Key to ING’s retail business is its distribution philosophy of ‘click–call–face’. This is a flexible mix of internet, call centres, intermediaries and branches that enables ING to deliver what today’s clients expect: unlimited access, maximum convenience, immediate and accurate execution, personal advice, tailor-made solutions and competitive rates. ING’s wholesale product offering focuses strongly on its strengths in employee benefits/pensions, financial markets, corporate banking and asset management.
Insurance ING’s life insurance and pension products range from guaranteed-benefit to investment-linked products. In several core markets, ING also provides insurance cover for risks such as fire and property, motor, health, accident and disability.
Pensions – employee benefits More and more companies offer their employees benefits such as pensions, healthcare insurance, sick pay and disability benefits. ING has developed a unique and flexible approach to provide tailor-made employee benefits services. ING combines these services with administrative support, financial-education programmes and advisory services.
Fund administration services Enabling investors to outsource non-core functions, ING provides a comprehensive range of fund administration, custody, trust, banking and accounting services.
22 Financial highlights 26 Group strategy and outlook 28 ING Europe 34 ING Americas 38 ING Asia/Pacific 42 Asset Management 46 ING Direct 48 ING in Society 50 Human Resources 52 Risk management 57 FINANCIAL INFORMATION
Executive Board 81 - Remuneration Executive Board 85 - Remuneration Supervisory Board 86 - Stock option plan 89 Reports of the ‘Stichtingen’
US operations integrated Our retail and worksite operations in the US reported lower than planned profits as many of their products are strongly linked to equity performance. While weathering the tough stock-market climate, our US management and staff have nearly completed the integration of our various business units into one company, operating under the ING brand, that occupies a top-five position in the US wealth accumulation market. We are convinced that our integrated US business will deliver good shareholder value, especially when the market rebounds.
Our businesses in Canada, Mexico and Asia/Pacific improved their results considerably.
(excluding Japan). In the Chinese city of Dalian, we set up a second life insurance joint venture. In
Successful special skills: direct banking, insurance in developing markets and pensions
Message from the chairman custody services. In China, ING Investment Management won approval for a fund joint venture and became the first foreign mutual fund company to start operations in this country.
Reliable partner Trust is vital in financial services. Consumers emphasise security and reliability in selecting partners to handle their financial affairs. ING has been such a partner to millions of people for more than 150 years. Our goal is to remain a strong, dependable financial services provider under all circumstances.
So, when adverse market developments affect our capital base, such as last year, our clients and business partners can rely on us to do what is necessary to maintain our financial strength.
A powerful global brand will help us to distinguish ourselves both in the retail and wholesale markets. We made tremendous progress last year in re-branding most of our labels to ING and in positioning ING as a reliable and innovative financial services provider.
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“This unique building, made of glass and steel, symbolises the innovation and transparency we aim for in our financial services.”
Modern corporate governance We thank our shareholders, who continued to believe in us despite the sharp fall in our stock price in the past year. We will do our utmost to offer them a good return on their investment. The changes in our corporate governance that we proposed early in 2003 increase shareholder influence considerably, including full voting rights. They also increase the checks and balances between the executive and supervisory functions within ING. The change in staff consultation, which makes the
We believe that the proposed changes will lead to a modern governance system that responds to international developments, while maintaining the proven advantages of ING’s existing structures.
The new corporate governance initiative is a good practical example of our continued quest to increase transparency. This is also symbolised in our new Amsterdam corporate head office, ING
House, which was officially opened by His Royal Highness Prince Willem-Alexander, the Dutch crown prince, last year. We will continue our efforts to position ourselves as a reliable corporate citizen. We will report on our progress in these fields in the ‘ING in Society’ report.
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ING EUROPEING EUROPE ING AMERICASING AMERICAS ING ASIA/PING ASIA/PACIFICACIFIC ING ASSET MANAGEMENTING ASSET MANAGEMENT
Supervisory Board and Executive Board members, see pages 79 and 80.
2) Member Audit Committee as of 3) Chairman Audit Committee as of 4) Retirement as of 1 July 2003.
Corporate governance ING reviewed its corporate governance structure in 2002. The review will result in several proposals to the Shareholders’ Meeting on 15 April 2003. The proposals aim at a carefully balanced corporate-governance structure that on the one hand extends stakeholder influence and on the other hand does justice to ING’s desire to defend itself against hostile take-over attempts.
Listings Depositary receipts for ING Group ordinary shares are listed on the stock exchanges of Amsterdam, Brussels, Frankfurt, Paris, the Swiss exchanges and the New York Stock Exchange.
Depositary receipts for preference shares are listed on the Euronext Amsterdam Stock Market.
Significant Interests, three holders of depositary receipts with a (potential) interest of between 5% and 10% in ING Group were known as at 31
I N F O R M AT I O N F O R S H A R E H O L D E R S
Euronext Amsterdam Stock Exchange, in euros *Based on the share price at the end of December and net operational profit per ordinary share for the financial year.
(Depositary receipts for) ordinary shares of EUR 0.24 nominal value 1,992.7 1,992.7
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Innovation and transparency Through the years, ING and its predecessors have developed exceptional office buildings for their business units, but until recently ING
ING House won prizes for the innovative ways in which glass, steel and aluminium have been applied.
head office received much attention, which is not surprising since the building stirs the imagination. His Royal Highness Prince Willem-
ING House and some of the people who work there. They include staff members from different countries and cultural backgrounds who support the Executive Committees of
It has a seating capacity of 250. In the adjacent atrium, enormous drawbars carry the weight of the auditorium.
ING House is only 28 meters wide, 138 meters long and 48 meters high.
Poland, ING is strengthening its leading positions by improving quality and efficiency.
In mature markets the primary focus is on building market share through innovative approaches such as ING Direct, which is also active in the US,
The spaciousness of ING House is most manifested by its atriums. From the restaurant visitors have a view of three other floors and can overlook
“An improvement in interpersonal communications was evident from the first day that we moved into this building” says David Pollard
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ING has 6.6 million customers in the US and enjoys top-five positions in most of its US
and auto, number two in health insurance and number three in life insurance.
ING House has a double glass façade. The outer layer, which is completely closed on the northern side, shuts out the noise and polluted air from the highway.
for ING Investment Management in the Americas, when he visited ING House.
ING is a prominent international financial services provider in Asia/Pacific with 6 million clients. The portfolio consists of large businesses across six mature markets and newly established life insurance companies in China, India,
dealers to banks, ING accesses its clients through the customer’s channel of choice.
                Bo Yang and Gwendolyn Tates
Board has been set up to preserve the efficiency of a global manufacturing platform and to ensure global consistency of the investment strategies adopted in each region. ING Asset Management continues to function as a global platform that co-ordinates ING’s strategy and operations with respect to asset management. Besides
Banking, agrees. “In this company it is what you contribute that counts, not where you come from or which school you graduated from.”
Supervisory Board meetings In 2002, the Supervisory Board met seven times, once without the presence of the Executive
was also an important issue. In this regard, it was decided to end the policy of a fixed and predetermined annual increase in capital gains on equities and to reintroduce optional cash/stock dividend.
Several general managers gave presentations about their business units, which provided the
Supervisory Board not only with information about the developments within ING but also with an insight into the management potential.
(CWC). Dutch Supervisory Board members also participated in the ‘Three Councils Day’, an annual meeting between the CWC, the
In November, a meeting was held without the Executive Board. During this meeting the
Supervisory Board discussed its own functioning and that of the Executive Board.
The result development during economically difficult times and the modernisation of the corporate governance structure at ING were the most important issues in 2002. The
This will be the main challenge for the years to come.
January, a meeting was held to discuss the developments in international regulations with regard to accounting principles, especially the implementation of the European IAS regulations as per 2005 in the light of the existing ING
Updating the Audit Committee charter was an important point of discussion, also in view of the new regulations in the United States with regard to the role of the Audit Committee.
In the field of management development, the potential of talented managers who will in time qualify for the highest management levels was discussed as well as the way in which future vacancies in the Executive Board, the Supervisory Board and its committees will be filled.
Corporate governance In view of the international developments in the field of corporate governance and the increasing complexity of managing an international company such as ING, the Supervisory Board discussed the issue of corporate governance during several meetings, especially with regard to the influence of shareholders and holders of depositary receipts and the role of the
(the ING Management for the Netherlands) and a Supervisory Board, each with the same members. Regarding ING Group, it is proposed to abandon the voluntary ‘large company regime’, as a result of which the General Meeting of
Report of the Supervisory Board directly by the General Meeting of Shareholders following binding nominations by the Supervisory
The Stichting Administratiekantoor will be renamed Stichting ING Aandelen (‘Trust Office
Trust Office will vote for all absent holders of depositary receipts and for those who have not given a proxy vote.
