These publications are available on www.ing.com. The publications can be ordered on the internet: www.ing.com/group, button ING Publications, by fax: +31 411 652125 or by mail: P.O. Box 258, 5280 AG Boxtel, The Netherlands.
Mission ING’s mission is to be a leading, global, client-focused, innovative and low-cost provider of financial services through the distribution channels of the client’s preference in markets where ING can create value.
offers banking, insurance and asset management to more than 60 million clients in over 50 countries. The clients are individuals, families, small businesses, large corporations, institutions and governments. ING comprises a broad spectrum of prominent businesses that increasingly serve their clients under the ING brand.
ING’s strategy is to achieve sustainable growth while maintaining healthy profitability. The Group’s financial strength, its broad range of products and services, the wide diversity of its profit sources and the good spread of risks form the basis for continuity and growth.
4. Develop ING’s special skills – direct banking, insurance in developing markets, employee benefits and pensions.
ING makes every effort to ensure full, fair, accurate, timely and understandable disclosure in reports and documents that it files with, or submits to its regulators and in other public communications ING makes.
Wherever ING operates, it recognises that good relations with its local communities are fundamental to its long-term success. The Group’s community relations policy is founded upon mutual respect and active partnership, aimed at sustaining lasting and trusting relationships between the Group’s operations and local communities.
5 YE A R S’ KEY F I G U RE S B U S I N E S S P R I N C I P L E S
ASSETS UNDER MANAGEMENT (in billions of euros) 463 449 513 503 345
MARKET CAPITALISATION (in billions of euros) 39 32 57 83 58
LOAN/INVESTMENT LOSSES (in millions of euros) 1,288 2,099 907 400 580
Mission, profile, strategy 5 years’ key figures, inside cover 2 M E S S A G E F R O M T H E C H A I R M A N
1 4 R E P O RT O F T H E S U P E RV I S O RY B O A R D
In 2003, the political and economic circumstances remained shaky worldwide. The SARS epidemic caused much unrest. The war in Iraq put international political relations on an edge. Financial markets remained initially volatile, which undermined the confidence of individuals and businesses. Scandals continued at various large corporations. ING did well despite these difficult circumstances. The results from the banking operations showed a distinct improvement, especially in the Benelux, thanks to the good interest result. The loan losses decreased considerably. The insurance operations had a more difficult time. Due to the low interest rates and the strong euro, revenues were under pressure. We also had to deal with slightly lower premium income, due to the fierce competition and the fact that we prefer profitability over market share.
We continued to invest in profitable growth activities. ING Direct is developing very successfully. In 2003, it became profitable for the first time. Seven years ago, ING Direct started from scratch in Canada. At the end of 2003, ING Direct had 8.5 million clients and funds entrusted of almost EUR 100 billion, was active in eight countries and reported a net profit of EUR 151 million. Insurance in developing markets is another ING speciality. We are now active in eighteen developing economies, with 2003 premium income at EUR 7.1 billion and operating profit before tax at EUR 634 million, in local currencies an increase of 11% and 16%, respectively. Furthermore, we are actively anticipating the ageing of the population and the reforms in pension schemes. This is a relevant issue in many countries, providing new opportunities for ING.
This report not only describes our commercial activities and performance. You can also read about ING’s achievements in the field of corporate social responsibility. I am very proud that The Banker magazine voted ING ‘Bank of the Year’ in the field of corporate social responsibility. Of course, ING wants to make a profit first, but this can only be sustained by keeping in mind the interests of all our stakeholders – our clients, shareholders, employees and society at large. This approach has been embedded in our policy for many years.
We made progress in modernising our corporate-governance structure. By introducing a number of important changes that were approved by the Annual General Meeting of Shareholders in April 2003, we have demonstrated that good corporate governance is important to us and that we want to stay in step with the latest international developments. We abolished all restrictions on voting rights, and we no longer make a distinction 2003 was not an easy year, but we were able to demonstrate our flexibility and creativity in adjusting to the market. Our net operating profit increased by 18.1% to EUR 4,053 million.
The measures we took last year to strengthen our financial position have proved to be effective on both the banking and insurance side. The broad spread of our activities also helped our results.
between shareholders and holders of depositary receipts. In general, shareholders and depositary-receipt holders have more say in ING’s policy.
ING will continue to modernise its corporate governance. Our remuneration policy will be discussed in the Shareholders’ Meeting, and in 2004 also shareholders and holders of depositary receipts outside the Netherlands will be able to vote by proxy, thus participating in the decisions that are put before the Shareholders’ Meeting.
I also look back with pleasure on the ING Globerunners Programme. Our sponsorship of the Amsterdam Marathon and the ING New York City Marathon were great highlights. The marathons of Brussels, Ottawa and Puna (India) are also part of the ING Globerunners Programme. In every sense of the word, ING has been able to put itself on the map.
It is only fair to say that the past few years have not been easy. After a period of acquisitions, we have been working hard to achieve synergy between banking, insurance and asset management and to streamline and integrate activities. At the same time we had to cope with a number of meagre years. More than ever, ING has had to face harsh financial realities by cutting costs and increasing efficiency. But cost control and efficiency are always relevant and, next to good business sense, they will remain important to maintain our profit track record.
ING Group’s internal funding needs are determined partly by statutory solvency requirements and capital ratios, compliance with which is essential to its existence. No less important to
ING Group’s policy is to distribute to the capital providers an annual dividend in the range of 43%-44% of net operating profit. Should the
Each year, after publication of the financial results for the first six months of the year, an interim dividend is distributed by way of an advance against the final dividend, being in principle half of the total dividend over the preceding year.
Rating agencies The economic climate in 2003 led to frequent contacts between ING and the credit rating agencies. In April 2003, ING Groep N.V. and ING
(Aa2). The ratings applied by Standard & Poor’s remained unchanged in 2003 (ING Groep N.V.
This has re sulted in a carefully balanced structure that on the one hand gave full voting rights to holders of depositary receipts and on the other hand does justice to ING’s desire to defend itself against hostile take-over attempts by maintaining the independent trust, which votes for all shares that are not represented in the Shareholders’
Meeting. See also the chapter on corporate governance starting on page 68.
ING Amsterdam AEX-index New York Dow Jones-index 01/02 04/02 07/02 10/02 01/03 01/0404/03 07/03 10/03
Brussels, Frankfurt, Paris, the Swiss exchanges and the New York Stock Exchange. Depositary receipts for preference shares are listed on the
in ING Group were known as at 31 December 2003. They were ABN AMRO, Aegon and Fortis
Shareholders’ News appears at least four times a year, reporting on the results and special topics.
S T R U C T U RE A N D C O M P O S I T I O N O F T H E B O A RD S
S U P E RV I S O RY B O A R D E X E C U T I V E B O A R D
I N G E U R O P E • Life insurance • Non-life insurance • Retail banking • Pensions • Investment management • Wholesale banking* • ING Direct*
I N G A M E R I C A S • Life insurance • Non-life insurance • Pensions • Investment management
1. Retirement as of 1 June 2004 2. Chairman as of 28 April 2004 3. Vice-chairman and CFO as of 28 April 2004 4. Retirement as of 1 January 2004
The Executive Centre ING Asia/Pacific encompasses ING’s insurance, pensions and investmentmanagement activities in the Asia/Pacific region. ING’s key markets are Taiwan, Hong Kong, Australia/New Zealand, Japan, Korea, Malaysia, China and India.
Throughout Asia, Central Europe and Latin America there is an increasing demand for life insurance.
Choosing life insurance in developing markets as a commercial spearhead for ING, was a matter of supply meeting demand. This proved to be a good choice. The life-insurance activities in developing markets are responsible for 13% of ING’s insurance profits and the upward trend continues. In 2003,
ING’s total premium income in developing markets rose by 11% in local currencies.
Pacific Insurance Company in Shanghai. It is Shanghai’s second largest foreign insurance company. PALIC has also started business in Guangzhou.
ING Vysya Life Insurance has been in business since 2001. The joint venture sells its life-insurance products via the branches of ING Vysva Bank and a tied-agent force of over 800 insurance advisors.
ING Direct offers customers higher interest on deposits, lower interest on loans and charges no fees or service charges. ING Direct can do this because it does not have the overheads that others do. It services its clients mainly via call-centers and the Internet. ING Direct is accessible 24 hours a day and 7 days a week, offers its customers control over their money and keeps all products, procedures and transactions as easy, reliable and fast as possible. ING Direct started in 1997 in Canada. In the last few years, 8.5 million customers in 8 countries around the world have discovered that ING Direct offers them great rates, easy to understand products, maximum freedom and optimum convenience.
As one of the world’s leading pension providers, ING cooperates with governments, industry organisations, companies and individuals to secure sustainable pensions for current and future generations.
President Lula is stimulating pension reforms in Brazil. ING’s joint venture partner SulAmérica, a leader in the field of health and property and casualty insurance, broadened its activities to pensions. The folder above informed clients about tax advantages of retirement savings.
Committee once. During these meetings, the members of those various committees discussed specific subjects in preparation for decisions that needed to be taken by the Supervisory Board.
Committee meetings always take place prior to a Supervisory Board meeting, in which the committee chairman reports on the discussions in the committee meeting.
The composition of the Supervisory Board and the three committees is shown on page 7.
Board in their January meeting on strategy. From the front of the table on this page clockwise: Paul Baron de Meester Karel Vuursteen Claus Dieter Hoffmann Luella Gross Goldberg Paul van der Heijden Cor Herkströter, chairman Jan Timmer Godfried van der Lugt Wim Kok Aad Jacobs
MTP 2003 - 2005 and strategic developments discussed extensively — Tabaksblat Code on corporate governance high on agenda — Adjustment remuneration structure senior management important issue
ous business units. The general management of several business units gave presentations on the developments in Asia/Pacific as well as the global pensions strategy, which is one of ING’s worldwide commercial spearheads. The American insurance activities were also amply discussed.
Board as a whole and its individual members was also reviewed. Another important issue was the adjustment of the remuneration structure of the
company, active in the financing of health care insurance, ran into trouble. ING manages Mont
In February, May, August and November, the 2002 annual results and the 2003 quarterly results were discussed. The report of the internal auditor about the quality of the internal-control procedures within ING got the necessary attention. Furthermore, an update was received on risk management in ING. Two additional meetings were scheduled in March and September to discuss the 2002 annual results and the results for the first six months of 2003, respectively, on the basis of US accounting principles (US GAAP).
