Who we are 1 Consolidated annual accounts 4 Management 4 25 Valuation results on non-trading derivatives 87 ING and NN Group at a glance 5 26 Foreign currency results and trading income 88 Report of the Management Board 2 27 Other income 88 Overview 7 28 Underwriting expenditure 88 Result per segment 10 29 Intangible amortisation and other impairments 90 Netherlands Life 11 30 Staff expenses 90 Netherlands Non-life 13 31 Interest expenses 93 Insurance Europe 14 32 Other operating expenses 94 Japan Life 16 33 Discontinued operations 94 Investment Management 17 Notes to the Consolidated statement of cash flows 96 Other 18 34 Net cash flow from investing activities 96 Japan Closed Block VA 19 35 Interest and dividend included in net cash flow 96 Insurance Other 20 Other 96 Governance 3 36 Segments 96 Report of the Supervisory Board 21 37 Information on geographical areas 101 Corporate governance 23 38 Pension and other post-employment benefits 102 Dutch Insurers’ Code 24 39 Taxation 108 Conformity statement 25 40 Fair value of assets and liabilities 112 Consolidated annual accounts 4 41 Derivatives and hedge accounting 123 Consolidated balance sheet 26 42 Assets by contractual maturity 125 Consolidated profit and loss account 27 43 Liabilities by maturity 127 Consolidated statement of comprehensive income 29 44 Assets not freely disposable 128 Consolidated statement of cash flows 30 45 Transfer of financial assets 129 Consolidated statement of changes in equity 31 46 Offsetting financial assets and liabilities 129 Notes to the consolidated annual accounts 33 47 Contingent liabilities and commitments 130 1 Accounting policies 33 48 Legal proceedings 131 Notes to the Consolidated balance sheet 54 49 Companies and businesses acquired and divested 133 2 Cash and cash equivalents 54 50 Principal subsidiaries 138 3 Financial assets at fair value through profit and loss 54 51 Structured entities 138 4 Available-for-sale investment 55 52 Related parties 139 5 Loans and advances to customers 61 53 Other events 147 6 Investments in associates 61 54 Reclassified balance sheet and cash flow statement 149 7 Real estate investments 63 55 Subsequent events 150 8 Property and equipment 65 Risk management 151 9 Intangible assets 66 Capital management 178 10 Deferred acquisition costs 69 Parent company annual accounts 5 11 Assets and liabilities held for sale 69 Parent company balance sheet 184 12 Other assets 71 Parent company profit and loss account 185 13 Equity 72 Parent company statement of changes in equity 186 14 Subordinated loans 75 Accounting policies for the parent company annual accounts 187 15 Debt securities in issue 75 Notes to the parent company annual accounts 188 16 Other borrowed funds 76 1 Investments in group companies 188 17 Insurance and investment contracts 77 2 Other assets 188 18 Customer deposits and other funds on deposit 82 3 Equity 189 19 Financial liabilities at fair value through profit and loss 82 4 Subordinated loans 191 20 Other liabilities 83 5 Other liabilities 191 Notes to the Consolidated profit and loss account 85 6 Other 191 21 Gross premium income 85 Other information 6 22 Investment income 86 Independent auditor’s report 193 23 Result on disposals of group companies 86 Proposed appropriation of result and subsequent events 194 24 Commission Income 87
MANAGEMENT BOARD NN GROUP N.V. Composition on 1 March 2014 MANAGEMENT BOARD ING VERZEKERINGEN N.V. Composition on 31 December 2013 R.A.J.G. (Ralph) Hamers (47), CEO and chairman E. (Lard) Friese (51), vice-chairman D. (Delfin) Rueda (49), chief financial officer S.D. (Doug) Caldwell (44), chief risk officer P.G. (Patrick) Flynn (53) W.F. (Wilfred) Nagel (57) D.E. (Dorothee) van Vredenburch (49)
SUPERVISORY BOARD NN GROUP N.V. Composition on 1 March 2014 SUPERVISORY BOARD ING VERZEKERINGEN N.V. Composition on 31 December 2013 J. (Jeroen) van der Veer (66), chairman P.A.F.W. (Peter) Elverding (65), vice-chairman J.P. (Tineke) Bahlmann (63) H.W. (Henk) Breukink (63) I. (Isabel) Martín Castellá (66) C.W. (Carin) Gorter (51) J.H. (Jan) Holsboer (67) H.J.M. (Hermann-Josef) Lamberti (57) J.C.L. (Joost) Kuiper (66) R.W.P. (Robert) Reibestein (57) Y.C.M.T. (Yvonne) Van Rooy (62) L.A.C.P. (Luc) Vandewalle (69)
Composition on 1 March 2014 COMMITTEES OF THE SUPERVISORY BOARD ING VERZEKERINGEN N.V. (1)
ING currently serves more than 48 million customers in more than 40 countries. ING has more than 75,000 employees.
ING’S STRATEGY ING has strategic priorities at the Group, Bank and Insurance (NN Group) levels. All are ultimately in line with our mission.
NN Group’s focus is on service to customers, generating capital, growing profitability and improving efficiency. Its strategy is about offering appealing and easy to understand products and services, multi-access distribution and efficient and effective operations in the 18 countries in which it is active.
NN GROUP NN Group is a leading insurance and investment management company with a strong, predominantly European, presence in 18 countries. With more than 12,000 employees, it offers retirement services, insurance, investments and banking to retail, SME, corporate and institutional customers. The reporting segmentation is as follows:  Netherlands Life  Netherlands Non-life  Insurance Europe  Japan Life  Investment Management  Other  Japan Closed Block VA
AGREEMENT WITH EUROPEAN COMMISSION In November, ING and the Dutch State reached an agreement with the European Commission on a revised timeline for the divestment of the European and Japanese businesses. Under this revised agreement, it was announced that Japan Life would be included in the base case IPO.
As such, the timeline to divest more than 50% of Japan Life has effectively been extended by two years to yearend 2015. This is the agreed timeline to divest more than 50% of ING’s European insurance and investment management businesses. Also as part of the revised EC agreement, ING will accelerate the time to complete the 100% divestment of its insurance and investment management activities in Europe and Japan by two years, to year-end 2016.
Netherlands Non-life Netherlands Non-life offers a broad range of non-life insurance products – motor, transport, fire, liability, travel and income protection (disability and accident insurance) – to retail, self-employed, SME (small and medium-sized enterprises) and corporate customers. It does this through multi-channel distribution such as regular and mandated brokers, ING Bank and direct via the internet. Its Movir brand offers individual disability insurance to specific groups in the medical and business professions.
Japan Closed Block VA Japan Closed Block VA comprises NN Group’s closedblock single premium variable annuity (SPVA) individual life insurance portfolio in Japan. This portfolio consists of SPVA products with substantial minimum guarantee obligations sold predominantly from 2001 to 2009. In 2009 ING ceased the sale of these products and placed this portfolio in run-off. This portfolio has been classified as a closed-block and is managed as a separate segment.
ING and NN Group at a glance continued 6 NN Group Annual Report 2013
Japan Life In Japan, NN Group primarily offers a range of COLI (corporate owned life insurance) products to SMEs and owners and employees of SMEs through independent agents and bancassurance. COLI products are traditional life insurance policies with an average duration of nine years that a company, typically an SME, takes out on the lives of executives or employees, whereby the company is both the policyholder and the beneficiary of the policy. COLI products are designed to address the protection, savings, and retirement preparation needs of SMEs and owners and employees of SMEs in a tax-efficient manner.
Investment Management Investment Management offers a wide variety of actively managed investment products and advisory services to retail and institutional customers in all major asset classes and investment styles. In addition, it manages the assets of NN Group’s businesses. Investment Management offers its products and services globally through regional centres in several countries across Europe, the United States, the Middle East and Asia, with the Netherlands as its main investment hub.
Nationale-Nederlanden Bank offers a range of banking products, especially mortgages and savings, to retail customers in the Netherlands.
As part of the preparations to become a standalone company through a base case IPO, changes were made to the reporting segmentation in the fourth quarter of 2013, as follows:  Netherlands Life  Netherlands Non-life  Insurance Europe  Japan Life  Investment Management  Other  Japan Closed Block VA
GOVERNANCE On 28 February 2014, before the finalisation of the 2013 consolidated financial statements, ING Insurance Topholding N.V. legally merged with its wholly-owned subsidiary ING Verzekeringen N.V. The legal merger became effective on 1 March 2014 and on that date the merged entity was renamed NN Group N.V. Through this merger, the legal entity ING Verzekeringen N.V. ceased to exist and NN Group N.V. became the legal successor of ING Verzekeringen N.V.
NN Group N.V. became the entity for the base case IPO for the European and Japanese insurance and investment management operations. Until 1 March 2014 these operations were conducted under the umbrella of ING Verzekeringen N.V. In this Annual Report, NN Group will be used to indicate these operations. Please see page 4 for the composition of the Boards.
 We commit: we take responsibility for what we do. We act with integrity and focus on our long-term objectives.
Employees are encouraged to invest in themselves and in their employment prospects. Employees are given, for example, training, coaching and internships. In the Netherlands they are also offered retraining advice if they are made redundant.
NN Group became one of the founding signatories of the United Nations Principles for Sustainable Insurance (PSI) in 2012, which underlines its commitment to embedding ESG considerations into strategy and decision making. In 2013, the PSI strategy for the coming years was written and approved by all PSI members.
NN Group will continue to play a role in discussions with the industry and with regulators on developing Solvency II so that it is robust and helps life insurance companies continue to meet the long-term financial needs of their customers.
CONCLUSIONS AND AMBITIONS In 2013, strong progress was made in the European and Japanese insurance and investment management restructuring programme and on improving the customer experience and operational performance.
Results on divestments was EUR 84 million in 2013, compared with EUR 50 million in 2012. The result in 2013 reflected NN Group’s share in Sul América’s net result from operations and the net result from the disposal of part of NN Group’s share in the entity, partly offset by a loss on the sale of the Mexican mortgage business. The result in 2012 reflected NN’s share in Sul América’s net result from operations, partly offset by a loss on the final settlement of the divestment of group pension contracts in the Netherlands, which were transferred to an industry wide pension fund.
Result per segment amounts in millions of euros 2013 2012 Operating result – Netherlands Life 709 623 – Netherlands Non-life 79 103 – Insurance Europe 199 219 – Japan Life 162 196 – Investment Management 131 109 1,279 1,250 – Other –373 –399 Operating result ongoing business 905 852 Non-operating items ongoing business: –229 –779 – of which gains/losses and impairments 97 70 – of which revaluations 3 –319 – of which market and other impacts –329 –530 Japan Closed Block VA –669 105 Insurance Other –18 –22 Special items before tax –126 –451 Result on divestment 84 50 Result before tax –52 –245 Taxation –50 –113 Net result from continuing operations before attribution to minority interest
Net result from discontinued operations 20 1,197 Net result from continuing and discontinued operations before attribution to minority interest
The result before tax from continuing operations was a loss of EUR 52 million in 2013, compared with a loss of EUR 245 million in 2012. This improvement was the result of a lower loss of non-operating items and lower adverse impact from special items, partly offset by a decrease in the result for Japan Closed Block VA as a result of the one off charge of EUR 575 million.
Net result Netherlands Life amounts in millions of euros 2013 2012 Investment margin 557 562 Fees and premium-based revenues 461 508 Technical margin 237 141 Operating income 1,255 1,211 Administrative expenses 472 495 DAC amortisation and trail commissions
Expenses 547 587 Operating result 709 623 Non-operating items: –345 –689 – of which gains/losses and impairments
–43 138 – of which revaluations 27 –296 – of which market and other impacts –329 –530 Special items before tax –22 –225 Result on divestment 6 –23 Result before tax 347 –313 Taxation 65 –162 Minority interests 6 12 Net result 276 –164
The operating result for Netherlands Life was EUR 709 million in 2013 compared with EUR 623 million in 2012, mainly due to a higher technical margin partly offset by lower fees and premium based revenues.
The investment margin decreased to EUR 557 million in 2013 from EUR 562 million in 2012, after a slight decline in investment income mainly due to lower dividends on equity securities.
DAC amortisation and trail commissions declined 18.5% to EUR 75 million in 2013, in line with the decline in new life sales and reduced acquisition costs, as a result of the commission ban on complex products in the Netherlands.
Result on divestment was a gain of EUR 6 million in 2013, compared with a loss of EUR 23 million in 2012. The loss in 2012 was related to the final settlement of the divestment of group pension contracts which were transferred to industry wide pension funds.
In pensions, its objective is to help customers make informed decisions about their financial future throughout their lives. In 2013, Netherlands Life improved the quality of its communication with customers. For example, it introduced a new website www.thuisinpensioen.nl where customers can find answers to questions about pensions.
Distribution As a result of the legislative ban in 2013 on commissions for complex financial products and stricter requirements for certification, there has been a reduction in the number of intermediaries in the Dutch market. At the same time new distributors have appeared, who are expanding their services, and distributing pension products together with financial advice to their clients.
Products Netherlands Life launched a Defined Contribution (DC) pension product (Essentie Pensioen) in 2012 which bundles insurance from Nationale-Nederlanden, pension administration by AZL and investment management services from Investment Management. It launched another DC product (Bewust Pensioen) in 2013, which is based on a straight-through-processing framework and offers guarantees and investment opportunities. With these two products, Netherlands Life is well positioned to capture more opportunities in the growing DC market.
NETHERLANDS NON-LIFE Netherlands Non-life is lowering its run rate expenses by innovating processes and products. Its aim is to further improve customer and intermediary service levels. It continues to sell its products through multiple distribution channels. Intermediaries continue to play an important role, but bancassurance and direct channels are also an integral part of Netherlands Non-life’s distribution strategy.
– Gross claims paid 1,071 1,092 – Reinsurance recoveries –25 –24 – Change in claims reserves 13 95 – Change in reinsurers’ share of claims reserves 7 9 – Profit sharing and rebates 11 6 Claims incurred, net of reinsurance 1,077 1,178
Expenditure improved to EUR 1,651 million in 2013 compared with EUR 1,741 million in 2012. This improvement was driven by a significant reduction in claims frequency for disability and accident insurance products following the implementation of a recovery programme in 2011 and 2012. The recovery was also strengthened by a significant improvement in the claims experience for short-term disability products. The restored profitability of the Income business was partly offset by a relatively high volume of significant claims in the fire product line and several large storms in the fourth quarter of 2013, which increased expenditures in the P&C market segment. Administrative expenses increased by EUR 19 million mainly as a result of higher pension expenses, which more than offset the impact of the transformation programme in the Netherlands.
Special items were a loss of EUR 16 million in 2013, primarily due to preparation costs for the base case IPO. This compared to a loss of EUR 140 million in 2012, which mainly reflected reorganisation provisions related to the transformation programme announced in late 2012 and expenses for the operational separation from ING Groep.
Business developments Netherlands Non-life offers a broad range of non-life insurance products – motor, transport, fire, liability, travel and disability and accident insurance – to retail, selfemployed, SME (small and medium-sized enterprise) and corporate customers. It does this through multichannel distribution such as regular and mandated brokers, ING Bank and direct via the internet. Its Movir brand offers individual disability insurance to specific groups in the medical and business professions.
Expenses life insurance 630 654 Operating result life insurance 194 212 Non-life operating result 5 7 Operating result 199 219 Non-operating items: 53 –66 – of which gains/losses and impairments 55 –82 – of which revaluations –3 17 – of which market and other impacts –1 Special items before tax –9 –38 Result before tax 243 115 Taxation 77 25 Minority interests 9 9 Net result 156 81
Administrative expenses were EUR 310 million in 2013, a 7.2% decrease compared with EUR 334 million in 2012. This decrease partly reflects the incurrence of a one-off financial institution tax in Hungary of EUR 15 million in 2012 and tight cost control throughout the region in 2013, the impact of the latter partly offset by investments in new business in Turkey.
Special items were a loss of EUR 9 million in 2013, primarily related to expenses for a regional transformation programme. This compared with a loss of EUR 38 million in 2012 which included expenses related to the operational separation from ING, expenses for the transformation programme and expenses related to the base case IPO.
Spain signed a collaboration agreement with Mutua Madrileña Group, and started selling its car insurance with special benefits for ING customers. Poland achieved success with its “Insure yourself and trick the cancer” campaign, which was voted the best campaign in the finance category of the Zloty Spinacz awards, a prestigious public relations award. The campaign was recognised for its corporate responsibility features, including cancer prevention and education about healthy living and the importance of regular medical examinations. Romania launched the country’s first online life insurance service. Turkey introduced a longterm life product, using online and offline distribution channels. Luxembourg launched a unit-linked life insurance solution for the French market.
Gains/losses and impairments increased to EUR 42 million in 2013 from EUR 4 million in the prior year, mainly caused by asset rebalancing.
Revaluations decreased to a loss of EUR 11 million in 2013 from a gain of EUR 10 million in the previous year.
In 2012, Japan Life was Japan’s third largest provider of COLI products measured by Annual Premium Equivalent (APE).
Conclusions and ambitions The continued shift towards professional distribution channels, such as independent brokers and banks, is creating growth opportunities for Japan Life. Its aim is to grow faster than the market boosted by its strong presence in these channels.
Expenses 283 328 Operating result 162 196 Non-operating items: 30 13 – of which gains/losses and impairments 42 4 – of which revaluations –11 10 Result before tax 192 209 Taxation 71 69 Net result 121 140
The technical margin decreased to EUR 2 million in 2013 compared with EUR 23 million in 2012, as the 2012 technical margin included strong mortality and morbidity results, while surrender results declined in 2013 following improved persistency in the portfolio.
In 2013, Japan Life received a three-star rating (out of a maximum of three) for its after-sales call centre from the service and support industry organisation, HDI-Japan (Help Desk Institute), emphasising the company’s commitment to deliver superior service to its customers and distribution partners.
Net result Investment management amounts in millions of euros 2013 2012 Investment income 1 Fees 444 430 Operating income 445 430 Administrative expenses 314 321 Operating result 131 109 Non-operating items: 1 – of which gains/losses and impairments 1 Special items before tax –6 Result before tax 131 105 Taxation 34 27 Net result 97 77
Administrative expenses were EUR 314 million in 2013, a 2.2% decrease compared with EUR 321 million in 2012, primarily due to non-recurring costs incurred at the end of 2012.
The result before tax increased to EUR 131 million in 2013 from EUR 105 million in 2012, as a result of the increase in operating result.
Business developments Investment Management offers a wide variety of actively managed investment products and advisory services to retail and institutional customers in all major asset classes and investment styles. In addition, it manages the assets of NN Group’s businesses. Investment Management offers its products and services globally through regional centres in several countries across Europe, the United States, the Middle East and Asia, with the Netherlands as its main investment hub.
As at 31 December 2013, Investment Management had EUR 174 billion of AuM, of which EUR 104 billion was managed for third-party retail and institutional customers and the remaining EUR 70 billion for the general account of NN Group’s businesses.
In 2013, Investment Management continued to simplify and streamline its operations, in line with the separate divestment of the Asian insurance and investment management businesses.
This expansion will be also driven by successful products. More than 71% of its funds have outperformed their respective benchmarks on a three-year assetweighted basis as at 31 December 2013. 43% of Investment Management’s investment funds had a four- or five-star Morningstar rating, which was above the industry average.
Sustainable assets under management increased by 8.3% to EUR 3.5 billion. In line with being an active investor, Investment Management visits shareholder meetings of its investee companies. In 2013, it introduced the publication of quarterly active ownership reports on its voting and engagement activities. For more information on these and other sustainability-related subjects, please refer to the ING Group Sustainability Report.
Other results 3 Operating result –373 –399 Non-operating items: 29 –24 – of which gains/losses and impairments 44 10 – of which revaluations –14 –34 Special items before tax –79 –43 Result on divestment –50 –7 Result before tax –473 –471 Taxation –93 –84 Net result –380 –386
The operating result for the Other segment was a loss of EUR 373 million in 2013, compared with a loss of EUR 399 million in 2012. The improvement largely reflects lower funding costs offset by a lower result from the reinsurance business.
Operating result reinsurance business was a loss of EUR 15 million in 2013, compared with a gain of EUR 22 million in 2012. The 2013 result was negatively impacted by a EUR 31 million one-off loss on a specific reinsurance contract.
