investments 61,014 68,316 60,646 119,305 133,604 Loans and advances to customers 25,319 17,676 20,870 25,823 32,928 Reinsurance contracts 252 266 373 5,290 5,870 Investments in associates 1,028 1,265 1,435 1,352 1,526 Real estate investments 764 799 865 805 954 Property and equipment 164 203 243 338 469 Intangible assets 392 437 510 1,018 1,972 Deferred acquisition costs 1,353 3,142 3,404 4,549 10,204 Other assets 3,754 4,558 5,670 6,735 9,631 Total assets excluding assets held for sale 145,128 152,772 152,488 277,062 335,608 Assets held for sale 630 185,981 183,120 61,691 Total assets 145,758 338,753 335,608 338,753 335,608
Equity Shareholder’s equity (parent) 14,227 26,423 23,412 26,423 23,412 Minority interests 68 217 62 217 62 Total equity 14,295 26,640 23,474 26,640 23,474
Liabilities Subordinated loans 2,892 2,947 4,367 2,947 4,367 Debt securities in issue 773 2,934 1,910 3,436 Other borrowed funds 4,817 5,293 5,876 7,442 7,307 Insurance and investment contracts 111,551 123,013 121,683 229,950 278,833 Customer deposits and other funds on deposit 5,769 Financial liabilities at fair value through profit or loss: – non-trading derivatives 1,843 2,610 1,696 3,258 4,404 Other liabilities 4,125 5,920 5,808 10,951 13,787 Total liabilities excluding liabilities held for sale 130,997 140,556 142,364 256,458 312,134 Liabilities held for sale 466 171,558 169,770 55,655 Total liabilities 131,463 312,113 312,134 312,113 312,134
In the 2012 and 2011 reclassified balance sheets, Assets and liabilities held for sale includes ING U.S., the insurance and investment management businesses in Asia (“Asia”) excluding NN Group’s business in Japan and ING Hypotecaria. In these reclassified balance sheets the assets and liabilities of NN Group’s business in Japan are included on a line by line basis.
Notes to the Consolidated annual accounts of NN Group continued 150 NN Group Annual Report 2013
Reclassified IFRS 2013 2012 2011 2012 2011 Cash and cash equivalents at the beginning of the period/year
The key elements of the agreement are:  Responsibility for future indexation and funding thereof will be transferred to the Dutch ING Pension Fund;  ING’s obligation to restore the coverage ratio of the Dutch ING Pension Fund ceased;  The cross guarantees between ING Bank and NN Group to jointly and severally fund the obligations of the Dutch ING
As part of the agreement, ING Bank and NN Group are released from all financial obligations arising from the Dutch defined benefit plan. Accordingly, this plan will no longer be accounted for as a defined benefit plan and, consequently, it will be removed from the balance sheet. The removal of the net pension asset related to the Dutch defined benefit pension plan from the balance sheet of approximately EUR 0.6 billion after tax and the payment to the Dutch ING Pension Fund of EUR 0.5 billion (EUR 0.4 billion after tax) will result in a charge of approximately EUR 1.1 billion after tax to be recognised in 2014. Of this impact, EUR 0.4 billion will be attributed to NN Group.
Accounting for GMDB in Japan Closed Block VA NN Group applies fair value accounting on the reserves for Guaranteed Minimum Death Benefits (GMDB) of the Japan Closed Block VA from 1 January 2014. This improves the alignment of the carrying value of the GMDB reserves with their market value, better reflects the economic value of these guarantees and improves the alignment of the accounting for the guarantees with the accounting for the related hedges. Furthermore, this move makes the accounting for the GMDB consistent with the accounting on the reserves for Guaranteed Minimum Accumulation and Withdrawal benefits. As at 1 January 2014, the difference between the current carrying value and the estimated fair value of the GMDB reserves was EUR 219 million (before tax). Implementation of fair value accounting for GMDB represents a change in accounting policy under IFRS-EU with a transitional impact of EUR 165 million after tax being reflected only in Shareholder’s equity as of 1 January 2014. Results for comparative periods will be restated accordingly.
INTRODUCTION Risk taking is integral to the business model for insurance, investment management, and banking organisations such as NN Group. NN Group has developed and implemented a risk management structure that is designed to identify, assess, control and monitor the risks associated with its business. Through its risk management practices, NN Group seeks to meet its obligations to policyholders and other customers and creditors, manage its capital efficiently, and comply with applicable laws and regulations.