Ewald Kist, chairman of the Executive Board, will step down on 1 June 2004, after having reached the retirement age of 60. He started his career in 1969 as management trainee with
Nationale-Nederlanden. From 1989 to 1993 he was chairman of the Management Committee
through a difficult period of economic recession and falling share prices. During that same period, more and more attention was devoted to corporate governance. He made ING a more transparent company, gave the holders of depositary receipts the right to vote and gave more meaning to corporate social responsibility. He will hand ING over to the new chairman as a modern company ready to take full advantage of the economic revival, with enough room to break new grounds. ING owes him much gratitude for his contribution to the development of
role of the Audit Committee, and the stricter regulations in the US. As a result of the Sarbanes-
(IFRS), the new European accounting and reporting standards that will be introduced in 2005.
Works Council to explain the background to the new remuneration structure on the basis of questions that had come up.
The composition of the Executive Board was discussed, as was the composition of the
Board at three terms of four years and to drop the age limit of 70 years. The Articles of Association were amended accordingly. In preparation for the discussion of the functioning of the Executive Board, the Remuneration and
Nomination Committee were attended by the chairman and the vice-chairman of the Executive
Committee was dealt with as were the conclusions of the Dutch Central Bank and the Pensions and Insurance Supervisory Authority of the
Netherlands based on a survey of the governance structure of the Executive Board and the
Supervisory Board. The outcome of the survey was positive with some recommendations to further improve the role of the two Boards.
Supervisory Board committees and the existing rules for the Supervisory Board and the Executive
Tabaksblat Code. The chairman and the vicechairman of the Executive Board both attended the meeting of this committee.
After the General Meeting of Shareholders on 15 April 2003, three members of the Supervisory
Board retired and two new members were appointed. An introduction programme was held for the newly appointed Supervisory Board members, which concentrated on the specific responsibilities of the Supervisory Board. At the end of 2003, the Supervisory Board was made up of ten members. General information on the
Supervisory Board members can be found on page 74. In the opinion of the Supervisory Board, all members but one are independent as stated in the Dutch corporate-governance code. The
Tabaksblat Code does not recognise Godfried van der Lugt as an independent member since he was chairman of the ING Group Executive
Michel Tilmant new chairman Executive Board — Cees Maas new vice-chairman Executive Board besides his role as CFO — Eric Boyer de la Giroday, Eli Leenaars and Hans Verkoren proposed for appointment to the Executive Board — Eric Bourdais de Charbonnière proposed for appointment to the Supervisory Board
The Supervisory Board has nominated one new member for appointment at the General
Executive Board and a summary of the annual accounts. The full annual accounts as drawn up by the Executive Board have been reviewed by the Supervisory Board and signed by all members of both Boards. The annual accounts are available at www.ing.com, where a printed version can also be ordered.
The proposed final dividend for 2003 amounts to EUR 0.49 per share. Including the interim dividend of EUR 0.48 per share, the total dividend for 2003 will amount to EUR 0.97 per share. Shareholders can take up their final dividend either in shares or in cash.
Dedication is the basis for success Looking back on 2003, one can say that the year ended better than it began. During less favourable times in particular, much is asked of the managers and employees of a company.
Executive Board. He was appointed a member of the Supervisory Board in 1997, on the recommendation of the Central Works Council. We will remember him as an exceptional and passionate man, always looking for solutions. In that role he has been of great value to ING. He was a wonderful colleague. May he rest in peace.
STABLE AND STRONG ING achieved a strong improvement in results in 2003. Operating net profit amounted to EUR 4,053 million, an 18.1% increase compared with 2002. Banking profits were up by 72.6%, which compensated for the somewhat weaker performance of insurance activities. A focus on our existing business combined with strict cost discipline contributed to ING’s good results. During 2003, ING took several measures to strengthen its capital base, which resulted in strongly improved ratios for both the insurance and banking operations.
to EUR 69.1 billion, mainly due to the strengthening of the euro in the course of 2003. Organi cally
(excluding exchange-rate fluctuations and acquisitions /divestments), total income increased by 1.9% in spite of difficult market conditions.
to EUR 11.7 billion. This increase was caused by a higher interest result following higher volumes
(notably at ING Direct) and a higher average interest margin in the Netherlands.
EUR 13,501 million in 2002 to EUR 13,081 million in 2003. Organically, there was a 3.0% increase in operating expenses. The main reasons for this expense growth were the ongoing expansion of
Profit development ING benefited from the improved economic conditions and the rebounding equity markets in the course of 2003. This resulted in a full-year operating net profit of EUR 4,053 million, up 18.1% from 2002. Operating profit before tax rose by 26.3% to EUR 5,857 million.
from EUR 2,603 million in 2002 to EUR 2,478 million in 2003. Explanatory factors behind this decrease are substantially lower one-off gains, pressure on interest and dividend income and the negative impact of the strong euro. On the positive side, lower investment losses, higher stock-market indices, higher realised capital gains on real estate and ongoing cost control contributed to the life insurance profit before tax. Non-life insurance profit before tax continued on its growth path, increasing from EUR
The addition to the provision for loan losses decreased by EUR 310 million to EUR 1,125 million, which is equal to 46 basis points of average credit-risk-weighted assets, compared with 59 basis points in 2002. For the first time, ING Direct reported a full-year profit. ING Direct’s operating profit before tax was EUR 151 million compared with a loss of EUR 48 million in 2002.
US-dollar hedge During 2003, the value of the euro strengthened against most currencies. Thanks to the US-dollar hedge the impact on operating net profit was limited to a negative EUR 49 million. The US-dollar -hedge result amounted to EUR 119 million after tax compared with EUR 55 million in the same period last year. ING has also hedged the
Banking operating net profit up 73% — Banking profits from higher interest result, lower expenses and a lower loan-loss provision — ING Direct reported first full-year profit — Insurance operating net profit decreased by 1%, partly due to weak dollar — US-dollar hedge limited negative effect on profit
Asia/Pacific generated more than half of the total value of new life-insurance business created by the group, indicating the strong future earnings potential of the ING businesses in the region.
At the end of 2003, the total embedded value of ING’s life insurance operations was
EUR 21.7 billion compared with EUR 23.3 billion at year-end 2002. The primary reasons for this decline are currency effects and changes to future-assumed investment returns.
Shareholders on 27 April 2004. Taking into account the interim dividend of EUR 0.48 made payable in September 2003, final dividend will amount to EUR 0.49 per (depositary receipt for an) ordinary share. Although distributable net profit was lower in 2003 than in 2002 due to the discontinuation of the policy to realise fixed and pre-determined amounts of capital gains, dividend was kept at 2002 level. Temporarily, this will result in a higher payout ratio. The payout ratio as a percentage of distributable net profit will be 48.5% (2002: 44.1%). The final dividend will be made payable in stock or cash on 4 June 2004. ING
intends to fully fund the cash element by selling the bearer depositary receipts that would have been issued if stock had been chosen instead of cash. The value of the dividend in stock will be 0%
ING Europe The strong improvement in ING Europe’s operating profit before tax is mainly attributable to substantial higher banking results (+58.3%). The main drivers for these strong bank results were lower risk costs, a higher interest result and higher income from real estate. Furthermore, expenses were well under control despite an incidental rise in the fourth quarter of 2003.
ING Americas ING Americas achieved an operating profit before tax of EUR 1,086 million (+4.1%). Excluding the impact of the currency-hedge gain, exchange rates and one-off items, operating profit before tax increased by 28.9% to EUR 905 million. Performance was driven by the improving economy, lower credit-related investment losses, an increase in assets under management and strong underwriting and premium growth in the Canadian propertyand -casualty business. Operating profit before tax was reduced by the impact of lower interest rates causing margin compression and lower fixed-annuity sales, as well as unfavourable mortality in the reinsurance business. Growth in the propertyand -casualty businesses and higher benefit costs combined with one-time US costs increased total expenses by 2.9% compared with 2002. Excluding the US one-time costs, total expenses increased by
ING Asia/Pacific ING Asia/Pacific reported an 18.9% increase in operating profit before tax, excluding a one-off gain of EUR 222 million in 2002 from the transaction with ANZ. Including that gain, operating profit before tax was down 24.9% to EUR 453 million. Higher earnings were driven by the life and non-life businesses in Australia and the life operations in Korea and Japan. The Asian developing markets showed double-digit premium growth figures, indicating the region’s strong future profit potential. Offsetting these positive developments was the lower attributable result from the holdings in the two banks that form part of ING Asia/Pacific. ING also sold its share in
AnShin Card Services (Taiwan) in July 2003 and the life business in Indonesia in November 2003 to put more emphasis on its core activities in Asia.
Capital base Following the sharp decline on stock markets in 2002 and early 2003, ING took a series of measures to strengthen its capital base during the course of 2003. An optional stock dividend was re-introduced and ING sold part of its equity and real-estate holdings to reduce debt. ING
has hedged EUR 4.0 billion of its Dutch equity portfolio since the beginning of 2003.
(7.31%). ING Groep N.V.’s debt/equity ratio improved to 14.4% (year-end 2002: 19.9%).
Shareholders’ equity On 31 December 2003, shareholders’ equity amounted to EUR 21.3 billion, an increase of
4.0 billion to shareholders’ equity whereas revaluations accounted for an increase of EUR
0.3 billion. Exchange-rate fluctuations adversely impacted shareholders’ equity by –EUR 1.2 billion.
in 2002 to 11.1% in 2003. The risk-adjusted return on capital (RAROC) of ING’s banking operations was 17.6% compared with 13.2% for 2002 (pre-tax and excluding ING Direct).
The stock markets, which fell sharply between 2001 and early 2003, heavily impacted on
ING’s financial position. At the end of 2002, a number of short-term and long-term measures were announced, aimed at strengthening ING’s capital base and reducing the sensitivity of
Group improved from 19.9% at the end of 2002 to 14.4% at the end of 2003.
decided to open up the upside potential in the equity portfolio by reducing the total amount of written call options to EUR 0.7 billion, while keeping approximately EUR 4.4 billion of the
Netherlands Antilles and Aruba), ING Sviluppo in Italy, ING Life Indonesia and its share in the AnShin Card Services Company (Taiwan).
