OUR STRATEGY To serve the interests of our stakeholders, increase management focus and create value for our shareholders, ING is moving towards separation of its banking and insurance operations. We believe the widespread demand for greater simplicity, reliability and transparency makes this the best course of action. The separation is also part of the restructuring plan submitted to the European Commission in order to get approval for the Dutch state aid received during the financial crisis. In the future, ING Bank intends to be a strong European bank, with leading domestic banking positions in attractive, stable home markets, as well as a leading commercial bank in the Benelux and Central and Eastern Europe. We also intend to continue to selectively evolve our various ING Direct units into more mature full-service banking models. These initiatives in Europe, coupled with our positions outside of Europe, should give the Bank attractive growth potential in the long term. ING will build on its global presence and international network and capitalise on its leadership position in gathering savings, multi-channel distribution, simple propositions and marketing. On the insurance side, the focus will be on continuing to improve performance in order to optimise returns and value for the business as we prepare for separation. We will focus on earning our customers’ trust through transparent products, value for money and superior service. This reflects our universal customer ideal: saving and investing for the future should be easier.
Moreover, there needs to be a balance between on the one hand pricing that is affordable and on the other hand meeting capital objectives with which the industry can fulfil its long-term obligations. Such a balanced market-based framework should be designed to last for a long time (to come) and should maintain the ongoing trust from consumers, thereby positioning the European insurance industry for the future.
WestlandUtrecht Bank (WUB) became commercially independent of ING in November 2010 after which options were further explored in 2011 to divest WUB.
It is our mission to help our customers manage their financial future in ways that are considered responsible, valuable and sustainable by all those we serve through our products, people and activities. We strive to leverage our resources, skills and expertise as an international financial institution to contribute to economic growth, the financial well-being of our customers and positive change. We believe that we best contribute to society by taking the following approach: – Being good at what we do.
MAKING A DIFFERENCE IN COMMUNITIES With over 97,000 employees in more than 40 countries, ING is part of many communities. We consider it our responsibility to make a positive contribution to these communities, so we work hard to strengthen them from the inside out. This involves educating children about finance so that future generations can be financially independent and self-sufficient.
LOOKING FORWARD The anticipated separation of the banking and insurance operations will not alter ING’s commitment to sustainable development. The sustainability strategies for ING Bank and the to-be-separated insurance/investment management operations will be in line with the Group strategy and based on a track record built up over the years.
ING plays an important role as a financial intermediary in society. The essence of our business is transformation, which takes many forms and serves various customer needs. In our retail banking operations, for example, we transform on-demand entrusted deposits into long-dated mortgage loans. Through our payments and cash management operations we make money available when and where customers need it. Our insurance business is all about transformation through time by converting uncertain future cash flows into fixed flows, whether they are in the form of life insurance contracts or pensions. Geographic transformation takes place through our international commercial banking network when we help corporate customers fund their international business plans.
DIVERSITY A diverse workforce remains a focal point for ING and enhancement is therefore promoted throughout the organisation. However, goal setting, implementation and metrics differ for each business unit and are carried out separately for Bank and Insurance/IM.
oPerationaL eXCeLLenCe Achieving true operational excellence is a key priority. It goes far beyond just cost-cutting. Operational excellence is about constantly improving products, processes and systems to structurally and sustainably increase efficiency. For ING it means a simpler organisation with more time to focus on the customer.
With our retail models converging, our ambition is to selectively evolve ING Direct into a full-service bank. ING Bank is well placed to capture growth opportunities in the high-growth markets of Central Europe and Asia. Our experience in lean and competitive markets has made us leaders in innovative distribution at low costs. This puts us in a good position as customers want simple, transparent and fairly priced products.
Social media remained an important area of activity for ING Direct, enabling closer contact with the customer. ING Direct Canada supported the national roll out of the new THRiVE cheque (payment) account with an extensive campaign on social media platforms like Facebook and Twitter. The new payment account was created thanks to customer feedback through crowd sourcing (using the internet to ask a large group of people their opinions about something) and it won the product of the year 2011 award in Canada. In France a similar approach was taken, when ING Direct organised a blog which asked for suggestions and feedback from existing customers on a range of issues from the development of a new mobile phone application to their thoughts on proposed promotional offers. In Germany, ING-DiBa conducted a campaign, DiBaDu und Dein Verein on its website to sponsor local non-profit associations. Associations had to register on the website and people could then vote on which association should receive funds. The campaign resulted in more than 17.5 million votes over a six-week period and generated much discussion in social media channels.