Special items amounted to a loss of EUR 79 million in 2013, compared with a loss of EUR 43 million in 2012. The loss in 2013 was primarily due to expenses related to the restructuring and integration of WestlandUtrecht Bank operations at Nationale-Nederlanden Bank. The 2012 loss included EUR 94 million in expenses related to the operational separation from ING Groep and preparation costs for the base case IPO, EUR 56 million in goodwill impairments, and a EUR 26 million reorganisation provision. These negative items were largely offset by a pension provision release of EUR 133 million.
It distributes these products through intermediaries, Nationale-Nederlanden’s direct channel and ING Bank. Nationale-Nederlanden Bank aims to build a high quality mortgage book and it has a strong and well-capitalised balance sheet.
Holding result was a loss of EUR 348 million in 2013, an improvement of 15.1% compared with a loss of EUR 410 million in 2012, largely due to lower interest expense on hybrids and debt. Interest expense on hybrid and debt securities was EUR 167 million in 2013, a decrease of 23.0% compared with EUR 217 million in 2012, mainly reflecting a EUR 2 billion senior debt refinancing by ING Groep in September 2013.
The result before tax was a loss of EUR 473 million in 2013, compared with a loss of EUR 471 million in 2012, as improvements in the operating result and nonoperating items were offset by higher special items and a lower result on divestments.
Nationale-Nederlanden Bank Nationale-Nederlanden Bank offers a range of banking products, especially mortgages and savings, to retail customers in the Netherlands. In addition, it coordinates the distribution of Nationale-Nederlanden’s individual life and retail non-life insurance products in the Netherlands to enable a comprehensive product offering to retail customers in the Netherlands.
ING Re ING Re is NN Group’s internal reinsurer located in the Netherlands. ING Re primarily offers reinsurance to NN Group’s businesses. It manages its risks through ceding excess insurance risk to external reinsurers and hedging (a major part of) its market risks. ING Re also reinsures the minimum guarantee obligations of the Japan Closed Block VA. In the segment reporting, the results from this reinsurance agreement are reported by ING Re under the Japan Closed Block VA segment (whilst the rest of ING Re results are reported under the Other segment).
JAPAN CLOSED BLOCK VA Japan Closed Block VA primarily consists of single premium variable annuities (SPVA) sold from 2001 to 2009. In 2009, ING in Japan ceased the sale of SPVA products in Japan, placed the portfolio in run-off and classified it as closed-block business.
amounts in millions of euros 2013 2012 Fees and premium-based revenues 136 148 Operating income 136 148 Administrative expenses 18 13 DAC amortisation and trail commissions
Expenses 56 64 Operating result 80 85 Non-operating items: –749 21 – of which gains/losses and impairments 1 – of which market and other impacts –750 21 Result before tax –669 105 Taxation –214 33 Net result –454 72
The operating result of Japan Closed Block VA was EUR 80 million in 2013, a 5.9% decrease compared with EUR 85 million in 2012. Excluding currency effects, the operating result increased by 19.1%, mainly driven by higher operating income.
The result before tax was a loss of EUR 669 million in 2013, compared with a gain of EUR 105 million in 2012. This decrease was primarily due to the incurrence of the EUR 575 million charge to restore the reserve adequacy to the 50% confidence level.
Net result Insurance Other amounts in millions of euros 2013 2012 Expenses –18 –22 Result on divestments 129 80 Result before tax 111 59 Taxation –4 –5 Net result 115 64
Expenses reflect shareholder’s expenses of ING allocated to NN Group and were EUR 18 million in 2013, a decline of 18.8% compared with EUR 22 million in 2012, after the divestment of large parts of the Company’s Asian businesses in late 2012 and early 2013, which lowered the allocation base for corporate expenses from ING Groep.
GENERAL SUPERVISORY BOARD MEETINGS The Supervisory Board met ten times in 2013 of which eight meetings were regular meetings. On average, 96% of the Supervisory Board members were present at the scheduled meetings. For the two ad hoc meetings the average presence was 91%. Apart from closely monitoring the financial results in 2013, the Supervisory Board also monitored the progress in executing the Restructuring Plan of the European Commission (EC), including the progress on the divestment of various insurance and investment management businesses of ING in Asia.
The Audit Committee regularly discussed financial reporting, internal controls over financial reporting, capital management and regulatory matters. NationaleNederlanden Life actuarial and risk reporting, the developments in the unit-linked products case and the capital plan for NN Group were also topics of frequent discussion during the year.
Risk Committee meetings The Risk Committee met four times in 2013 with no absentees. At each Risk Committee meeting the financial risk and the non-financial risk reports for banking and insurance were discussed in detail. An outline of the NN Group Recovery Plan was provided. Various stress test scenarios for NN Group were discussed in August. The annual risk appetite statements for NN Group were supported. In November a risk management function review for NN Group was presented to the Risk Committee. During the year the Risk Committee closely monitored the progress of various projects regarding control risk within NN Group. As part of the 2013 permanent education programme, the Risk Committee was informed in depth on new risks in the financial sector. Each meeting ended with a general discussion on possible future risks.
The Nomination Committee also advised on the reappointment of various Supervisory Board members, the nomination of three Supervisory Board candidates as well as on the future composition of the Supervisory Board including a future independent Supervisory Board for NN Group. The Nomination Committee requested an executive search firm to search for possible NN Group Supervisory Board candidates with financial expertise, preferably in the field of insurance, while also aiming to meet the ambition to have at least 30% female Supervisory Board members. Several candidates were interviewed by members of the Nomination Committee and the Supervisory Board. The Nomination Committee advised the Supervisory Board on the nomination of external candidates for the future Supervisory Board for NN Group.
The annual review of the remuneration frameworks for NN Group took place as well as the annual risk analyses of the remuneration policy. The Identified staff selection criteria and the list of Identified staff for NN Group were reviewed and approved.
Insurance Europe Committee The Supervisory Board of ING Groep N.V. decided to set up an additional Insurance Europe Committee to advise and assist the Supervisory Board of ING Groep N.V. on the preparation of the proposed IPO of NN Group N.V. Jan Holsboer and Yvonne van Rooy became respectively chairman and member of this committee. For their coordination and experience as chairmen of the Audit and Risk Committees respectively, Joost Kuiper and Robert Reibestein became members of the Insurance Europe Committee on a temporary basis. The committee met formally on a monthly basis from November, and also had individual meetings.
COMPOSITION OF THE EXECUTIVE AND THE MANAGEMENT BOARDS At the General Meeting of Shareholders in May, Ralph Hamers became a member of the Executive Board, Management Board Banking, Management Board NN Group (formerly called ING Insurance Topholding N.V.) and Management Board ING Verzekeringen N.V. as per AGM of 13 May 2013 and CEO of ING Bank, NN Group, ING Group and ING Verzekeringen N.V. as per 1 October 2013. Jan Hommen remained as CEO until 1 October 2013. Patrick Flynn was appointed as a member of the Executive Board for a consecutive period of four years. On 1 October 2013, Ralph Hamers succeeded Jan Hommen as CEO.
Currently, only one Supervisory Board member, Luc Vandewalle qualifies as “non-independent” as defined in best practice provision III.2.2 of the Dutch Corporate Governance Code. Luc Vandewalle is considered to be not independent because of his previous position at ING Bank Belgium.
ANNUAL ACCOUNTS AND DIVIDEND The Executive Board has prepared the Annual Accounts and discussed these with the Supervisory Board. The Annual Accounts will be submitted for adoption at the 2014 annual General Meeting as part of the Annual Report. ING will not propose to pay a dividend over 2013 at the 2014 annual General Meeting.
COMPOSITION OF THE SUPERVISORY BOARD Jeroen van der Veer was reappointed to the Supervisory Board for a consecutive period of four years. Tineke Bahlmann, the state-nominated Supervisory Board member, was reappointed to the Supervisory Board for a consecutive period of four years, concluding after the annual General Meeting in 2017.
Our internal control over financial reporting is a process designed under the supervision of our principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Our internal control over financial reporting includes those policies and procedures that:  pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;  provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorisations of our management and directors; and
 provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. As ING Group is subject to the US Sarbanes-Oxley Act, its Executive Board assessed the effectiveness of its internal control over financial reporting as of 31 December 2013, which was audited by ING Group’s external auditor. For more information, please refer to the 2013 Annual Report of ING Group which is available on its website (www.ing.com).
EXTERNAL AUDITOR At the annual General Meeting held on 14 May 2012, Ernst & Young Accountants LLP (EY) was appointed to audit the financial statements of ING Group, including but not limited to NN Group N.V., for the financial years 2012 and 2013, to report on the outcome of these audits to the Executive Board and the Supervisory Board and to provide an audit opinion on the financial statements of ING Group. In the 2013 annual General Meeting, the appointment of EY as auditor of ING Group was extended by two more years, i.e. for the financial years 2014 and 2015. ING Group started a project with the objective of changing its external audit firm as of the financial year 2016.
New legislation on the accountancy profession (Wet op het accountantsberoep) came into force as of 1 January 2013 which prohibits certain services from being conducted by an external audit firm. The ING Group’s policy on external auditor independence has been updated to reflect the new legislation on the accountancy profession as of 1 January 2013. The external auditor may only provide services to ING Group and its subsidiaries with the permission of the Audit Committee. ING Group provides the Audit Committee with a full overview of all services provided by the external auditor, including related fees, supported by sufficiently detailed information. This overview is periodically evaluated by the Audit Committee throughout the year.
DUTCH INSURERS’ CODE The Dutch Insurers’ Code (“Insurers’ Code”) is applicable to the Dutch subsidiaries of NN Group N.V. pursuing insurance business. The Insurers’ Code can be downloaded from the website of the Dutch Association of Insurers (www.verzekeraars.nl). However, insurance companies that are part of a group (“concern”) can decide whether to apply all or parts of the Insurers’ Code at the group level. Corporate governance related principles of the Insurers’ Code are voluntarily applied at group level and the remuneration policy for its Management Board and Senior Management is compliant with these principles. The application of the Insurers’ Code principles is described in the publication “Application of the Insurers’ Code” available on the website of ING Group (www.ing.com).
The Management Board is required to prepare the Annual Accounts and the Annual Report of NN Group N.V. (“NN Group”) for each financial year in accordance with applicable Dutch law and International Financial Reporting Standards (IFRS) as adopted by the European Union.
The Management Board is responsible for maintaining proper accounting records, for safeguarding assets and for taking reasonable steps to prevent and detect fraud and other irregularities. It is responsible for selecting suitable accounting policies and applying them on a consistent basis, making judgements and estimates that are prudent and reasonable. It is also responsible for establishing and maintaining internal procedures which ensure that all major financial information is known to the Executive Board, so that the timeliness, completeness and correctness of the external financial reporting are assured.
Equity 13 Shareholder’s equity (parent) 14,227 26,423 23,412 Minority interests 68 217 62 Total equity 14,295 26,640 23,474
Liabilities Subordinated loans 14 2,892 2,947 4,367 Debt securities in issue 15 1,910 3,436 Other borrowed funds 16 4,817 7,442 7,307 Insurance and investment contracts 17 111,551 229,950 278,833 Customer deposits and other funds on deposit 18 5,769 Financial liabilities at fair value through profit or loss: 19
References relate to the notes starting on page 54. These form an integral part of the consolidated annual accounts.
Consolidated balance sheet of NN Group as at 31 December 26 NN Group Annual Report 2013 amounts in millions of euros 2013 2012 2011 Assets Cash and cash equivalents 2 7,155 5,389 11,577 Financial assets at fair value through profit or loss: 3 – trading assets 736 586 534 – investments for risk of policyholders 39,589 98,765 116,438 – non-trading derivatives 3,126 5,107 7,285 – designated as at fair value through profit or loss 482 2,000 2,616 Available-for-sale investments 4 61,014 119,305 133,604 Loans and advances to customers 5 25,319 25,823 32,928 Reinsurance contracts 17 252 5,290 5,870 Investments in associates 6 1,028 1,352 1,526 Real estate investments 7 764 805 954 Property and equipment 8 164 338 469 Intangible assets 9 392 1,018 1,972 Deferred acquisition costs 10 1,353 4,549 10,204 Assets held for sale 11 630 61,691 Other assets 12 3,754 6,735 9,631 Total assets 145,758 338,753 335,608
The comparison of the Consolidated balance sheets is impacted by the transfer of ING U.S. to ING Groep N.V., the classification to continuing operations of NN Group’s business in Japan (as of 2013) and the classification as held for sale of the insurance and investment management businesses in Asia (as of 2012) as disclosed in the section “Other significant changes in 2013” on page 35.
Gross underwriting expenditure 13,585 15,867 13,444 Investment result for risk of policyholders –4,930 –5,517 –206 Reinsurance recoveries –70 –73 –81 Underwriting expenditure 28 8,585 10,277 13,157 Intangible amortisation and other impairments 29 11 69 42 Staff expense 30 1,178 1,037 1,128 Interest expense 31 591 605 728 Other operating expense 32 848 1,274 1,093 Total expense 11,213 13,262 16,148
Result before tax from continuing operations –52 –245 468 Taxation 39 –50 –113 15 Net result from continuing operations –2 –132 453
References relate to the notes starting on page 85. These form an integral part of the consolidated annual accounts.
Consolidated profit and loss account of NN Group continued for the year ended 31 December 28 NN Group Annual Report 2013 amounts in millions of euros 2013 2012 2011 Net result from continuing and discontinued operations attributable to: Shareholder of the parent 10 1,038 1,226 Minority interests 8 27 20 18 1,065 1,246
Net result from continuing operations attributable to: Shareholder of the parent –18 –153 439 Minority interests 16 21 14 –2 –132 453
In 2013, the remaining interest in ING U.S., Inc. (“ING U.S.”) was transferred to ING Groep N.V. by way of dividend in kind. Reference is made to Note 53 “Other events” for more details on the transaction.
comprehensive income of NN Group for the year ended 31 December
NN Group Annual Report 2013 29 amounts in millions of euros 2013 2012 2011 Net result from continuing and discontinued operations 18 1,065 1,246
Changes in cash flow hedge reserve –832 665 1,316 Transfer to insurance liabilities/DAC 2,154 –2,181 –2,004 Other revaluations 10 36 Exchange rate differences –744 –370 240 Total comprehensive income –4,035 2,983 3,736
Comprehensive income attributable to: Shareholder of the parent –3,940 2,949 3,718 Minority interests –95 34 18 –4,035 2,983 3,736
Reference is made to Note 39 “Taxation” for the disclosure on the income tax effects on each component of the other comprehensive income.
Consolidated statement of cash flows of NN Group for the year ended 31 December 30 NN Group Annual Report 2013 amounts in millions of euros 2013 2012 2011 Result before tax (1) 103 1,044 1,254 Adjusted for: – depreciation 144 171 191 – deferred acquisition costs and value of business acquired 1,289 –484 248 – increase in provisions for insurance and investment contracts –6,604 –3,178 4,389 – other 1,275 3,177 –2,362 Taxation paid –268 –3 –206 Changes in: – trading assets –146 –70 87 – non-trading derivatives –631 430 1,142 – other financial assets at fair value through profit or loss 1,977 –2,313 42 – loans and advances to customers –192 4,397 –1,268 – other assets 1,248 2,049 944 – customer deposits and other funds on deposits 2,066 – other financial liabilities at fair value through profit or loss –3,623 –1,590 –280 – other liabilities –4,885 –2,907 –2,113 Net cash flow from operating activities –8,247 723 2,068
Investments and advances: – group companies 49 –23 – associates –48 –6 –105 – available-for-sale investments –46,964 –72,358 –68,540 – real estate investments –200 –56 –23 – property and equipment –30 –60 –77 – investments for risk of policyholders –47,102 –67,986 –57,130 – other investments –4,563 –85 –77 Disposals and redemptions: – group companies 49 2,548 1,332 2,736 – associates 323 63 120 – available-for-sale investments 48,966 63,978 63,616 – real estate investments 229 71 35 – property and equipment 3 18 15 – investments for risk of policyholders 54,979 72,201 61,898 – other investments 8 7 9 Net cash flow from investing activities 8,126 –2,881 2,477
Proceeds from issuance of subordinated loans 450 Repayments of subordinated loans –1,381 –455 Proceeds from borrowed funds and debt securities 12,791 32,717 41,920 Repayments of borrowed funds and debt securities –13,854 –34,069 –43,471 Capital injection 1,330 Payments to acquire treasury shares –17 –13 Sales of treasury shares 10 13 11 Proceeds of IPO ING U.S. 53 1,062 Dividend paid 13 –882 Net cash flow from financing activities 457 –2,737 –1,558
The amounts for 2012 and 2011 have been restated to reflect the change in accounting policy for defined benefit plans as disclosed in the section “Changes in accounting policies in 2013” on page 33.
References relate to the notes starting on page 96. These form an integral part of the consolidated annual accounts.
Balance as at 1 January 2011 (before change in accounting policy)
Effect of change in accounting policy (2) –520 –520 –520 Balance as at 1 January 2011 (after change in accounting policy)
Changes in cash flow hedge reserve 1,316 1,316 1,316 Transfer to insurance liabilities/DAC –2,004 –2,004 –2,004 Other revaluations 36 36 36 Exchange rate difference 243 243 –3 240 Total amount recognised directly in equity (Other comprehensive income)
Net result from continuing and discontinued operations 1,226 1,226 20 1,246 Total comprehensive income 0 0 3,718 3,718 18 3,736
Consolidated statement of changes in equity of NN Group continued 32 NN Group Annual Report 2013 amounts in millions of euros
Net result from continuing and discontinued operations 10 10 8 18 Total comprehensive income 0 0 –3,940 –3,940 –95 –4,035
Capital contribution 1,330 1,330 1,330 Employee stock option and share plans 37 37 6 43 Changes in composition of the group and other changes
(1) NN Group has an issued share capital of EUR 45,000. Reference is made to Note 13 “Equity”.
ESTABLISHMENT OF NN GROUP Until recently, ING Verzekeringen N.V. (“ING Insurance”) was the holding company of the insurance and investment management activities of ING. As such, ING Insurance prepared Consolidated annual accounts under IFRS-EU that included ING Insurance and all its subsidiaries. ING Insurance was a wholly-owned subsidiary of ING Insurance Topholding N.V. (“ING Topholding”), a wholly-owned subsidiary of the ultimate parent ING Groep N.V. ING Topholding was a holding company with no other assets, liabilities and activities than its 100% holding in ING Insurance.
On 28 February 2014, before the finalisation of the 2013 Consolidated annual accounts, ING Insurance and ING Topholding legally merged. Through this merger, the legal entity ING Verzekeringen N.V. ceased to exist. The legal merger became effective on 1 March 2014 and on that date the merged entity was renamed NN Group N.V. (“NN Group”).
The merged entity NN Group N.V. is in substance a continuation of ING Insurance. As of 2013, NN Group prepares Consolidated annual accounts under IFRS-EU in which all assets and liabilities of ING Insurance and its subsidiaries are included at their existing carrying values. As a result, the financial position and results of NN Group are not significantly different from what these would have been for ING Insurance.
AUTHORISATION OF ANNUAL ACCOUNTS The Consolidated annual accounts of NN Group N.V. (“NN Group”) for the year ended 31 December 2013 were authorised for issue in accordance with a resolution of the Management Board NN Group on 17 March 2014. The Management Board NN Group may decide to amend the annual accounts as long as these are not adopted by the General Meeting of Shareholders. The General Meeting of Shareholders may decide not to adopt the annual accounts, but may not amend these. NN Group N.V. is incorporated and domiciled in Amsterdam, the Netherlands. The principal activities of NN Group are described in “ING and NN Group at a glance” on page 4.
Notes to the Consolidated annual accounts of NN Group continued 34 NN Group Annual Report 2013
The impact of the changes in IAS 19 for the year 2013 mainly relates to the recognition of the remeasurement of the Net defined benefit asset/liability in equity. As disclosed in Note 13 “Equity” the amount of the Net defined benefit asset/liability remeasurement reserve is EUR –1,042 million at 31 December 2013 (31 December 2012: EUR –1,000 million; 31 December 2011: EUR –90 million). Without the changes in IAS 19, this negative reserve would not have reduced equity.