Furthermore, the international wholesale branch network was restructured. We also announced the management buy-out of Baring
Securities Series Funds. ING’s clients in China welcomed the fund and invested over EUR 500 mil-
G RO U P S T RA T E G Y A N D O U T L O O K
lion. In the United States, ING Bank has formed a commercial alliance with Bank of New York aimed at marketing, sales and delivery of global custody and related services to international clients. A strong brand enhances trust among customers. In 2003, ING made further progress in creating one global brand. BBL in Belgium was re-branded to ING Belgium. As a result brand awareness increased to 90% at year-end.
Develop our special skills ING Direct continued to exceed expectations and contributed for the first time to the Group profit in 2003, well ahead of schedule. In May,
ING Direct worldwide had close to 8.5 million customers (5.0 million at year-end 2002) and approximately EUR 100 billion in funds entrusted
The insurance operations in developing markets have grown as well. The organic growth in premium income was 11% in 2003. In China, we expanded our insurance business. Organic premium income in China rose by 50%. ING’s joint venture with China Pacific Insurance Company
Further lower the cost base In Europe, the Americas and Asia/Pacific large cost-saving programmes have been executed in 2003. In the field of Operations/IT in Europe, the alignment of IT architecture and the development of various shared service centres continued.
Financial Services has signed a 7-year contract with IBM to provide information-technology infrastructure services. This contract will generate substantial cost savings. Procurement as an important cost-saving tool has developed in 2003 from a transaction-oriented function to a strategic instrument. The awareness for procurement has increased considerably, which led to successful cost-saving initiatives.
As a result of strict cost control, total operating expenses decreased by 3.1%. Operating expenses increased by 3% organically. Main explanatory factors for this rise in costs are continued investments in new business (ING Direct and insurance activities in developing countries), substantial investments in IT infrastructure and investments to improve service (e.g. Nationale-
Executive Board is cautiously optimistic about the outlook for 2004. In the year ahead, ING will continue to leverage its existing strength in both mature and developing markets. The Executive
Board considers it premature at this stage to make a profit forecast for 2004.
In 2004, ING’s top priorities will be to strive for excellence in servicing our clients in mature and developing markets, to further improve the capital position, to allocate capital as efficiently as possible, to be firm on the cost side, and to continue the policy of active portfolio management.
Good progress in ING’s special skills — Premium income of insurance operations in developing countries up 11% organically — Cost-saving programmes limited ING’s cost rise to 3% organically — Building further on existing strength in 2004
Strategy and results ING Europe offers its services to retail and wholesale clients. Its activities range from banking and insurance to asset management. This important region employs 66% of ING’s staff and accounts for 70% of ING’s operating profit before tax.
After a tough 2002 and a very difficult first quarter in 2003, financial markets worldwide picked up strongly last year. However, the economic recovery took more time to materialise, especially in Europe. In this environment, ING
Banking) rose by 26% and Wholesale pre-tax results almost doubled (+92%) compared with 2002.
Retail Financial Services With its diversified distribution mix, ING serves approximately 27 million retail clients in Europe.
Financial markets picked up in 2003, but the economic recovery in Europe was delayed. ING Europe responded by focussing on its existing business and by putting value before growth. The client approach was refined and improved, while high priority was given to cost control and risk management. ING Europe’s operating profit before tax rose by 32.8%.
ING Netherlands, albeit still functioning under different brand names. The ING-branded companies generated EUR 3,061 million income and
EUR 9,231 million and EUR 1,488 million. The reorganisation created extra incentives to help promote products and services of sister companies. It also stimulated the transfer of best practices, especially using the sales expertise of RVS.
As a result ING generated more business per client. Life premiums increased by 13.3% in 2003.
will continue to focus all its short-term attention on further improving its service in 2004.
Insurance. In 2003, ING Insurance captured a ten percent market share and as such became one of the top-five companies in the sector, much sooner than initially expected. Also in Belgium,
ING had to be more selective about its portfolio choices. This became an important issue for other countries belonging to the South-West-Europe region. At ING Bank France, a restructuring plan was implemented with a view to adapting the cost structure to new market conditions and to restore the company’s profitability. In Italy,
Italiano and Aviva about the sale of the agentnetwork activities of ING Sviluppo, as well as the affiliated Italian life insurance, asset-management and private-banking activities. ING will continue to service the Italian retail market via
showed resilience and maintained performance. Premium income in these countries grew by 7% to EUR 810.5 million. In order to sustain long-term profitability, ING also had to take the
In Belgium, BBL now operates under the name ING. The rebranding process lasted 18 months. Clients, employees and intermediaries reacted positively. Total brand awareness in Belgium rose from 50% to 90% at year-end 2003.
Postbank expanded its distribution capacity by adding its own sales force. Personal financial advisors now meet customers in the comfort of their own homes. The move resulted in a boost in the sale of retail mortgages.
NN has been one of the largest pension providers in the Dutch market for many years. In 2003, NN introduced a campaign with the tagline: “So you think you’ll live to an old age? So do we!”. The public’s awareness of NN as an ING company rose to 46%.
Private Banking Two years ago, ING’s private-banking activities turned into a separate business line within ING.
Banking contributed to a significant improvement in the results. Profit before tax rose from
EUR 16 million in 2002 to EUR 88 million in 2003.
A substantial increase in assets under management was achieved, especially in Asia, Belgium and the Netherlands. In a quality survey on private banking, Euromoney ranked ING Private
ING received a top-ten ranking in four out of the five regions where ING Private Banking is active.
and Financial Markets (FM), as much in Europe as in the core developing markets.
EUR 1,613 million. Revenue growth was achieved thanks to the strong performances in the home markets of the Netherlands and Belgium. The wholesale banking business in the Americas also showed good results in 2003, having taken action to strengthen its businesses. In Asia, ING
Germany, large international corporates globally (including blue-chip companies in developing markets) and financial institutions (banks and non-banks). In order to deliver high added value to these clients, CFS is further enhancing its senior relationship-management skills, developing specific sector expertise and cross-selling capabilities while upgrading its client information reporting. Of strategic importance are anchor products, such as payments and cash management, general lending, structured finance (including acquisition finance) and trade banking, but also other products, such as employee benefits, mergers and acquisitions advisory and asset management in specific markets. Investments will be made in syndicated finance and securitisation for the benefit of
Financial Markets Financial Markets customers face different kinds of risk such as foreign-exchange risk, interestrate risk and equity risk. Financial Markets (FM)
This allows ING IM to respond more quickly to changes in client demands and market opportunities. Due to the volatile markets of the past years, retail clients had a strong preference for products with capital protection. ING IM met this demand with its Protected Mix Funds.
Operations/IT Operational excellence is a key requirement for future profitability in financial services. Operations
& IT (OPS/IT) is one of the areas where most cost savings can be found. This is why it is a separate functional responsibility within ING’s European management structure.
In 2001, ING launched an ambitious programme that seeks to reduce the overall costs of
By the year 2005, the programme is expected to lead to a considerable reduction in total expenses.
Major achievements in 2003 were the consolidations of data centres in the Netherlands and Belgium and the standardisation of ING’s
IT infrastructure and IT applications. ING also continued to implement the shared-servicescentre concept in the banking business and in insurance. Shared service centres allow ING to deliver high-speed and high-quality back-office services to its business units. As such, they help
In 2004, ING will continue the implementation of its OPS/IT programme. In international payments it will support ING Wholesale in its ambition to be a top-payments and cash-management bank in Europe. ING will also step up its joint initiative with the Bank of New York to offer global custody & fund administration activities to institutional clients in the Benelux,
Germany and Central Europe. In insurance, a new state-of-the-art solution for life insurance will be implemented and the development of a new non-life system launched. This should contribute to lifting ING’s insurance operations to best-of-class level.
In the retail business, product innovation and service optimisation will be the top priority.
ING Wholesale will continue to implement its new strategic focus, by aligning the commercial strategy of its different segments, as much in Europe as in the core developing markets.
More cross-selling must support its objective of creating value as much for the client, as for ING.
Creating value also means that risk management should continue to be high on the agenda.
Union in 2004. This should generate stronger economic growth in this region over time. With its strong position in Central Europe, ING hopes to profit from this enlargement of the European
ING Europe is confident about the strengths and prospects of its core business. That is why we believe that focus on improving the capital efficiency and return of the existing business, combined with great efforts to be a truly customer -focussed organisation, will help keep ING
Cost-saving initiatives in Operations/IT on schedule — ING to stay operationally focussed in Europe — ING Europe wants to be a truly customer-focussed organisation
Chile and Argentina in insurance and pension services. In Mexico, ING is the largest insurer.
IT platforms. ING Americas is doing this by reducing the complexity of applications and infrastructure. The fourth business priority is to attract and keep motivated employees. By gauging feedback from employee surveys, ING Americas is improving performance management, simplifying decision-making and streamlining processes. The final priority is to improve market positioning.
ING constantly evaluates the contributions of its businesses and leverages current strong rankings as regional economies improve.
In 2003, ING Americas reported an operating profit before tax of EUR 1,086 million, an increase of 4.1% compared with 2002. Growth in the property-and-casualty businesses and higher
ING Americas finished 2003 with much better results, successfully completing a three-year integration process of ReliaStar and Aetna
Financial Services with other businesses in the United States. In 2003, ING Americas reported an operating profit before tax of EUR
1,086 million, an increase of 4.1% over 2002. The underlying profit growth was 28.9%. The results benefited from improvements in the United States’ equity markets, lower investment losses and continued strong underwriting and premium growth in the Canadian property-and-casualty business. The results were partly offset by lower margins due to the low-interest-rate environment.
ING manages over USD 500 million in retirement assets for 30,000 D.C. government employees. “We asked ING to educate our employees on the importance of diversification,” says D.C. Treasurer N. Anthony Calhoun. “ING responded by conducting educational seminars during early morning shifts, graveyard shifts, and every time in between.” ING gives back to the D.C. community by doing business with minorityowned enterprises and supporting schools, shelters and after-school programs.