Board, it was decided to update the duties of the existing committees – the Audit Committee and Remuneration and Nomination Committee –
ING. The committee will meet at least once a year. More information has been included in the chapter on Corporate Governance (from
Karel Vuursteen. After the Shareholders’ Meeting of 15 April 2003, three members will retire permanently: Lutgart van den Berghe, Hans
Berghe and Mijndert Ververs will retire as they have reached the maximum term of twelve years. Mijndert Ververs has also reached the age of 70, which is the age at which members of the
Tietmeyer will retire as he will reach the maximum age limit of 72. The Supervisory Board has the intention to appoint two new members: Claus Hoffmann and Wim Kok. Their appointments will be subjects on the agenda of the
German and European markets, which is of great value for ING as well. He will also be appointed member of the Audit Committee.
Workers Council has met with both candidates and has given its concurring advice to the proposed appointments.
Europe. The corporate client has always been the focal point in his career. He was passionate about serving large corporate clients and had a special talent for maintaining contacts with these clients at the highest level in his capacity as a member of the Executive Board. After 20 years, ING bids farewell to an upright and professional banker in heart and soul. His contribution to the development of ING has been significant, for which we would like to thank him sincerely.
Lutgart van den Berghe will retire after having served the maximum term of twelve years. She was appointed member of the Supervisory Board of Nationale-Nederlanden in 1991 while serving as a professor in Insurance Law at the Erasmus
University in Rotterdam. At 39, she was the youngest member of the Supervisory Board at that time and she remains the youngest member at her retirement. In 1994, she was appointed
Supervisory Board member of ING Group and, as a Belgian, was the first non-Dutch member.
fitted well within the period in which ING was working on strengthening its position in Europe.
Supervisory Board, Mr. Tietmeyer has shared his knowledge of macro-economic developments and of local economies in the most important world markets. His keen vision on the developments in the world economy has been of great value.
In 1994, he was appointed member of the Supervisory Board of ING Group. In 1996, he became vice-chairman and for more than two years he temporarily took over the chairmanship after the then chairman had suddenly passed away. From 1999 until 2001, he was a member of the
Remuneration and Nomination Committee. From 1994 until 1996, he was a member of the Audit
Executive Board and a summary of the annual accounts. The full annual accounts – available through www.ing.com, where a printed version of the annual accounts can be ordered as well –
Gratitude The Supervisory Board would like to express its gratitude to the Executive Board and to all employees worldwide for their efforts during the past difficult year. ING’s healthy basis and its strong market positions are an excellent starting point to serve the clients to their satisfaction, also in these economically less favourable times. In this, we would like to wish the Executive Board, the general managers of the business units and all employees much success.
T H E S U P E R V I S O RY B O A R D
Toplease in the Netherlands, and the divestment of ING Life Philippines. Excluding these changes, the total number of staff was reduced by 2,700.
Total operating expenses in banking increased by 1.4% (organically +0.1%). Excluding the fast expanding activities of ING Direct and a restructuring provision for international wholesale banking, operating expenses were 2.9%
lower. The efficiency ratio of the banking operations (excluding ING Direct and the restructuring provision) improved to 71.0% from
Netherlands, North America, Asia and Australia improved. Cost control, leading to an overall reduction in expenses, contributed significantly to the improvement. The result includes a
EUR 222 million gain in operational after-tax profit on the formation of the joint venture with ANZ, the release of EUR 106 million from contingent provisions associated with prior
Despite the extremely difficult economic and political environment ING’s operational profit for 2002 of EUR 4,253 million matched the strong result of 2001. ING responded to the new realities of the market by sharpening its focus on core businesses and strengths, for instance on savings and guaranteed products, pensions and developing markets. The capital base ratios remained on the safe side of internal targets, which are far more conservative than the regulatory minimum levels.
R E P O RT O F T H E E X E C U T I V E B OA R D
Financial highlights acquisitions in the US and a EUR 79 million gain from the surrender of a large group life insurance contract in the Netherlands. The gross result before taxation of the insurance operations
Operational realised capital gains As planned, ING realised net capital gains on equity investments of the insurance operations of EUR 820 million (+15.0%). Net realised capital gains on real estate were EUR 220 million compared to EUR 147 million (+49.7%) in 2001.
At year-end 2002, the revaluation reserve of equity investments of the insurance operations was EUR 0.8 billion.
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The value of new life insurance business written during 2002 was EUR 519 million, a substantial increase over the 2001 level of EUR 336 million
(revised) in 2001. About half of the value of new business arises from the insurance operations in developing markets.
At the end of 2002, the total embedded value of ING’s life insurance operations was EUR
23.3 billion compared to EUR 25.8 billion at yearend 2001. The decrease mainly reflects the impact of lower stock prices, credit-related losses and lower currency exchange rates versus the euro.
Excluding this gain, the result still increased by 27%. The life results in Korea, Taiwan, Japan and Australia were all higher, but Malaysia was lower. The result of ING Vysya Bank was included for the first time. Start-up expenses in India and
ING Asset Management Sharply lower stock markets and lower seed capital returns took a toll on the result of ING
Capital base ING was able to absorb substantial book value losses caused by the continued fall of stock markets indices without the capital base of both the insurance and banking operations dropping below their internal minimum levels. Nonetheless, in November, ING announced a series of measures to shore up the capital base in order to continue to be able to sustain potential future volatility of stocks and real estate. At year-end 2002,
USD 1.1 billion had been raised by the issue of a subordinated perpetual loan and EUR 650 million by the sale of own shares. ING will propose to the Annual General Meeting of
Shareholders in April 2003 to introduce optional cash/stock dividend as from the final dividend 2002 and fully fund the cash element by issuing and selling in the market the depositary receipts that would have been issued if stock was chosen instead of cash. The effect of this policy is that the full annual result is added to shareholders’
EUR 3 billion and the sale of equities to an amount of EUR 2 billion.
September 2002 to EUR 247.3 billion at the end of December 2002 (against EUR 243.2 billion at year-end 2001).
Shareholders’ equity Shareholders’ equity decreased by EUR 3.2 billion to EUR 18.3 billion (-15.2%). A negative revaluation of the equity and real estate portfolio impacted shareholders’ equity by EUR 3.4 billion. Realised capital gains transferred to the profit and loss account, the write-off of goodwill and exchange rate fluctuations taken together detracted EUR 3.2 billion. Net profit for 2002, after dividend paid in 2002, added EUR 2.5 billion and changes in ING Group shares EUR 0.8 billion.
Return on equity increased to 21.6%, reflecting the decrease in shareholders’
Capital base, insurance and banking well in excess of required levels
Report of the Executive Board 1. Strengthen the capital base and improve other key ratios to maintain a solid financial foundation
ING will give the highest priority to strengthening its capital base and to improving its ratings. The measures announced at the publication of the results for the first nine months of 2002, such as the issue of perpetual bonds, the sale of own shares held to hedge employee stock options and the re-introduction of optional stock/cash dividend, are the basis for achieving this objective. The Executive Board has also taken a series of other measures to reinforce the capital base and reduce the dependency of ING’s business on stock-market developments.
ING will be very selective about investment choices and deployment of resources. In this connection, the Executive Board is reviewing the countries in which ING is active, the business lines and the client base. Risk management in both the insurance and banking operations will be intensified to enable more pro-active decisions. In the field of operations/information technology, ING will complete the many integration and restructuring projects as well as the shared services centres.
3. Create value for the clients with a multi-product/ multi-channel approach
G RO U P S T R AT E G Y A N D O U T LO O K
The first ten years since ING’s foundation in 1991 were characterised by high growth and favourable market conditions. At the beginning of the 21st century, the economic tide started to turn and the world has now entered the third consecutive year of low or no economic growth. The challenge for ING will be to respond to this new reality and secure a stable long-term development of the Group for the benefit of all its stakeholders. The Executive Board has decided on the following Group strategic objectives for the years 2003-2005.
They are making a significant contribution to profit. ING gradually aims to extend both the product range (insurance, banking, asset management ) and distribution channels (click, call, face). In some markets, such as Australia, Korea,
Taiwan and Hong Kong, the insurance operations have broadened their operating base through bancassurance joint ventures with local banks. In
4. Develop ING’s special skills With 5 million clients and EUR 55 billion in funds entrusted at the end of 2002, ING Direct proves to be a significant value creator. The ING Direct operations in seven large countries have thus created substantial value for ING in only a few years’ time. ING Direct meanwhile also contributes to profit, with an attractive risk-adjusted return on capital. Furthermore, the ING Direct client base offers attractive opportunities for cross-selling.
Extension of global procurement initiatives will also generate significant cost savings. Outsourcing of IT projects to India will be continued.
ING’s result in 2003. The Executive Board remains convinced that ING Group has a solid base in core markets, is well-positioned in growth markets, will continue to exploit its many synergy opportunities successfully and is adequately responding to today’s difficult market conditions.
ING aims to extend both the product range and distribution channels
In retail financial services and private banking, ING positions itself as a provider of wealth management and financial protection. As bancassurance market leader in the Netherlands,
Central Europe, the focus is on gradually broadening its number-one position in pensions and life to market leadership in bancassurance.
The profitability of ING’s operations in Europe – especially those in the Benelux – remained key to the Group’s result. The retail businesses performed exceptionally well. ING Direct had another stellar year and showed first profit in the fourth quarter. The operations in Central Europe reported strong profit growth. In the wholesale business, Financial Markets delivered excellent results as did wholesale banking in the
ING Europe, good progress was made during the year in increasing efficiency and improving service levels.