The impact of changes in IAS 19 on previous annual reporting periods is as follows: Impact on Shareholder’s equity 2011 Shareholder’s equity (before change in accounting policy) 27,298 23,475 20,159 Change in Other assets – net defined benefit asset –805 221 –451 Change in Other liabilities – net defined benefit liability –417 –352 –278 Change in Liabilities held for sale –4 Change in net defined benefit asset/liability before tax –1,226 –131 –729
Impact on Other comprehensive income 2012 2011 Total amount recognised directly in equity (before change in accounting policy) 2,828 2,059 Remeasurement of the net defined benefit asset/liability –1,234 581 Changes in the composition of the group and other changes 2 –533 Tax effect 322 –137 Total amount recognised directly in equity (after change in accounting policy) 1,918 1,970
Amendments to IAS 1 “Presentation of Financial Statements” The amendments to IAS 1 “Presentation of Financial Statements” resulted in changes to the presentation in the Consolidated statement of other comprehensive income, including a split of Other comprehensive income into items that may be recognised in the profit and loss account in future periods and items that will never be recognised in the Consolidated profit and loss account. There was no impact on Shareholder’s equity, Net result and/or Other comprehensive income.
Impact on Net result 2012 2011 Net result from continuing operations (before change in accounting policy) –194 421 Impact on staff expenses – Pension and other staff-related benefit costs 92 25 Tax effect –22 –7 –124 439 Discontinued operations after tax 1,189 807 Net result from continuing and discontinued operations (after change in accounting policy) 1,065 1,246
Amendments to IFRS 7 “Financial instruments: Disclosures” The amendments to IFRS 7 “Financial instruments: Disclosures” introduced additional disclosures on offsetting (netting) of financial instruments in the Consolidated balance sheet and on the potential effect of netting arrangements. There was no impact on Shareholder’s equity, Net result and/or Other comprehensive income. Reference is made to Note 46 “Offsetting financial assets and liabilities”.
IFRS 13 “Fair Value Measurement” IFRS 13 “Fair Value Measurement” brings together in one standard all guidance on how to determine fair value. It does not change the scope of assets/liabilities that are measured at fair value. NN Group’s interpretation of fair value measurement is not significantly different from the guidance in IFRS 13. Therefore, the implementation of IFRS 13 “Fair Value Measurement” at 1 January 2013 did not have a significant impact on Shareholder’s equity, Net result and/or Other comprehensive income. In addition, IFRS 13 introduces an extended scope for the disclosure of the fair value by level of fair value hierarchy for non-financial assets and liabilities and financial instruments not measured at fair value. Reference is made to Note 40 “Fair value of assets and liabilities”.
Changes in assets and liabilities due to the transfer of ING U.S., the classification to continuing operations of NN Group’s business in Japan and as a result of the classification of other disposal groups as held for sale are included in the notes in the line “Changes in the composition of the group and other changes”.
NN GROUP’S BUSINESS IN JAPAN After carefully exploring and evaluating the options available for the divestment of ING Life Japan, it was concluded that a standalone divestment of ING Life Japan, including its Corporate Owned Life Insurance (COLI) and Closed Block VA businesses, is not feasible in a manner that would appropriately meet the demands of regulators and other stakeholders in ING Group and ING Life Japan. Therefore, ING Life Japan will be combined ING’s European insurance and investment management businesses in the base case IPO of NN Group in 2014. As a result, ING Life Japan and the Japanese Closed Block VA guarantees reinsured to ING Re (“NN Group’s business in Japan”) are no longer classified as held for sale and discontinued operations. Reference is made to Note 53 “Other events”.
The presentation of, and certain terms used in, the consolidated balance sheet, the consolidated profit and loss account, the consolidated statement of comprehensive income, the consolidated statement of cash flows, the consolidated statement of changes in equity and certain notes has been changed to provide additional and more relevant information or (for changes in comparative information) to better align with the current period presentation. The impact of these changes is explained in the respective notes when significant.
UPCOMING CHANGES AFTER 2013 The following new or revised standards and interpretations will become effective for NN Group from 1 January 2014, if and when endorsed by the EU:  IFRS 10 “Consolidated Financial Statements”;  IFRS 11 “Joint Arrangements” and amendments to IAS 28 “Investments in Associates and Joint Ventures”;  IFRS 12 “Disclosure of Interests in Other Entities”;  Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27);  Amendments to IAS 32 “Presentation – Offsetting Financial Assets and Financial Liabilities”;  Amendments to IAS 39 “Novation of Derivatives and Continuation of Hedge Accounting”;  IFRIC 21 “Levies”; and  Amendments to IAS 36 “Recoverable amount disclosures for non-financial assets”.
Assets held for sale –442 Assets – other –1 Impact on Total assets –443
Liabilities held for sale –442 Liabilities – other –1 Impact on Total liabilities –443
Notes to the Consolidated annual accounts of NN Group continued 36 NN Group Annual Report 2013
IFRS 12 “Disclosure of Interests in Other Entities” IFRS 12 “Disclosure of Interests in Other Entities” introduces extended disclosure requirements for subsidiaries, associates, joint ventures and structured entities. The implementation of IFRS 12 will not have an impact on Shareholder’s equity, Net result and/or Other comprehensive income.
Summary of impact as at 1 January 2014 The impact of the above mentioned changes of IFRS requirements that are implemented as of 1 January 2014 is summarised as follows: Upcoming changes in IFRS-EU in 2014
CRITICAL ACCOUNTING POLICIES NN Group has identified the accounting policies that are most critical to its business operations and to the understanding of its results. These critical accounting policies are those which involve the most complex or subjective decisions or assessments, and relate to insurance provisions, deferred acquisition costs and value of business acquired, the determination of the fair value of real estate and financial assets and liabilities, impairments and employee benefits. In each case, the determination of these items is fundamental to the financial condition and results of operations, and requires management to make complex judgements based on information and financial data that may change in future periods. As a result, determinations regarding these items necessarily involve the use of assumptions and subjective judgements as to future events and are subject to change, as the use of different assumptions or data could produce significantly different results. For a further discussion of the application of these accounting policies, reference is made to the applicable notes to the consolidated annual accounts and the information below under “Principles of valuation and determination of results”.
INSURANCE PROVISIONS, DEFERRED ACQUISITION COSTS (DAC) AND VALUE OF BUSINESS ACQUIRED (VOBA) The determination of insurance provisions, DAC and VOBA is an inherently uncertain process, involving assumptions about factors such as court decisions, changes in laws, social, economic and demographic trends, inflation, investment returns, policyholder behaviour and other factors, and, in the life insurance business, assumptions concerning mortality and morbidity trends. Specifically, assumptions related to these items that could have a significant impact on financial results include interest rates, mortality, morbidity, property and casualty claims, investment yields on equity and real estate, foreign currency exchange rates and reserve adequacy assumptions.
The use of different assumptions could have a significant effect on insurance provisions and underwriting expenditure. Changes in assumptions may lead to changes in the insurance provisions over time. Furthermore, some of these assumptions can be volatile.
Insurance provisions also include the impact of minimum guarantees which are contained within certain variable annuity products. This impact is dependent upon the difference between the potential minimum benefits payable and the total account balance, expected mortality and surrender rates. The determination of the potential minimum benefits payable also involves the use of assumptions about factors such as inflation, investment returns, policyholder behaviour, mortality and morbidity trends and other factors. The use of different assumptions about these factors could have a significant effect on insurance provisions and underwriting expenditure.
Reference is made to the “Risk management” section for a sensitivity analysis of Net result to insurance, interest rate, equity, foreign currency and real estate risks. These sensitivities are based on changes in assumptions that management considers reasonably likely at the balance sheet date.
FAIR VALUE OF REAL ESTATE Real estate investments are reported at fair value. The fair value of real estate investments is based on regular appraisals by independent, qualified valuers. The fair value is established using valuation methods such as: comparable market transactions, capitalisation of income methods or discounted cash flow calculations. The underlying assumption used in the valuation is that the properties are let or sold to third parties based on the actual letting status. The discounted cash flow analyses and capitalisation of income method are based on calculations of the future rental income in accordance with the terms in existing leases and estimations of the rental values for new leases when leases expire and incentives like rental free periods. The cash flows are discounted using market based interest rates that reflect appropriately the risk characteristics of real estate.
Reference is made to Note 40 “Fair value of assets and liabilities” for more disclosure on fair value at balance sheet date of real estate investments.
FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES The fair value of financial assets and liabilities are based on unadjusted quoted market price at the balance sheet date where available. Such quoted market prices are primarily obtained from exchange prices for listed instruments. Where an exchange price is not available, market prices may be obtained from independent market vendors, brokers or market makers. In general, positions are valued taking the bid price for a long position and the offer price for a short position. In some cases where positions are marked at mid-market prices, a fair value adjustment is calculated.
When markets are less liquid there may be a range of prices for the same security from different price sources, selecting the most appropriate price requires judgement and could result in different estimates of the fair value.
Reference is made to Note 40 “Fair value of assets and liabilities” and the “Risk management” section for the basis of the determination of the fair value of financial instruments and related sensitivities.
All debt and equity securities (other than those carried at fair value through profit or loss) are subject to impairment testing every reporting period. The carrying value is reviewed in order to determine whether an impairment loss has been incurred. Evaluation for impairment includes both quantitative and qualitative considerations. For debt securities, such considerations include actual and estimated incurred credit losses indicated by payment default, market data on (estimated) incurred losses and other current evidence that the issuer may be unlikely to pay amounts when due. Equity securities are impaired when management believes that, based on a significant or prolonged decline of the fair value below the acquisition price, there is sufficient reason to believe that the acquisition cost may not be recovered. “Significant” and “prolonged” are interpreted on a case-by-case basis for specific equity securities. Generally 25% and 6 months are used as triggers. Upon impairment, the full difference between the (acquisition) cost and fair value is removed from equity and recognised in Net result. Impairments on debt securities may be reversed if there is a decrease in the amount of the impairment which can be objectively related to an observable event. Impairments on equity securities cannot be reversed.
Impairment reviews with respect to goodwill and intangible assets are performed at least annually, and more frequently if events indicate that impairments may have occurred. Goodwill is tested for impairment by comparing the carrying value (including goodwill) of the reporting unit to the best estimate of the recoverable amount of that reporting unit. The carrying value is determined as the IFRS-EU net asset value including goodwill. The recoverable amount is estimated as the higher of fair value less cost to sell and value in use. Several methodologies are applied to arrive at the best estimate of the recoverable amount. A reporting unit is the lowest level at which goodwill is monitored. Intangible assets are tested for impairment by comparing the carrying value with the best estimate of the recoverable amount.
EMPLOYEE BENEFITS Group companies operate defined benefit retirement plans covering a significant number of NN Group’s employees.
PRINCIPLES OF VALUATION AND DETERMINATION OF RESULTS CONSOLIDATION NN Group comprises NN Group N.V. and all its subsidiaries. The consolidated financial statements of NN Group comprise the accounts of NN Group N.V. and all entities in which it either owns, directly or indirectly, more than half of the voting power or over which it has control of their operating and financial policies through situations including, but not limited to:  Ability to appoint or remove the majority of the board of directors;  Power to govern such policies under statute or agreement; and  Power over more than half of the voting rights through an agreement with other investors.
The existence and effect of potential voting rights that are currently exercisable or convertible are considered in assessing whether NN Group controls another entity. For interests in investment vehicles, the existence of control is determined taking into account both NN Group’s financial interests for own risk and its role as investment manager. Financial interests for risk of policyholders are not taken into account when the policyholders decide on the investment allocations of their insurance policies and assume all risks and benefits on these investments.
A subsidiary which NN Group has agreed to sell but is still legally owned by NN Group may still be controlled by NN Group at the balance sheet date and, therefore, still be included in the consolidation. Such a subsidiary may be presented as held for sale if certain conditions are met.
When a group of assets that is classified as held for sale or is sold also represents a major line of business or geographical area the disposal group classifies as discontinued operations. In the Consolidated profit and loss account, the income and expenses from discontinued operations are reported separately from income and expenses from continuing operations, down to the level of result after tax for both the current year and for comparative years.
Exchange rate differences in the profit and loss account are generally included in Net trading income. Reference is made to Note 26 “Foreign currency results and Net trading income”, which discloses the amounts included in the profit and loss account. Exchange rate differences relating to the disposal of available-for-sale debt and equity securities are considered to be an inherent part of the capital gains and losses recognised in Investment income. As mentioned below in Group companies relating to the disposals of group companies, any exchange rate difference deferred in equity is recognised in the profit and loss account in Result on disposals of group companies. Reference is also made to Note 13 “Equity”, which discloses the amounts included in the profit and loss account.
Group companies The results and financial positions of all group companies that have a functional currency different from the presentation currency are translated into the presentation currency as follows:  Assets and liabilities included in each balance sheet are translated at the closing rate at the date of that balance sheet;  Income and expenses included in each profit and loss account are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and
FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES The fair value of financial instruments are based on unadjusted quoted market prices at the balance sheet date where available. The quoted market price used for financial assets held by NN Group is the current bid price; the quoted market price used for financial liabilities is the current ask price.
Notes to the Consolidated annual accounts of NN Group continued 42 NN Group Annual Report 2013
CLASSIFICATION OF FINANCIAL INSTRUMENTS Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include: equity securities, debt securities, derivatives and other, and comprise the following sub-categories: trading assets, non-trading derivatives, financial assets designated at fair value through profit or loss by management, and investments for risk of policyholders.
Investments for risk of policyholders are investments against insurance liabilities for which all changes in the fair value of invested assets are offset by similar changes in insurance liabilities.
Available-for-sale financial assets include available-for-sale debt securities and available-for-sale equity securities. Available-for-sale financial assets are initially recognised at fair value plus transaction costs. For available-for-sale debt securities, the difference between cost and redemption value is amortised. Interest income is recognised using the effective interest method. Available-for-sale financial assets are subsequently measured at fair value. Interest income from debt securities classified as available-for-sale is recognised in Investment income in the profit and loss account. Dividend income from equity instruments classified as available-for-sale is generally recognised in Investment income in the profit and loss account when the dividend has been declared.
Unrealised gains and losses arising from changes in the fair value are recognised in equity. When the securities are disposed of, the related accumulated fair value adjustments are included in the profit and loss account as Investment income. For impairments of available-for-sale financial assets reference is made to the section “Impairments of other financial assets”. Investments in prepayment sensitive securities such as Interest-Only and Principal-Only strips are generally classified as available-for-sale.
Credit risk management classification Credit risk management disclosures are provided in the “Risk management” section. The relationship between credit risk classifications in that section and the Consolidated balance sheet classifications above is explained below:  Lending risk arises when NN Group grants a loan to a customer, or issues guarantees on behalf of a customer and mainly relates to the balance sheet classification Loans and advances to customers and off balance sheet items e.g. obligations under financial guarantees and letters of credit;  Investment risk comprises the credit default and migration risk that is associated with NN Group’s investment portfolio and mainly relates to the balance sheet classification Available-for-sale investments;  Money market risk arises when NN Group places short term deposits with a counterparty in order to manage excess liquidity and among others relates to the balance sheet classifications Cash and cash equivalents and Loans and advances to customers;  Pre-settlement risk arises when a counterparty defaults on a transaction before settlement and NN Group has to replace the contract by a trade with another counterparty at the then prevailing (possibly unfavourable) market price. The pre-settlement risk classification mainly relates to the balance sheet classification Financial assets at fair value through profit or loss (trading assets and non-trading derivatives); and
DERIVATIVES AND HEDGE ACCOUNTING Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently measured at fair value. The fair value is obtained from quoted market prices in active markets, including recent market transactions, and valuation techniques such as discounted cash flow models and options pricing models, as appropriate. Derivatives are presented as assets when the fair value is positive and as liabilities when the fair value is negative.
Certain derivatives embedded in other contracts are measured as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract, the host contract is not carried at fair value through profit or loss, and if a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative. These embedded derivatives are measured at fair value with changes in fair value recognised in the profit and loss account. An assessment is carried out when NN Group first becomes party to the contract. A reassessment is carried out only when there is a change in the terms of the contract that significantly modifies the expected cash flows.
The method of recognising the resulting fair value gain or loss depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged. NN Group designates certain derivatives as hedges of the fair value of recognised assets or liabilities or firm commitments (fair value hedge), hedges of highly probable future cash flows attributable to a recognised asset or liability or a forecast transaction (cash flow hedge), or hedges of a net investment in a foreign operation. Hedge accounting is used for derivatives designated in this way provided certain criteria are met.
At the inception of the transaction NN Group documents the relationship between hedging instruments and hedged items, its risk management objectives, together with the methods selected to assess hedge effectiveness. In addition NN Group documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair value or cash flows of the hedged items.
Notes to the Consolidated annual accounts of NN Group continued 44 NN Group Annual Report 2013
Non-trading derivatives that do not qualify for hedge accounting Derivatives that are used by NN Group as part of its risk management strategies, that do not qualify for hedge accounting under NN Group’s accounting policies, are presented as non-trading derivatives. Non-trading derivatives are measured at fair value with changes in the fair value taken to “Valuation results on non-trading derivatives” in the Consolidated profit and loss account.
OFFSETTING OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES Financial assets and financial liabilities are offset, and the net amount reported in the balance sheet when NN Group has a current legally enforceable right to set off the recognised amounts and intends to either settle on a net basis or to realise the asset and settle the liability simultaneously.
IMPAIRMENTS OF LOANS AND ADVANCES TO CUSTOMERS (LOAN LOSS PROVISIONS) NN Group assesses periodically and at each balance sheet date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset, but before the balance sheet date, (a “loss event”) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.
The following circumstances, among others, are considered objective evidence that a financial asset or group of assets is impaired:  The borrower has sought or has been placed in bankruptcy or similar protection and this leads to the avoidance of or delays in repayment of the financial asset;  The borrower has failed in the repayment of principal, interest or fees and the payment failure has remained unsolved for a certain period;  The borrower has demonstrated significant financial difficulty, to the extent that it will have a negative impact on the expected future cash flows of the financial asset;  The credit obligation has been restructured for non-commercial reasons. NN Group has granted concessions, for economic or legal reasons relating to the borrower’s financial difficulty, the effect of which is a reduction in the expected future cash flows of the financial asset; and
 Historical experience, updated for current events where necessary, provides evidence that a proportion of a group of assets is impaired although the related events that represent impairment triggers are not yet captured by NN Group’s credit risk systems.
In certain circumstances NN Group grants borrowers postponement and/or reduction of loan principal and/or interest payments for a temporary period of time to maximise collection opportunities and, if possible, avoid default, foreclosure or repossession. When such postponement and/or reduction of loan principal and/or interest payments is executed based on credit concerns it is also referred to as “forbearance”. In general, forbearance represents an impairment trigger under IFRS-EU. In such cases, the net present value of the postponement and/or reduction of loan and/or interest payments is taken into account in the determination of the appropriate level of Loan loss provisioning as described below. If the forbearance results in a substantial modification of the terms of the loan, the original loan is derecognised and a new loan is recognised at its fair value at the modification date.
NN Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and then individually or collectively for financial assets that are not individually significant. If NN Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.
For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics. Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated. The collective evaluation of impairment includes the application of a “loss confirmation period” to default probabilities. The loss confirmation period is a concept which recognises that there is a period of time between the emergence of impairment triggers and the point in time at which those events are captured by NN Group’s credit risk systems. Accordingly, the application of the loss confirmation period ensures that impairments that are incurred but not yet identified are adequately reflected in NN Group’s loan loss provision. Although the loss confirmation periods are inherently uncertain, NN Group applies estimates to sub-portfolios (e.g. large corporations, small and medium size enterprises and retail portfolios) that reflect factors such as the frequency with which customers in the sub-portfolio disclose credit risk sensitive information and the frequency with which they are subject to review by the NN Group’s account managers. Generally, the frequency increases in relation to the size of the borrower. Loss confirmation periods are based on historical experience and are validated, and revised where necessary, through regular back-testing to ensure that they reflect recent experience and current events.
Notes to the Consolidated annual accounts of NN Group continued 46 NN Group Annual Report 2013
INVESTMENTS IN ASSOCIATES Associates are all entities over which NN Group has significant influence but not control. Significant influence generally results from a shareholding of between 20% and 50% of the voting rights, but also is the ability to participate in the financial and operating policies through situations including, but not limited to one or more of the following:  Representation on the board of directors;  Participation in the policy making process; and  Interchange of managerial personnel.
For interests in investment vehicles the existence of significant influence is determined taking into account both NN Group’s financial interests for own risk and its role as investment manager.
The fair value represents the estimated amount for which the property could be exchanged on the date of valuation between a willing buyer and willing seller in an at-arm’s-length transaction after proper marketing wherein the parties each acted knowledgeably, prudently and without compulsion. The fair value is based on appraisals using valuation methods such as: comparable market transactions, capitalisation of income methods or discounted cash flow calculations. The underlying assumption used in the valuation is that the properties are let or sold to third parties based on the actual letting status. The discounted cash flow analyses and capitalisation of income method are based on calculations of the future rental income in accordance with the terms in existing leases and estimations of the rental values for new leases when leases expire and incentives like rent free periods. The cash flows are discounted using market based interest rates that reflect appropriately the risk characteristics of real estate.