US Financial Services In the United States, ING US Financial Services
Institutional Businesses resulting in a single business structure for the US operations.
strategy paid off with the boost in US equities, as measured by the S&P 500 Index, which closely compares to ING’s equity-related retirement services, and closed up 26% over the previous year.
EUR 718 million for the year, 49% better than 2002 (at constant exchange rates). Sales of variable annuities and retirement services increased, reflecting higher consumer confidence driven by more stable financial-market conditions. Gross premiums for fixed annuities declined substantially compared with 2002, reflecting continued focus on sound pricing and a low-interest-rate environment that reduced the attractiveness of this product in general.
Canada Strong underwriting, combined with higher premiums, drove robust operating profits for Canada.
Canadian operations reported strong operating profit before tax of EUR 163 million, up EUR 54 million from 2002. Premiums totalled EUR 2,164 million (+10.9% organically) due to premium growth in all regions and business lines. The combined ratio improved from 97.7% to 94.9%.
With this solid performance ING Canada continues to be the leading provider of P&C
insurance in Canada. Strong operational and cost efficiencies, expanded expertise in risk selection and pricing, as well as strategic alignment with distribution partners contributed to the solid performance in Canada.
ING Americas’ operating profit before tax rose by 4.1% to EUR 1,086 million — Stock-market recovery supported results — Expenses increased by 2.9%, mainly due to one-time US costs — Profits in the US up 49%; efforts to improve the US business model rewarded — Strong underwriting and higher premium led to firm profit growth in Canada
Over four million Canadians rely on ING for their insurance, investment and banking solutions. ING is the largest provider of property-andcasualty insurance in Canada and continues to expand its product line through a variety of distribution channels.
Comercial América also invested in its customer service to continually improve the quality of business for its retail and corporate customers.
ING Comercial América was also engaged in an ongoing legal dispute with fertiliser producer company Fertinal over an insurance claim.
Comercial América and Fertinal as to the amount to be covered under Fertinal’s insurance policy.
Americas) manages over EUR 165 billion in assets for institutional, managed-account and alternative -asset clients as well as many of ING’s mutual funds and insurance companies.
Americas provides its financial intermediaries with expert investment and educational tools to help their clients meet long-term financial goals.
Americas over the last three years has paralleled the building of strong positions in each market. In the US, ING Financial Partners was initiated in the first ‘branded broker/dealer’ program.
Survey for North America. Examples of ING Re’s client orientation include the introduction of a new release of ASCENT, the company’s electronic life underwriting manual. At the end of the year the tool was being used by some 30 life insurance companies and continued to help differentiate
Higher profits in Mexico and Brazil dampened by lower results in Argentina — ING IM created a single asset- management platform in the Americas — ING Re rated as one of the topthree reinsurers by life insurers in 2003 — ING New York City Marathon raised ING brand awareness to a high point — ING introduced the ‘Client Service Guarantee’ in Canada — Balancing profitability and market share will remain key in 2004
Americas, but the economic environment remains challenging. Therefore, ING will closely monitor the low-interest environment and developments in equity and credit markets.
Strategy and results ING believes it has a unique distribution channel mix in Asia/Pacific: a powerful combination of tied agents, independent agents, brokers/
dealers and banks. In addition to fully-owned companies, ING’s operations include a number of joint ventures with local partners. We have over six million retail clients and 60,000 points of distribution. Our portfolio comprises Australia,
Group in 2003, indicating the strong growth potential, especially in developing markets. In these markets, organic premium income grew by 24.3%. Excluding a one-off gain in 2002 from a transaction with joint-venture partner ANZ, ING
“My business relationship with ING Life started when I opened my cosmetic surgery clinic. Ms. Hong advised me on promoting my clinic and insurance planning. I came to understand that ING Life is a solid and financially stable company and that’s why I bought an annuity to finance the future overseas studies of my children. Ms. Hong helped me tremendously and now I help her, as business partners do.”
50%; QBE 50%) for non-life business. Other businesses in Australia include Austbrokers and
ING Investment Management. ING Australia ranks number four overall in the life and wealthmanagement business. It enjoys market shares of around 10% and 11%, respectively, in retail life insurance and retail wealth management.
Despite its narrow product range (single-premium variable annuities and company-owned life insurance), the business in Japan performed well.
Services. Research has shown that the rebranding to ING has increased awareness of ING’s insurance and employee-benefits operations in
In Korea, ING Life ranks number five and is one of the fastest growing international companies. The agency workforce is among the most productive in the Asia/Pacific region, and efforts are underway to broaden the agency pool to maintain this strong performance. In addition to its life business, ING has a successful 20%-owned joint venture with Kookmin Bank. This joint venture has over EUR 6 billion in assets under management.
In the northeastern city of Dalian, ING is in partnership with the Beijing Capital Group in a joint venture called ING Capital Life Insurance
In 1986, when ING Life Japan opened for business,, it distributed products via petrol stations. Today it works with major Japanese financial institutions to distribute its investment and retirement products. In Japan, ING is the pioneer of variable annuity products.
In 2003, ING Antai in Taiwan was recognised for its excellence in customer service and product innovation. The Asian Insurance Industry Awards named it ‘Life insurance company of the year’ for its responsiveness to the changing needs of consumers.
ING sold its life business in Indonesia, in line with its priority of maintaining a presence in markets where it believes it can reach scale and a top-5 position within a reasonable period. In addition,
ING sold its share of its credit-card joint venture in Taiwan to its joint-venture partner.
Expanding bancassurance ING’s bancassurance initiatives showed good successes in Japan, Korea, Australia, Hong Kong and Thailand. In Japan, ING’s bancassurance alliances with Mizuho and UFJ have made significant contributions to new business premium.
In Korea, ING’s bancassurance partnership with joint-venture partner, Kookmin Bank, was successfully launched in November 2003, with solid production of new business and considerable prospects for further growth. In Thailand, ING’s joint efforts with Citigroup to cross-sell insurance across the customer base have resulted in superior sales performance. In Hong Kong, ING
TPE scorecard consists of six drivers of excellence: portfolio management, operational excellence, financial excellence, reputation, marketing and organisation. Each driver encompasses objectives that each management member is mandated to meet. All six drivers now form the starting point for the strategic-planning process in the region.
Outlook ING is well-positioned to gain from the strategic initiatives it has undertaken in the Asia/Pacific region. This positive outlook is supported by
449 billion to EUR 463 billion in 2003. This was, amongst others, a result of a EUR 11 billion solid net inflow.
Where the integrated financial-product offering at retail-customer level led to ‘local client focus with global investment expertise’ in 2003, more fundamental changes are taking place in order to improve client satisfaction. Transparency, accountability and reduced product complexity are the main drivers in the business today.
The relationship between client and asset manager is being strengthened by providing them with more in-house investment expertise.
A S S E T M A N A G E M E N T
Parcom and ING Real Estate contributed to this rise in profit.
Institutional assets under management amounted to EUR 72 billion, allowing ING to remain one of the larger third-party money managers in the world with strong market positions. ING IM
In Europe, ING IM enhanced its product offering for clients in 2003. To complete the range of
Fixed Income strategy was developed. Due to market conditions, the development of products with capital protection was in continuous demand on the retail side of the business. ING
In the Americas, the stronger client focus allowed ING to externalise its extensive US fixedincome expertise, which was initially developed to manage portfolios of insurance affiliates and funds. Having achieved a top-10% performance over 5 years in US core, core-plus, and high-yield strategies, ING IM was able to begin offering these to institutional clients during 2003.
This product attracts institutional clients, seeking more predictable returns than traditional equity strategies. ING’s hedge fund-of-funds products generated strong returns throughout 2003.
The year 2003 marked the transformation of the Asian businesses from a range of new companies to one that is well-positioned to take advantage of the growth opportunities available in the region. Despite the challenges of operating in such a diverse collection of markets,
ING IM Asia has achieved leading positions in a number of markets including third largest in the
ING Real Estate ING Group’s real-estate activities have been centralised in the centre of excellence known as ING
42 billion, ING Real Estate is ranked as one of the three largest real-estate companies in the world with offices in fourteen countries in Europe, the
United States, Asia and Australia. ING Real Estate operates as an investment manager, developer and financier.
Despite the softening of the real-estate markets, the 2003 results exceeded expectations. All three activities made a considerable contribution to this result.
ING Real Estate Development covers the development of shopping centres, offices and residential units in response to market demand.
Report of the Executive Board 36 Annual Report 2003 · ING Group
ING Real Estate Development also continued creating value through numerous real-estate projects around the world. Examples are Liget
Alternative assets and trust activities Parcom, ING’s captive private-equity unit in the
ING Trust specialises in trust services and the formation and management of companies for tax and asset planning etcetera. It is a leading player in the Dutch market for offshore trust services, serving both corporate and private clients. Throughout 2003, ING Trust focused on strengthening the relationship with the advisors of clients.
ING Investment Management’s advertising campaign in Australia with Scottish comedian Billy Connolly. He refers to the difficulties in the 2003 economic conditions. ‘When situations get tricky, it pays to have clever people on your side’.
Zlote Tarasy in Warsaw is ING Real Estate’s largest project in Central Europe. Construc tion got underway in January 2003. With total investments of approximately EUR 400 million, the project will contribute to the modernisation of the city.
CMFM, ING’s asset management joint venture in China, launched its first fund product in 2003, an openended fund with three different risk profiles. The fund was targeted at the retail market and raised more than EUR 520 million.
It offers its clients best value for money and excellent service via call centres, direct mail and the internet. This strategy has been successful to date and was acknowledged by the financial services research group Lafferty with the ‘World’s leading direct bank award’ in 2003.
ING Direct uses a competitive-rate, no-fees and no-minimum savings account as entry product. Mortgages are the second core product. ING Direct will continue to stimulate the sale of mortgages in all its business units. Upon reaching necessary minimum scale, ING Direct’s business units complement the product range by cross-selling other wealth accumulation products such as mutual funds, e-brokerage, pensions and life insurance.