ING Direct reported exceptionally high growth in funds entrusted in most of the countries where it operates, as did most of ING’s banking units in the home markets.
In the Netherlands, Postbank benefited from renewed interest in savings products while also increasing its market share in payment balances and consumer loans. ING Bank
RVS is now strongly focused on attractive clients and is reorganising its sales force and call centre accordingly. Nationale-Nederlanden maintained its position as the leading provider of insurance services via the intermediary channel.
In Belgium, ING Insurance, into which all four Belgian insurance subsidiaries were merged last year, substantially improved its position during the year and became one of the leading providers of unit-linked products in Belgium.
ING’s market share in retail life insurance increased from 10% in 2001 to 14% in 2002. The improvement was mainly achieved by increased sales through bank channels.
During the year, Private Banking was established as a new functional business line combining the European private banking businesses. The private banking business was hit hard during the year as a result of the fall in equity markets. Private Banking is now being restructured in order to improve client segmentation, refine the product portfolio and eliminate overlaps. The restructuring process will continue into the year 2003 and thereafter.
Europe, Latin America and Poland. The ongoing restructuring of the equities and debt markets businesses will continue, in response to changing market conditions.
Services. These negative developments were most strongly felt in the German and US wholesale banking activities. During the year, it was necessary to announce additional restructuring measures in order to address underperforming branches and businesses and restore the profitability of international wholesale banking.
Benelux will be reduced by a further 1,000 fulltime equivalents and this process has almost been finalised.
At year-end, the international wholesale banking activities conducted out of Amsterdam were organised into a new Management Centre
functions as the asset and fund management platform within ING Europe. Closer links between the investment professionals and the distribution channels will enable ING to respond more quickly to changes in client demands and market opportunities on the regional and local level. The financial results of IIM Europe will be included in those of ING Europe as of 2003.
Operations/IT Since 2001, ING Europe has been undergoing a massive programme to create a world-class, cost-efficient operations/IT environment. The programme is aimed at reducing the cost base, growing income, preventing future inefficiencies, improving quality of service and reducing operational risk. By the year 2005, the programme will lead to a 6% reduction in total expenses. The programme is key to improve the efficiency ratio of the banking operations.
programme is the establishment of shared service centres. Four new shared service centres were set up, bringing the total number to eight.
In addition to creating shared service centres, the operations/IT programme calls for aligning the IT application architecture. This is necessary in order to enhance connectivity between applications and enable business units to share customers, products and services. In 2002, the aligned IT application architecture became operational and the first applications were connected. The operations/IT investment programme also involves moving toward common standard software solutions.
New partnerships in operations As part of its effort to improve efficiency, ING
entered into several new alliances with outside parties. The most important is the alliance with
Bank of New York for sales, marketing and servicing of global custody and related services to institutional clients in Germany, the Benelux and Central Europe. The partnership will provide global services to ING Investment Management’s
Postbank on the mass retail market with operational efficiency and RVS on the mass
Executive Board member, discussing wholesale issues with Rients Prins, global head of ING’s Global Clients department, and (on his right hand) Filip Deelen, managing director Global
In Wholesale, relationship management of the Dutch business units was integrated, resulting in improved co-operation between the business units. The Corporate Clients department has been emphasising the overall relationship with core clients, which led to a substantially higher contribution to the overall ING Wholesale result. The Mid-Corporate Clients department increased market share and profits due to its successful sector approach and good risk management.
The year 2002 saw ongoing business integration in order to further lower the cost base. In Belgium, Private Kas Bank was integrated into BBL, and the four separate insurance companies were integrated into ING
(Suisse). In Luxembourg, the private banking activities of Crédit Européen Luxembourg and
By the end of April 2003, the ING brand will replace the BBL name.
An example is Triple’A, an advanced portfolio management application developed for private banking. First rolled out in Belgium, Luxembourg and Switzerland, Triple’A is now also being used in the Netherlands and business units in Italy and Central Europe are about to follow suit.
Germany While the direct banking business of majorityowned DiBa had a record year (see ING Direct chapter), ING BHF-Bank disappointed with a substantial loss in 2002. Sharply higher loan losses led to a strong increase in risk costs and an increase in non-performing loans depressed the interest result. ING responded by adjusting capacity and significantly reducing personnel and overhead expenses in the second half. The credit risk and lending process is being restructured. Highly selective risk-oriented and margin-oriented client strategies have been adopted to boost results.
Pension Fund in Poland is very successful in attracting and retaining clients: almost one third of those entering the labour market joined the
In Russia, ING launched a private pension fund, the first to receive a licence in Russia. ING’s fund, modelled after similar ING funds in
Western markets, will focus on providing tailormade pension solutions to international and local corporate clients with individual employee pension accounts.
Piraeus was completed. Under the terms of the alliance, joint ventures have been established in the fields of asset management, retail bancassurance and pensions with ING holding 50.1%
Outlook ING Europe The weak economic growth prospects for mature markets in Europe limit ING’s income and profit growth potential in the region.
However, there remain very significant opportunities for growth, such as the savings boom, pension reform and EU enlargement. ING
is well-placed to take advantage of these opportunities. The retail businesses, for instance, are benefiting from the shift in demand to lowrisk financial products such as savings accounts and fixed-income life insurance. Another opportunity lies in pension business. Throughout Europe, governments are seeking to reform their pension systems. ING is positioning itself to become a preferred supplier of corporate and individual pension plans given its expertise in pensions. Central Europe continues to offer good growth prospects for financial services, especially following the EU accession agreements with a number of countries.
Another important challenge is to improve the profitability of wholesale banking. This entails successfully carrying out the restructuring plans and headcount reductions announced in 2002 as well as lowering the loan-loss ratio. The turnaround of the corporate banking business of ING BHF-Bank in Germany is a matter of urgency in this respect.
Management Europe to ING Europe by combining the investment strength of IIM with the strong distribution capabilities.
ING Americas has 29 million clients and 250,000 points of distribution in seven countries.
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Build customer-focused integrated financial services businesses which deliver strong earnings-growth engines in each country market.
The main goals during the year were to sharpen the focus on the customer, reduce the cost structure, enhance the distribution platforms and improve operational efficiency.
ING Americas has five key sub-strategies in place to help achieve its business objectives. The first is putting the customer first. Delivering value and service to customers is ING’s number one objective. ING aims to provide retail customers with the services and products they need through the distribution channel of their choice. The second key sub-strategy is effective portfolio management. ING Americas believes it should hold its top-five position in the US and the number one or two in other selected markets, or else it should exit. The third is restructuring the business and implementing
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Board member, regularly takes a walk to visit his staff on the third floor of ING
Maarten Edixhoven, secretary and strategist of the Amsterdam staff of ING
Financial Services (USFS), focusing on retail and worksite customers, and US Institutional Businesses
ING has a market share of 5% and a top-five position in its annuity businesses. Lower market shares are found in life insurance, where ING is the number seven player, and in mutual funds, where ING is in the top 25 based on assets under management. ING is the fourth largest life reinsurance company with a 10% market share.
In Canada, ING continues to be the leading and most profitable P&C company, with pre-tax profits of EUR 127 million, premiums of
Headcount reduction of 2,700 in US as part of integration process
In Latin America, ING is the largest insurer in the region with 17.4 million customers. The largest businesses are in Mexico, Brazil and
Mexico over the last seven years, ING is now the established insurance leader, holding numberone positions in P&C and auto, number two in health insurance and number three in life insurance. ING Comercial América offers life and health insurance to commercial and retail customers through a network of more than 9,000 independent agents. It also sells private pension plans through its own captive sales force (number five by market share). Auto and life products are also distributed through a bancassurance venture with Banco Bital (number five by market share).
Branding Building the ING brand was the major focus of marketing activities during the year, particularly in the US and at ING Direct. ING Americas succeeded in increasing brand awareness in all markets. In the US, awareness increased from 29%
to 44% within a year. The re-branding process that commenced in 2001 in Chile, Argentina and
Management (IIM) would join the regional executive centres in Americas, Europe and
in 2002, see the chapter on ING Asset Management. ING Investment Management Americas has EUR 83 billion assets under management.
ING strengthened its position in Brazil by expanding its joint-venture partnership with Sul
In response to the continued slowdown in equity markets, ING adjusted its product mix between variable and fixed products to meet the growing demand for guaranteed products.
ING Americas its SmartDesign multi-rate Index Annuity. The product was named ‘Index Annuity Product
Group, a leading provider of indexed annuity research and consulting services to insurance companies and financial services firms.
Program to meet the increased demand for independent financial and investment advice in the current market uncertainty and to capture a larger share of retirees’ roll-over and payout business into ING’s own or other third parties’
Cross-selling with ING Direct Steps began in 2002 to intensify co-operation between the retail businesses in North America and ING Direct. In Canada, ING’s intermediaries sold EUR 28 million in bank deposits and added 3,500 clients to ING Direct’s client base. In the
The lawsuit involved allegations of historical underwriting practices that took into account differences in life expectancy of different races.