Group or its reputation, without limiting the responsibility of each individual member of the Management Board in relation to risk management.
While the Management Board retains ultimate responsibility for NN Group’s risk management, it has delegated certain responsibilities to a committee of the Management Board, the Risk and Finance Committee, which is responsible for dayto -day risk and finance related risk management decision-making, processes and controls. The Risk and Finance Committee has further delegated certain tasks to sub-committees, which advise the Risk and Finance Committee on risk and finance-related topics. These sub-committees are the Asset and Liability Committee, the Non-Financial Risk Committee, the Product Risk Committee, the Model Committee, the Finance Committee, the Investment Committee, and the Crisis Committee.
Supervisory Board and its committees The Supervisory Board is responsible for supervising the Management Board and the general affairs of the Company and its business. For risk management purposes the Supervisory Board is assisted by two committees:  Risk Committee. The Risk Committee assists the Supervisory Board in supervising and advising the Management
Three lines of defence model The three lines of defence model, on which NN Group’s risk management structure and governance is based, defines three risk management levels, each with distinct roles, decision authorities, execution responsibilities, and oversight responsibilities. This framework ensures that risk is managed in line with the risk appetite as defined by the Management Board, ratified by the Supervisory Board, and cascaded throughout NN Group.  First line of defence: the CEOs of the business units of NN Group and the other management board members of the business units have primary accountability for the performance of the business, operations, compliance and effective control of risks affecting their businesses. They underwrite the insurance products that reflect local needs and thus know their customers and are well-positioned to act in both the customers’ and NN Group’s best interest.
 Second line of defence: oversight functions at the Head Office and at the business units with a major role for the risk management organisation, headed by the CRO and the corporate legal and compliance function. The membership of the CRO on the Management Board ensures that risk management issues are heard and discussed at the highest level. The CRO steers a functional, independent risk organisation, which supports the commercial departments in their decision-making, but which also has sufficient countervailing power to prevent risk concentrations and other forms of unwanted or excessive risks. These oversight functions: - develop the policies and guidance for their specific risk and control area; - encourage and objectively challenge/monitor sound risk management throughout the organisation and coordinate the reporting of risks; - support the first line of defence in making proper risk-return trade-offs; - have escalation/veto power in relation to business activities that are judged to present unacceptable risks to NN
 Event identification. NN Group identifies events that may potentially impact its risk position, recognising that uncertainties exist, and that NN Group cannot know with certainty which events will occur and when,, or what the outcome or impact would be if it did occur. As part of event identification, NN Group considers both external and internal factors that affect event occurrence. External factors include economic, business, natural environment, political, demographic, social and technological factors. Internal factors reflect NN Group’s choices and concern such matters as infrastructure, personnel, process and technology.
 Risk response and control. Once a risk is assessed, NN Group identifies potential responses to those risks and analyses the mitigating impact of those responses. Taking into account the risk tolerances set out in the risk appetite framework NN Group designs its response for each assessed risk. Risk and control activities are performed throughout NN Group, at all organisational levels.
 Information and communication. Communication of information is a key part of NN Group’s risk management framework. Risk management officers, departments, and committees within NN Group are informed regularly of NN Group’s position compared to its strategic objectives and its risk appetite to enable them to monitor developments and to timely take appropriate decisions. Comprehensive reports on NN Group’s financial and insurance risks, and on its non-financial risks, are prepared and discussed every quarter. These reports analyse, amongst others, developments in financial markets and their impact on NN Group’s capital position, the effectiveness of NN Group’s hedge positions, and any incidents that may have occurred.
RISK APPETITE FRAMEWORK NN Group’s risk appetite framework determines which risks NN Group wishes to take, to avoid, to retain and/or to remove. The risk appetite framework consists of qualitative and quantitative statements as to risk preferences, risk tolerances, risk limits and risk controls. The risk appetite framework is based on three key quantitative measures that aim to:  ensure cash capital is sufficient following a 1 in 20 annual risk sensitivity; NN Group quantifies this using regulatory capital sensitivities and potential capital management actions.  ensure economic solvency is sufficient following a 1 in 20 annual risk sensitivity; NN Group quantifies this risk using available financial resources/economic capital and related sensitivities. Available financial resources (AFR) is a before tax market value surplus defined as market value of assets less market value of liabilities.