The call centre is the pulse of the business for ING
Direct, but an increasing number of transactions are processed via internet and the call centre’s
Market expansion In May 2003, ING Direct UK was launched, an event that was extensively covered by the press. The growth of ING Direct UK has been spectacular. In nearly eight months ING Direct
Direct reached an agreement to become full owner of DiBa Germany, while in July the closing of the Entrium acquisition took place. Entrium was Germany’s second-largest direct bank and added 985,000 clients and approximately
of clients leave ING Direct per year, which is low compared to the industry average. Client satisfaction, a leading indicator for the client perception of ING Direct, is far above average in all countries where ING Direct is active. Average
ING Direct produced first full- year profit — 3.5 million new clients in 2003 — Funds entrusted up by 80% to almost EUR 100 billion — ING Direct UK launched successfully
— ING Direct became full owner of DiBa Germany and of Entrium — More focus on the second core product, mortgages
hurdle rate of 18.5%. (RAROC measures performance on a risk-adjusted basis. For further information, see page 60). Expansion of the business model with mortgages and a limited range of other products further improves their
The savings deposits are invested in a variety of fixed-income investment categories. The average credit rating of this fixed-income portfolio is AA.
ING Direct will expand its marketing to other regions in the USA and will keep investigating the potential of other markets for the introduction of its business model. The same applies to the extension of the product portfolio to mortgages. ING will put strong emphasis on building mortgage-processing operations in anticipation of an intensified growth of this product line in coming years.
ING is well aware of the fierce competition in the markets where ING Direct is active, but the strength of the ING Direct business model as well as consumer trends give confidence that the coming years will remain in favour of ING Direct.
ING distinguishes four stakeholder groups: customers, employees, shareholders and society as a whole. ING believes that earning the trust of each stakeholder is a prerequisite for business success. Satisfied customers are the prerequisite for a license to operate. Satisfied and motivated employees contribute to business success as they are more likely to be productive and customerfocused. As to shareholders, ING believes a focus on CSR contributes to the creation of long-term shareholder value. Society as a whole encompasses ING’s ongoing sponsoring, volunteering and corporate-giving activities around the world, as well as ING’s relationship with NGOs, international organisations and its business suppliers.
CSR statements are guidelines that set general parameters for ING’s risk position when considering transactions that may affect ING’s risk appetite by having an environmental, social and reputation impact. The statements provide guidance on how to deal with specific industry sectors known for their potential environmental, social and ethical risks. They form an additional criterion for financing decisions.
Another of ING’s special skills is offering advice in pension reform. The ongoing pension reforms around the world are not only an attractive commercial opportunity to expand its pension business, but also an opportunity for the
Group to underline its corporate social responsibility. ING advises governments in reforming their pension systems and offers information to increase public awareness of the need for adequate pension provision. ING also partners with multilateral institutions like the OECD to
ING in Society help turn the archeological site Perperikon into a top tourist site. In the US, the ING Foundation focuses on education and children at risk. ING’s sponsoring relationships in Poland focus on local culture. In other countries, ING supports sports.
pool know-how and make core pension data available to countries struggling with pension reform. Pension reform is another example of how opportunities for profit can contribute to broader societal needs.
In these and other areas, ING wants to participate in more public-private partnerships in the future. ING believes there is potential for much added value by combining the policy expertise of multilateral institutions and government ministries with the practical expertise of financial institutions like ING.
Public Affairs departments held their first joint roadshow to SRI investors in France. Other joint presentations were held in ING House.
ING was also included in a number of leading sustain ability indexes. Examples are the Dow
Sustain ability STOXX, FTSE4Good Global 100 and FTSE4Good Europe 50. ‘The Banker’ named
Community relations Around the world, ING’s local subsidiaries participate in their own activities to strengthen the bond with the community. These include sponsoring, charitable donations and volunteering.
Talent management ING is committed to training and development, regardless of the economic conditions, as different business challenges require different leadership requirements. In 2003, ING made good progress in a number of fields to provide tools to its employees to manage their own careers.
Netherlands, hosted more than 600 participants from all over the world. It also provides an excellent opportunity for people to mix with each other and build a common culture. Satellite courses will start in different regions in 2004 to broaden the reach of the business school.
ING feels it is important to provide all em ployees with tools that help them take more responsibility for their own career development. We will continue to develop such tools, based on the click-call-face concept we also use for serving customers. This ties in with the whole idea of transparency between employee and employer of which ING is a strong advocate. As a result, the
A globally common development agreement was introduced, enabling employees to work more with their managers in terms of discussing long-term career goals and how they want to achieve these goals.
In 2004, leadership and employee development will be a performance-management factor: all senior leaders will be measured and rewarded based on their performance in developing people at all levels.
The executive-compensation system was restructured to reflect the key value drivers in
There will be a greater linkage to the relative total shareholder return of ING compared with our peers in short-term and long-term incentives.
ING developed new tools to track, develop and manage talent — Links between performance and reward adapted and refined — Diversity initiatives to value the variety of people who work for ING — Surveys to know our employees’ opinions and learn from them — Focus on a good and solid reputation as an employer
Diversity is more than just an ING issue, every company faces it. Therefore, ING teamed up with Unilever and IBM and hosted a Women’s
Leadership Conference to discuss the leadership of women in these times. It provided a good networking opportunity and was highly rated by the attending men and women. ING feels business can take the whole agenda a big step forward if it works together with other companies, governments and educators by sharing best practices in leveraging all of our employees.
US and Asia. In Europe, several local diversity initiatives are exercised where necessary and opportune. A huge step forward was that all business units submit their plans on improving diversity in their business, as part of their medium-term plans.
This group consists of ten Executive Committee members from all ING regions, who act as ambassadors to further implement the practice of diversity throughout the organisation. The intent is to continue our momentum in bringing automised solutions closer to the line business.
ING to measure whether it is making progress or not and to define priorities. ING will choose whatever works best within a particular culture for employee representation purposes, whether it is a Works Council (the Netherlands and
Another outcome was that there is the need to improve the speed and efficiency of the cycle of decision-making, which means that there is work to do in terms of empowerment. In terms of strategy, workers tell us that they understand the strategy of their business unit, but not how it all fits together with ING worldwide. We will therefore work on clarifying the bigger picture to our employees in 2004.
It’s all about reputation ING will continually seek a solid reputation as an employer. Our goal is to always attract top talent, by being fair and offering good rewards and attractive career prospects. This will build a reputation and other people will then want to come and work for us. A good reputation is therefore essential to attract talent.
Committee evaluates and manages ING Group’s overall risk profile, aiming for a good balance between risk, return and capital.
is of the opinion that its loan-loss provisions as of 31 December 2003 are adequate to absorb losses from ING Bank’s credit-risk-taking activities.
R I S K M A N A G E M E N T
This chapter aims to give insight into the principal risks and the way they are monitored: credit risk, market risk, actuarial and underwriting risk, liquidity risk and operational risk.
Annual Report 2003 · ING Group44 amounts in millions of euros
ADDITIONS TO THE PROVISION FOR LOAN LOSSES ING BANK (BASED ON RISK COUNTRY)
Comprehensive risk-management procedures on all levels within the Group — Aiming for a good balance between risk, return and capital — Loan-loss provisions as of 31 December 2003 considered adequate to absorb losses from ING Bank’s credit activities — Concerning market risk of ING Insurance, focus in 2003 on the low interest-rate levels
Through scenario analysis ING Insurance measures the potential changes in the expected earnings of the insurance operations over the next 12 months resulting from an instantaneous increase/decrease in interest rates by 1%.
EUR 178.5 million at the end of 2003 compared with EUR 155 million at the end of 2002.
ING’s policy is to maintain an internationally diversified and mainly client-related trading portfolio, while avoiding large risk concentrations. ING applies Value-at-Risk and stress-testing scenarios for market risk management. Value-at-
Risk measures the maximum overnight loss that could occur under normal market circumstances due to changes in risk factors (e.g. interest rates, foreign-exchange rates, equity prices) if the trading positions remain unchanged for a time interval of one day.
ING Bank has a structural interest-rate risk on its balance sheet. ING Bank uses several measures to control interest-rate risk. The most important ones are Earnings-at-Risk (EaR) which measures the sensitivity of ING Bank earnings to interest rate movements, and Value-at-Risk, which measures the maximum overnight loss that could occur due to changes in interest rates if positions remain unchanged for a time interval of one day.
analyses. These ALM analyses are used to determine the adequacy of the assets supporting reserves, to find the optimal asset (investment)
mix complementing the (insurance) liabilities, to determine appropriate risk based capital levels and to quantify market movements effects on the
Total amount of the general account portfolio EUR 98.4 bill ion (2002: EUR 96.5 bill ion)
Liquidity risk is managed at Group and local level through a combination of investment mandates, product features, close monitoring of the day-today funding needs and maintenance of an adequate mix of funding sources and liquid assets.
The internal audit function retains a status apart and performs independent periodic investigations into the quality of the system of internal controls and procedures of business units and recommends actions to solve any identified weaknesses.
The section Additional information includes information about RAROC, embedded value, capital base, efficiency ratios and credit ratings.
In addition, the most relevant information as required under the reporting requirements in the
We have audited the summary annual figures of ING Groep N.V., Amsterdam, for the year 2003 as incorporated in this annual report on pages 48 to 59. This summary annual figures was derived from the annual accounts of ING Groep N.V. for 2003. In our auditor’s report dated 8 March 2004 we expressed an unqualified opinion on these annual accounts.
This summary annual figures is the responsibility of the company’s management. Our responsibility is to express an opinion on this summary annual figures.
CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER before profit appropriation amounts in millions of euros
Funds entrusted to and debt securities of the banking operations 377,824 319,824
Accrued liabilities 8,838 10,791 * See notes starting on page 53.
S U M M A R Y A N N U A L F I G U RE S
Realised revaluations released to the profit and loss account -258 -1,051
Comprehensive net profit for the period includes all movements in shareholders’ equity during the year, except for the cumulative effect of changes in the principles of valuation and determination of results and those resulting from the write-off of goodwill, the enlargement of share capital and distributions to shareholders.
Movements in: — funds entrusted to and debt securities of the banking operations 58,321 45,580
In 2003, ING Group acquired a 100% stake in Entrium, Germany’s second largest direct Bank. ING
In 2003, ING Group sold its 99% shareholding in Fatum, an insurance company in the Netherlands
Antilles and Aruba to Guardian Holdings Limited. The value of the transaction amounted to EUR 45 million.