Life of Georgia and Southland are in the process of implementing the settlement. A number of class members chose to opt out of the settlement to pursue their individual claims. The companies are vigorously defending these cases.
The priorities in 2003 will also include expense reduction and improved profitability.
The alignment of IIM in the ING Americas organisation will require a major effort in 2003.
Americas for better customer service and structural cost savings. Restoring ING’s position in individual life insurance in the US to a top-five position will deserve attention in 2003, and a strategic review of the reinsurance business will also take place.
Strategy In Asia/Pacific ING focuses on achieving longterm, sustainable leadership positions. Key strategic elements are growing the customer base, expanding distribution, building the brand, maximising cross-selling opportunities, actively managing product and portfolio risks and improving operational efficiency.
Thailand) of which India and China have the highest growth potential. ING differentiates itself from its competitors by offering a variety of financial products and services through the customer’s channel of choice. The distribution platform consists of tied agents, independent agents, brokers/dealers and banks. In all, ING has 60,000 points of distribution in Asia.
The approximately 13,000 independent advisors with whom ING works are the most important distribution channel in the country. The non-life business is written through a 50/50 joint venture with QBE called QBE Mercantile Mutual. It ranks number two with a 17% market share.
Despite the depressed equity markets and economic conditions, ING Asia/Pacific did well in 2002. The region as a whole exceeded its financial plans for the year with the businesses in Australia, Japan and Korea delivering substantially higher-than-expected results. The integration of
Aetna was completed. Re-branding was completed in almost all countries. ING is now working to build long-term leadership positions in its key markets. In several countries ING extended strategic alliances in order to enhance distribution capacity.
The market in Japan is dominated by domestic players. ING has 0.6% market share in life insurance with a niche product focus. The business is growing rapidly thanks to increasing sales in single premium variable annuities, where ING is one of the fastest-growing international companies.
In Taiwan, ING Antai is a prominent player in mainly traditional life insurance with 2.3 million clients and a 10% market share. ING is also a large player in Malaysia, where it has one million retail customers. ING is the number-three life insurer in Malaysia and the number-one provider of employee benefits. In Korea, ING is rapidly increasing its market share. It is currently the number-four life insurer based on new business premium and number eight based on total premium income.
market share and 8,500 agents. ING Capital Life commenced operations in December 2002 with encouraging initial sales.
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Fred Hubbell, P.Y. Chan, chief of staff, and on the right is
China: New life insurance joint venture in Dalian called ING Capital Life
Savings Trust. Together these businesses form a solid integrated financial services platform for
ING Life Korea launched a real-time service for online sales of insurance products, and the businesses in Malaysia introduced an e-CRM
Expanding distribution During the year, ING established new joint ventures and expanded existing ones in order to extend its distribution platforms in key markets.
ANZ Bank in life insurance and funds management called ING Australia Limited. The joint venture allows ING to be the exclusive supplier of life insurance and fund management products to the ANZ branch network in Australia. The focus in the coming year will be to align and grow distribution capacity with ANZ Bank in both Australia and New Zealand. In New Zealand, the re-branding of Armstrong Jones to ING was completed.
In Korea, ING broadened distribution capacity by expanding the strategic alliance with
Originally marketing its products mainly to companies with an employee base of between 100 and 1,000 employees, ING/Principal has now introduced an internet-based pension plan product specially designed for small businesses with only 30 to 100 employees. The product offers maximum flexibility and high quality service that is affordable and reduces the administrative burden of small companies.
Bank. The company provides ING with a strong banking platform in order to distribute its financial products. During the year, ING Vysya Bank reorganised the branch network, increased the number of cash dispensers, and launched a new range of banking products.
formed with Vysya in 2001, called ING Vysya Life, made good progress in 2002. The business is now ranked number eight among private players.
So far, it has a professional tied agency force of 2,000 and 22,500 customers. The strategy is to develop a larger tied agency force and develop bancassurance initiatives with ING Vysya Bank.
achieved an important milestone during the year by forming its second life insurance joint venture in the country. The joint venture, formed with Capital Group of Beijing based on a 50/50 agreement, is called ING Capital Life.
Outlook With ING’s long history in Asia, the added strength of the acquired Aetna operations and the local expertise and distribution power of our joint venture partners, ING is well-placed in the region.
In 2003, ING Asia/Pacific will continue to focus on its key priorities: improving operational efficiency, developing new distribution channels, optimising existing channels and increasing sales productivity. ING will pay special attention to joint venture management and governance in order to ensure that it builds strong relationships with its new partners and that the young greenfield activities in China and India are given a solid foundation. Customer Relationship Management initiatives will be developed across the region to improve customer service. In several countries, regulatory changes will create new business opportunities. For example, in Korea the bancassurance channel will be introduced and mutual funds distribution will be allowed for insurers. In Taiwan, unit-linked products have meanwhile been allowed. Such regulatory changes will have the effect of introducing greater product flexibility and expanding distribution options. In 2003, the former ING
Strategy With EUR 449 billion in assets under management, ING is a leading asset management organisation that offers a complete range of investment products to meet the needs of institutional and retail investors. ING is committed to delivering excellence in investment performance and client service quality through its ‘global investment expertise, local client focus’ business model. Increasingly, ING’s distribution channels have come to rely on close collaboration with the manufacturing and client servicing capabilities of ING Investment Management. ING believes that a truly integrated financial product offering at retail customer level can only be achieved by establishing an integrated local retail organisation. Additionally, good investment performance is key to continuing to be a successful and profitable asset manager; therefore ING will step up its efforts to further improve its investment engine.
Organisation In 2002, ING Asset Management continued to rationalise its asset management business structure by integrating ING Investment Management and ING Aeltus (itself a merger of ING
Management was regionalised. Over the years, an ever larger part of ING Asset Management’s profit contribution to ING has been generated by the sale of mutual funds. Efficient delivery of
ING aims to be a global top-ten (currently number 14) and a European top-five (currently number seven) asset manager with an above-average investment performance.
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Asset Management top-performing mutual funds through ING’s distribution channel therefore is key for the success of ING’s asset management business.
Thus, an integrated financial product offering at retail customer level was a logical next step.
(Global Investment Performance Standards), greatly enhancing its position in the institutional market.
Institutional asset management ING Investment Management (EUR 341 billion in assets under management as at end of 2002)
offer active money management services to institutional investors. Institutional assets under management amounted to EUR 103 billion, which makes ING one of the larger third-party money managers in the world with strong market positions in Asia, Benelux, Germany,
Schooten Architects and developed by ING Real Estate in a joint venture with
The difficult market circumstances over the last three years and the increased use of consultants have led to higher performance sensitivity and manager turnover.
ING Investment Management continued to develop its business in core emerging markets, with promising success in, for example, Mexico and Poland.
Assets under management reached EUR 126 billion. This in-house business has allowed ING
Investment Management to build expertise in specialised products, such as in private placements and collateralised mortgage obligations.
Baring Asset Management successfully implemented a number of measures to improve its investment performance and reduce performance volatility. These measures have been well received by both investors and consultants and are expected to result in winning mandates.
Mutual funds The mutual fund business is key to ING’s retail strategy. ING Investment Management manages
The year 2002 was characterised by reduced money inflows, driven by negative equity returns, a deteriorating credit market and increased uncertainty about the economic outlook. Thanks to the entry of rating agencies and the emergence of open architecture in Europe, retail investors are finding it much easier to compare the investment performance of funds. Top-rated funds increasingly attract the bulk of new money. Also in the retail market, performance has become the critical success factor to build a profitable asset management business.
Several of ING’s funds received high ratings and awards. ING Investment Management successfully introduced a new product range in 2002 under the name of Global Topselect. These funds invest in a selection of mutual funds managed by the best investment managers in the world, other than ING itself.
ING Investment Management was able to expand its business in Australia, where – as part of the joint venture with ANZ – ING Investment
Merchants Fund Management Company, a joint venture of ING Investment Management and
Asset Management a leading developer of shopping centres, was gained. With the integration of Filo, the developer acquired in late 2001, Spain has now become an important and profitable market segment for ING Real Estate. New joint ventures were established to develop logistic real estate and car parking facilities in Europe.
Real Estate saw entrance of new investors for many of its flagship funds. New capital commitments in 2002 by third-party investors totalled
ING Real Estate also manages EUR 8 billion in property for ING Insurance. In 2002, this activity made a substantial contribution to Group profit.
Baring Private Equity Partners successfully closed its second fund focused on Asia with
EUR 245 million. It also raised the first direct investment fund in Russia since 1998. The new
Capital, part of ING Investment Management, closed a new fund of private equity fund products. The fund raised EUR 524 million versus its original target of EUR 381 million.
US. The funds performed well against benchmarks and peers, but this could not prevent losses being realised on some of ING’s seed capital investments. Especially the structured credit products showed negative returns due to the very high default rates in high-yield and leveraged loan markets over the last three years.