Subsequent expenditures are recognised as part of the asset’s carrying amount only when it is probable that future economic benefits associated with the item will flow to NN Group and the cost of an item can be measured reliably. All other repairs and maintenance costs are recognised in the profit and loss account.
PROPERTY AND EQUIPMENT Property in own use Land and buildings held for own use are stated at fair value at the balance sheet date. Increases in the carrying amount arising on revaluation of land and buildings held for own use are credited to the revaluation reserve in Shareholder’s equity. Decreases in the carrying amount that offset previous increases of the same asset are charged against the revaluation reserve directly in equity; all other decreases are charged to the profit and loss account. Increases that reverse a revaluation decrease on the same asset previously recognised in net result are recognised in the profit and loss account. Depreciation is recognised based on the fair value and the estimated useful life (in general 20-50 years). Depreciation is calculated on a straight-line basis. On disposal the related revaluation reserve is transferred to retained earnings.
Property developed and under development for which NN Group has the intention to sell the property under development after its completion and where there is not yet a specifically negotiated contract is measured at direct construction cost incurred up to the balance sheet date, including borrowing costs incurred during construction and NN Group’s own directly attributable development and supervision expenses less any impairment losses. Profit is recognised using the completed contract method (on sale date of the property). Impairment is recognised if the estimated selling price in the ordinary course of business, less applicable variable selling expenses is lower than carrying value.
Equipment Equipment is stated at cost less accumulated depreciation and any impairment losses. The cost of the assets is depreciated on a straight-line basis over their estimated useful lives, which are generally as follows: for data processing equipment two to five years, and four to ten years for fixtures and fittings. Expenditure incurred on maintenance and repairs is recognised in the profit and loss account as incurred. Expenditure incurred on major improvements is capitalised and depreciated.
LEASES The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date.
Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition-date fair value. Subsequent changes in the fair value of contingent consideration classified as an asset or liability are accounted for in accordance with relevant IFRS’s, taking into account the initial accounting period below. Changes in the fair value of the contingent consideration classified as equity are not recognised.
Until 2009, before IFRS 3 “Business Combinations” was revised, the accounting of previously held interests in the assets and liabilities of the acquired entity were not remeasured at the acquisition date and the acquisition-related costs were considered to be part of the total consideration.
Adjustments to the fair value at the date of acquisition of acquired assets and liabilities that are identified within one year after acquisition are recognised as an adjustment to goodwill; any subsequent adjustment is recognised as income or expense. On disposal of group companies, the difference between the sale proceeds and carrying value (including goodwill) and the unrealised results (including the currency translation reserve in equity) is included in the profit and loss account.
For traditional life insurance contracts, certain types of flexible life insurance contracts and non-life contracts, DAC is amortised over the premium payment period in proportion to the premium revenue recognised.
For other types of flexible life insurance contracts DAC is amortised over the lives of the policies in relation to the emergence of estimated gross profits. Amortisation is adjusted when estimates of current or future gross profits, to be realised from a group of products, are revised. The estimates and the assumptions are reassessed at the end of each reporting period. Higher/lower expected profits (e.g. reflecting stock market performance or a change in the level of assets under management) may cause a lower/higher balance of DAC due to the catch-up of amortisation in previous and future years. This process is known as DAC unlocking. The impact of the DAC unlocking is recognised in the profit and loss account of the period in which the unlocking occurs.
Deferred income tax Deferred income tax is provided in full, using the liability method, on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is determined using tax rates (and laws) applicable in the jurisdictions in which NN Group is liable to taxation, that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets and liabilities are not discounted.
Deferred tax assets are recognised where it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising from investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by NN Group and it is probable that the difference will not reverse in the foreseeable future. The tax effects of income tax losses available for carry forward are recognised as an asset where it is probable that future taxable profits will be available against which these losses can be utilised.
Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss comprise non-trading derivatives.
INSURANCE, INVESTMENT AND REINSURANCE CONTRACTS Provisions for liabilities under insurance contracts are established in accordance with IFRS 4 “Insurance Contracts”. Under IFRS 4, an insurer may continue its existing pre-IFRS accounting policies for insurance contracts, provided that certain minimum requirements are met. Upon adoption of IFRS-EU in 2005, NN Group decided to continue the then existing accounting principles for insurance contracts under IFRS-EU. NN Group operates in many different countries and the accounting principles for insurance contracts follow local practice in these countries. For NN Group’s businesses in the Netherlands, NN Group for example applies accounting standards generally accepted in the Netherlands (Dutch GAAP) for its provisions for liabilities under insurance contracts.
Insurance contracts Insurance policies which bear significant insurance risk and/or contain discretionary participation features are presented as insurance contracts. Provisions for liabilities under insurance contracts represent estimates of future payouts that will be required for life and non-life insurance claims, including expenses relating to such claims. For some insurance contracts the measurement reflects current market assumptions. Unless indicated otherwise below changes in the insurance provisions are recognised in the profit and loss account.
Claims provision The Claims provision is calculated either on a case-by-case basis or by approximation on the basis of experience. Provisions have also been made for claims incurred but not reported (IBNR) and for future claims handling expenses. The adequacy of the Claims provision is evaluated each year using standard actuarial techniques. In addition, “IBNR” reserves are set to recognise the estimated cost of losses that have occurred but which have not yet been notified to NN Group.
Deferred profit sharing For insurance contracts with discretionary participation features a deferred profit sharing amount is recognised for the full amount of the unrealised revaluation on allocated investments. Upon realisation, the profit sharing on unrealised revaluations is reversed and a deferred profit sharing amount is recognised for the share of realised results on allocated investments that is expected to be shared with policyholders. The deferred profit sharing amount is reduced by the actual allocation of profit sharing to individual policyholders.
Provisions for life insurance for risk of policyholders For investment contracts for risk of policyholders the provisions are generally shown at the balance sheet value of the related investments.
OTHER LIABILITIES Employee benefits – pension obligations Defined benefit plans The net defined benefit asset or liability recognised in the balance sheet in respect of defined benefit pension plans is the fair value of the plan assets less the present value of the defined benefit obligation at the balance sheet date.
Changes in plan assets that effect Shareholder’s equity and/or Net result, include mainly: ● expected return on plan assets using a high quality corporate bond rate at the start of the reporting period which are recognised as staff costs in the profit and loss account; and ● remeasurements which are recognised in Other comprehensive income (equity).
Defined contribution plans For defined contribution plans, NN Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. NN Group has no further payment obligations once the contributions have been paid. The contributions are recognised as staff expenses in the profit and loss account when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.
All interest income and expenses from trading positions and non-trading derivatives are classified as interest income and interest expenses in the profit and loss account. Changes in the “clean fair value” are included in Net trading income and Valuation results on non-trading derivatives.
EXPENSE RECOGNITION Expenses are recognised in the profit and loss account as incurred or when a decrease in future economic benefits related to a decrease in an asset or an increase in a liability has arisen that can be measured reliably.
Share-based payments Share-based payment expenses are recognised as a staff expense over the vesting period. A corresponding increase in equity is recognised for equity-settled share-based payment transactions. The fair value of equity-settled share-based payment transactions is measured at the grant date. Rights granted will remain valid until the expiry date, even if the share-based payment scheme is discontinued. The rights are subject to certain conditions, including a pre-determined continuous period of service.
STATEMENT OF CASH FLOWS The statement of cash flows is prepared in accordance with the indirect method, classifying cash flows as cash flows from operating, investing and financing activities. In the net cash flow from operating activities, the result before tax is adjusted for those items in the profit and loss account, and changes in balance sheet items, which do not result in actual cash flows during the year.
The difference between the net cash flow in accordance with the statement of cash flows and the change in Cash and cash equivalents in the balance sheet is due to exchange rate differences and is accounted separately for as part of the reconciliation of the net cash flow and the balance sheet change in Cash and cash equivalents.
Notes to the Consolidated annual accounts of NN Group continued 54 NN Group Annual Report 2013
Cash and cash equivalents 2013 2012 2011 Cash and bank balances 1,997 2,980 3,230 Short term deposits 5,158 2,409 8,347 7,155 5,389 11,577
Cash and cash equivalents classified as Assets held for sale amounted EUR 80 million (2012: EUR 1,328 million; 2011: nil) resulting in EUR 7,235 million (2012: EUR 6,717 million; 2011: EUR 11,577 million) reported as Cash and cash equivalents at the end of the year in the Consolidated statement of Cash flows.
As at 31 December 2013, NN Group held EUR 354 million (2012: nil; 2011: nil) at central banks.
In 2013, the change in Financial assets at fair value through profit and loss includes EUR –78,101 million as a result of the transfer of ING U.S. and EUR 16,357 million as a result of the classification to continuing operations of NN Group’s business in Japan. Reference is made to Note 53 “Other events”.
Trading assets includes EUR 723 million (2012: EUR 546 million; 2011: EUR 475 million), private equity investments at fair value through profit or loss.
Investments for risk of policyholders by type 2013 2012 2011 Equity securities 36,919 89,994 105,580 Debt securities 1,821 6,940 9,612 Loans or receivables 849 1,831 1,246 39,589 98,765 116,438
Investments in investment funds (with underlying investments in debt and equity securities, real estate and derivatives) are included under equity securities.
Exposure to debt securities NN Group’s exposure to debt securities is included in the following balance sheet lines: Debt securities 2013 2012 2011 Available-for-sale investments 55,394 114,232 126,765 Loans and advances to customers 6,479 6,323 6,681 Available-for-sale investments and Assets at amortised cost
Trading assets 12 10 44 Investments for risk of policyholders 1,821 6,940 9,612 Designated as at fair value through profit or loss 43 1,096 1,159 Financial assets at fair value through profit or loss 1,876 8,046 10,815
Exposure to certain Asset backed securities The table below shows certain ABS (US Subprime RMBS, Alt-A RMBS, CMBS and CDO/CLOs). It includes exposures in all relevant balance sheet lines, including not only loans and advances and available-for-sale investments as disclosed above, but also financial assets designated as at fair value through profit or loss.
Exposure to Government bonds and Unsecured Financial institutions’ bonds of Greece, Italy, Ireland, Portugal and Spain Since 2010 concerns arose regarding the creditworthiness of certain European countries. As a result of these concerns the value of sovereign debt decreased and exposures in those countries are being monitored closely. With regard to the sovereign debt crisis, NN Group’s main focus is on Greece, Italy, Ireland, Portugal and Spain as these countries have either applied for support from the European Financial Stability Facility (“EFSF”) or receive support from the European Central Bank (“ECB”) via government bond purchases in the secondary market. For these countries, NN Group’s main focus is on exposure to Government bonds and Unsecured Financial institutions’ bonds.
At 31 December 2013, NN Group’s balance sheet value of “Government bonds” and “Unsecured Financial institutions” bonds to Greece, Italy, Ireland, Portugal and Spain and the related revaluation reserve in equity (before tax) was as follows: Greece, Italy, Ireland, Portugal and Spain – Government bonds and Unsecured Financial institutions’ bonds (1)
Amortised cost value Greece Government bonds available-for-sale 105 66 39 Italy Government bonds available-for-sale 1,391 85 1,306 Financial institutions available-for-sale 55 1 54 Ireland Government bonds available-for-sale 59 6 53 Portugal Government bonds available-for-sale 4 –1 5 Financial institutions available-for-sale 27 1 26 Spain Government bonds available-for-sale 1,012 2 1,010 Financial institutions available-for-sale 79 3 76 Total 2,732 163 2,569
Notes to the Consolidated annual accounts of NN Group continued 58 NN Group Annual Report 2013
At 31 December 2011, NN Group’s balance sheet value of “Government bonds” and “Unsecured Financial institutions” bonds to Greece, Italy, Ireland, Portugal and Spain and the related before tax revaluation reserve in equity was as follows: Greece, Italy, Ireland, Portugal and Spain – Government bonds and Unsecured Financial institutions’ bonds (1)
Amortised cost value Greece Government bonds available-for-sale 104 –352 456 Italy Government bonds available-for-sale 1,207 –219 1,426 Financial institutions available-for-sale 83 –21 104 Ireland Government bonds available-for-sale 43 –10 53 Financial institutions available-for-sale 15 15 Portugal Government bonds available-for-sale 95 –88 183 Financial institutions available-for-sale 47 –17 64 Spain Government bonds available-for-sale 866 –118 984 Financial institutions available-for-sale 163 –30 193 Total 2,623 –503 –352 3,478
(1) Exposures are included based on the country of residence. (2) Before tax impairments relate to bonds held at 31 December 2011. In addition, EUR 38 million and EUR 189 million impairments were recognised in 2011 on Greek government bonds and Irish unsecured Financial institutions’ bonds that were no longer held at 31 December 2011. The total amount of impairments recognised on Greek Government bonds and Irish unsecured Financial institutions’ bonds in 2011 is therefore EUR 390 million and EUR 189 million as explained below.
On 21 July 2011, a Private Sector Involvement (“PSI”) to support Greece was announced. This initiative involved a voluntary exchange of existing Greek Government bonds together with a Buyback facility. Due to this initiative, NN Group impaired all its Greek Government bonds to market value at 31 December 2011, bringing total impairments on these bonds to EUR 390 million.
In 2011, NN Group recognised a total impairment of EUR 189 million on subordinated debt from Irish banks.
Reference is made to Note 40 “Fair value of assets and liabilities” for disclosure by fair value hierarchy and Note 22 “Investment income” for impairments on available-for-sale debt securities.
Impairments –174 –159 –188 –10 –48 –741 –184 –207 –929 Reversal of impairments 2 8 5 2 8 5 Disposals and redemptions –818 –2,224 –1,765 –47,278 –61,753 –61,851 –48,096 –63,977 –63,616 Exchange rate differences –36 3 19 –2,364 –1,446 2,600 –2,400 –1,443 2,619 Closing balance 5,620 5,073 6,839 55,394 114,232 126,765 61,014 119,305 133,604
In 2013, Changes in the composition of the group and other changes includes EUR –56,467 million as a result of the transfer of ING U.S. and EUR 9,674 million as a result of the classification to continuing operations of NN Group’s business in Japan. Reference is made to Note 53 “Other events”.
In 2012, Changes in the composition of the group and other changes related mainly to the classification of the insurance and investment management businesses in Asia as a disposal group held for sale. Reference is made to Note 11 “Assets and liabilities held for sale”.
Transfers and reclassifications of available-for-sale investments Equity securities Debt securities Total 2013 2012 2011 2013 2012 2011 2013 2012 2011 To/from investments in associates
Notes to the Consolidated annual accounts of NN Group continued 60 NN Group Annual Report 2013
In 2011, Transfers and reclassifications related to the reclassification from associates to available-for-sale equity securities as a result of the fact that significant influence ceased to exist for certain real estate funds due to the sale of ING Real Estate Investment Management.
Range of effective interest rates (weighted average) 1.4%24. 8% Expected recoverable cash flows 7,118 Unrealised fair value losses in shareholder’s equity (before tax) –896 Recognised fair value gains (losses) in shareholder’s equity (before tax) between the beginning of the year in which the reclassification too place and the reclassification date
Impact on the financial years after reclassification 2013 2012 2011 2010 2009 Carrying value as at 31 December 1,098 1,694 3,057 4,465 5,550 Fair value as at 31 December 1,108 1,667 2,883 4,594 5,871 Unrealised fair value losses in shareholder’s equity (before tax) as at 31 December
Effect on shareholder’s equity (before tax) if reclassification had not been made
Recognised impairments (before tax) nil nil nil nil nil Recognised provision for credit losses (before tax) nil nil nil nil nil
In 2012, the decrease in the carrying value of the reclassified Loans and advances to customers, compared to 2011 was mainly due to disposals.
Borrowed debt securities are not recognised in the balance sheet and amounted to nil as at 31 December 2013 (2012: nil; 2011: EUR 466 million).
NN Group did not have Available-for-sale investments that did not produce any income for the year ended 31 December 2013, 2012 and 2011.
Changes in loan loss provisions 2013 2012 2011 Opening balance 111 124 117 Changes in the composition of the group and other changes
Loans and advances to customers increased by EUR 8.0 billion due to the transfer of mortgages from ING Bank to NN Group. Reference is made to Note 49 “Companies and businesses acquired and divested”.
CBRE French Residential Fund C.V. 42 76 240 58 12 10 CBRE Property Fund Central and Eastern Europe
Other investments in associates represents a large number of associates with an individual balance sheet of less than EUR 50 million.
Notes to the Consolidated annual accounts of NN Group continued 62 NN Group Annual Report 2013
No accumulated impairments have been recognised in 2013, 2012 and 2011.
Sul América S.A. 36 674 366 5,037 4,048 4,285 3,969 CBRE Retail Property Fund Iberica LP 29 129 1,423 964 –22 75 CBRE Lionbrook Property Partnership LP 20 102 577 77 31 23 CBRE Property Fund Central Europe LP 25 97 907 519 66 30 CBRE French Residential Fund C.V. 42 76 253 71 11 8 CBRE Retail Property Fund France Belgium C.V.
CBRE Nordic Property Fund FGR 14 55 1,057 674 19 68 Other investments in associates 451 1,352
Transfers to and from Available-for-sale Investments –904 Revaluations 20 –30 –17 Share of result 97 37 194 Dividends received –36 –56 –126 Disposals –335 –75 –131 Exchange rate differences –30 –27 –22 Closing balance 1,028 1,352 1,526
In 2013, Share of results includes EUR 128 million (2012: EUR 80 million; 2011: EUR 92 million) relating to Sul América S.A. and the remainder to individually not significant associates.
In 2013, the 36.5% interest in Sul América S.A. was reduced to 21.3% through two separate transactions, included in Disposals. In the International Finance Corporation transaction, a share of interest of approximately 7.9% in Sul América S.A was sold for a total consideration of approximately EUR 140 million. Under the terms of the Larragoiti transaction, a share of interest in Sul América S.A. of approximately 7% was sold to the Larragoiti family, the remaining indirect stake for tradable units was swapped, and the existing shareholder’s agreement unwound. A net gain of EUR 64 million is recognised in the “Result on disposal of Group companies” in the Consolidated profit and loss account on these transactions.
In percentages 2013 2012 2011 Most recent appraisal in current year 100 100 100
NN Group’s exposure to real estate is included in the following balance sheet lines: Real estate exposure 2013 2012 2011 Real estate investments 764 805 954 Investments in associates 807 869 956 Other assets – property development and obtained from foreclosures
Furthermore, the exposure is impacted by third party interests, leverage in funds and off-balance commitments, resulting in an overall exposure of EUR 4.8 billion (2012: EUR 5.4 billion; 2011: EUR 5.9 billion). Reference is made to the “Risk management” section.
Property and equipment by type 2013 2012 2011 Property in own use 100 220 292 Equipment 64 118 177 164 338 469
Transfers to and from other assets 1 Depreciation –2 –3 –4 Revaluations –15 –33 –6 Impairments –1 Disposals –1 –11 –2 Exchange rate differences –1 –1 4 Closing balance 100 220 292
The cost or the purchase price amounted to EUR 124 million (2012: EUR 228 million; 2011: EUR 283 million). Cost or the purchase price less accumulated depreciation and impairments would have been EUR 91 million (2012: EUR 193 million; 2011: EUR 248 million) had property in own use been valued at cost instead of fair value.
Property in own use by year of most recent appraisal by independent qualified valuers
Fixtures and fittings and other equipment Total 2013 2012 2011 2013 2012 2011 2013 2012 2011 Opening balance 51 65 67 67 112 137 118 177 204 Additions 16 38 38 9 22 36 25 60 74 Changes in the composition of the group and other changes
Disposals –2 –2 –1 –5 –12 –2 –7 –13 Depreciation –26 –36 –29 –27 –31 –36 –53 –67 –65 Impairments –1 –1 –1 –1 Exchange rate differences –1 –2 –3 Closing balance 25 51 65 39 67 112 64 118 177
Gross carrying amount as at 31 December 41 385 649 118 1,193 Accumulated amortisation as at 31 December –21 –532 –40 –593 Accumulated impairments as at 31 December –121 –41 –46 –208 Net carrying value as at 31 December 20 264 76 32 392
Amortisation of software and other intangible assets is included in the profit and loss account in “Other operating expenses” and “Intangible amortisation and other impairments”. Amortisation of VOBA is included in Underwriting expenditure.