In 2003, ING Group sold ING Sviluppo and the affiliated Italian life insurance, asset management and private banking activities to UniCredito Italiano and Aviva. The value of the transaction was EUR 170 million. The result on the sale amounted to EUR 71 million.
In 2002, ING Group acquired a 49% stake in SulAmérica, a leading insurance company in Brazil thus strengthening the existing partnership. As a result of the transaction ING’s total investment in Sul-
The goodwill amounted to EUR 245 million and is charged to Shareholders’ equity. The interest in
In 2002, ING Group closed the purchase of an additional 24% stake in ING Vysya Bank in India increasing its interest to 44%. The total purchase price of the additional acquisition amounted to EUR 73 million. The goodwill amounted to EUR 55 million and is charged to Shareholders’ equity. As ING
Group currently enjoys management control, ING Vysya Bank has been consolidated.
In 2002, ING Group acquired car lease company Toplease. The total purchase price of the acquisition amounted to EUR 111 million. The goodwill amounted to EUR 70 million and is charged to
NOTES TO THE CONSOLIDATED BALANCE SHEET amounts in millions of euros, unless stated otherwise
Loans guaranteed by credit institutions 701 1,289 1,990 1,184 6,782 7,966
MOVEMENTS IN PROVISION FOR LOAN LOSSES INCLUDED IN LENDING, BANKS AND OTHER ASSETS
Changes in ING Groep N.V. shares held by group companies 50 822
Insurance provisions for policies for which the policyholders bear the investment risk 71,687 65,372 1,135 1,096 70,552 64,276
Income from investments in fixed-interest securities: — private loans 151 127
Income from land and buildings includes an amount in respect of rental income allocated to business units of ING Group (the same amount is included in Other expenses) of EUR 57 million (2002: EUR 50 million).
— the impact of the negative revaluation reserve on equity securities, and
Interest result from the banking operations 8,115 7,646 -51 -56 8,166 7,702
Operating net profit for the period 2,508 2,538 1,545 895 4,053 3,433
A D D I T I O N A L I N FO R M A T I O N
RAROC is calculated as the risk-adjusted return divided by economic capital. The risk-adjusted return is based on similar valuation principles as applied in the financial accounts, with two important exceptions: the actual credit-risk provisioning is replaced by expected losses reflecting statistically calculated average credit losses over the entire economic cycle; secondly, the Profit and Loss account is adjusted for effects that relate to replacing actual book capital by economic capital.
‘Other’ include items of Corporate lines, EC Americas, EC Asia/Pacific and Other Asset Management. 2002 figures have been restated.
(excluding ING Direct) that can be compared with 10.2% for 2002.
ING Group continues to develop and refine the models supporting the RAROC calculations. All risks, except for business risk, are subject to an independent control process with a functional reporting line to the Corporate Risk Managers. Although business risk is factored into the planning and budgeting process, business risk is not subject to an independent control process, but is the responsibility of the relevant business units.
1. IRR = internal rate of return adjusted for expected currency movements relative to the euro.
EUR 519 million. The decrease is primarily due to lower sales and lower pricing targets, which are attributable to lower interest rates. During 2003 ING invested EUR 1,479 million to write new life insurance business. The overall rate of return expected on this investment is 10.9%. This compares to an overall return of 11.5% in 2002. The expected internal rate of return in developing markets is
The major factors for each of these changes in 2003 are as follows: — Investment income on free surplus of EUR 386 million primarily reflects equity returns in the
— The required return of EUR 1,642 million is the rollup of the discount rate on the beginning value of inforce business and on the value of new business.
— Assumption changes reduced value by EUR 2,612 million. Major assumption changes included lower future investment returns in the Benelux and lower separate account growth rates in the
NEW BUSINESS VALUE FROM DEVELOPING MARKETS1 amounts in millions of euros PREMIUMS PREMIUMS
1. Countries classified as developing markets are: − Central Europe: Bulgaria, Czech Republic, Hungary, Poland, Romania, Slovakia; − Americas: Argentina, Chile, Mexico; − Asia/Pacific: China, Hong Kong, India, Korea, Malaysia, Taiwan and Thailand.
3. The 2002 values are restated to reflect the addition of Hong Kong.
Cost of financial options and guarantees The embedded value results are based on a single deterministic projection, which means that a single view of the future is reflected in the reported embedded value results. Deterministic projections may not fully reflect the cost associated with financial options and guarantees within the life insurance products.
The major businesses for which these costs are already directly included are variable annuities with guaranteed benefits sold in the US and Japan, Australia’s life insurance business, and the majority of contracts in the Benelux.
For the remaining business units, an estimate was made using stochastic testing and other techniques in order to provide insight into these costs. The total estimated additional reduction in value at 31 December 2003 relating to financial options and guarantees is EUR 270 million. This cost is not included in the reported embedded value of this section, and Watson Wyatt has not reviewed the determination of the EUR 270 million figure.
Independent opinion Watson Wyatt, an international actuarial consultancy firm, has reviewed the methodology and assumptions used by ING in the calculation of the embedded value of the life insurance business at 31
December 2003 and the value of new business written during 2003. All material business units in the
3. Includes revaluation reserve and dividend declared but not yet paid.
Directives, as implemented by the Dutch Central Bank (DNB) for supervisory purposes. The minimum tier 1 ratio is 4% and the minimum total capital ratio (known as the ‘BIS ratio’) is 8% of all riskweighted assets, including off-balance sheet items and market risk associated with trading portfolios.
Supervisory Authority regarding the supervision of financial conglomerates, ING Group is required to have an amount of capital, reserves and subordinated loans that are at least equal to the sum of: — the required capital for the banking activities and
For regulatory purposes certain (external) subordinated loans of ING Bank N.V. and ING Verzekeringen
A d d itio n a l in fo rm a tio n 1. All these ratings have a stable outlook.
Changes in 2003 ING Group is already in compliance with much of the Code. A number of significant changes relating to corporate governance was approved by the General Meeting of Shareholders in April 2003 and subsequently included in the Articles of Association. Restrictions with regard to the holding of shares (1% rule) were abolished and holders of depositary receipts were, for example, granted full voting rights. These voting rights can be exercised unconditionally, including in the event of a hostile takeover bid. Steps were also taken to ensure that the Board of the Trust
The discussions of corporate governance in the Netherlands resulted in a new corporategovernance code (the ‘Tabaksblat Code’) being published on 9 December 2003. From the 2004 financial year onwards, listed companies are required by the Code to include a section on their corporate governance and compliance with the Code in their annual report and to explain any non-compliance.
Listed companies are also being recommended to include information in their 2003 annual report on how they are planning to incorporate the Code into their business activities and to indicate any problems they anticipate in this respect.
Implementation of Tabaksblat Code As already said, ING will implement the
(the ‘fixed’ remuneration component). If the maximum of one year’s salary would be manifestly unreasonable for a management board member who is dismissed during his first term of office, such board member shall be eligible for a severance pay not exceeding twice the annual salary.”
votes required for an item to be submitted for inclusion on the agenda of the General Meeting of Shareholders (under the new rules, votes representing 1 per mille of the share capital will be required). This amendment is being proposed in advance of the Act on the large-company regime, which is currently being considered by the Dutch
Secretary (the General Counsel) and adopted a whistleblower procedure, which has since been approved by the Dutch Central Works Council.
Meeting of Shareholders will be asked to appoint new Executive Board members for a period of four years. Given that the nominated Executive
Hans Verkoren, are already employed by ING, their contracts of employment, which are for an indefinite period of time, will continue. The
Supervisory Board has also taken account of their existing contractual rights when determining the level of any severance pay that may become due.
Mr. Jacobs, who was previously chairman of the Executive Board, currently chairs the Audit
Mr. Jacobs resigned from the Executive Board over five years ago and so can be regarded as independent, both in respect of the Code and under the terms of the US Sarbanes-Oxley Act.
Nomination Committee. Appointments, both to the Executive Board and the Supervisory Board, and remuneration are issues of such importance that it is vital for the chairman of the Supervisory
Group, which will be published in print prior to the 2005 Shareholders’ Meeting. At the annual
General Meeting of Shareholders in April 2005, the formal shareholders’ approval of ING’s corporate-governance structure related to the
Tabaksblat Code will be sought. Providing the corporate-governance structure is approved by the shareholders, ING will then be deemed to be in full compliance with the Code.
The authorised capital of ING Groep N.V. consists of ordinary shares, preference A shares, five series of preference B shares and cumulative preference shares. All the current ordinary and preference A shares are issued, while a right to acquire cumulative preference shares has been granted to the Trust Office ING Continuity (see page 78). The purpose of the cumulative preference shares is to protect the company against a hostile takeover, while the ordinary shares and the preference shares are used solely for funding purposes. The shares, which are all registered shares, are not listed on a stock exchange.
Although the depositary receipts themselves do not formally have any voting rights, holders of depositary receipts are in practice fully equated with shareholders with regard to voting. Holders of depositary receipts attending a meeting of shareholders, either personally or represented by a proxy, have full voting rights on the Trust
The Trust Office decides for itself how to vote in the case of shares for which it has not issued proxy votes to holders of depositary receipts and has not received any voting instructions. The way in which the Trust Office votes will reflect the interests of the holders of depositary receipts, but will also take account of the interests of ING
ING Group stakeholders, so as to ensure that all these interests are given as much consideration and protection as possible.
The board of Trust Office ING Shares comprises five members, who are independent of
Supervisory Board members are on the board of the Trust Office. The board of Trust Office ING
Shares appoints its own members, without any requirement for approval by ING Groep N.V. It is the duty of the Trust Office to represent the interests of all holders of depositary receipts, irrespective of whether they are active.
The management of the Trust Office reports on its activities through a annual report, which has been included on page 76.
(nominal value: EUR 0.24) gives the right to one vote, while each preference A share (nominal value: EUR 1.20) gives the right to five votes.