The continuing trend to outsource non-core functions by asset managers is a stimulus to
Services Group of Baring Asset Management provides a comprehensive range of fund administration, custody, trust, banking and accounting services to institutional and retail collective investment schemes and corporate and private clients. Assets under administration were EUR 62 billion. The Financial Services
Group has built an excellent reputation as an offshore administrator of private equity funds and hedge funds. This niche business continued to grow, despite a significant reduction in new fund launches.
ING Trust specialises in trust services and the formation and management of companies used for, amongst other things, tax planning, estate planning and asset protection. ING Trust is a leading player in the Dutch market for offshore trust services, serving both corporate and private clients.
Outlook Asset management continues to be a highly attractive business for ING thanks to continuing growth prospects and low capital utilisation.
Management, linking ING’s investment engine more closely with the distribution channels, strongly reflects the importance of asset management for ING’s retail strategy worldwide. ING will step up its investments in order to further improve the asset management platform to ensure that also in the coming years top-performing investment products can be delivered.
Strategy and financial results The strategy of ING Direct is to be a low-cost provider of financial services by achieving scale in large mature markets by offering clients best value for money and excellent service via call centres, direct mail and the internet. ING Direct uses a high-rate, no-fee, no-minimum savings account as the entry product. Upon reaching the necessary scale, ING Direct complements the savings account by cross-selling a focused range of other wealth accumulation products such as mortgages, mutual funds, e-brokerage, pensions and life insurance. After the savings products, mortgages are the most important product.
Growth and other developments Due to overall commercial success in the business units, ING Direct more than doubled its size in 2002. In each of its markets, ING Direct has achieved a leading position in the direct banking segment and a top-ten position based on savings balances in four of the markets.
The total number of clients grew to more than five million and total funds entrusted
amounted to EUR 55.2 billion (+ 130%) at the end of 2002. Due to effective marketing techniques, ING Direct also managed to lower the client acquisition costs to a level below
Operational efficiency Operational efficiency, one of the important value drivers of ING Direct, improved substantially.
Risk management Very strict risk management controls the strong growth of ING Direct. In 2002, high priority was given to market, credit, operational and reputation risk management. Several scenarios were developed to test the interest rate risk and liquidity risk. The tests concluded that ING Direct is flexible and resilient and able to cope with strong interest changes.
ING Group (14%), financial institutions (6%), corporate bonds (5%) and other investments
Brand awareness Brand awareness has a direct effect among other things on the acquisition costs, cross-selling potential and retention rates. The brand has been introduced in six countries and has created strong brand awareness. The aided brand awareness numbers for the six business units range between 50 and 80%. The target is to achieve an aided brand awareness of at least 70% in every country three years after launch.
The market circumstances are expected to remain in favour of ING Direct’s savings product positioning and subsequent cross-selling of other products, although competition in all markets remains fierce. ING Direct expects to achieve a profit in 2003, including start-up losses of the newer business units.
clients in thousands, funds entrusted in billions of euros TOTAL CL IENTS TOTAL FUNDS ENTRUSTED
Policy Corporate social responsibility (CSR) has always been part of ING’s way of doing business. An important feature is that CSR is becoming increasingly aligned with ING’s overall business strategy. Furthermore, CSR performance is becoming subject to more objective and measurable standards, such as the guidelines of the Global Reporting Initiative (GRI).
Transparency, trust and ethical behaviour are the cornerstones of ING’s CSR policy. As a worldwide financial services provider, ING is confronted with many complex social and ethical issues. An ongoing dialogue with stakeholders is therefore indispensable in order to better cope with those dilemmas. ING’s policy is to constantly find ways to increase transparency in the way it does business. As part of this aim, improving ING’s financial and non-financial reporting practices will provide a better insight into how ING is managing its business. ING’s employees are expected to act in accordance with the ING Business Principles at all times. The business principles provide a solid framework of values and principles that cover a number of ethical, social and environmental issues.
ING made good progress on CSR with a variety of initiatives. For instance, stakeholder dialogue was improved by launching a new website, as part of ING’s corporate website. The site allows interested parties to communicate directly with
NGOs. Progress was made during the year in developing new key performance indicators
(KPIs) to measure ING’s performance on CSR in a more systematic way.
ING also began to investigate the possibility of launching an exchange to trade emissions rights.
The turbulence of 2002 demonstrated once again how important a commitment to corporate social responsibility is.
There were no signs of a worldwide economic recovery and corporate scandals brought quite a few companies in serious danger. The economic problems had a substantial impact on the financial sector, including ING. Building trust among clients, investors, employees and stakeholders in society is a top priority, especially in tough times like these. Sustainable development and corporate social responsibility therefore remain high on ING’s agenda.
ING’s policy on corporate social responsibility based on trust, transparency and ethical behaviour
Employees In terms of employee relations, ING introduced new measurement systems to track diversity in human resources. The Netherlands Bankers’
Association signed a covenant on working conditions with the express aim to reduce stress,
Sponsoring ING’s sponsoring and donations activities continued during the year. The sponsoring contracts with the Dutch Society for the
Preservation of Nature (Vereniging Natuurmonumenten ) and the Dutch Royal Concertgebouw Orchestra were renewed. On the occasion of the opening of ING House, the
ING switched to Max Havelaar coffee at more than 40 locations in the Netherlands. The Max
The double glass façade plays an important role in the climate control. In the outer layer on the south side, flaps can be opened during warm weather.
Modernisation of ING’s corporate governance to enhance transparency and give shareholders more power
The tools also alleviate the administrative burden of the HR organisation. Wherever sensible, HR
functions will be standardised on a European or global level. HR will place greater emphasis on advisory work to support line managers in achieving their business strategies. Just like the services offered to ING’s external customers, the three elements of click, call and face apply to
HR. Face-to-face contact with HR will remain, depending on the complexity or sensitivity of a particular issue. Across Europe, the HR function is in different stages of development. Also, the businesses differ from one another and they operate in different environments.
ING Career Site Another e-tool which became available worldwide in 2002 was the ING Career Site. All external vacancies and relevant job-related information of ING and its business units have been brought together on one internet site. This initiative aims to present ING on the internet as an employer of choice to future ING employees.
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CARE FOR EMPLOYEES In financial services, people are key. To be successful, ING must therefore create and maintain an environment which attracts talented and motivated people and in which people perform at the top of their abilities and feel appreciated. The top human resources priorities at ING are talent management, the development of a performance management system and leveraging the diversity of the workforce. The Human
Resources Management (HRM) organisation is undergoing substantial changes in order to provide more strategic support and efficient services to the ING businesses at all levels.
Various intranet tools became available in 2002, to alleviate the administrative burden of HRM. In the field of employee participation, the Executive Board signed a covenant with the
Central Workers Council to position the Council at the management level of ING Netherlands instead of ING Group.
Top priorities: talent management, development of a performance management system and leveraging diversity
ING attaches great importance to providing tools to employees to help manage their own careers. Special attention is being given to middle management who play a vital role in the organisation. E-learning and ‘Navigate your career’ are examples of instruments to help employees take more control. A new initiative
Series will be introduced to create a dialogue between leaders and employees. The ING
Passages curriculum. Furthermore, a companywide job posting system on the intranet is underway.
Management Centre of ING Netherlands. For employee participation purposes this means that the Central Workers Council will be positioned at the level of ING Netherlands and that the management of ING Netherlands will in future be the first contact for the Council rather than the Executive Board of ING Group.
organisation in the United States, for employees who have an issue that they would like a neutral party to evaluate.
Regular employee opinion surveys are also conducted in the US, as well as in the
D E B T O R P R O V I S I O N I N G The banking credit portfolio is under constant review. A formal analysis takes place on a quarterly basis to determine the provisions for possible bad debts, using a bottom-up approach. ING is of the opinion that its loan loss provisions as of 31 December 2002 are adequate to absorb losses from ING
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Because of the size of ING, its wide diversity of activities, types of clients and geographic regions, ING has comprehensive risk management procedures on all levels within the Group. On
Executive Board level, the Risk Policy Committee evaluates and manages ING Group's overall risk profile, aiming for a good balance between risk, return and capital. This chapter discusses the principal risks that are monitored: credit risk, market risk, liquidity risk, actuarial and underwriting risk and operational risk.
R I S K C L A S S E S I N G B A N K
countries where ING is active, the risk profile is regularly evaluated, resulting in a country rating.
Based on this rating and ING’s risk appetite, country risk limits are defined. Exposures derived from lending and investment activities are then measured and reported against these country limits on a daily basis. Country risk limits are assigned for transfer risk, generally only in emerging markets. The amount of emerging markets transfer risk as a percentage of total retail and wholesale lending activities remained 6%. Exposure is closely monitored for economic country risks, although no formal limits are established. The table below shows the largest economic exposures by country. A breakdown has been made by customer type.