ING Bank Turkey launched the Orange account, the country’s first variable savings product (variable term), which was developed using ING’s extensive savings know-how. The Orange account accelerated an operational transformation and simplification of the business and enhanced ING’s image in the Turkish market. It helped double the level of deposits in ING Bank Turkey in 2011 with 44% of all Orange accounts opened coming from new customers. The account positioned ING Bank Turkey as an innovative, customer- savvy savings bank. It also showed how ING could bring its global experience to help local operations in emerging markets to best meet the financial needs of their customers. ING Bank in Turkey also launched a mobile phone banking application, which took first prize in the ‘Best Mobile Application’ category in one of the country’s largest interactive award ceremonies.
In Thailand, TMB Bank continued to work improving brand recognition and customer engagement. Brand recognition rose to 66% in April 2011 from 31% in May 2009. TMB is in the second phase of its transformation programme which focused on service and operational excellence, product expansion and channel and brand enhancement.
Underlying result of General Lending and Payments and Cash Management (PCM) declined by 9.9% to EUR 410 million in 2011 from EUR 455 million in 2010. This was mainly driven by impairments on the restructuring portfolio, as well as higher expenses due to selective IT investments in PCM. The result of Structured Finance rose by 21.4% to EUR 1,139 million in 2011, driven by strong volume growth in the first half of 2011 resulting in higher interest results and commission income, while risk costs were lower. The result of Leasing & Factoring declined EUR 5 million to EUR 75 million entirely due to higher risk costs.
In 2011, net production of client balances was EUR 5.8 billion negative. Funds entrusted reported a net outflow of EUR 3.6 billion, while lending was EUR 1.7 billion down as demand was subdued. Assets under management declined EUR 0.6 billion.
• ING advised Couckinvest in its successful public (to private) offer for all outstanding shares of Omega Pharma N.V., one of Belgium’s largest listed corporations. ING also acted as a lead-arranging bank for the acquisition facilities needed for this landmark transaction.
Furthermore, in the current economic environment, the L&F portfolio was reviewed against the criteria of its strategic fit with the focus of ING Bank across Europe, its performance and its critical mass in some countries. As a result of this review, ING Car Lease was sold to BMW Group fleet management division Alphabet, and decisions have been taken to downsize or discontinue our leasing operations in certain countries.
The SF business continued to grow in 2011, with revenues supported by relatively good margins on business originated in 2009 and 2010.
In 2011, ING IM continued to focus on delivering best-in-class performance and services for its customers through its strengths in products, distribution, and investment expertise.
The operating result increased 43.8%, as a higher investment margin, higher technical margin and a higher non-life result more than offset higher administrative expenses.
In the Closed Book business, NN Services introduced a standardised processing and IT system (business process management layer) for several legacy lines of retail life businesses. The business focus is on process rationalisation, excellent customer service and lower administration costs.
The operating result for Insurance US increased 18.3%, as higher investment margins and lower administrative expenses were partially offset by a lower technical margin. The investment margin increased by 7.8% primarily due to reinvestment of cash balances and a reduction in average interest credited.
Insurance Insurance US is the second largest provider of term life insurance and the sixth largest provider of universal life insurance, according to LIMRA’s third quarter 2011 rankings of companies participating in its survey. In addition, the company is the fifth largest provider of medical stop-loss insurance based on in-force premiums, excluding companies in the managed care market.
Professional Life Advisors Network (PLAN) has added ING as an approved core carrier. PLAN is composed of prominent life brokerage agencies across the US that help financial professionals to provide appropriate insurance strategies for complex personal, business and estate-planning issues.
> Double-digit sales growth > Customer-focused product innovation > Distribution expansion through tied agents and bancassurance
Insurance Asia/Pacific (IAP) recorded strong performance in 2011. Double-digit sales growth was driven by improved tied agency productivity, new product launches and a strong multi-distribution platform. The business continues to focus on its strategic priorities and enhancing value by increasing the focus on protection and long-term savings products for customers.