On the basis of the closing price of the shares on 31 December 2003, the ratio of market price to voting rights on depositary receipts of ordinary shares was EUR 18.49 : 1, while the ratio for depositary receipts for preference A shares was EUR 3.16 : 5. We acknowledge that there is an element of disequilibrium in this respect. It should, however, be noted that the vast majority of the depositary receipts for preference A
shares were issued as stock dividends on ordinary shares. All holders of ordinary shares and depositary receipts for ordinary shares have, therefore, had the opportunity to obtain depositary receipts for preference A shares. It should also be remembered that the market price of the depositary receipts for preference A shares has been relatively flat because of the financial rights attached to them. The market price of the depositary receipts for ordinary shares, on the other hand, has risen substantially over the years. Indeed, the ordinary shares have been split on two occasions because of how the share price has developed. It should also be noted that the depositary receipts for preference A shares are freely available on the stock market. Any holders of ordinary shares or depositary receipts for ordinary shares who feel restricted by the disequilibrium can, therefore, choose to purchase additional depositary receipts for preference A
Shareholders’ Meeting agenda can only be made by shareholders and holders of depositary receipts representing a joint total of 1 per mille of the share capital. Given the periods of notice required for proxy voting, proposals have to be submitted in writing and at least 50 days before the date of the meeting. Properly submitted proposals will be included on the agenda for the
New shares in excess of this amount can only be issued after amendment of the Articles of Association. For reasons of flexibility (an amendment of the Articles of Association has to be passed by notarial deed if it is to become effective, and this in turn requires a declaration of no objection to be issued by the Minister of
Association of ING Groep N.V. has been set at the highest level permitted by law.
Meeting of Shareholders, which may also delegate its authority. Each year, the General Meeting of Shareholders delegates authority to the Executive Board to issue new shares. The powers delegated to the Executive Board are limited: – in time: powers are delegated for a period of 18 months; – to specific types of shares: only ordinary shares and preference B shares may be issued; – by number in the case of ordinary shares: ordinary shares may be issued up to a maximum of 10% of the issued capital, or 20% in the event of a merger or takeover; – in terms of control: resolutions by the
Following from the Tabaksblat Code, it is proposed to include a restriction on issues of preference B shares by stipulating a minimum issue price. Approval by the General Meeting of
Shareholders would be required for any share issues exceeding these limits.
Group is not aware of shareholders with an interest of 5% or more other than ABN AMRO, Aegon and Fortis Utrecht. As at 31 December 2003, ING
Utrecht were below 1%. These interests are held as investments. There are no shareholders’ or other agreements between ING Group and the above-mentioned major shareholders on the exercising of voting rights.
Insurance Industry (Supervision) Act 1993, declarations of no objection are required by anyone wishing to obtain or hold a participating interest of at least 5% or 10% respectively in ING Groep
N.V. or to exercise control to this extent via a participating interest in ING Groep N.V. As at 31
December 2003, ABN AMRO was the only one of the above holders with an interest of 5% or more to have obtained a declaration of no objection with regard to its exercise of control.
(see page 84). In all these cases, the company complies with the best-practice provisions of the
Group: May 1998. Vice-chairman since May 2000, chairman as of 28 April 2004. Joined ING (after merger with BBL) in 1998. Chairman of ING Bank
Belgian nationality), Eli Leenaars (1961, Dutch nationality) and Hans Verkoren (1947, Dutch nationality) to the Executive Board. Eric Boyer is a member of the Management Committee for South-West Europe, with responsibility for
Leenaars is chairman of ING Central Europe and a member of the Executive Committee ING Europe.
Group’s website (www.ing.com). In view of their experience and the valuable contribution that former members of the Executive Board can make to the Supervisory Board, it has been decided, partly because of the size of the Board and also because of ING’s wide range of activities, that such individuals may become Supervisory
After being appointed to the Supervisory Board, a former member of the Executive Board may also be appointed to one of the Supervisory
Regulations The Supervisory Board has drawn up a set of regulations covering its organisation, powers and methods of operating. Separate regulations have also been drawn up for the Board’s three committees: the Audit Committee, the
Members of the Supervisory Board will resign from the Board at the first General Meeting of
ING Group website (www.ing.com). Members of the Supervisory Board may be reappointed for two periods of four years. Reappointments of Supervisory Board directors will be carefully considered and will certainly not be automatic.
In order to ensure that this principle is observed, the procedures to be followed have been recorded in writing.
Members of the Supervisory Board are asked to provide details of any other directorships, paid positions and ancillary positions they may hold.
Such positions are not permitted to conflict with the interests of the ING Group. It is the responsibility of the individual member of the
Corporate Governance Committee to ensure that the directorship duties are performed properly and not affected by any other positions that the individual may hold outside the group.
Independence Members of the Supervisory Board to whom the criteria of the Tabaksblat Code do not apply and members of the Supervisory Board to whom the criteria do apply but who can explain why this does not undermine their independence, are deemed to be independent. On the basis of these criteria, Mr. G.J.A. van der Lugt is not regarded as independent since he has been Chairman of the Executive Board within the last five years.
Supervisory Board is set by the General Meeting of Shareholders and is not dependent on the results of the company.
Members of the Supervisory Board are permitted to hold shares and depositary receipts for shares in the company for long-term investment purposes. If any members of the Supervisory
Dutch Petroleum Company N.V. and Chairman of the Committee of Managing Directors, Royal
Other directorships of listed companies: – Chairman of the Supervisory Board of Royal
Other directorships of listed companies: – Member of the Supervisory Board of TCF
Principal former position: Chief Financial Officer of Robert Bosch GmbH. Principal present position: managing partner of H+H Senior Advisors,
Supervisory Board of ING Group: June 1998, following his retirement from the chairmanship of the ING Group Executive Board. Chairman of the
Other significant positions held: – Chairman of the Supervisory Board of Johan
Other significant positions held: – Member of the Supervisory Board of the
– Member of the Board of The National Ballet and The Music Theatre
ING Group: April 2001, one year after his retirement from the chairmanship of the ING Group
Other directorships of listed companies: – Member of the Supervisory Board of Grontmij N.V.
Betonmaatschappij Besix-Betonimmo N.V. First appointment to the Supervisory Board of the
Governance Committee. Current and last term of office: until the 2005 AGM.
Principal former position: Chairman of the Executive Board of Heineken. First appointment to the Supervisory Board of the ING Group: April 2002. Current term of office: until the 2006 AGM.
Other directorships of listed companies: – Chairman of the Supervisory Board of Ahold
Financial Officer of Michelin and is currently the chairman of Michelin’s Supervisory Board. Prior to his positions at Michelin he was managing director of the bank JP Morgan. The proposed appointment is based on his experience in the financial-services industry and his expertise as
The work involved in the assignment has been divided between the two firms of auditors as follows: Ernst & Young is responsible for auditing the financial statements of ING Groep N.V.
Board and the Audit Committee shall conduct an assessment of the functioning of the external auditor. The main conclusions thereof shall be communicated to the General Meeting of
TRUST OFFICES’ REPORTS Report of Stichting ING Aandelen Report to the depositary-receipt holders of ING Groep N.V.
Pursuant to the amendments, the restriction on the exchangeability of the depositary receipts has been abolished, so that the issuance of depositary receipts for shares no longer serves as an anti-takeover device. The Trust Office will, upon request, grant voting proxies to depositary -receipt holders under all circumstances.
ING Shares) whose objectives now include primarily promoting the interests of shareholders and depositary-receipt holders, also with a view to the wider interests of ING and all its stakeholders, promoting information exchange between the company on the one hand and its shareholders and depositary-receipt holders on the other, as well as promoting the solicitation of voting proxies of other shareholders and depositary-receipt holders. In addition, depositary-receipt holders can issue voting instructions to the Trust Office.
Supervisory Directors of ING are no longer eligible for appointment to the Board of the Stichting, thus ensuring that the Board can operate even more independently from ING than before. As a consequence, Cor Herkströter and Mijndert
The Board of the Stichting is of the opinion that the adjustments to the structure of the
performed duties relating to the administration of registered ordinary and preference shares for which bearer depositary receipts have been issued.
Meeting (AGM) on 15 April 2003. The Board, as is customary, attended the AGM and answered various questions from others present. The
Association, shareholders and depositary-receipt holders unable to attend the AGM were able to issue voting instructions to the Stichting.
On 11 June 2003 the Board met in its new composition for the first time. The purpose of this meeting was to inventory and evaluate the changes confronting the Stichting as a result of the adjusted corporate governance of ING Group.
In subsequent consultation on 3 October 2003 between the Chairman of the Board, John Simons, and the Chairman of the Executive Board of ING
Stichting as extensively as possible in the effective pursuit of its duties and objectives.
On 31 December 2003, preference shares A representing a nominal amount of EUR 104,493,696 were entered in the administration, for which 87,078,080 depositary receipts with a nominal value of EUR 1.20 were issued. The decrease of 1818 relative to 2002 is due to the conversion of depositary receipts into preference shares A.
Risseeuw and Jan Veraart are due to retire by rotation. Both are eligible for reappointment.
The Board of the Stichting consists of: John Simons, Chairman (former Chairman of the Executive Board of N.V. Bouwfonds
Executive Board of Getronics NV, several supervisory directorships and additional offices); Jan Veraart (former Chairman of the Executive
The Trust Office may consult depositary-receipt holders. This possibility was not made use of, also given the fact that holders of depositary receipts can attend the General Meeting of Shareholders and voice their opinions.
The activities involved in the administration of shares are performed by the Trust Office of the Stichting: Administratiekantoor van het
The contact details of the Trust Office are: Rob M. Fischmann
A call-option agreement concluded between the Stichting and ING Groep N.V. vests the
In 2003 the Board of the Stichting met twice, namely on 3 April and 1 December. After the amendment of the Articles of Association took effect on 23 June 2003, no Executive Directors,
Statement of independence The Board of Stichting Continuïteit ING and the
Board of Stichting Continuïteit ING contained in Annex X of the Listing and Issuing Rules of
In the 2003 General Meeting of Shareholders it was announced that the new policy would be up for discussion in the General Meeting of
Remuneration structure Total compensation throughout ING consists of three basic components: – Fixed or base salary, the guaranteed annual income component; – Short-term incentive (STI) in cash, compensates for past performance measured over one year; – Long-term incentive (LTI) in stock options and/or performance shares, compensates for performance measured over multiple years and is forward-looking.
ING’s remuneration structure is based on five key principles that will apply across ING. These principles are: – Total compensation levels will be benchmarked against relevant markets in which ING
– ING aims for a total compensation level at the median level in the relevant market, allowing only for above-median compensation in the event of outstanding performance.