COUNTRY RISK PROVIS IONING The country risk provision methodology is linked to the definitions with respect to determining where the country risk occurs. Some countries with perceptually high risk, but which are not in default, require no mandatory provisions for transfer risk. Instead of provisions, additional capital is allocated to transactions that incur country risk, the amount of which is related to the risk of the country as well as the risk of the transaction itself. For countries that are near default or have recently defaulted, adequate provisioning remains a requirement. The Dutch central bank monitors ING’s policy with respect to capital allocation and provisioning for country risk.
amounts in billions of euros F INANCIAL GOVERN2002 CORPORATE BANKS INST ITUT IONS MENTS OTHERS TOTAL
Economic country r isk is the concentration risk relating to any event in the risk country that may affect transactions and other exposure in that country, regardless of the currency.
are the primary causes of the significant increase in the provisions in 2002.
Country Risk Country risk is the risk that ING faces attributable to events in a specific country or group of countries. Country risk is identified in lending
ING’s policy is to maintain an internationally diversified and mainly client-related trading portfolio, while avoiding large risk concentrations.
ING applies value-at-risk and stress-testing scenarios for market risk management. Value-at-
Figures exclude local currency-denominated loans. During 2002, ING changed the methodology for calculating transfer risk. The numbers for 2001 have been restated to comply with the new methodology.
ING Bank has a structural interest rate risk on its balance sheet. As at 31 December 2002, an instantaneous increase in interest rates of 1%
could potentially have an adverse effect on interest income of EUR 14 million (year-end 2001: EUR 105 million). The one-day 99% VaR
Market risk ING Insurance The risk of loss occurring through adverse changes of prices in the financial markets is quantified in extensive analyses, using stochastic analyses for both assets and liabilities and the interaction between these portfolios.
ING Bank has a structural interest-rate risk on its balance sheet. A 1%
For the insurance operations, a 1% decrease/increase in interest rates would have an adverse/positive effect on the budgeted 2003 pre-tax result of 4% and 3%
The continued weak equity markets have their impact on the capital base of ING
mean that this ratio has been subject to significant fluctuations in recent months.
Currently, the most desirable mix of assets is studied to support reserves and target surplus, not only from a profit and loss account perspective but also from a balance sheet and cost and use of capital perspective.
F O R E I G N E X C H A N G E R I S K Foreign exchange risk in the investments backing the insurance liabilities is dealt with in the investment management processes. Locally required capital levels are invested in home currencies in order to satisfy regulatory requirements and to support local insurance business regardless of currency movements. These capital levels may affect the consolidated balance sheet when translated to euros. Depending on hedging costs and the capital exposure, up to 85% of the capital over locally required margins is currency-hedged.
Liquidity Risk ING closely monitors its liquidity risk to maintain an adequate cushion to meet its financial liabilities when due. Liquidity risk is managed at Group and local level by a combination of existing investment mandates, guidelines for asset & liability management, specific limits for certain business units and treasury policies and procedures.
Actuarial risks arise with respect to the adequacy of insurance premium rate levels and provisions with respect to insurance liabilities and capital base, taking into consideration the supporting assets (fair and book value, currency and interest sensitivity), changes in interest rates and exchange rates and developments in mortality, morbidity, non-life claims frequency and amounts, lapses and expenses as well as general market conditions. Specific attention is given to the adequacy of provisions for the life business, considering the low interest rate levels in a number of countries in which ING operates.
For those insurance contracts that contain high interest rate guarantees stochastic modelling is used to assess the risk of these guarantees.
Underwriting risks are inherent in the process whereby applications submitted for insurance coverage are reviewed. The maximum underwriting exposure is limited through exclusions, cover limits and reinsurance.
Its responsibilities also include the monitoring of risk profiles and the review of insurance-related risk control and asset and liability management.
During 2002, ING implemented a structural quarterly incident reporting process for ING
More information Detailed figures on ING’s capital level are given on page 73 and 74. A comprehensive chapter on risk management has been added to the separately issued Annual Accounts. This information is also available on www.ing.com.
T H E E X E C U T I V E B O A R D
Consistent with other business in ING Group, the current embedded-value methodology is being extended to a risk-adjusted capital allocation and performance measurement tool.
Operational risk ING’s policy is to manage operational risks through clear governance, an embedded operational risk management function, and the implementation of comprehensive operational risk identification, measurement, monitoring and mitigation processes. All business managers are responsible for establishing specific internal policies, procedures and controls and for continuously monitoring and controlling of the operational risks. At the various organisational levels, the Operational
The complete Annual Accounts and related Other information are published as a separate document in conformity with the statutory requirements as stipulated in Part 9, Book 2 of the Dutch
Civil Code. In addition, the most relevant information as required under the reporting requirements in the United States (US GAAP) and the rules of the American Securities and Exchange Commission
Availability of Annual Accounts and Form 20-F The Annual Accounts (Dutch and English) and Annual Report on Form 20-F (English) are available on the ING website: www.ing.com. The printed documents can be ordered via the website, by fax
                    -        At 31 December 2002, the revaluation reserve of ING Group for equity securities was EUR 0.6 billion positive (after tax). Due to a further decline of the stock markets, partly offset by hedging transactions on approximately EUR 4 billion (at 10 March 2003) of the equities securities portfolio, the revaluation reserve was approximately EUR 0.7 billion negative (after tax) at 10 March 2003 (at opening Amsterdam Stock Exchange).
Funds entrusted to and debt securities of the banking operations 319,824 276,367
year, except for the cumulative effect of changes in the principles of valuation and determination of results and those resulting from the write-off of goodwill, the enlargement of share capital and distributions to shareholders.
Realised revaluations previously recognised in shareholders’ equity are released from shareholders’ equity to the profit and loss account. As these revaluations have already been included in comprehensive net profit of the year under report and previous years, under the caption unrealised revaluations, and are also included in net profit for the period in the year of realisation, these realised results are adjusted in the comprehensive net profit for the period.
Fin a n cia l in fo rm a tio n
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED 31 DECEMBER amounts in millions of euros
Movements in: — funds entrusted to and debt securities of the banking operations 45,580 23,356
América consists of EUR 188 million in cash, plus its 49% stake in SulAet (a joint venture formed in 1997) as well as the combined asset management operations (ING Investment Management Brazil).
In 2002, ING Group increased its 49% stake in DiBa to a 70% interest by acquiring a further share participation in DiBa from BGAG, the investment company of a number of German trade unions. ING
Group has an option to acquire the remaining 30%. The figures of DiBa are fully consolidated without deduction of a third-party interest. The total purchase price of the additional acquisition amounted to EUR 573 million. The goodwill amounted to EUR 532 million and is charged to
In 2002, ING Group closed the purchase of an additional 24% stake in ING Vysya Bank in India increasing its interest to 44%. The total purchase price of the additional acquisition amounted to
EUR 73 million. The goodwill amounted to EUR 55 million and is charged to Shareholders’ equity. As
In 2002, ING Group acquired the Dutch car lease company Toplease. The total purchase price of the acquisition amounted to EUR 111 million. The goodwill amounted to EUR 70 million and is charged to Shareholders’ equity.
P R O V I S I O N F O R L O A N L O S S E S
M O V E M E N T S I N T H E P R O V I S I O N F O R L O A N L O S S E S I N C L U D E D I N L E N D I N G , B A N K S A N D O T H E R A S S E T S
NOTES TO THE CONSOLIDATED BALANCE SHEET amounts in millions of euros
Investments for risk of policyholders and investments of annual life funds 64,281 82,743
B R E A K D O W N I N S U R A N C E P R O V I S I O N S
Provision for profit sharing and rebates 778 745 2 778 743
M O V E M E N T S I N S H A R E H O L D E R S ’ E Q U I T Y
Changes in ING Groep N.V. shares held by group companies 822 -526
O P E R AT I O N A L R E S U LT S B Y I N S U R A N C E O P E R AT I O N S A N D B A N K I N G O P E R AT I O N S
B R E A K D O W N P R E M I U M I N C O M E
P R E M I U M S W R I T T E N F R O M D I R E C T L I F E B U S I N E S S
Income from investments in fixed-interest securities: — private loans 127 158
Income from investments in land and buildings and shares and convertibles includes realised results on disposal of EUR 1,357 million (2001: EUR 1,005 million).
I N T E R E S T M A R G I N , A N A LY S E D O N A P E R C E N TA G E B A S I S O F T H E N E T H E R L A N D S A N D I N T E R N AT I O N A L O P E R AT I O N S
B R E A K D O W N O T H E R I N C O M E
EUR 1,033 million (2001 compared with 2000: EUR 220 million decrease) and a growth in the average total assets of EUR 541 million (2001 compared with 2000: EUR 506 million).
O P E R AT I O N A L R E S U LT B E F O R E TA X AT I O N B Y G E O G R A P H I C A L A R E A
A d d itio n a l in fo rm a tio n
ING applies the Risk Adjusted Return on Capital (RAROC) framework for its banking operations to consistently measure performance on a risk-adjusted basis which is linked to shareholder value creation. The use of RAROC increases focus on decision-making in terms of risk rewards and allows
ING Bank to use its scarce capital in the most efficient way. RAROC forms an integral part of the
Group’s planning cycle and quarterly RAROC figures are calculated and analysed for all major banking business units, business lines and segments. The development of the economic capital concept anticipates on the future internal model approach to be introduced as part of the Basle II
regulatory framework. ING Group continues to develop and refine the models and data supporting the RAROC calculations. Risk-adjusted pricing tools are used as a basis for pricing certain transactions and as an important determinant in credit approval procedures.