Opening balance 871 786 135 180 1,972 Additions 82 82 Capitalised expenses 83 3 86 Amortisation and unlocking –207 –60 –30 –297 Impairments –56 –2 –58 Effect of unrealised revaluations in equity –140 –140 Changes in the composition of the group and other changes
Gross carrying amount as at 31 December 1,977 1,019 783 286 4,065 Accumulated amortisation as at 31 December –1,464 –646 –120 –2,230 Accumulated impairments as at 31 December –742 –29 –46 –817 Net carrying value as at 31 December 513 277 108 120 1,018
Goodwill Changes in Goodwill 2012 – Impairment In 2012, a goodwill impairment of EUR 56 million was recognised relating to the reporting unit Netherlands-Life (formerly part of Insurance Benelux). In the impairment test, the IFRS-EU carrying value (including goodwill) was compared with a valuation based on the surplus in the market consistent balance sheet and the market value of new business. These are commonly used metrics in the European insurance industry. During 2012, the carrying value of the reporting unit increased, mainly as a result of declining interest rates being reflected in the fair value of assets but with no corresponding increase in the IFRS-EU carrying value of insurance liabilities. As the market value surplus (MVS) of the reporting unit did not increase similarly, the margin of MVS over IFRS-EUR carrying value, which supported the goodwill, became negative and, as a result, goodwill was fully impaired. This charge was included in the Consolidated profit and loss account in the line “Intangible amortisation and other impairments”. Goodwill is recognised in the Corporate Line and, therefore, this charge was included in the segment reporting in Other.
Notes to the Consolidated annual accounts of NN Group continued 68 NN Group Annual Report 2013 2012 – Changes in composition of the group and other changes In 2012, “Changes in composition of the group and other changes” represents the classification of goodwill to “Assets held for sale”. This included all goodwill that relates to businesses that were classified as held for sale. For 2012, the amount was EUR 469 million and related to Insurance Korea (EUR 200 million), Investment Management Korea (EUR 180 million), Insurance India (EUR 41 million) and Investment Management Taiwan (EUR 48 million). As businesses to which these goodwill amounts relate to were classified as held for sale, the related goodwill was no longer evaluated at the level of the reporting unit to which it was allocated in the regular goodwill impairment test. Instead, it is reviewed as part of the valuation of the disposal unit that is presented as held for sale. Reference is made to Note 11 “Assets and liabilities held for sale”.
As a first step of the impairment test, the best estimate of the recoverable amount of reporting units to which goodwill is allocated is determined separately for each relevant reporting unit based on Price to Earnings, Price to Book, and Price to Assets under management ratios. The main assumptions in this valuation are the multiples for Price to Earnings, Price to Book and Price to Assets under management; these are developed internally but are either derived from or corroborated against market information that is related to observable transactions in the market for comparable businesses. Earnings and carrying values are equal to or derived from the relevant measure under IFRS-EU. Where available the test includes the use of market prices for listed business units.
Such additional analyses were performed for the goodwill that was concluded to be impaired as set out above. For other reporting units, the goodwill allocated to these reporting units was fully supported in the first step.
Exchange rate differences –494 –244 304 –494 –244 304 Closing balance 1,316 4,513 10,165 37 36 39 1,353 4,549 10,204
The separate reporting of the Japan Closed Block VA business line triggered a write-off of all deferred acquisition costs (DAC) related to the Japan Closed Block VA business of EUR 1,405 million partly compensated by a release of the Life insurance provision related to unearned revenues of EUR 867 million. The write-off is included in Amortisation and unlocking for the year 2013. Reference is made to Note 53 “Other events”.
In 2012, Changes in the composition of the group and other changes related mainly to the classification of the insurance and investment management businesses in Asia as held for sale. Reference is made to Note 11 “Assets and liabilities held for sale”.
As at 31 December 2013 Assets and liabilities held for sale relates to the remaining insurance and investment management businesses in Asia (“Asia”) excluding NN Group’s business in Japan.
As at 31 December 2012 Assets and liabilities held for sale related to insurance and investment management businesses in Asia (“Asia”) including NN Group’s business in Japan.
There were no Assets and liabilities classified as held for sale as at 31 December 2011.
Methods applied in determining the fair value of financial assets and liabilities – Held for sale 2012 Level 1 Level 2 Level 3 Total Assets Trading assets 18 18 Investments for risk of policyholders 22,452 116 22,568 Non-trading derivatives 1,447 1,447 Financial assets designated as at fair value through profit or loss
The change in amounts reported in Other assets is mainly due to EUR –2,495 million as a result of the transfer of ING U.S. and EUR 1,251 million as a result of the classification to continuing operations of NN Group’s business in Japan. Reference is made to Note 53 “Other events”.
Disclosures in respect of deferred tax assets are provided in Note 39 “Taxation” and disclosures in respect of Net defined benefit assets are provided in Note 38 “Pension and other post-employment benefits”.
Total equity 2013 2012 2011 Share capital Share premium 11,605 17,750 17,750 Revaluation reserve 3,949 8,333 5,060 Currency translation reserve –252 –331 131 Net defined benefit asset/liability –1,042 –1,000 –90 Other reserves –33 1,671 561 Shareholder’s equity (parent) 14,227 26,423 23,412
Reference is made to Note 38 “Pension and other post-employment benefits” for information on the amounts recognised directly in equity (Other comprehensive income) related to the net defined benefit asset/liability remeasurement.
Share capital Ordinary shares (par value EUR 1.00) Number x 1,000 Amount 2013 2012 2011 2013 2012 2011 Authorised share capital 225 225 225 Unissued share capital 180 180 180 Issued share capital 45 45 45 0 0 0
Cash flow hedge reserve Total Opening balance 18 4,768 3,548 8,334 Changes in the composition of the group and other changes
Changes in the composition of the group and other changes relates to the transfer of ING U.S. Reference is made to Note 53 “Other events”.
Opening balance 31 2,146 2,883 5,060 Unrealised revaluations –13 5,102 5,089 Realised gains/losses transferred to profit and loss –299 –299 Change in cash flow hedge reserve 665 665 Transfer to insurance liabilities/DAC –2,181 –2,181 Closing balance 18 4,768 3,548 8,334
Changes in currency translation reserve 2013 2012 2011 Opening balance –331 131 –178 Changes in the composition of the group and other changes
The unrealised revaluations relate to changes in the value of hedging instruments that are designated as net investment hedges.
Notes to the Consolidated annual accounts of NN Group continued 74 NN Group Annual Report 2013
Impact of IPO of ING U.S. –1,594 –1,594 Dividend –233 –233 Employee stock options and share plans 37 37 Closing balance –491 458 –33
reserve Total Opening balance 385 176 561 Result for the year 1,038 1,038 Unrealised revaluations 10 10 Transfer to share of associates reserve –164 164 0 Employee stock options and share plans 62 62 Closing balance 1,331 340 1,671
reserve Total Opening balance –897 140 –757 Result for the year 1,226 1,226 Unrealised revaluations 37 37 Transfer to share of associates reserve –36 36 0 Employee stock options and share plans 55 55 Closing balance 385 176 561
Furthermore, in 2013 ING U.S. was transferred to ING Group by way of dividend in kind of EUR 6.826 million, which was charged to Share premium in full. Reference is made to Note 53 “Other events”.
Reference is made to Note 6 “Investments in associates” for details on dividend declared for the year 2014 in relation to the divestment of Sul América.
Interest rate Year of Issue Due date Notional amount Balance sheet value 2013 2012 2011 8.000% 2011 Perpetual EUR 450 450 450 450 Variable 2008 Perpetual EUR 813 813 834 850 Variable 2007 Perpetual EUR 740 740 758 772 4.176% 2005 Perpetual EUR 169 176 181 313 Variable 2005 Perpetual EUR 148 148 152 154 Variable 2005 Perpetual EUR 74 74 76 77 6.375% 2002 7 May 2027 EUR 476 491 496 501 Variable 2001 21 June 2021 EUR 1,250 1,250 2,892 2,947 4,367
Floating rate debt securities Within 1 year 270 More than 5 years 1,000 Total floating rate debt securities 0 270 1,000
Notes to the Consolidated annual accounts of NN Group continued 76 NN Group Annual Report 2013
On 8 March 2012, ING launched three separate exchange offers and consent solicitations on a total of three series of senior debt securities originally issued by ING Verzekeringen N.V. with a total nominal value of EUR 2.6 billion. Holders had the possibility to exchange the original securities into new securities issued by ING Group and / or consent to a modification of existing terms. On average 64% of the holders accepted the offer to exchange into new securities issued by ING Group. The total nominal amount of the new securities issued by ING Group in exchange for the existing securities originally issued by ING Verzekeringen N.V. was EUR 1,654 million. Approximately 6% of the holders, representing EUR 151 million, accepted a modification of the existing terms of the securities. The transactions were completed on 30 March 2012. A charge of EUR 39 million (EUR 30 million after tax) was recognised in 2012. The settlement date of the exchange offers and consent solicitations was on 4 April 2012.
ING U.S., Inc. announced on 16 July 2012 that it completed a private debt offering of USD 850 million principal amount of its 5.5% Senior Notes due in 2022. In 2013, ING US is transferred to ING Group. Reference is made to Note 53 “Other events”.
Insurance and investment contracts 2013 2012 2011 2013 2012 2011 2013 2012 2011 Provision for non-participating life policy liabilities
Reported claims provision 2,643 2,621 2,620 77 82 89 2,720 2,703 2,709 Claims incurred but not reported (IBNR)
The deferred profit sharing amount on unrealised revaluation is included in Provision for (deferred) profit sharing and rebates and amounts to EUR 3,488 million as at 31 December 2013 (2012: EUR 6,304 million; 2011: EUR 3,721 million).
Opening balance 117,834 90,754 5,204 213,792 Changes in the composition of the group and other changes
Exchange rate differences –3,013 –4,313 –30 –7,356 Closing balance 67,359 38,038 171 105,568
Prior year provisions: – benefit payments to policyholders –16,074 –14,919 –668 –31,661 – interest accrual and changes in fair value of liabilities 4,651 38 4,689 – valuation changes for risk to policyholders 13,909 13,909 – effect of changes in other assumptions –275 –77 16 –336 –11,698 –1,087 –614 –13,399
Exchange rate differences –1,869 –2,916 –93 –4,878 Closing balance 117,834 90,754 5,204 213,792
Opening balance 135,314 114,603 5,685 255,602 Changes in the composition of the group and other changes
Prior year provisions: – benefit payments to policyholders –13,872 –11,812 –700 –26,384 – interest accrual and changes in fair value of liabilities 6,302 35 6,337 – valuation changes for risk to policyholders –1,190 –1,190 – effect of changes in other assumptions 635 –17 –2 616 –6,935 –13,019 –667 –20,621
In 2011, “Changes in the composition of the group and other changes” included the transfers of certain insurance contracts.
Notes to the Consolidated annual accounts of NN Group continued 80 NN Group Annual Report 2013
Provision for unearned premiums and unexpired risk 2013 2012 2011 2013 2012 2011 2013 2012 2011 Opening balance 265 297 345 2 4 4 267 301 349 Changes in the composition of the group and other changes
Exchange rate differences 1 0 0 1 Closing balance 266 265 297 3 2 4 269 267 301
Exchange rate differences –2 –1 2 –2 –1 2 Closing balance 3,238 3,179 3,113 78 84 92 3,316 3,263 3,205
Prior year provisions: – payments to contract holders –4,522 –9,471 –7,709 – interest accrual 13 30 39 – valuation changes investments 69 129 –55 –4,440 –9,312 –7,725
In 2013, Changes in the composition of the group and other changes includes EUR –9,402 million as a result of the transfer of ING U.S. and nil as a result of the classification to continuing operations of NN Group’s business in Japan. Reference is made to Note 53 “Other events”.
NN Group applies the exemption in IFRS-EU not to present Gross claims development for annual periods beginning before 1 January 2004 (the date of transition to IFRS-EU) as it is impracticable to obtain such information.
Notes to the Consolidated annual accounts of NN Group continued 82 NN Group Annual Report 2013 18 CUSTOMER DEPOSITS AND OTHER FUNDS ON DEPOSIT
No funds have been entrusted to NN Group by customers on terms other than those prevailing in the normal course of business.
The change in Financial liabilities at fair value through profit or loss includes EUR –2,290 million as a result of the transfer of ING U.S. and EUR 1,232 million as a result of the classification to continuing operations of NN Group’s business in Japan. Reference is made to Note 53 “Other events”.
Non-trading derivatives by type 2013 2012 2011 Derivatives used in: – fair value hedges 203 264 – cash flow hedges 215 255 302 – hedges of net investments in foreign operations 8 12 Other non-trading derivatives 1,620 2,800 3,826 1,843 3,258 4,404
Other staff-related liabilities include vacation leave provisions, variable compensation provisions, jubilee provisions and disability/illness provisions.
The provision for the estimated cost of the agreement with regard to unit-linked policies is included in “Insurance and investment contracts” as disclosed in Note 17.
Additions 68 364 136 Releases –36 –7 –6 Charges –142 –148 –144 Exchange rate differences –1 Closing balance 155 275 79
In 2013, Changes in the composition of the group and other changes includes EUR –10 million as a result of the transfer of ING U.S. and nil as a result of the classification to continuing operations of NN Group’s business in Japan. Reference is made to Note 53 “Other events”.
In 2012, a reorganisation provision of EUR 198 million was recognised for the insurance operations in the Netherlands following the initiative to accelerate the transformation programme in preparation for the stand-alone future of NN Group. In response to changing customer preferences and market dynamics, NN Group is undertaking actions to increase its agility in the current operating environment by delayering the support staff structure in the Netherlands and sharpen the strategic focus of its business units, in particular Nationale-Nederlanden. These measures are expected to result in a reduction of the workforce of around 1,350 FTE’s by the end of 2014.
Notes to the Consolidated annual accounts of NN Group continued 84 NN Group Annual Report 2013
In 2012 an additional reorganisation provision of EUR 55 million was recognised for the insurance operations in the Netherlands for the strategic initiatives announced in 2011. The main goals of the strategic initiative are to regain customer trust, diversify distribution channels, implement a new product range and increase efficiency. The remainder of this reorganisation provision will be incorporated with the above mentioned reorganisation provision per 2014.
Additions 9 7 9 14 27 9 23 34 Releases –14 –7 –3 –32 –3 –3 –46 –10 Charges –4 –3 –8 –30 –14 –34 –34 –17 –42 Exchange rate differences –1 –2 –2 –4 –2 –7 –5 –4 –9 Closing balance 3 21 41 65 63 93 68 84 134
Investment income 2013 2012 2011 Income from real estate investments 50 54 50 Dividend income 180 196 213 230 250 263
Realised gains/losses on disposal of debt securities 185 –117 –35 Impairments of available-for-sale debt securities –15 –584 Realised gains/losses and impairments of debt securities
Impairments on investments are presented within Investment Income, which is part of Total income. This can be specified for each segment as follows: Impairments on investments per segment Impairments 2013 2012 2011 Netherlands Life –156 –131 –281 Netherlands Non-life –10 –9 –42 Insurance Europe –3 –16 –425 Japan Life –1 Other –3 –2 –9 –172 –159 –757 23 RESULT ON DISPOSALS OF GROUP COMPANIES The result on disposal of the insurance businesses in Hong Kong, Macau and Thailand, the investment management businesses in Malaysia and Thailand and ING Life Korea (2012: the insurance business in Malaysia; 2011: Latin American operations) is not included in “Result on disposals of group companies” but in “Result on disposal of discontinued operations”. Reference is made to Note 33 “Discontinued operations”.
Fee and commission expenses 2013 2012 2011 Management fees 20 28 108 Brokerage and advisory fees 1 Other 310 303 591 330 331 700
Valuation results on assets and liabilities designated as at fair value through profit or loss (excluding trading)
27 OTHER INCOME In 2011, Other income includes a gain of EUR 95 million on the repurchase of subordinated loans as disclosed in Note 14 “Subordinated loans”.
Investment result for risk of policyholders –4,930 –5,517 –206 Reinsurance recoveries –70 –73 –81 Underwriting expenditure 8,585 10,277 13,157
Expenditure from non-life underwriting Reinsurance and retrocession premiums 40 40 39 Gross claims 1,077 1,103 1,086 Reinsurance recoveries –12 –12 –9 Changes in the provision for unearned premiums –1 –22 –27 Changes in the claims provision 70 109 5 Costs of acquiring insurance business 258 263 261 Other underwriting expenditure 1 –2 1,433 1,481 1,353
Expenditure from investment contracts Costs of acquiring investment contracts 1 2 3 Other changes in investment contract liabilities –47 –108 20 –46 –106 23
Profit sharing and rebates 2013 2012 2011 Distributions on account of interest or underwriting results
The total amount of commission paid and commission payable amounted to EUR 841 million (2012: EUR 897 million; 2011: EUR 903 million). This includes the commissions recognised in Costs of acquiring insurance business of EUR 854 million (2012: EUR 1,369 million; 2011: EUR 623 million) referred to above and commissions recognised in Other underwriting expenditure of EUR –13 million (2012: EUR –472 million; 2011: EUR 280 million). Other underwriting expenditure also includes reinsurance commissions received of EUR 16 million (2012: EUR 23 million; 2011: EUR 26 million).
As set out in the section “Principles of valuation and determination of results – Insurance, investment and reinsurance contracts”, ING applies, for certain specific products or components thereof, the option in IFRS 4 to measure (components of) the provisions for liabilities under insurance contracts using market-consistent interest rates and other current estimates and assumptions. This relates mainly to certain guarantees embedded in insurance contracts in Japan. The impact of these market-consistent assumptions is reflected in “Underwriting expenditure – Change in life insurance provisions”.
This impact was largely offset by the impact of related hedging derivatives. As disclosed in Note 28 “Valuation results on non-trading derivatives”, the valuation results on non-trading derivatives include the fair value movements on derivatives used to economically hedge exposures, but for which no hedge accounting is applied. For insurance operations, these derivatives hedge exposures in Insurance contract liabilities. The fair value movements on the derivatives are influenced by changes in the market conditions, such as stock prices, interest rates and currency exchange rates. The change in fair value of the derivatives is largely offset by changes in Insurance contract liabilities, which are included in Underwriting expenditure.
The “Change in life insurance provision” in 2013 includes a larger release from Insurance provisions compared to 2012 following an increase in benefit payments and lower premium income. “Underwriting expenditure – Gross benefits” increased by EUR 716 million in 2013 compared to 2012, which was largely offset by lower “Changes in life insurance provisions”. Gross premium income in 2013 was EUR 1,175 million lower compared to 2012. Furthermore, “Change in life insurance provision” in 2013 includes a release of EUR 867 million related to Japan Closed block VA as explained below.
In 2013, the separate reporting of the Japan Closed Block VA business line triggered a charge of EUR 575 million before tax to restore the reserve inadequacy of that business line to the 50% confidence level. This charge includes a reduction of DAC of EUR 1,405 million (included in “Underwriting expenditure – Costs of acquiring insurance business”, which is partly offset by a release of the life insurance provision related to unearned revenues of EUR 867 million (included in “Underwriting expenditure – Change in life insurance provisions”). Reference is made to Note 53 “Other events”.
Amortisation of other intangible assets 8 10 7 11 69 42
Reference is made to Note 9 “Intangible assets” for more details.
Staff expense 2013 2012 2011 Salaries 747 759 799 Pension costs 67 –146 35 Other staff related benefit costs –8 35 4 Social security costs 101 105 95 Share-based compensation arrangements 11 16 15 External employees 206 207 139 Education 14 18 15 Other staff costs 40 43 26 1,178 1,037 1,128
Number of employees Netherlands International Total 2013 2012 2011 2013 2012 2011 2013 2012 2011 Continuing operations – average number of employees at full time equivalent basis 6,217 6,868 7,305 4,995 5,643 5,796 11,212 12,511 13,101 Discontinued operations – average number of employees at full time equivalent basis 7,285 13,182 20,143 7,285 13,182 20,143 Total average number of employees at full time equivalent basis
Stock option and share plans NN Group’s ultimate parent, ING Groep N.V., has granted option rights on ING Groep N.V. shares and conditional rights on depositary receipts (share awards) for ING Group shares to a number of senior executives (members of the management board, general managers and other officers nominated by the Management Board NN Group) and to a considerable number of employees of NN Group. The purpose of the option and share schemes, is to attract, retain and motivate senior executives and staff.