– To enhance the effectiveness of the shortterm incentive plan, clear, measurable and challenging targets will be set at the beginning of the year, allowing for appropriate compensation levels in the event that targeted performance is achieved.
This chapter sets out the remuneration for the Executive Board and the Supervisory Board. The chapter starts with the general policy for senior-management remuneration, followed by the
top senior managers will participate in the plan to ensure a common focus on ING’s overall performance.
Short-term incentive plan The short-term incentive is paid in cash. The at-target bonus opportunity is expressed as a percentage of base salary. The target levels are based on benchmarks reflecting external market competitiveness as well as internal objectives.
Board, the performance share. Performance shares are granted to ensure alignment of senior management with the interests of shareholders, and to retain top management over a longer period of time. Thus, the LTI awards will be granted with the total nominal value split equally between stock options and performance shares. The Executive Board members are not allowed to sell shares obtained either through the stock-option or the performance-shares plan within a period of five years from the grant date.
After three years, the options will only vest if the option holder is still employed by ING (or retired). The exercise price of the stock options is equal to the Euronext Amsterdam opening price on the first day after the General Meeting of Shareholders.
The criteria used to determine the performance peer group were: a) considered comparable and relevant by the Supervisory Board, b) representing ING’s current portfolio of businesses (e.g.
Deutsche Bank, HSBC, BSCH (banks); – Aegon, AIG, Allianz, AXA, Aviva, Prudential,
Hartford Financial Services, Munich Re (insurance companies); – Amvescap PLC (asset manager).
Shareholders, the Supervisory Board will table this plan as described above for approval at the
Compensation level Executive Board As part of the study on the future remuneration, a comparative assessment on compensation levels and mix of fixed and variable components had to be made. Therefore, in 2002, a compensation peer group was composed. This peer group is a mix of European financial-services companies and Dutch-based multinationals. The peer group reflects ING’s business structure and environment. ING competes with these companies for executive talent. The following companies were part of this compensation peer group: ABN
The report identified a significant compensation gap at total direct compensation level, between
Pensions Executive Board members The pensions of the Dutch members of the
(“Standard Retirement”), which in general will take place on June 1 of the year that the incumbent has reached or will reach the age of 60. By mutual agreement the retirement date can be extended to the end of the month in which
NUMBER OF SHARES AFTER THREE-YEARS PERFORMANCE PERIOD RELATED TO PEER GROUP
Following the 2001 review, it was decided not to change the salary levels. As a result, the
Executive Board retained the base-salary levels set in 1999. Based on the afore-mentioned study, the Supervisory Board decided to increase the base-salary levels for the Executive Board members by 7.5% with effect from 1 January 2003, also taking into account that the Collective
As in 2002, the target STI plan payout over 2003 was set at 30% of the individual Executive Board member’s base salary. The final award is based for 70% on the achievement of the three Group financial targets mentioned above and for 30%
STI payout over 2003 and actual STI payout over 2002 is largely influenced by the fact that in 2002
The individual targets for the Executive Board members were agreed with the chairman of the
Committee for the final award. The outcome below is based on a payout related to the individual performance element that equals that of the Group financial element (175% of target).
Board members. For 2003, the Supervisory Board set the target LTI award at 30,000 stock options and 10,000 performance shares (based on a ratio of 3 options to 1 performance share). The actual number of stock options and provisional performance shares to be granted to the Executive
Board members will be based on the performance over the financial criteria used to determine the short-term incentive award (i.e. Group profit, expenses and return on economic capital). The payout was set to vary between 50% of target (if
STI payout would be equal to 0%) and 150% of target (if STI payout would be 200%).
Based on Group STI performance outcome over 2003 of 175%, the resulting provisional LTI
award would be 137.5% of target, being 41,250 options and 13,750 performance shares (compared with the target level of 30,000 options and 10,000 performance shares). The option grant is fixed and linked to the 2003 performance. The exercise price of the options will be fixed at the Euronext Amsterdam Stock Market opening price of the ING Group share on 28
April 2004. The performance shares are granted provisionally; the final number will depend on the ranking within the performance peer group after the first three-year period on the basis of 13,750 shares equals 100%.
COMPENSATION IN CASH OF THE INDIVIDUAL MEMBERS AND FORMER MEMBERS OF THE EXECUTIVE BOARD
(1) Fred Hubbell gets his compensation in US dollars. For each year, the compensation in US dollars has been translated to euros at the average exchange rate for that year.
(2) Hessel Lindenbergh retired from the company as of 1 July 2003. Pursuant to the terms of his retirement, he received a retirement benefit. Salary reflects payments made up to retirement.
LONG-TERM INCENTIVES OF THE INDIVIDUAL MEMBERS AND FORMER MEMBERS OF THE EXECUTIVE BOARD
(1) Refers to Ewald Kist, Michel Tilmant, Fred Hubbell, Cees Maas, Alexander Rinnooy Kan and Hessel Lindenbergh.
The fair market value of the long-term incentive for Michel Tilmant is 237 for 2001 and 392 for 2000, due to different stock-option exercise prices. Since Hessel Lindenbergh retired as of 1 July 2003, he did not qualify for the 2003 long-term incentive.
In 2003, in relation to 2002 performance, each Executive Board member was granted 7,000 conditional shares, the condition being an employment contract.
For performance over 2003, the company has proposed a new long-term incentive plan, pursuant to which the Executive Board members may be granted in 2004 a combination of share options (41,250) and provisional performance shares (13,750). The vesting period for the performance shares is 3 years.
(2) Fred Hubbell's pension costs have been translated from US dollars to euros at the average exchange rate for that year.
No loans and advances have been granted to other members of the Executive Board
INFORMATION ON THE OPTIONS OUTSTANDING AND THE MOVEMENTS DURING THE FINANCIAL YEAR
Loans The first table on the previous page presents the loans provided to the Executive Board members.
As at 31 December 2003, Fred Hubbell (including direct family) held 1,104,100 ING Group shares
Other members of the Executive Board (including direct family) did not hold ING Group shares.
Base salary Executive Board 2004 The base salary of the Executive Board members will be frozen for 2004, in the light of the Dutch
The mix for the 2004 short-term incentive award will remain the same as in 2003: 70% will be determined by pre-defined ING Group financial performance measures and 30% will be based on individual performance objectives set for each Executive Board member and agreed by the Supervisory Board.
Executive Board’s short-term incentive award for the Group performance should again be measured using the same three financial criteria as in 2003: net operating profit, total operating expenses and return on economic capital, equally weighted. The targets set are challenging.
The Supervisory Board proposes to set the nominal LTI target value at 50% of base salary (same target percentage as the STI). The range may vary between 50% and 150% of the target level
(e.g. between 25% and 75% of base salary). The structure for the 2004 long-term incentive award will remain the same as the proposed 2003 structure (50% of the total LTI value in stock options and 50% in performance shares).
2. Including a compensation to match his former remuneration as a member of the BBL Supervisory Board.
HELD BY MEMBERS OF THE SUPERVISORY BOARD AS AT 31 DECEMBER 2003 number of options amounts in euros
REMUNERATION SUPERVISORY BOARD In 2003, the remuneration of the members and former members of the Supervisory Board amounted to EUR 0.5 million (2002 and 2001: EUR 0.6 million). The remuneration of the chairman amounted to EUR 68,100; other members received a remuneration of EUR 38,600.
Members of a Supervisory Board Committee, not being chairman of the Supervisory Board, received a remuneration of EUR 1,360 for that membership as well as an expense allowance of
As at 31 December 2003, the amount of loans and advances outstanding to the Supervisory
and a loan to Paul Baron de Meester of EUR 0.2 million at an average rate of 4.8%. No loans and advances were outstanding to other members of the Supervisory Board.
As at 31 December 2002, the amount of loans and advances outstanding to the Supervisory
Supervisory Board held option rights that were granted in earlier years when they were members of the Executive Board, specified in the table on the previous page.
ING Group purchases direct or indirect its own shares at the time options are granted in order to fulfil the obligations with regard to the existing stock option plan and to hedge the position risk of the options concerned. The purpose of this policy is to avoid an increase in the number of ING Group shares, causing a dilution of the net profit per share. As at 31 December 2003, 28,068,191 own shares were held in connection to the option plan (2002: 28,437,105). As a result the granted option rights were hedged, taking into account the following parameters: strike price, opening price, zero coupon interest rate, dividend yield, expected volatility and employee behaviour.
Group except administrative costs for the stock option plan and funding costs resulting from the purchase of own shares. Due to timing differences in granting option rights and buying shares to hedge them, results can occur if shares are purchased at a different price than the exercise price of the options. These results are recognised in Shareholders’ equity. However,
ING Group does not intentionally create a position and occurring positions are closed as soon as possible. If option rights expire, the results on the (sale of) shares that were bought to hedge these option rights are either debited or credited to Shareholders’ equity.
Net profit (in millions of euros) 4,043 3,974 4,500 4,386 4,577 4,427
Basic profit per share (in euros) 2.00 1.97 2.32 2.27 2.37 2.30
Diluted profit per share (in euros) 2.00 1.97 2.32 2.27 2.35 2.29 1. The amounts in the pro forma columns reflect the figures if the fair value of the stock options at the time they were granted would have been recognised in the profit and loss account.
Ben Mantel, Harry Meijer, Henny Post, Wouter van Puffelen, Meindert Roosjen,
Following internal elections of local works councils, a new European Works Council will be appointed as of 1 May 2004.
Executive Board regarding strategic, social and policy issues or developments that are relevant to ING.
WO R K S C O U N C I L S A N D A DV I S O R Y C O U N C I L
Annual Report are statements of future expectations and other forward-looking statements.
Actual results, performance or events may differ materially from those in such statements due to, among other things, (i) general economic conditions, in particular economic conditions in ING’s core markets, (ii) performance of financial markets, including emerging markets, (iii) the frequency and severity of insured loss events, (iv)
assumes no obligation to update any forwardlooking information contained in this document.
As a commercial organisation, ING believes that it must provide an adequate return for its shareholders. It supports a market economy as the most effective means of achieving the best returns for its customers, investors and employees, as well as for the countries and territories where it operates.
It expects all its employees to act in accordance with the Group’s Business Principles.