RISK-ADJUSTED RETURN AND ECONOMIC CAPITAL RAROC is calculated as the risk-adjusted return divided by economic capital.
RAROC FOR TOTAL BANKING OPERATIONS The tables provide pre-tax RAROC figures for the banking business units of the respective Executive
ING Direct) that can be compared with 10.5% for 2001. The Executive Board has set the overall aftertax target at 12%.
Credit risk is the risk of losses due to the inability of borrowers and counterparties to meet their repayment commitment.
Market risk is the risk of losses due to unfavourable market movements. This includes all trading and non-trading activities.
Operational risk is the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events.
At the end of 2002, the total embedded value of ING’s life insurance operations was EUR 23,279 million compared to EUR 25,827 million at year-end 2001. The decrease mainly reflects the impact of lower stock prices, credit-related losses and lower currency exchange rates versus the euro.
E C O N O M I C C A P I TA L B R E A K D O W N B Y R I S K C AT E G O RY
N E W B U S I N E S S VA L U E
(2) Minor restatements of 2001 premiums and new business value are reflected. Annual premiums were reduced by EUR 56 mill ion and single premiums increased by EUR 11 mil l ion. The new business value was reduced by EUR 10 mil l ion.
E M B E D D E D VA L U E O F T H E L I F E O P E R AT I O N S
Acquisition expense overruns represent the excess of the costs of acquiring new business over the expense allowances provided in product pricing. Such overruns may exist while new operations are achieving scale, while several businesses are integrating into one, or during a year when sales are lower than anticipated.
Substantial progress has been made with respect to acquisition expense overruns. During 2002 acquisition expense overruns were EUR 133 million, representing an after-tax reduction of EUR 150 million compared to 2001. Most of the decrease is from the Americas, where overruns in 2002 were
EUR 68 million, a EUR 143 million reduction from the 2001 level. The overall internal rate of return for ING’s life business is 12.7% excluding acquisition expense overruns.
The primary reasons for the decline in embedded value relate to the poor economic environment, e.g. negative equity returns and low investment yields.
Developing markets new business value increased by 22% over 2001 to EUR 237 million.
(1) Countries classif ied as developing markets are: Central Europe: Czech Republic, Hungary, Poland, Romania, Slovakia; Americas: Argentina, Chile, Mexico; Asia/Pacif ic : China, India, Indonesia, Korea, Malaysia, Phil ippines, Taiwan and Thailand.
INDEPENDENT OPINION Watson Wyatt, an international actuarial consultancy firm, has reviewed the methodology and assumptions used by ING in the calculation of the embedded value of the life insurance business at 31 December 2002 and the value of new business written during 2002. All material business units in
Europe, the Americas and Asia/Pacific were covered in the review. Watson Wyatt has concluded that the methodology adopted is appropriate and that the assumptions used are reasonable overall.
INSURANCE OPERATIONS European Union directives require insurance companies established in member states of the European Union to maintain minimum capital positions.
C A P I TA L P O S I T I O N O F T H E I N S U R A N C E O P E R AT I O N S
Board regarding the supervision of financial conglomerates, ING Group is required to have an amount of capital, reserves and subordinated loans which is at least equal to the sum of: — the required capital for the banking activities and
For regulatory purposes certain (external) subordinated loans of ING Bank N.V. and
B R E A K D O W N O F T H E C O M B I N E D R AT I O N O N - L I F E I N S U R A N C E
M A I N C R E D I T R AT I N G S O F I N G
Proposals to change governance In November 2002, the Supervisory Board approved a proposal to change ING’s corporate governance regime fundamentally. In December 2002, the Executive Board decided (with approval from the Supervisory Board) to propose to the
ING Group accordingly. As a result, the structure regime will be established at the management level of ING Netherlands and the shareholders will get the right to determine the annual accounts and to appoint the members of the
Supervisory and Executive Boards. Such appointments will be made on the basis of binding recommendations made by the Supervisory Board, because of the prevailing regulatory requirement that proposed members of these boards must be vetted by the Dutch central bank and the Dutch Pensions and Insurance
Supervisory Authority prior to their appointment. However, the shareholders can reject such proposals with a majority of 2/3 of the votes in a shareholders’ meeting in which at least 1/3 of the issued capital is present or represented. In
Workers Council of ING signed a covenant to give further effect to this proposal.
Corporate Governance a way that all depositary-receipt holders (natural and legal persons) are treated as if they were shareholders, can exchange their depositary receipts for ordinary shares or preference shares
Shareholders’ meeting in person or are represented by or give instructions to someone else and whether in ‘peacetime’ or not. In the latter situation, ING will go farther than present and pending Dutch legislation. This means that all shareholders and depositary-receipt holders can exercise their voting rights during the
(1) in person, or (2) by means of a proxy to another person (3) or by means of a binding voting instruction to the Stichting Administratiekantoor ING Groep. This also means that the
C O R P O R AT E G OV E R NA N C E
Good corporate governance always entails a careful balance of the short-term and long-term interests of the Group and its stakeholders as a whole. This balance must be reflected in fair, adequate and efficient corporate governance systems which are disclosed in a transparent manner. In 2002, the
Supervisory Board of ING approved certain important changes to ING’s corporate governance regime. ING – having followed up on virtually all recommendations made by the
Dutch Peters Committee on corporate governance – is now moving to comply with some of the other recommendations by the Peters Committee and other Corporate Governance
R E C E N T D E V E LO P M E N T S
Administration, holders of depositary receipts may give binding voting instructions to the
C U M U L AT I V E P R E F E R E N C E S H A R E S The authorised capital of ING Group is made up of ordinary shares, preference shares and cumulative preference shares. The latter have never been issued. ING Group has granted the Stichting
(drafted to comply with applicable regulation, like the US Sarbanes-Oxley Act), which includes its rights and obligations.
Governance Committee will be to perform an annual evaluation of ING’s corporate governance as a whole and the governance of the Executive
Board for improvements and to ensure that the corporate governance of ING as a whole and the policy on which it is based is fully transparent and communicated in the Annual Report and to the Annual General Meeting.
and amend its Articles of Association to reflect that its objectives will be to promote the interests of the shareholders and the depositary-receipt holders, but with a view to the interests of all others concerned with ING. It will also promote proxy solicitation and communication between
ING and its shareholders and the depositaryreceipt holders. In agreement with one of the recommendations by the Dutch Peters
General Meeting. In agreement with another recommendation by the Dutch Peters Committee, the Board of the Stichting ING Aandelen resolved that members of the Supervisory or Executive
General Meeting of Shareholders I S S U E O F S H A R E S I N T H E F O R M O F
I N G’S G OV E R NA N C E
Executive Board R U L E S The Executive Board has drawn up a set of rules governing the manner in which it functions. These rules, which were approved by the Supervisory Board, are currently being updated in connection with the adoption of the new corporate governance regime for ING.
R I G H T S A N D H O L D I N G O F S E C U R I T I E S The compensation of and loans and options granted to the members of the Executive Board and the policies on which such compensation and grants are based, are disclosed in the annual accounts as well as on pages 81-84 of this report. Executive
Board members are permitted to hold shares of the company as long-term investments.
Supervisory Board P R O F I L E O F T H E S U P E R V I S O RY B O A R D
Executive Board members cannot be appointed chairman or vice-chairman of the Supervisory
Board members can be appointed as a member of a Supervisory Board committee following their appointment to the Supervisory Board.
M E M B E R S Supervisory Board members retire at the next Shareholders’ Meeting following completion of a term of office of four years. Supervisory Board members may be reappointed twice to serve another term of four years.
Supervisory Board members are obliged to retire no later than in the year in which they reach the age of 70 or, in exceptional circumstances, 72 or after having served on the Supervisory Board for a period of twelve years. The reappointment of
As a structure company within the meaning of the Netherlands Civil Code, ING Group currently has a controlled co-optation system for
Supervisory Board membership. This means that the members are appointed (or re-appointed) by the Supervisory Board itself, although the
S U P E R V I S O RY B O A R D M E M B E R S Each year, the members of the Supervisory Board are required to give details of any other directorships and paid offices they may hold. The exercise of such offices by a member of the Supervisory Board may not conflict with the interests of ING Group in any way whatsoever. Responsibility for the proper performance of the duties associated with membership of the ING Supervisory Board in relation to those other offices is a matter for the individual Supervisory Board members and, as from 2003, the Corporate Governance
Committee of the Supervisory Board, which committee will also advise the Supervisory Board on conflict of interest issues, if and when these would arise.
R E M U N E R AT I O N A N D H O L D I N G O F
Supervisory Board members are permitted to hold shares of the company as long-term investments. As at year-end 2002, members of the Supervisory Board held an aggregate of 16,698 depositary receipts for ordinary shares
(specified on page 86). They did not hold any depositary receipts for preference shares. If
Supervisory Board of Nationale-Nederlanden in 1991. First appointment Supervisory Board ING
Nationale-Nederlanden in 1991. First appointment Supervisory Board ING Group: May 1994.