In 2012, ING granted three types of share awards, deferred shares, performance shares and upfront shares. The entitlement to the share awards was granted conditionally. If the participant remains in employment for an uninterrupted period between the grant date and the vesting date, the entitlement becomes unconditional. In addition to the employment condition, the performance shares contain a performance condition. The number of ING depositary receipts that would ultimately be granted at the end of a performance period is dependent on ING’s performance over that period. Upfront and deferred shares, with retention periods as soon as it becomes unconditional, were awarded to the Management Board members of NN Group, as well as Identified staff. ING has the authority to apply a hold back to awarded but unvested shares and a claw-back to vested shares.
In 2013, 58,954 share awards (2012: 509,553; 2011: 25,370) were granted to the Management Board NN Group. To senior management and other employees of NN Group 2,584,479 share awards (2012: 9,506,061; 2011: 8,819,873) were granted.
Every year, the Board decides whether the option and share schemes are to be continued and, if so, to what extent. In 2010 the Board decided not to continue the option scheme as from 2011. The existing option schemes up and until 2011 will be run off in the coming years.
The obligations with regard to the share plans will be funded either by cash or by newly issued shares.
The weighted average share price at the date of exercise for options exercised in 2013 is EUR 8.24 (2012: EUR 6.15; 2011: EUR 8.09).
31 INTEREST EXPENSE Other interest expense mainly consist of interest on the subordinated loans.
In 2013, total interest income and total interest expense for items not valued at fair value through profit or loss were EUR 2,641 million and EUR –255 million respectively (2012: EUR 2,814 million and EUR –303 million respectively; 2011: EUR 3,009 million and EUR –378 million respectively). Net interest income of EUR 2,050 million is presented in the following lines in the profit and loss account.
Total net interest income 2013 2012 2011 Investment income 22 2,641 2,814 3,009 Interest expense on non-trading derivatives –336 –302 –350 Other interest expense –255 –303 –378 2,050 2,209 2,281
Other operating expense include lease and sublease payments for the amount of EUR 13 million (2012: EUR 11 million; 2011: EUR 2 million) in respect of operating leases in which NN Group is the lessee. No individual operating lease has terms and conditions that significantly affect the amount, timing or certainty of the consolidated cash flows of NN Group.
DISCONTINUED OPERATIONS 33 DISCONTINUED OPERATIONS As at 31 December 2013, ING U.S. and the remaining insurance and investment management businesses in Asia (“Asia”), excluding NN Group’s business in Japan are classified as discontinued operations.
ING U.S. At 30 September 2013, the remaining interest in ING U.S. was transferred to ING Groep N.V. As of the date of transfer, ING U.S. ceased to be consolidated; the results for the period until transfer are presented as discontinued operations.
As a result, ING Life Japan and the Japanese Closed Block VA guarantees reinsured to ING Re (“NN Group’s business in Japan”) are no longer classified as discontinued operations. All references to Asia in this disclosure therefore, refer to the insurance and investment management businesses in Asia other than NN Group’s business in Japan.
Total net result from discontinued operations 2013 2012 2011 ING U.S. –174 502 –635 Asia 219 337 319 Latin America 114 Net result from discontinued operations 45 839 –202
Net result from discontinued operations was as follows: Result from discontinued operations 2013 2012 2011 Total income 13,354 21,840 22,358 Total expenses 13,174 20,909 22,567 Result before tax from discontinued operations 180 931 –209
In 2013, “Net result from disposal of discontinued operations” includes mainly the divestment gain on the sale of the insurance businesses in Hong Kong, Macau and Thailand of EUR 944 million and the divestment loss of EUR 989 million on the sale of ING Life Korea. In 2012, “Net result from disposal of discontinued operations” included the divestment gain on the sale of the insurance business in Malaysia. In 2011, Net result from disposal of discontinued operations included the divestment gain on the sale of Latin America. Reference is made to Note 49 “Companies and businesses acquired and divested”.
The insurance and investment management businesses in Asia were previously included respectively in the segments Insurance Asia/Pacific, Investment Management and in Other before they were classified as discontinued operations and held for sale. The segment Insurance Asia/Pacific ceased to exist in 2012, following the classification as discontinued operations, as all activities previously included in this segment are now discontinued operations.
Notes to the Consolidated annual accounts of NN Group continued 96 NN Group Annual Report 2013
OTHER 36 SEGMENTS NN Group’s segments are based on the internal reporting structure by lines of business. The segments Insurance United States, Insurance US Closed Block VA, Investment Management US and Corporate line US ceased to exist due to the transfer of ING U.S. In 2012, the segment Insurance Asia/Pacific ceased to exist. Furthermore during 2013, NN Group has adjusted its reporting structure to better align its segmentation with the businesses that it comprises, their governance and internal management, and to reflect the decision to include ING Japan with the intended IPO of NN Group. Reference is made to Note 53 “Other events”. The comparatives have been adjusted to reflect the new segment structure.
The new reporting segments for NN Group are as follows: Segments of NN Group
Netherlands Life Netherlands Non-life Insurance Europe Japan Life Investment Management (IM) Other Japan Closed Block VA
The Management Board NN Group sets the performance targets and approves and monitors the budgets prepared by the business lines. Business lines formulate strategic, commercial and financial policy in conformity with the strategy and performance targets set by the Management Board.
The operating result for the life insurance business is analysed through a margin analysis, which includes the investment margin, fees and premium-based revenues and the technical margin. Operating result as presented below is a non-GAAP financial measure and is not a measure of financial performance under IFRS-EU. Because it is not determined in accordance with IFRS-EU, operating result as presented by NN Group may not be comparable to other similarly titled measures of performance of other companies.
The information presented in this note is in line with the information presented to the Management Board NN Group.
The following table specifies the main sources of income of each of the segments: Specification of the main source of income of each of the segments Segment Main source of income Netherlands Life Income from group life and individual life insurance products in the Netherlands Netherlands Non-life Income from non-life insurance in the Netherlands including disability and accident, fire, motor and transport insurance Insurance Europe Income from life insurance, pension products and to a small extent non-life insurance and retirement services in Central and Rest of Europe Japan Life Income from life insurance primarily Corporate Owned Life Insurance (COLI)
In addition to these segments, NN Group reconciles the total segment results to the total result using Insurance Other. Insurance Other reflects the share in the result of the Brazilian insurer Sul América and overhead expenses of ING Group allocated to NN Group. As of 2014, Insurance Other will cease to exist.
- Revaluations: revaluations on assets marked-to-market through the Consolidated profit and loss account. These investments include private equity (associates), real estate (property and associates), derivatives unrelated to product hedging programs (i.e. interest rate swaps, foreign exchange hedges) and direct equity hedges.
 Total net result from discontinued operations: Reference is made to Note 33 “Discontinued operations”.
Technical margin 237 191 2 431 Operating income nonmodelled life business
Non-life operating result 79 5 84 Operating result Other –373 –373 Operating result 709 79 199 162 131 –373 80 –18 968
Special items before tax –22 –16 –9 –79 –126 Result on divestments 5 –50 129 84 Result before tax from continuing operations
Special items in 2013 is primarily related to the previously announced restructuring programme and additional IT expenses which is partly offset by pension curtailments in the Netherlands.
Reference is made to Note 33 “Discontinued operations” for information on discontinued operations.
Investment margin 562 122 10 694 Fees and premium based revenues
Non-life operating result 103 7 110 Operating result Other –399 –399 Operating result 623 103 219 196 109 –399 85 –22 914
Notes to the Consolidated annual accounts of NN Group continued 100 NN Group Annual Report 2013
Administrative expenses 533 353 129 313 9 28 1,364 DAC amortisation and trail commissions
Non-life operating result 186 4 191 Operating result Other –313 –313 Operating result 768 186 266 119 124 –313 91 –28 1,213
Special items before tax –83 –53 –90 –10 22 –214 Result on divestments –8 92 83 Result before tax from continuing operations
Taxation 85 19 –49 –29 34 –95 57 –7 15 Minority interests 4 10 14 Net result from continuing operations
Block VA Total Interest income 1,995 110 566 146 1 103 334 3,255 Interest expense 93 21 2 156 319 591 1,902 110 545 144 1 –53 15 2,664
Total assets and Total liabilities by segment assets Total liabilities Total assets Total liabilities Total assets Total liabilities Netherlands Life 79,087 69,154 82,098 71,227 82,150 70,048 Netherlands Non-life 4,426 3,692 4,372 3,818 4,100 3,642 Insurance Europe 22,004 20,175 24,482 22,486 22,489 20,863 Japan Life 9,438 8,147 10,998 9,035 10,838 8,971 Investment Management (IM) 552 192 639 275 775 354 Other 32,842 18,482 44,740 17,233 51,268 25,616 Japan Closed Block VA 18,651 17,415 25,518 24,079 26,993 26,006 Assets and liabilities classified as discontinued operations 37 INFORMATION ON GEOGRAPHICAL AREAS NN Group’s business lines operate in the following geographical areas: Netherlands, Belgium, Rest of Europe and Asia. The Netherlands is NN Group’s country of domicile. Geographical distribution of income is based on the origin of revenue. A geographical area is a distinguishable component of NN Group engaged in providing products and services within a particular economic environment that is subject to risks and returns that are different from those of segment operating in other economic environments. The geographical analyses are based on the location of the office from which the transaction is originated.
Notes to the Consolidated annual accounts of NN Group continued 102 NN Group Annual Report 2013
Eliminations Total 38 PENSION AND OTHER POST-EMPLOYMENT BENEFITS The disclosures below refer to the position as at balance sheet date. Reference is made to Note 55 “Subsequent events” on the Dutch closed defined benefit plan, which represents approximately 95% (based on 2013 plan assets) of the total defined benefit schemes.
Presented as: – Other assets 383 670 1,472 – Other liabilities –51 –666 –631 Closing balance 332 4 841
NN Group maintains defined benefit retirement plans in some countries of operation. These plans provide benefits that are related to the remuneration and service of employees upon retirement. The benefits in some of these plans are subject to various forms of indexation. The indexation is either at the discretion of management or dependent upon the sufficiency of plan assets.
Several Dutch subsidiaries of NN Group participate in the Stichting Pensioenfonds ING, in which also (subsidiaries) of ING Bank N.V. participate. NN Group N.V. and ING Bank N.V. are jointly and severally liable for deficits in the Stichting Pensioenfonds ING if the coverage ratio is below certain levels. The pension liability, assets and related expense are allocated to NN Group N.V. and ING Bank N.V.
Fair value of plan assets 2013 2012 2011 Opening balance 7,542 6,644 5,813 Interest income 268 353 306 Remeasurements: Return on plan assets excluding amounts included in interest income
Employer’s contribution 250 236 243 Participants’ contributions 9 9 1 Benefits paid –218 –230 –230 Effect of settlement –97 Changes in the composition of the group and other changes
In 2013, Changes in the composition of the group and other changes includes EUR –1,123 million as a result of the transfer of ING U.S. and nil as a result of the classification to continuing operations of NN Group’s business in Japan. Reference is made to Note 53 “Other events”. The remainder mainly relates to the transfer of approximately 400 WestlandUtrecht Bank’s employees to NN Bank. Reference is made to Note 49 “Companies and businesses acquired and divested”.
The actual return on the plan assets amounts to EUR –6 million (2012: EUR 933 million; 2011: EUR 788 million).
No plan assets are expected to be returned to NN Group during 2014.
Changes in defined benefit obligation and other post-employment benefits Defined benefit obligation Other post-employment benefits 2013 2012 2011 2013 2012 2011 Opening balance 7,538 5,803 5,758 77 74 69 Current service cost 122 102 105 –7 7 5 Interest cost 266 299 303 Remeasurements: Actuarial gains and losses arising from changes in demographic assumptions
In 2013, Changes in the composition of the group and other changes includes EUR –1,494 million as a result of the transfer of ING U.S. and EUR 45 million as a result of the classification to continuing operations of NN Group’s business in Japan. Reference is made to Note 53 “Other events”. The remainder mainly relates to the transfer of approximately 400 WestlandUtrecht Bank’s employees to NN Bank. Reference is made to Note 49 “Companies and businesses acquired and divested”.
2013 – Effect of curtailment In 2013, “Effect of curtailment or settlement” includes the curtailments of a pension plan in the Netherlands. This plan is closed for new pension rights and is replaced by a defined contribution plan.
2012 – Effect of curtailment – New pension plan for employees in the Netherlands In 2012, an agreement on a new pension plan for employees in the Netherlands was finalised, following acceptance by both the unions and their members. The new pension plan has taken effect on 1 January 2014. Under the agreement, a new separate pension fund has been created. The new plan qualifies as a defined contribution plan under IFRS-EU and has replaced the existing defined benefit plan in the Netherlands.
At the start of the new defined contribution plan on 1 January 2014, the current defined benefit plan has stopped accruing new pension benefits. Accruals recognised under the defined benefit plan up to that date will remain valid. The change to the new pension plan represents a curtailment under IFRS-EU and has resulted in a release of provisions previously taken by NN Group to cover estimated future liabilities in the existing defined benefit plan that are now no longer required. This release amounted to a one-off gain of EUR 100 million after tax (EUR 133 million before tax). The curtailment was included in Staff expenses in 2012. This curtailment is related to the defined benefit plan in the Netherlands, which represented approximately 75% of the above defined benefit obligation on 31 December 2012.
The cumulative amount of remeasurements recognised directly in Other comprehensive income (equity) is EUR –1,388 million (EUR –1,042 million after tax) as at 31 December 2013 (2012: EUR –1,395 million, EUR –1,000 million after tax; 2011: EUR –163 million, EUR –90 million after tax).
Information on plan assets and defined benefit obligation per country The defined benefit obligation per country and the plan assets per country can be specified as follows: Plan assets and defined benefit obligation per country Plan assets Defined benefit obligation 2013 2012 2011 2013 2012 2011 The Netherlands 6,436 6,482 5,679 6,053 5,818 4,202 Belgium 8 8 7 15 16 13 Other countries 13 1,052 958 57 1,704 1,588 6,457 7,542 6,644 6,125 7,538 5,803
The discount rate is the weighted average of the discount rates that are applied in different regions where NN Group has defined benefit pension plans. The discount rate is based on a methodology that uses market yields on high quality corporate bonds of the specific regions with durations matching the pension liabilities as key input. Market yields of high quality corporate bonds reflect the yield on corporate bonds with an AA rating for durations where such yields are available. An extrapolation is applied in order to determine the yield to the longer durations for which no AA-rated corporate bonds are available. As a result of the limited availability of long-duration AA-rated corporate bonds, extrapolation is an important element of the determination of the discount rate.
The discount rate is approximately 3.7% on 31 December 2013 (2012: 3.8%). As disclosed in the 2012 Annual Accounts, discussions were ongoing, both in the industry and at the IASB, on the definition of the discount rate for defined benefit pension liabilities and NN Group would reconsider the methodology for setting the discount rate if and when appropriate. The discount rate used by NN Group remains based on AA-rated corporate bonds. During 2013, NN Group further refined its methodology to extrapolate the observable AA-rated corporate bond rates to the full duration of the defined benefit pension liability. The refined methodology and the resulting discount rate are more in line with observed market practices. The impact of the refinement of the extrapolation was an increase in the defined benefit obligation as at 31 December 2013 of approximately EUR 1.0 billion (EUR 0.7 billion after tax); this impact was recognised in Other comprehensive income (equity) in 2013. In 2012, the discount rate changed from 5.3% in 2011 to 3.8% in 2012 resulting in an increase of the defined benefit obligation of approximately EUR 2 billion.
On 31 December 2013, the actuarial assumption for Indexation for inflation is 2.0% (1.9% in 2012). This percentage is mainly based on the expected inflation and the best estimate assumption for future indexation in the pension plan in the Netherlands. The best estimate assumption for future indexation was amended in 2013 to reflect the outcome of the arbitration in respect of the 2013 indexation as disclosed in Note 48 “Legal proceedings”.
The table discloses the financial impact on the defined benefit obligation if the weighted averages of each significant actuarial assumption would increase or decrease if all other assumptions were held constant. In practice, this is unlikely to occur, and some changes of the consumptions may be correlated.
Expected cash flows Annual contributions are paid to the funds at a rate necessary to adequately finance the accrued liabilities of the plans calculated in accordance with local legal requirements. Plans in all countries comply with applicable local regulations governing investments and funding levels. NN Group’s subsidiaries should fund the cost of the entitlements expected to be earned on a yearly basis.
The following benefit payments, which reflect expected future service as appropriate, are expected to be made by the plan: Benefit payments
The average duration of the benefit obligation at the end of the reporting period is 20 years (2012: 20 years). This number can be subdivided into the duration related to: ● active members: 26 years (2012: 27 years); ● inactive members: 23 years (2012: 24 years); and ● retired members: 11 years (2012: 11 years).
Defined contribution plans Certain group companies sponsor defined contribution pension plans. The assets of all NN Group’s defined contribution plans are held in independently administered funds. Contributions are generally determined as a percentage of pay. These plans do not give rise to balance sheet provisions, other than relating to short-term timing differences included in other assets/liabilities.
When the coverage ratio (assets divided by liabilities) of the plan is lower than 105% at year end, ING is required to pay the plan an additional contribution in order to increase the coverage ratio to 106.7%. When the coverage ratio of the plan is lower than 110% but higher than 105% at year end, ING is required to pay the plan an additional contribution in accordance with a pre-defined formula. When the coverage ratio is higher than 140%, ING receives a premium reduction in future periods.
This agreement will result in the removal of the net pension asset related to the Dutch defined benefit pension plan from the Consolidated balance sheet. Reference is made to Note 55 “Subsequent events” for information on this agreement.
Defined benefit plan in the Netherlands – Major categories of plan assets Fair value of plan assets Quoted price Other Total 2013 2012 2011 2013 2012 2011 2013 2012 2011 Investment portfolio of the pension fund
Real estate investments: – Listed 55 66 55 55 66 55 – Not listed 277 282 269 277 282 269 Total real estate investments 55 66 55 277 282 269 332 348 324
Derivatives (1) 181 442 427 181 442 427 Cash and cash equivalents 145 47 19 145 47 19 Total Assets of the pension fund
The table above relates to the defined benefit pension plan in the Netherlands that is closed for new pension rights as of 1 January 2014.
At 31 December 2013 the defined benefit plan in the Netherlands did not hold any investments in ING Group At 31 December 2012 Debt securities included EUR 44 million (0.20% of total plan assets) of investments in ING Group and at 31 December 2011 Debt securities included EUR 14 million (0.20% of total plan assets).
Presented in the balance sheet as: – deferred tax liabilities 1,220 702 – deferred tax assets –76 –51 1,144 651
Net liability 2012 (1) Investments 1,736 1,978 –79 –480 –50 3,105 Real estate investments 378 –23 –8 347 Financial assets and liabilities at fair value through profit or loss
In 2012, “Changes in the composition of the group and other changes” related mainly to the classification of the insurance and investment management businesses in Asia as a disposal group held for sale. Reference is made to Note 11 “Assets and liabilities held for sale”.
Presented in the balance sheet as: – deferred tax liabilities 1,843 1,220 – deferred tax assets –186 –76 1,657 1,144
Deferred acquisition costs and VOBA 3,111 –272 –194 –45 131 2,731 Fiscal equalisation reserve 1 –1 0 Depreciation –2 2 0 Insurance provisions –1,866 –572 –773 –9 –130 –3,350 Cash flow hedges 485 468 2 955 Pension and post-employment benefits 83 137 31 –218 –15 18 Other provisions –597 423 3 10 –161 Receivables –28 –4 1 –31 Loans and advances to customers 11 4 –1 14 Unused tax losses carried forward –670 20 –15 –9 –674 Other 96 –24 5 –16 61 1,018 1,028 –66 –370 47 1,657
Recognition is based on the fact that it is probable that the entity will have taxable profits and /or can utilise tax planning opportunities before expiration of the deferred tax assets. Changes in circumstances in future periods may adversely impact the assessment of the recoverability. The uncertainty of the recoverability is taken into account in establishing the deferred tax assets.