In addition to the key quantitative measures, qualitative statements form part of the risk appetite framework that serve to guide risk taking for conduct in the areas of underwriting, Asset and Liability management (ALM), investing and operations. These statements support NN Group’s strategy, contribute to avoiding unwanted or excessive risk taking, and aim to further optimise the use of capital. The qualitative risk appetite statements are organised under the following categories:  Managing underwriting. Underwriting and product development is paramount to the insurance business. NN Group strives for appealing, easy to understand and transparent value-for-money products that can be effectively riskmanaged over the expected life of the contract.
 Managing operations. Under this category, NN Group stipulates requirements for managing reputation, business continuity, processes and controls, as well as providing a safe and engaging work environment for a competent workforce.
RISK LIMITS The quantitative risk appetite statement is translated into quantitative risk limits for the business units. The business units report regularly on their risk profile compared to applicable risk appetite and risk limits.
PRODUCT APPROVAL AND REVIEW PROCESS The product approval and review process (PARP) has been developed to enable effective design, underwriting, and pricing of all products as well as to ensure that they can be managed throughout their lifetime. This process establishes requirements as to the product risk profile features to ensure that products are aligned with NN Group’s strategy. The PARP takes into account customer benefits and product suitability, expected sales volumes, value-oriented pricing metrics and relevant policies. It includes requirements and standards to assess risks as per the risk categories, as well as the assessment of the administration and accounting aspects of the product.
NEW INVESTMENT CLASS AND INVESTMENT MANDATE PROCESS NN Group maintains a new investment class approval and review process (NICARP) for approving new investment classes of assets. At the holding level, NN Group establishes a global list of asset classes in which the business units may invest. Each business unit also maintains a local asset list that is a subset of the global asset list. The local asset list includes asset allocation parameters, which prescribe the relative proportions in which the relevant business unit may invest in different asset classes, as well as asset, industry, regional, and credit concentration limits.
OWN RISK AND SOLVENCY ASSESSMENT AND INTERNAL CAPITAL ADEQUACY ASSESSMENT PROCESS NN Group (and each of its regulated insurance subsidiaries) produces an own risk and solvency assessment (ORSA) at least once a year. In the ORSA, NN Group articulates its strategy and risk appetite, describes its key risks and how they are managed, analyses whether or not its risks and capital are appropriately modelled and how susceptible the capital position is to shocks through stress and scenario testing. Stress testing examines the effect of exceptional but plausible scenarios on the capital position of NN Group. Stress testing can also be initiated outside ORSA, either internally or by external parties such as De Nederlandsche Bank (DNB) and European Insurance and Occupational Pensions Authority (EIOPA). The ORSA includes an overall assessment of NN Group’s solvency position in light of the risks it holds. NN Group’s banking and investment management operations, at least once a year, run an internal capital adequacy assessment process (ICAAP) in conformity with Basel II requirements. ICAAP tests whether current capital positions are adequate for the financial risks that the relevant NN Group entities bear.
RECOVERY PLANNING NN Group has determined a set of measures for early detection of and potential response to a crisis should it occur. These include monitoring indicators which are expected to provide early-warning of emerging crises, advance preparation of options to raise or release capital, and allocation of roles and responsibilities in case of a crisis, and other practical arrangements that may be required depending on the type of crisis.
RISK PROFILE MAIN TYPES OF RISKS The following principle types of risk are associated with NN Group’s business:  Insurance risk. Insurance risks are the risks related to the events insured by NN Group and comprise actuarial and underwriting risks such as mortality, longevity, morbidity, and non-life insurance risks, which result from the pricing and acceptance of insurance contracts.
 Liquidity risk. Liquidity risk is the risk that one of NN Group’s entities does not have sufficient liquid assets to meet its financial obligations when they become due and payable, at reasonable cost and in a timely manner.
 Operational risk. Operational risk is a non-financial risk that includes direct or indirect losses resulting from inadequate or failed internal processes (including as a result of fraud and other misconduct), systems failure (including information technology and communications systems), human error, and certain external events.
 Compliance risk. Compliance risk is the risk of impairment of NN Group’s integrity. It is a failure (or perceived failure) to comply with NN Group’s Business Principles and the Compliance Risk-related laws, regulations and standards that are relevant to the specific financial services offered by a business or its ensuing activities, which could damage NN Group’s reputation and lead to legal or regulatory sanctions and financial loss.