Member of the Audit Committee. Current and last term of office: until the 2003 AGM.
Directors ReliaStar Financial Corp. First appointment Supervisory Board ING Group: April 2001. Member of the Corporate
Principal present positions: Rector Magnificus and Professor of Labour Law and Industrial
Relations, University of Amsterdam. First appointment Supervisory Board ING Group: May 1995, also on the recommendation of the
First appointment Supervisory Board ING Group: June 1998, following his retirement from the chairmanship of the Executive Board of ING
Chairman as of 15 April 2003. Current term of office: until the 2003 AGM in which he will be proposed for reappointment.
University Leuven. First appointment Supervisory Board ING Group: May 1998. Member of the Audit Committee. Current term of office: until the 2005 AGM.
ING Group: September 1997, also on the recommendation of the Central Workers Council.
Board ING Group: April 2002. Current term of office: until the 2006 AGM.
New appointments At the Annual General Meeting of Shareholders of 15 April 2003, the Supervisory Board will propose to appoint Claus Hoffmann (German nationality) and Wim Kok (Dutch nationality) as members of the Supervisory Board. The proposed appointment of Claus Hoffmann
Appointment Executive Board ING Group: July 1993. Vice-Chairman as of April 1999. Chairman as of May 2000. Joined ING (Nationale-
(after merger with BBL) in 1998. Main responsibilities: ING Europe/retail and wholesale markets, ING Direct, Operations/IT.
Appointment Executive Board ING Group: September 1996. Joined ING in 1996. Former position: President VNO-NCW Federation. Main responsibilities: Asset Management, Information
Executive Board is determined by the Supervisory Board on the basis of a proposal of its
Remuneration and Nomination Committee. The remuneration package consists of a base salary, a short-term performance-related cash bonus and a long-term incentive currently in the form of stock options. In order to maintain a competitive remuneration package, benchmarking against comparable companies is carried out regularly.
Currently, the Supervisory Board is reviewing the compensation structure and level for the
Executive Board, because it believes that the current compensation package is no longer adequate and competitive. It has commissioned a report from an external consultant to advise on the future Executive Board reward strategy.
The Supervisory Board used its discretionary power to set the variable component over 2002 as follows. No (short-term) cash bonus will be granted, but the Executive Board members will receive – as a long-term incentive – 35,000 stock options (same level as over 2001). In addition, the Supervisory Board adopted a conditional share award policy, pursuant to which the
Executive Board members may be granted a number of conditional share awards in ING
shares made available for this purpose, by way of a long-term incentive remuneration in respect of 2002. The Supervisory Board has the intention to award on or about 16 May 2003, out of this pool a number of 7,000 Conditional
(1) As part of the long-term incentives the members of the Executive Board may also be granted a number of conditional share awards in ING Group in 2003 out of a total pool of 50,000 ING shares made available for this purpose.
R E M U N E R AT I O N O F T H E I N D I V I D U A L M E M B E R S O F T H E E X E C U T I V E B O A R D
R E M U N E R AT I O N O F T H E E X E C U T I V E B O A R D
No loans and advances have been granted to other members of the Executive Board.
As at 31 December 2002, Fred Hubbell (including direct family) held 1,050,000 ING Group shares
Board was EUR 1.6 million at an average rate of 4.7%. This amount concerns a loan to Aad
I N F O R M AT I O N O N T H E O P T I O N S O U T S TA N D I N G A N D T H E M O V E M E N T S D U R I N G T H E F I N A N C I A L Y E A R
O F O P T I O N R I G H T S H E L D B Y M E M B E R S O F T H E S U P E R V I S O RY B O A R D A S AT 31 D E C E M B E R 2002
Executive Committees, general managers and other officers nominated by the Executive
ING Group purchases direct or indirect its own shares at the time options are granted in order to fulfil the obligations with regard to the existing stock option plan and to hedge the position risk of the options concerned. The purpose of this policy is to avoid an increase in the number of shares, causing a dilution of the net profit per share. As at 31 December 2002, 28,437,105 own shares were held in connection to the option plan (2001: 69,088,290). As a result the granted option rights were hedged, taking into account the following parameters: strike price, opening price, zero coupon interest rate, dividend yield, expected volatility and employee behaviour.
I N G G R O U P S H A R E S H E L D B Y M E M B E R S O F T H E S U P E R V I S O RY B O A R D
AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA
Basic profit per share (in euros) 2.32 2.27 2.37 2.30 6.27 6.21
(1) The amounts in the pro forma columns reflect the figures if the fair value of the stock options at the time they were granted were recognised in the profit and loss account.
P R O F O R M A R E S U LT I F S T O C K O P T I O N S W E R E R E C O G N I S E D I N T H E P R O F I T A N D L O S S A C C O U N T (1)
O P T I O N S I N -T H E -M O N E Y A N D O P T I O N S O U T-O F - T H E -M O N E Y
S U M M A RY O F S T O C K O P T I O N S O U T S TA N D I N G A N D E X E R C I S A B L E A S AT 31 D E C E M B E R 2002
Group except administrative costs for the stock option plan and funding costs resulting from the purchase of own shares. Due to timing differences in granting option rights and buying shares to hedge them, results can occur if shares are purchased at a different price than the exercise price of the options. These results are recognised in Shareholders’ equity. However, ING
In compliance with the provisions of Article 16 of the Conditions for the Administration of
On 9 April 2002, the Board met to discuss the 2001 annual report and the agenda for the
Shares’). The objectives of the Stichting will also change: it must promote the interests of shareholders and depositary receipt holders, ING
Board members are no longer allowed to become members of the Board of the Stichting and the Board of the Stichting will grant proxy to depositary receipt holders to vote during a
These changes are subject to an amendment to the Articles of Association of ING Group by the 2003 Annual General Meeting of Shareholders.
During its meeting on 3 December 2002, the Board of the Stichting was further informed about the general course of business up to
The administrator of the Stichting (Administratiekantoor van het Algemeen Administratieen Trustkantoor B.V., Amsterdam) performs the activities involved in the day-to-day administration of the shares.
Groep N.V. hereby declare that in their joint opinion the requirements concerning the independence of the members of the Board of
A D M I N I S T R AT I E K A N T O O R I N G G R O E P
ING Groep, established in Amsterdam, was founded on 22 January 1991.
A call-option agreement has been concluded between the Stichting and ING
Groep N.V. This agreement gives the Stichting the right to acquire cumulative preference shares in the capital of ING Groep N.V. up to a maximum of 900 million cumulative preference shares.
If and whenever new shares – other than cumulative preference shares – are issued subsequently, the Stichting may again exercise its right, subject to the provisions of the preceding sentence. On acquisition of cumulative preference shares, 25% of the nominal value is to be paid up.
During its meeting on 3 December 2002, the Board of the Stichting decided to amend its
On 1 April 2002, Henk Goris stepped down from the Board having reached the statutory age limit. The composition of the Board is currently as follows: Ad Timmermans (Chairman),
The latter three members will resign once the amendment to the Articles of Association of the
Stichting ING Aandelen takes effect, which is expected to take place after the Annual General
P R E F E R E N T E A A N D E L E N I N G G R O E P
C E N T R A L W O R K E R S C O U N C I L
A S AT 1 J A N U A RY 2003
E U R O P E A N W O R K E R S C O U N C I L
I N G G R O U P A D V I S O RY C O U N C I L
WO R K E R S C O U N C I L S A N D A DV I S O RY
(ii) performance of financial markets, including emerging markets, (iii) the frequency and severity of insured loss events, (iv) mortality and morbidity levels and trends, (v) persistency levels, (vi) interest rate levels, (vii) currency exchange rates, (viii) general competitive factors, (ix) changes in laws and regulations, and
Payments – cash management Optimisation of cash flows can liberate money tied up in numerous local bank accounts for more productive use. ING’s know-how and experience translate into effective solutions.
Institutional investment management Institutional investors can tap into ING’s global experience in asset management, in the form of discretionary portfolio management or by participating in pooled funds and mutual funds.
Real estate Developing, financing, managing and investing in real estate require specialised skills.
As the second largest real-estate investor in the world, ING has demonstrated its command of these skills. To institutional investors, ING offers a family of real-estate funds focusing on retail property, offices and residential property.
ASSETS UNDER MANAGEMENT (in billions of euros) 449 513 503 345 253
MARKET CAPITALISATION (in billions of euros) 32 57 83 58 50
Life premiums as a % of total premiums 85 88 86 84 82
Profile ING Group is a global financial institution of Dutch origin with 115,000 employees. ING offers banking, insurance and asset management to 60 million clients in 60 countries. The clients are individuals, families, small businesses, large corporations, institutions and governments. ING comprises a broad spectrum of prominent businesses that increasingly serve their clients under the ING brand.
Group’s financial strength, its broad range of products and services, the wide diversity of its profit sources and the good spread of risks form the basis for ING’s continuity and growth potential.
ING seeks a careful balance between the interests of its stakeholders: its customers, shareholders, employees and society at large. It expects all its employees to act in accordance with the Group’s