Taxation on continuing operations by type Netherlands International Total 2013 2012 2011 2013 2012 2011 2013 2012 2011 Current tax 64 –99 31 –21 111 69 43 12 100 Deferred tax –168 –135 –38 75 10 –47 –93 –125 –85 –104 –234 –7 54 121 22 –50 –113 15
Reconciliation of the weighted average statutory income tax rate to NN Group’s effective income tax rate 2013 2012 2011 Result before tax from continuing operations –52 –245 468 Weighted average statutory tax rate 45.6% –22.1% 23.9% Weighted average statutory tax amount –24 54 112
Associates exemption –89 –161 –121 Other income not subject to tax –31 –34 –34 Expenses not deductible for tax purposes 41 32 46 Impact on deferred tax from change in tax rates 22 11 2 Deferred tax benefit from previously unrecognised amounts –2 –6 Current tax benefit from previously unrecognised amounts –7 Write-off/reversal of deferred tax assets 6 Adjustments to prior periods 27 –2 10 Effective tax amount –50 –113 15
The weighted average statutory tax rate in 2013 differs significantly compared with 2012. This is mainly a result of the composition of the result before tax from continuing operations in 2013 and 2012.
Adjustment to prior periods in 2011 related mainly to final tax assessments.
Income tax related to components of other comprehensive income 2013 2012 2011 Remeasurement of the net defined benefit asset/liability
Realised gains/losses transferred to profit and loss (reclassifications from equity to profit and loss)
(1) Other assets does not include (deferred) tax assets, net defined benefit assets and property development and obtained from foreclosures. (2) Other liabilities does not include (deferred) tax liabilities, net defined benefit liabilities, insurance provisions, other provisions and other taxation and social security contributions.
The estimated fair value represents the price at which an orderly transaction to sell the financial asset or to transfer the financial liability would take place between market participants at the balance sheet date (“exit price”). The fair value of financial assets and liabilities is based on unadjusted quoted market prices, where available. Such quoted market prices are primarily obtained from exchange prices for listed instruments. Where an exchange price is not available market prices are obtained from independent market vendors, brokers or market makers. Because substantial trading markets do not exist for all financial instruments various techniques have been developed to estimate the approximate fair value of financial assets and liabilities that are not actively traded. These techniques are subjective in nature and involve various assumptions about the relevant pricing factors, especially for inputs that are not readily available in the market (such as credit spreads for own-originated loans and advances to customers). Changes in these assumptions could significantly affect the estimated fair value. Consequently, the fair value presented may not be indicative of the net realisable value. In addition, the calculation of the estimated fair value is based on market conditions at a specific point in time and may not be indicative of the future fair value.
Financial assets at fair value through profit or loss and Available-for-sale Investments Derivatives Derivative contracts can either be exchange-traded or over the counter (OTC). The fair value of exchange-traded derivatives is determined using quoted market prices in an active market and those derivatives are classified in Level 1 of the fair value hierarchy. For those instruments not actively traded, the fair value is estimated based on valuation techniques. OTC derivatives and derivatives trading in an inactive market are valued using valuation techniques because quoted market prices in an active market are not available for such instruments. The valuation techniques and inputs depend on the type of derivative and the nature of the underlying instruments. The principal techniques used to value these instruments are based on discounted cash flows, Black-Scholes option models and Monte Carlo simulation. These valuation models calculate the present value of expected future cash flows, based on “no arbitrage” principles. These models are commonly used in the financial industry. Inputs to valuation models are determined from observable market data where possible. Certain inputs may not be observable in the market directly, but can be determined from observable prices via valuation model calibration procedures. The inputs used include prices available from exchanges, dealers, brokers or providers of pricing, yield curves, credit spreads, default rates, recovery rates, dividend rates, volatility of underlying interest rates, equity prices and foreign currency exchange rates. These inputs are determined with reference to quoted prices, recently executed trades, independent market quotes and consensus data, where available.
Debt securities The fair value for debt securities is based on quoted market prices, where available. Quoted market prices may be obtained from an exchange, dealer, broker, industry group, pricing service or regulatory service. If quoted prices in an active market are not available, fair value is based on an analysis of available market inputs, which may include values obtained from one or more pricing services or by a valuation technique that discounts expected future cash flows using market interest rate curves, referenced credit spreads, maturity of the investment and estimated prepayment rates where applicable.
Financial Liabilities Subordinated loans The fair value of the subordinated loans is estimated using discounted cash flows based on interest rates and credit spreads that apply to similar instruments.
Notes to the Consolidated annual accounts of NN Group continued 114 NN Group Annual Report 2013
Observable inputs reflect market data obtained from independent sources. Unobservable inputs are inputs which are based on NN Group’s own assumptions about the factors that market participants would use in pricing an asset or liability, developed based on the best information available in the circumstances. Unobservable inputs may include volatility, correlation, spreads to discount rates, default- and recovery rates, prepayment rates and certain credit spreads. Transfers into and transfers out of levels in the fair value hierarchy are recognised on the date of the event or change of circumstances that caused the transfer.
Level 1 – (Unadjusted) Quoted prices in active markets This category includes financial instruments whose fair value is determined directly by reference to published quotes in an active market that NN Group can access. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions with sufficient frequency and volume to provide pricing information on an ongoing basis.
The decrease in Available-for-sale investments (level 2) and in level 3 financial liabilities reflects the transfer of ING U.S. Reference is made to Note 53 “Other events”.
Financial liabilities Non-trading derivatives 171 1,901 1,186 3,258 Investment contracts (for contracts at fair value) 3,716 4,339 12 8,067 3,887 6,240 1,198 11,325
Level 3 – Valuation technique supported by unobservable inputs This category includes financial instruments whose fair value is determined using a valuation technique (e.g. a model) for which more than an insignificant part of the inputs in terms of the overall valuation are not market observable. This category also includes financial assets and liabilities whose fair value is determined by reference to price quotes but for which the market is considered inactive. An instrument is classified in its entirety as Level 3 if a significant portion of the instrument’s fair value is driven by unobservable inputs. Unobservable in this context means that there is little or no current market data available from which the price at which an orderly transaction would likely to occur can be derived.
Methods applied in determining the fair value of financial assets and liabilities 2012 Level 1 Level 2 Level 3 Total Financial assets Trading assets 43 24 519 586 Investments for risk of policyholders 92,632 5,983 150 98,765 Non-trading derivatives 19 5,031 57 5,107 Financial assets designated as at fair value through profit or loss
Main changes in fair value hierarchy in 2012 There were no significant transfers between Level 1 and 2.
Level 3 Financial assets and liabilities Financial assets measured at fair value in the balance sheet as at 31 December 2013 of EUR 104.9 billion include an amount of EUR 3.1 billion (3.0%) that is classified as Level 3 (31 December 2012: EUR 4.5 billion (2.0%); 31 December 2011: EUR 5.6 billion (2.1%). Changes in Level 3 are disclosed below in the table “Changes in Level 3 Assets”.
Revaluation recognised in equity during the year –44 –44 Purchase of assets 27 154 15 49 329 574 Sale of assets –64 –52 –36 –124 –144 –420 Maturity/settlement –67 –138 –205 Transfers into Level 3 27 2 81 110 Transfers out of Level 3 –20 –9 –64 –93 Changes in the composition of the group and other changes
Revaluation recognised in equity during the year –16 –16 Purchase of assets 6 83 19 123 218 449 Sale of assets –4 –15 –11 –664 –80 –774 Maturity/settlement –360 –360 Transfers into Level 3 107 67 199 373 Transfers out of Level 3 –39 –6 –23 –201 –269 Changes in the composition of the group and other changes
Exchange rate differences –6 –2 –17 –18 –43 Closing balance 519 150 57 893 2,897 4,516
Exchange rate differences –17 8 59 –36 14 Closing balance 403 141 165 1,423 3,473 5,605
In 2013, Changes in the composition of the group and other changes includes EUR –1,250 million as a result of the transfer of ING U.S. and nil as a result of the classification to continuing operations of NN Group’s business in Japan. Reference is made to Note 53 “Other events”.
Issue of liabilities –1 12 11 Early repayment of liabilities –34 –6 –40 Transfers out of Level 3 –19 –6 –25 Exchange rate differences –22 –22 Closing balance 1,186 12 1,198
Issue of liabilities 7 7 Early repayment of liabilities –2 –3 –5 Transfers out of Level 3 –9 –9 Changes in the composition of the group and other changes
Financial assets Trading assets 97 –12 85 Investments for risk of policyholders 11 –2 9 Non-trading derivatives –9 29 20 Financial assets designated as at fair value through profit or loss
Notes to the Consolidated annual accounts of NN Group continued 120 NN Group Annual Report 2013
Financial assets Trading assets 42 1 43 Investments for risk of policyholders 3 –1 2 Non-trading derivatives –97 6 –91 Financial assets designated as at fair value through profit or loss
Financial assets Trading assets –21 1 –20 Non-trading derivatives 50 3 53 Financial assets designated as at fair value through profit or loss
Valuation results on non-trading derivatives – Valuation results on assets and liabilities designated as at fair value through profit or loss (excluding trading).
Unrealised gains and losses that relate to Available-for-sale investments are recognised in Other comprehensive income and included in Reserves in the line Unrealised revaluations available-for-sale investments.
Fair value hierarchy of certain ABS bonds 2013 Level 1 Level 2 Level 3 Total US Alt-A RMBS 5 5 CDO/CLOs 39 39 CMBS 11 11 Total certain ABS 0 5 50 55
Greece, Italy, Ireland, Portugal and Spain Of the Government and Unsecured Financial institutions’ bond exposure in Greece, Italy, Ireland, Portugal and Spain as disclosed in Note 4 “Available-for-sale investments”, EUR 2.7 billion (2012: EUR 2.6 billion; 2011: EUR 2.6 billion) is classified as available-for-sale and is measured at fair value (with the revaluation recognised in equity, taking into account impairments that are recognised in the profit and loss account). The table below provides the fair value hierarchy for the Greek, Italian, Irish, Portuguese and Spanish Government and Unsecured Financial institutions’ bond exposure measured at fair value.
Fair value hierarchy of certain ABS bonds 2011 Level 1 Level 2 Level 3 Total US Subprime RMBS 752 752 US Alt-A RMBS 293 2 295 CDO/CLOs 30 153 183 CMBS 4,139 5 4,144 Total certain ABS 0 5,214 160 5,374
Fair value hierarchy of Greek, Italian, Irish, Portuguese and Spanish bonds at fair value 2013 Level 1 Level 2 Level 3 Total Greece Government bonds available-for-sale 105 105 Italy Government bonds available-for-sale 1,391 1,391 Financial institutions available-for-sale 55 55 Ireland Government bonds available-for-sale 59 59 Portugal Government bonds available-for-sale 4 4 Financial institutions available-for-sale 27 27 Spain Government bonds available-for-sale 1,012 1,012 Financial institutions available-for-sale 22 57 79 Total 2,648 84 0 2,732
Fair value hierarchy of Greek, Italian, Irish, Portuguese and Spanish bonds at fair value 2012 Level 1 Level 2 Level 3 Total Greece Government bonds available-for-sale 76 76 Italy Government bonds available-for-sale 1,347 30 1,377 Financial institutions available-for-sale 51 51 Ireland Government bonds available-for-sale 55 55 Financial institutions available-for-sale 15 15 Portugal Government bonds available-for-sale 7 7 Financial institutions available-for-sale 18 22 40 Spain Government bonds available–for-sale 872 872 Financial institutions available-for-sale 96 96 Total 2,537 52 0 2,589
Real estate investments 764 764 Property in own use 100 100 864 864
The fair value of the non-financial assets were determined as follows: Methods applied in determining the fair value of non-financial assets 2013 Level 1 Level 2 Level 3 Total Real estate investments 764 764 Property in own use 100 100 0 0 864 864
Opening balance 798 114 Amounts recognised in the profit and loss account during the year
Purchase of assets 200 Sale of assets –229 Closing balance 764 100
Amounts recognised in the p&l account during the year (Level 3) non-financial assets
Real estate investments –25 20 –5 Property in own use –14 –14 –39 20 –19 41 DERIVATIVES AND HEDGE ACCOUNTING Use of derivatives and hedge accounting As described in the “Risk management” section, NN Group uses derivatives (principally interest rate swaps and cross currency interest rate swaps) for economic hedging purposes in the management of its asset and liability portfolios and structural positions. The objective of economic hedging is to enter into positions with an opposite risk profile to an identified exposure to reduce that exposure. The impact of NN Group’s hedging activities is to optimise the overall cost to NN Group of accessing debt capital markets and to mitigate the market risk which would otherwise arise from structural imbalances in the duration and other profiles of its assets and liabilities.
To qualify for hedge accounting under IFRS-EU, strict criteria must be met. Certain hedges that are economically effective from a risk management perspective do not qualify for hedge accounting under IFRS-EU. The fair value changes of derivatives relating to such non-qualifying hedges are taken to the profit and loss account. However, in certain cases, NN Group mitigates the profit and loss account volatility by designating hedged assets and liabilities at fair value through profit or loss. If hedge accounting is applied under IFRS-EU, it is possible that during the hedge a hedge relationship no longer qualifies for hedge accounting and hedge accounting cannot be continued, even if the hedge remains economically effective. As a result, the volatility arising from undertaking economic hedging in the profit and loss account may be higher than would be expected from an economic point of view.
With respect to exchange rate and interest rate derivative contracts, the notional or contractual amount of these instruments is indicative of the nominal value of transactions outstanding at the balance sheet date; however they do not represent amounts at risk.
Cash flow hedge accounting NN Group’s cash flow hedges principally consist of (forward) interest rate swaps and cross-currency interest rate swaps that are used to protect against its exposure to variability in future interest cash flows on assets and liabilities that bear interest at variable rates or are expected to be refunded or reinvested in the future. The amounts and timing of future cash flows, representing both principal and interest flows, are projected for each portfolio of financial assets and liabilities, based on contractual terms and other relevant factors including estimates of prepayments and defaults.
Gains and losses on the effective portions of derivatives designated under cash flow hedge accounting are recognised in Shareholder’s equity. Interest cash flows on these derivatives are recognised in the profit and loss account consistent with the manner in which the forecast cash flows affect Net result. The gains and losses on ineffective portions of such derivatives are recognised immediately in the profit and loss account.
As at 31 December 2013, the fair value of outstanding derivatives designated under cash flow hedge accounting was EUR 1,218 million (2012: EUR 2,195 million; 2011: EUR 2,270 million), presented in the balance sheet as EUR 1,433 million (2012: EUR 2,450 million; 2011: EUR 2,572 million) positive fair value under assets and EUR 215 million (2012: EUR 255 million; 2011: EUR 302 million) negative fair value under liabilities.
As at 31 December 2013 and 31 December 2012, there were no non-derivatives designated as hedging instruments for cash flow hedge accounting purposes.
Included in Interest income and Interest expense on non-trading derivatives is EUR 280 million (2012: EUR 300 million; 2011: EUR 329 million) and EUR 35 million (2012: EUR 82 million; 2011: EUR 114 million), respectively, relating to derivatives used in cash flow hedges.
Hedges of net investments in foreign operations NN Group’s net investment hedges principally consist of derivatives (including currency forwards and swaps) and nonderivative financial instruments such as foreign currency denominated funding that are used to protect against foreign currency exposures on foreign subsidiaries.
Gains and losses on the effective portions of derivatives designated under net investment hedge accounting are recognised in Shareholder’s equity. The balance in equity is recognised in the profit and loss account when the related foreign subsidiary is disposed. The gains and losses on ineffective portions are recognised immediately in the profit and loss account.
As at 31 December 2013, the fair value of outstanding non-derivatives designated under net investment hedge accounting was nil (2012: EUR –1,416 million; 2011: EUR –1,515 million), presented in the balance sheet as negative fair value under liabilities. Non-derivatives designated as hedging instruments consist mainly of loan agreements.
42 ASSETS BY CONTRACTUAL MATURITY Amounts presented in these tables by contractual maturity are the amounts as presented in the balance sheet.
Notes to the Consolidated annual accounts of NN Group continued 126 NN Group Annual Report 2013
Maturity not applicable Total Assets Cash and cash equivalents 5,389 5,389 Financial assets at fair value through profit or loss: – trading assets 4 582 586 – investments for risk of policyholders (2) 98,765 98,765 – non-trading derivatives 129 120 214 1,430 3,214 5,107 – designated as at fair value through profit or loss 13 34 242 605 1,106 2,000 Available-for-sale investments 682 1,081 8,137 20,931 72,206 16,268 119,305 Loans and advances to customers 439 157 1,633 2,370 19,282 1,942 25,823 Reinsurance contracts 19 49 281 1,277 1,992 1,672 5,290 Intangible assets 2 5 37 159 44 771 1,018 Deferred acquisition costs 19 18 77 158 316 3,961 4,549 Assets held for sale (3) 5,553 56,138 61,691 Other assets 1,991 577 1,186 2,037 612 332 6,735 Remaining assets (for which maturities are not applicable) (4)
Maturity not applicable Total Assets Cash and cash equivalents 11,577 11,577 Financial assets at fair value through profit or loss: – trading assets 6 24 19 485 534 – investments for risk of policyholders (2) 116,438 116,438 – non-trading derivatives 282 304 755 1,600 4,344 7,285 – designated as at fair value through profit or loss 25 191 660 1,740 2,616 Available-for-sale investments 464 1,066 6,580 26,498 79,434 19,562 133,604 Loans and advances to customers 1,166 2,114 2,035 3,008 20,458 4,147 32,928 Reinsurance contracts 17 39 234 1,026 2,656 1,898 5,870 Intangible assets 4 8 81 170 166 1,543 1,972 Deferred acquisition costs 19 22 98 698 3,630 5,737 10,204 Other assets 2,316 855 2,169 2,158 1,417 495 9,410 Remaining assets (for which maturities are not applicable) (3)
(1) Includes assets on demand. (2) Investments for risk of policyholders are managed on behalf of policyholders on a fair value basis. Although individual instruments may (or may not) have a maturity depending on their nature, this does not impact the liquidity position of NN Group. (3) Included in remaining assets for which maturities are not applicable are property and equipment, real estate investments and investments in associates.
Liabilities Subordinated loans 962 813 450 667 2,892 Other borrowed funds 2,731 1,001 11 155 919 4,817 Customer deposits and other funds on deposit
Liabilities held for sale (2) 4,656 50,999 55,655 Other liabilities 1,773 383 2,777 3,352 2,171 495 10,951 Non-financial liabilities 3,419 6,990 11,933 39,402 81,236 153,576 0 296,790
Liabilities Subordinated loans 1,726 2,617 24 4,367 Debt securities in issue 1 847 2,107 479 2 3,436 Other borrowed funds 5,621 93 24 168 1,401 7,307 Financial liabilities at fair value through profit or loss: – non-trading derivatives 123 216 494 1,431 2,146 1,131 –1,137 4,404 Financial liabilities 5,745 309 1,365 3,706 5,752 3,748 –1,111 19,514
NN Group Annual Report 2013 129 45 TRANSFER OF FINANCIAL ASSETS The majority of NN Group’s financial assets, that have been transferred, but do not qualify for derecognition are debt instruments used in securities lending.
Securities lending 2013 Equity Debt Transferred assets at carrying amount Available-for-sale investments 1,855
Investments Available-for-sale Other 114 114 –113 1 114 114 –113 1
Transfer of financial assets not qualifying for derecognition Securities lending 2012 Equity Debt Transferred assets at carrying amount Available-for-sale investments 2,590
In addition NN Group has entered into a sale and repurchase transaction of EUR 380 million.
Future rental commitments for operating lease contracts 2013 2014 3 2015 3 2016 3 2017 3 2018 3 years after 2018 11 48 LEGAL PROCEEDINGS NN Group companies are involved in litigation and arbitration proceedings in the Netherlands and in a number of foreign jurisdictions, involving claims by and against them which arise in the ordinary course of their businesses, including in connection with their activities as insurers, lenders, broker-dealers, underwriters, issuers of securities, and investors and their position as employers and taxpayers. In certain of such proceedings, very large or indeterminate amounts are sought, including punitive and other damages. While it is not feasible to predict or determine the ultimate outcome of all pending or threatened legal and regulatory proceedings, the Company’s management is of the opinion that some of the proceedings set out below may have or have in the recent past had a significant effect on the financial position, profitability or reputation of the Company.