Board which were publicly announced in October. The Nomination Committee advised positively on a number of Supervisory Board candidates for appointment in the 2012 annual General Meeting. The Nomination Committee advised positively on the proposed Supervisory Board Nomination Procedure.
The Dutch State recommended Lodewijk de Waal and Tineke Bahlmann for appointment to the Supervisory Board, who were both appointed by the General Meeting on 27 April 2009.
agreements. Following a change of control of ING Group (as the result of a public bid or otherwise), such agreements may be amended or terminated, leading, for example, to an obligatory transfer of the interest in the joint venture, early repayment of amounts due, loss of credit facilities or reinsurance cover and liquidation of outstanding futures and option trading positions.
Deferred acquisition costs 10 10,204 10,499 Assets held for sale 11 62,483 681
Consolidated statement of cash flows of ING Group for the years ended 31 December amounts in millions of euros 2011 2010 2009
Underwriting expenditure –281 –109 Taxation 128 –38 Result after taxation –409 –71
Accounting policies for the consolidated annual accounts of ING Group continued 104 ING Group Annual Report 2011
Notes to the consolidated annual accounts of ING Group continued 132 ING Group Annual Report 2011
Ordinary shares All ordinary shares are in registered form. No share certificates have been issued. Ordinary shares may be transferred by means of a deed of transfer. A transfer of ordinary shares requires written acknowledgement by ING Groep N.V. The par value of ordinary shares is EUR 0.24. The authorised ordinary share capital of ING Groep N.V. currently consists of 14,500 million ordinary shares. It increased in 2011 from 4,500 million ordinary shares to 14,500 million ordinary shares as a result from an amendment made to the Articles of Association on 15 June 2011. As at 31 December 2011, 3,832 million of ordinary shares were issued and fully paid.
Prior year provisions – benefit payments to policyholders –13,872 –11,938 –12,548 –10,681 –700 –557 –27,120 –23,176 – interest accrual and changes in fair value of liabilities 6,302 4,884 35 35 6,337 4,919 – valuation changes for risk of policyholders –1,190 10,468 –1,190 10,468 – effect of changes in discount rate assumptions 5 5 – effect of changes in
Loans and advances to customers 71,742 13,229 34,457 147,566 331,381 4,150 602,525
Operating cash flow –13 –25 11 Investing cash flow –68 56 49 Financing cash flow –25 –6 –25 Net cash flow –106 25 35
Liabilities Customer deposits and other funds on deposit 21 Miscellaneous other liabilities 51
There are no significant provisions for doubtful debts or individually significant bad debt expenses recognised on outstanding balances with related parties.
Classification of bonds in Levels 2 and 3 is mainly a result of decreased trading liquidity in the relevant markets.
ING Group transferred part of its life insurance business to Scottish Re in 2004 by means of a co-insurance contract. A loss amounting to EUR 160 million was recognised in Underwriting expenditure in 2004 on this transaction. This loss represented the reduction of the related deferred acquisition costs. In addition, an amount of EUR 240 million is being amortised over the life of the underlying business, starting in 2005 and gradually decreasing in subsequent years as the business tails off. The amount amortised in 2011 was EUR 14 million (2010: EUR 17 million; 2009: EUR 13 million). The cumulative amortisation as at 31 December 2011 was EUR 151 million (2010: EUR 132 million; 2009: EUR 107 million). On 23 January 2009, Hannover Re and Scottish Re announced that Hannover Re has agreed to assume the ING individual life reinsurance business originally transferred to Scottish Re in 2004.
Less: Total net result from discontinued operations 1,104 209 93 Basic earnings from continuing operations 3,142 2,160 –1,704 3,783.7 3,781.5 2,686.0 0.83 0.57 –0.64
Corporate Line Insurance The Corporate Line Insurance includes items related to capital management, run-off portfolios, ING Re and remaining activities in Latin America.
Non-life operating result 248 6 4 258 Corporate Line operating result –802 –802
ING Group’s risk management (including liquidity) is explained in the ‘Risk management’ section.
As part of the integration of risk management into the annual strategic planning process, the MBB issues a Planning Letter which provides the organisation with the corporate strategic direction, and addresses key risk issues. Based on the Planning Letter, the business lines and business units develop their business plans which align with the Bank’s strategic direction. The process includes a qualitative and quantitative assessment of the risks involved. As part of the process strategic limits and risk appetite levels are explicitly discussed. Based on the business plans, the Management Board Bank formulates the Strategic Plan which is submitted to the Supervisory Board for approval.
Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11 Dec 11
(3) Stressed VaR and Incremental Risk Charge figures are based on Q4 2011
Foreign exchange Foreign exchange Chinese yuan 356 US dollar –457 US dollar –283 Taiwan dollar 155 Czech koruna –154 Chinese yuan 83 Taiwan dollar –44 South Korean won 68 Bulgarian lev –43 Bulgarian lev –57
NPV-at-risk excluding ING Direct USA is –EUR 1,914 million. In the course of 2011 NPV-at-Risk decreased substantially. This was mainly due to more expected prepayments of mortgages as a consequence of the low interest rate environment. This decreased the expected duration of mortgages and subsequently the value sensitivity to a rate increase. Furthermore investments were shortened, leading to a lower duration of assets. Finally the outright position in the strategic interest rate portfolio was reduced. This also contributed to the decrease of the NPV sensitivity.
ING BANK BUSINESS RISK Business Risk for ING Bank has been defined as the exposure to value loss due to fluctuations in volumes, margins and costs, as well as client behaviour risk. It is the risk inherent to strategy decisions and internal efficiency. The calculation of Business Risk Capital is done by calculation of two components, (i) Expense risk relates to the (in)flexibility to adjust expenses, when that is needed.
• AFR sensitivities – The potential reduction of the current net asset value (based on fair values) to a change in different risk factors; • IFRS Earnings sensitivities – The sensitivity of realised pre tax earnings of the insurance operations to a change in different risk factors over a full year, using scenario analysis.
Economic Capital break-down ING Insurance Eurasia (99.5%) by risk category 2011 2010
Security lending business ING Insurance Eurasia entities can enter into agreements to sell and buy back marketable securities. These transactions can take many legal forms. Repurchase and reverse repurchase agreements, buy/sellback and sell/buyback agreements, and securities borrowing and lending agreements are the most common. The amount of marketable securities that ING Insurance Eurasia held as collateral under these types of agreements at 31 December 2011 was EUR 8.4 billion (2010: EUR 9.5 billion). The decrease was due to the reduced security lending activities. These amounts exclude the cash leg of the respective transactions, as well as any pledges of securities under Tri-Party agreements (as the underlying is not directly pledged to or owned by ING Insurance Eurasia). As a general rule, the marketable securities that have been received under these transactions are eligible to be resold or pledged in other (similar) transactions. ING is obliged to return equivalent securities in such cases.
Risk committees are established at the ING Insurance US and business unit levels. The Chief Risk Officers of the business units have a reporting line to the ING Insurance US CRO.
Equity – Impact of a drop in equity prices which impacts direct equity exposure and loss of fee income from variable and equity linked
Real Estate – Impact of losses related to changes in real estate – Measured by impact of all real estate down 15%
ING Insurance US largely invests in financial instruments issued in the United States, as required by regulation. Bonds and private 274 ING Group Annual Report 2011
In the following table, we show the Group’s FICO ratio on the following basis: • Insurance required capital from applying European Solvency I rules to all ING Insurance entities globally (regardless of local capital requirements); • Bank required capital based on applying Basel II with the Basel I floor (80% of Basel I Risk Weighted Assets); • Group FICO capital using an approach similar to that used for Bank BIS capital and Insurance IGD capital whereby Group leverage is deducted.
ING Verzekeringen N.V. – short-term A-2 P-2 F2 – long-term A– negative Baa2 developing A– negative
Other includes certain intercompany eliminations between ING Bank N.V., ING Insurance Topholding N.V. and ING Verzekeringen N.V.
The Financial Stability Board In addition to the adoption of these measures, regulators and lawmakers around the world are actively reviewing the causes of the financial crisis and exploring steps to avoid similar problems in the future. In many respects, this work is being led by the Financial Stability