Since the end of 2006, unit-linked products (commonly referred to in Dutch as “beleggingsverzekeringen”) have received negative attention in the Dutch media, from the Dutch Parliament, the AFM and consumer protection organisations. Costs of unit-linked products sold in the past are perceived as too high and Dutch insurers are in general being accused of being less transparent in their offering of such unit-linked products. The criticism on unit-linked products led to the introduction of compensation schemes by Dutch insurance companies that have offered unit-linked products. In 2008 NN Group‘s Dutch insurance subsidiaries reached an outline agreement with two main consumer protection organisations to offer compensation to their unit-linked policyholders where individual unit-linked policies had a cost charge in excess of an agreed maximum and to offer similar compensation for certain hybrid insurance products. At 31 December 2008 costs of the settlements were valued at EUR 365 million for which adequate provisions have been established and of which a substantial portion has been paid out. The remaining unpaid part of the provision as per 31 December 2013 is solely available to cover costs relating to the settlements agreed in 2008. A full agreement on implementation was reached in 2010 with one of the two main consumer protection organisations with the second main consumer protection organisation signing its agreement in June 2012. In addition, NN Group‘s Dutch insurance subsidiaries announced additional measures (flankerend beleid) that comply with the “Best in Class” criteria as formulated on 24 November 2011 by the Dutch Minister of Finance. In December 2011 this resulted in an additional agreement on these measures with the two main consumer protection organisations. In 2012 almost all unit-linked policyholders were informed about the compensation. The agreements with the two consumer protection organisations are not binding on policyholders. Consequently, neither the implementation of the compensation schemes nor the additional measures offered by NN Group prevent individual policyholders from initiating legal proceedings against NN Group‘s Dutch insurance subsidiaries and making claims for damages.
In November 2013, the so-called “Vereniging Woekerpolis.nl”, an association representing the interests of policyholders, initiated a so-called “collective action”, requesting the District Court in Rotterdam to declare that NN Group‘s Dutch insurance subsidiaries sold products in the market, which are defective in various respects, (e.g. on transparency regarding cost charges and other product characteristics, and included risks for which the insurer failed to warn, such as considerable stock depreciations, the inability to realise the projected final policy value, unrealistic capital projections due to difference in geometric versus arithmetic returns). NN Group’s Dutch insurance subsidiaries have rejected these claims and will defend themselves in these proceedings.
Apart from the afore mentioned “collective action”, several other claim organisations and initiatives were established on behalf of policyholders, such as the organisation Wakkerpolis. This organisation primarily concentrates on the recovery of initial costs for policyholders, based on an interim ruling of the Dispute Committee of the Financial Services Complaints Board (KiFiD) issued on 13 May 2013 in an individual case. In this case, the KiFiD concluded that there is no contractual basis for charging initial costs (which are costs charged to the policy during a limited period of time). Apart from the initial costs, it can be derived from the interim ruling – in accordance with past rulings of the KiFiD – that an insurer is obliged to warn against the leverage and capital consumption effect (which is the effect caused by the dependency of life insurance premium on the value of the policy; the lower the value of the policy – the higher the life insurance premium). NN Group believes that this interim ruling is incorrect on several legal grounds.
Notes to the Consolidated annual accounts of NN Group continued 132 NN Group Annual Report 2013
On November 19, 2012, ING Group and the EC announced that the EC had approved amendments to the 2009 Restructuring Plan (the “2012 Amended Restructuring Plan”). With the approval, the Commission has closed its Investigation as announced on 11 May 2012 and ING has withdrawn its appeal at the General Court of the European Union that it filed in July 2012. For principal legal reasons the European Commission will continue with its appeal against the General Court ruling of March 2012. However, the outcome of this Appeal will not affect the EC approval of the 2012 Amended Restructuring plan. It is expected that this judgment will be rendered in April 2014.
49 COMPANIES AND BUSINESSES ACQUIRED AND DIVESTED Acquisitions effective in 2013 WestlandUtrecht Bank The partial transfer of WestlandUtrecht Bank’s assets and liabilities, in which the commercial operations of WestlandUtrecht Bank have been combined with the retail banking activities of Nationale-Nederlanden, was announced in November 2012. On 1 July 2013 EUR 3.8 billion of WestlandUtrecht Bank’s Dutch mortgage portfolio, EUR 0.1 billion of consumer lending and EUR 3.7 billion of Dutch savings portfolio were transferred to NN Bank. In addition approximately 400 of WestlandUtrecht Bank’s employees were transferred to NN Bank. All assets and liabilities were transferred at the existing carrying value as included in ING Bank’s balance sheet. This transaction was completed on 1 July 2013.
In addition, during the second half of 2013 a further amount of EUR 4.2 billion of Dutch mortgages were transferred from WestlandUtrecht Bank to NN Group. The transfers have been made at an arm’s length price.
Divestments announced in 2014 The investment management business in Taiwan On 10 January 2014, an agreement was reached to sell ING Investment Management (IM) Taiwan, the Taiwanese asset management business, to Japan-based Nomura Asset Management Co Ltd. in partnership with a group of investors. The transaction is not expected to have a significant impact on Net result. The transaction is subject to regulatory approval and expected to close in the second quarter of 2014.
The insurance and investment management businesses in Asia In 2012, the insurance and investment management businesses in Asia and the (internally) reinsured Japan SPVA business in corporate reinsurance were classified as held for sale and discontinued operations. After carefully exploring and evaluating the options available for the divestment of ING Life Japan, it was concluded that a standalone divestment of ING Life Japan, including its Corporate Owned Life Insurance (COLI) and Closed Block VA businesses, is not feasible in a manner that would appropriately meet the demands of regulators and other stakeholders in ING Group and ING Life Japan. Therefore, ING Life Japan will be included with NN Group’s European insurance and investment management businesses in the base case IPO of NN Group in 2014. Various individual divestment transactions have been agreed. The specifics of these transactions are included below. The Asian insurance and investment management businesses and the (internally) reinsured Japan SPVA businesses in Corporate Reinsurance were previously included respectively in the segments Insurance Asia/Pacific, Investment Management and Other before they were classified as discontinued operations. Reference is made to Note 11 “Assets and liabilities held for sale” and Note 33 “Discontinued operations”.
Joint venture China Merchants Fund In October 2012, an agreement to sell the 33.3% interest in China Merchants Fund, an investment management joint venture, to the joint venture partners China Merchants Bank Co., Ltd., and China Merchants Securities Co., Ltd, was reached. A total cash consideration of EUR 98 million was received. The transaction realised a net gain of EUR 59 million. The transaction closed on 3 December 2013.
The insurance businesses in Hong Kong, Macau, Thailand In October 2012, an agreement to sell the life insurance, general insurance, pension and financial planning units in Hong Kong and Macau, and the life insurance operation in Thailand to Pacific Century Group for a combined consideration of EUR 1.6 billion (USD 2.1 billion) in cash, was reached. A net gain of EUR 945 million is recognised in 2013. The transaction closed on 28 February 2013.
The investment management business in Thailand In November 2012, an agreement to sell the investment management business in Thailand to UOB Asset Management Ltd, was reached. A total cash consideration of EUR 10 million for the investment management business in Thailand was received. The transaction closed on 3 May 2013.
The investment management business in Malaysia In December 2012, an agreement to sell the 70% interest in ING Funds Berhad (IFB), the investment management business in Malaysia, to Kenanga Investors Berhad (Kenanga Investors), a wholly-owned subsidiary of K & N Kenanga Holdings Berhad (Kenanga), was reached. The transaction closed on 19 April 2013.
Joint venture ING Vysya Life In January 2013, it was agreed to sell the full interest in ING Vysya Life Insurance Company Ltd. to the joint venture partner Exide Industries Ltd. The transaction resulted in a net loss of EUR 15 million for which goodwill was reduced in 2012. The transaction closed on 22 March 2013.
Liabilities Debt securities in issue 2,600 2,600 Other borrowed funds 78 78 Insurance and investment contracts 136,541 4,329 15,034 155,904 Financial liabilities at fair value through profit and loss 2,290 1 7 2,298 Miscellaneous other liabilities 4,451 230 729 5,410 Net assets 9,764 871 2,383 13,018 % divested 71 100 100 Net assets divested 6,826 871 2,383 10,080
Notes to the Consolidated annual accounts of NN Group continued 136 NN Group Annual Report 2013
Liabilities Insurance and investment contracts 3,964 Miscellaneous other liabilities 512 Net assets 652 % divested 100% Net assets divested 652
Divestments effective in 2011 Pacific Antai Life Insurance Company Ltd. In June 2011, the sale of the entire interest in China’s Pacific Antai Life Insurance Company Ltd. (PALIC) to China Construction Bank for a consideration of EUR 82 million, and a net profit of EUR 28 million, was completed. The interest in PALIC was previously included in the former segment Insurance Asia/Pacific. The deal had been announced in 2009 and was presented as held for sale since 2009 until the sale was completed.
ING Investment Management Australia In October 2011, the sale of ING Investment Management (ING IM) Australia to UBS AG was completed ING IM Australia’s business provided a number of investment strategies and products directly to the Australian institutional and wholesale markets. ING IM Australia was previously included in the segment ING Investment Management.
Latin American pensions, life insurance and investment management operations In December 2011 the sale of the Latin American pensions, life insurance and investment management operations (“Latin American operations”) for a total consideration of EUR 2,637 million to Grupo de Inversiones Suramericana (“GRUPOSURA”) was completed. The sale was the first major step in the divestment of the insurance and investment management activities. Under the terms of the agreement, EUR 2,572 million in cash was received and GRUPOSURA assumed EUR 65 million in debt. The sale resulted in a net profit of EUR 995 million. Included in the transaction were the mandatory pension and voluntary savings businesses in Chile, Colombia, Mexico, Uruguay and the 80% interest in AFP Integra S.A. in Peru; the life insurance businesses in Chile and Peru. As part of this transaction the 33.7% interest in Peruvian InVita Seguros de Vida S.A. was sold to the Wiese Family. The transaction also included the local investment management capabilities in these five countries. Not included in the transaction was the 36% interest in the leading Brazilian insurer Sul América S.A.
Liabilities Insurance and investment contracts 205 715 920 Other borrowed funds 66 66 Miscellaneous other liabilities 14 563 577 Net assets 46 1,556 1,602 % divested 80% Various (2) Net assets divested 37 1,478 1,515
51 STRUCTURED ENTITIES NN Group’s activities involve transactions with structured entities in the normal course of its business. A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. NN Group’s involvement in these entities varies and includes both debt financing and equity financing of these entities as well as other relationships. Based on its accounting policies, as disclosed in the section “Principles of valuation and determination of results” of these Consolidated annual accounts, NN Group establishes whether these involvements result in no significant influence, significant influence, joint control or control over the structured entity.
Consolidated NN Group originated Liquidity management securitisation programmes In 2013, NN Bank originated a securitisation program of approximately EUR 2.1 billion mortgage loans (“Hypenn”). The related structured entity is consolidated by NN Bank and, therefore, the related mortgage loans continue to be recognised in the Consolidated balance sheet. The structured entity is partly funded through the issue of Residential Mortgage Backed Securities to ING Bank (as at 31 December 2013: EUR 400 million). Reference is made to Note 52 “Related parties”.
Reference is made to Note 4 “Available-for-sale investments” in which investments in equity securities are specified by NN Group managed investment funds and Third party managed investment funds. The maximum exposure to loss for NN Group is equal to the reported carrying value of the investment recognised in the consolidated balance sheet of NN Group.
The majority of the equity investments relate to interests in investment funds that are not originated or managed by NN Group. Reference is made to Note 4 “Available-for-sale investments” in which investments in equity securities are specified by NN Group managed investment funds and Third party managed investment funds.
In 2013, 2012 and 2011 there were no transactions with joint ventures.
Transactions with ING Groep N.V. and ING Bank N.V. ING Groep N.V. ING Bank N.V. 2013 2012 2011 2013 2012 2011 Assets 54 6,388 4,942 13,211 Liabilities 3,394 3,749 2,617 961 294 1,888 Guarantees in favour of 221 250
NN Group has entered into the following financing arrangements with ING Group and with ING Bank.  Pooled Bank Accounts: On 19 January 2012, NN Group entered into a pooled bank accounts agreement (“Fiat-en
 WUB guarantees & indemnities: NN Group has entered into certain guarantee agreements for the benefit of and with Westland/Utrecht Bank N.V. (WUB). NN Group has guaranteed: - all non-subordinated debt obligations of WUB (in relation to its funding) and of any of its subsidiaries entered into before 1 January 2013; - certain other obligations of WUB (in relation to its swap transactions), not covered by the guarantee under (i)
 ING U.S – ISDA guarantee: NN Group has guaranteed the obligations under an ISDA Master Agreement entered into by a subsidiary of ING U.S. (which is currently 57% owned by ING Group). NN Group is indemnified by ING Group for this guarantee as outlined in an indemnity agreement between ING Group and the Company.
 LOC Facility: NN Group has entered into a Letter of Credit agreement (“LOC”) with ING Bank on 29 April 2010, to the maximum facility amount of USD 185 million. Under this LOC Facility in aggregate EUR 116 million was outstanding as at 31 December 2013. All obligations under this LOC will expire at the end of 2014.
 Subordinated Loans: NN Group has entered into perpetual subordinated loan agreements with ING Group. Reference is made to Note 14 “Subordinated loans”.
 Cash Investments: ING Bank holds, for the benefit of NN Group cash positions in bank accounts, in the aggregate amount of EUR 829 million as at 31 December 2013 and investments in money market instruments, in the aggregate amount of EUR 5,383 million as at 31 December 2013.
During 2013, due to the partly transfer of WestlandUtrecht Bank, certain assets and liabilities were transferred from ING Bank to NN Group. Reference is made to Note 49 “Companies and businesses acquired and divested”.
Key management personnel compensation Transactions with key management personnel (Executive Board, Management Board and Supervisory Board) and postemployment benefit plans are transactions with related parties. Transactions with post-employment benefit plans are disclosed in Note 38 “Pension and other post-employment benefits”.
(1) Includes their compensation earned in the capacity as Executive Board members Mr. Hamers was appointed to the Executive Board on 13 May 2013 and Mr. Hommen stepped down from the Executive Board as per 1 October 2013.
(4) After publication of the 2012 Annual Account, a variable reward of EUR 84,375 was awarded to one board member, which was pending final approval. The 2012 figures were updated for this award.
Transactions with the Dutch State Illiquid Assets Back-up Facility ING Group and the Dutch State reached an agreement on an Illiquid Assets Back-Up Facility (“IABF”) on 26 January 2009. The transaction closed on 31 March 2009. The IABF covers the Alt-A portfolios of ING Insurance US, with a par value of approximately EUR 4 billion. Under the IABF, ING transferred 80% of the economic ownership of its Alt-A portfolio to the Dutch State. As a result, an undivided 80% interest in the risk and rewards on the portfolio was transferred to the Dutch State. ING retained 100% of the legal ownership of its Alt-A portfolio. The transaction price was 90% of the par value with respect to the 80% proportion of the portfolio of which the Dutch State had become the economic owner. The transaction price remains payable by the Dutch State to ING and will be redeemed over the remaining life. Furthermore, under the IABF ING pays a guarantee fee to the State and receives a funding fee and a management fee. As a result of the transaction ING derecognised 80% of the Alt-A portfolio from its balance sheet and recognised a receivable from the Dutch State. The transferred Alt-A portfolio was previously included in Available-for-sale debt securities. The Dutch State also acquired certain consent rights with respect to the sale or transfer of the 20% proportion of the Alt-A portfolio that is retained by ING.
Remuneration of the Executive Board and Management Board NN Group is recognised in the P&L in Staff expenses as part of Total expenses. The total remuneration of the Executive Board and Management Board NN Group as disclosed in the table above (for 2013: EUR 10.7 million) includes all variable remuneration related the performance year 2013. Under IFRS, certain components of variable remuneration are not recognised in the P&L directly, but are allocated over the vesting period of the award. The comparable amount recognised in Staff expenses in 2013, and therefore included in Total expenses in 2013, relating to the fixed expenses of 2013 and the vesting of variable remuneration of earlier performance years, is EUR 9.2 million.
The difference between the total sales proceeds and the fair value under IFRS-EU represents a “Government grant” under IAS 20. This government grant is considered to be an integral part of the transaction and is therefore accounted for as part of the result on the transaction. The transaction resulted in a reduction of the negative revaluation – and therefore an increase in equity – of EUR 0.7 billion (after tax).
As at 31 December 2011, the remaining outstanding amount from the transaction price, including the unamortised components, that remained payable by the Dutch State was EUR 1.4 billion for the insurance operations.
In November 2012, ING restructured the IABF to effectively delink ING Insurance US from the IABF as another step towards a planned IPO of ING Insurance US. ING Insurance US transferred its Dutch State receivable of approximately EUR 1.1 billion (USD 1.4 billion) to ING Bank, and at the same time transferred legal title to 80% of the Alt-A portfolio to ING Bank. As at 31 December 2012, ING Insurance US therefore no longer has a receivable from the Dutch State in connection with the IABF. The securities were held in an ING Bank custody account for the benefit of the Dutch State (the portion for which the investment risk has been transferred to the Dutch State). Following the restructuring, ING Insurance US continues to own 20% of the Alt-A portfolio (the portion for which the economic ownership and investment risk remains for the risk of ING), but will going forward have the right to sell these securities, subject to a right of first refusal granted to ING Bank. ING has committed to the Dutch State it will not sell these securities to non-ING parties without the prior written consent of the Dutch state.
In December 2013, ING reached a final agreement with the Dutch State on the unwinding of the IABF. The terms of the agreement were approved by the EC. Under the agreement, the IABF in its current form was terminated, the regular guarantee fee payments were settled for an amount of EUR 0.4 billion and the other restrictions as part of the IABF agreement are no longer applicable. Furthermore, under the agreement, the Dutch State committed to sell the Alt-A securities in the market.
Unwinding the IABF also resulted in eliminating a counter-guarantee that ING extended to the Dutch state in connection with the divestment of ING Direct USA in 2012.
European Commission Restructuring Plan In 2009, ING Groep N.V. submitted a Restructuring Plan to the European Commission as part of the process to receive approval for the government support measures. By decision of 18 November 2009, the European Commission, formally approved the Restructuring Plan. The main elements of the Restructuring Plan as announced on 26 October 2009 are as follows:  elimination of double leverage and significant reduction of ING’s balance sheet;  divestment of all Insurance and Investment Management activities;  divestment of ING Direct USA;  creation of a new company in the Dutch retail market composed of Interadvies (including Westland Utrecht and the mortgage activities of Nationale-Nederlanden) and the existing consumer lending portfolio of ING Retail in the Netherlands. This business, once separated, needs to be divested;  restriction to be a price leader in any EU country for certain retail and SME banking products and restriction to acquire financial institutions or other businesses that would delay the repayment of the non-voting equity securities.
 The calling of Tier 2 capital and Tier 1 hybrids will in the future be proposed case by case to the Commission for authorisation, for the shorter period of three years starting from the date of the Commission decision or up to the date on which ING has fully repaid the non-voting equity securities (core Tier 1 securities) to the Dutch State (including the relevant accrued interest of core Tier 1 coupons and exit premium fees).
Under the amendments announced in 2012, the ultimate dates for divesting the insurance and investment management businesses changed as follows:  The divestment of more than 50% of ING’s interest in its Asian insurance and investment management operations has to be completed by year-end 2013, with the remaining interest divested by year-end 2016;  The divestment of at least 25% of ING’s interest in ING U.S. has to be completed by year-end 2013, more than 50%
has to be divested by year-end 2014, with the remaining interest divested by year-end 2016;  The divestment of more than 50% of ING’s interest in its European insurance and investment management activities has to be completed by year-end 2015, with the remaining interest divested by year-end 2018; and  As ING has committed to eliminate double leverage, proceeds from the divestments will be used to that end while ensuring adequate leverage ratios of the insurance holding companies. A divestment of more than 50% of ING’s interest as mentioned in this paragraph and furthermore below also means that ING Group (a) no longer has a majority of representatives on the Boards of these operations and (b) has deconsolidated these operations from ING Group’s financial statements in line with IFRS-EU accounting rules.
On 1 July 2013 EUR 3.8 billion of WestlandUtrecht Bank’s Dutch mortgage portfolio, EUR 0.1 billion of consumer lending and EUR 3.7 billion of Dutch savings portfolio were transferred to NN Bank. In addition approximately 400 of WestlandUtrecht Bank’s employees were transferred to NN Bank. All assets and liabilities were transferred at the existing carrying value as previously included in ING Bank’s balance sheet. This transaction was completed on 1 July 2013.
ING has committed amongst others, that NN Bank will reach certain targets for mortgage production and consumer credit until the date at which more than 50% of NN Group has been divested or until 31 December 2015 if the European Commission requires so. Furthermore, ING has agreed to a maximum ratio for mortgage production at ING Retail Banking Netherlands in relation to mortgage production of NN Bank until year-end 2015.