The results of our annual employee survey reveal that our employees feel engaged with ING, even in these times of major change. That is important because they play an essential role in our services and in our success. ING is and remains an important player in the financial sector, and in 2012 we will shoulder the responsibility that comes with this role. Together with our stakeholders, we will continue to do all we can to further shape our future.
* You can find more information on the members of the Executive Board on page 67 and on the members of the Supervisory Board on pages 70-71. The names of the nominated candidates for appointment at the General Meeting on 14 May 2012 can be found on pages 60 and 71.
(3) The 2010 figures have been restated to reflect the change in accounting policy, i.e., the move towards fair value accounting for Guaranteed Minimum Withdrawal Benefits for life in the US Closed Block VA as of 1 January 2011.
ING is on the Financial Stability Board’s list of Global Systemically Important Financial Institutions (G-SIFIs) which means it will be forced to hold more capital because of its importance to the global financial system. The package of additional policy measures to address SIFIs has been submitted for approval to the G20 in November 2011 by the Financial Stability Board.
In Italy, ING Direct opened its first bank shop in September 2011 and by the end of the year opened a further six shops. It was an important milestone in building the most preferred consumer bank in the country.
In 2011, Commercial Banking delivered strong results, maintaining its focus on core franchises in the Benelux, Central and Eastern Europe, Structured Finance and Financial Markets. We made significant progress in optimising our balance sheet and with managing our resources in relation to solvency, liquidity and funding more efficiently; this against the backdrop of a tough economic environment and materially increasing regulatory demands.
The latest statistics from the leasing industry association (Leaseurope) confirm that ING Lease improved its market share to 6th position in Europe during 2011, demonstrating its ability to continue to support key customers in ING’s focus markets. ING Commercial Finance Netherlands was voted into 1st place by its customers (source: Incompany 100 Business Finance survey 2011) and ING Lease UK was voted ‘2011 Broker Champion of the Year’ in the Leasing World Awards, cementing their position in the UK.
In the coming year, we will: • Continue to be client focused, making further inroads through transparency, fair pricing, convenience and excellent service. • Improve and maintain leadership positions in our core markets in
Employee benefit markets recorded growth particularly in Spain, but also in Poland, the Czech Republic and Slovakia. In some countries in the Central and Rest of Europe region, the downsizing of the public sector, particularly in healthcare and pensions, together with the growth in the number of small and mediumsized enterprises (SME) mean the employee benefits business has solid growth prospects.
In 2011, ING received several awards for high quality communication and education about retirement plans from well-respected organisations such as the Insurance and Financial Communicator’s Association, Pensions & Investments, the National Association of Governmental Defined Contribution Administrators, the Profit Sharing Council of America, MarCom and Dalbar.
In 2009, ING decided to cease selling variable annuity policies with living benefits in the US. Since then, ING has taken decisive action to reduce risk, earnings volatility and expenses for this legacy book. These actions have included reducing deferred acquisition costs, strengthening reserves, expanding hedging programmes and increasing transparency by reporting the US Closed Block VA as a separate business alongside the ING Insurance US business.
FINANCIAL DEVELOPMENTS As announced on 7 December 2011, the completion of a comprehensive policyholder behaviour assumption review for the US Closed Block VA led to a charge of EUR 1.1 billion in the fourth quarter of 2011, which resulted in a loss of EUR 1,273 million on an underlying result before tax basis in 2011. The assumptions were updated for lapses, mortality, annuitisation, and utilisation rates, with the most significant revision coming from the adjustments of lapse assumptions. The impact of the assumption adjustments includes a charge to restore the reserve adequacy to the 50% confidence level for the US Closed Block VA business.
The review showed current US policyholder behaviour for Closed Block VA policies sold predominantly between 2003 and 2009 diverged from earlier assumptions made by ING, particularly given the ongoing volatility and challenging market circumstances. The revisions in 2011 brought the assumptions more in line with US policyholder experience and reflected to a much greater degree the market volatility of recent years.
According to internal estimates based on surveys, 82% of middleincome earners in Asia felt a greater need to protect their income and lifestyle in 2011. In addition, one out of every two respondents (52%) also indicated their intention to buy an additional insurance policy in the next 12 months to insure against any potential economic downturn. This augurs well for the future of insurance growth in Asia.
Corporate Governance Committee meetings The Corporate Governance Committee met twice in 2011 and one member was absent once. In February, the Corporate Governance Committee discussed the agenda for the 2011 annual General Meeting, including the publication on the application of the Dutch Banking Code by ING Bank N.V. In November, the Committee advised to approve the proposed governance structure for Insurance and discussed the implementation of the Dutch Insurance Code within Insurance.
For more information on the State Nominees, please refer to the section on the Supervisory Board; for more information on ING’s remuneration policy, please refer to the Remuneration report, starting on page 80.
CORPORATE GOVERNANCE CODES COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE For its corporate governance structure and practices, ING Group uses the Corporate Governance Code as reference. The Corporate Governance Code can be downloaded from the website of the Monitoring Commission Dutch Corporate Governance Code (www. commissiecorporategovernance.nl/Corporate_Governance_Code).
The Board of ING Trust Office currently comprises five members who are independent from ING Group. No Executive Board members or former Executive Board members, Supervisory Board members or former Supervisory Board members, ING Group employees or former ING Group employees or permanent advisors or former permanent advisors are on the Board of ING Trust Office. The Board of ING Trust Office appoints its own members, without any requirement for approval by ING Group.
ISSUANCE OF SHARES ING Group’s authorised capital is the maximum amount of capital allowed to be issued under the terms of the Articles of Association. New shares in excess of this amount can only be issued if the Articles of Association are amended. For reasons of flexibility, ING Group seeks to set the authorised capital in the Articles of Association at the highest level permitted by law.
RECORD DATE Pursuant to Dutch law, the record date for attending a general meeting and voting on the proposals in that general meeting is the twenty-eighth day before the day of the general meeting.
PROPOSALS BY SHAREHOLDERS AND HOLDERS OF DEPOSITARY RECEIPTS Proposals to include items on the agenda for a general meeting that have been adequately substantiated under applicable Dutch law can be made by shareholders and holders of depositary receipts representing a joint total of at least 0.1% of the share capital or representing together, on the basis of the stock prices on Euronext Amsterdam by NYSE Euronext, a share value of at least EUR 50 million. Given the periods of notice required for proxy voting, proposals have to be submitted in writing at least 60 days before the date of the meeting. Properly submitted proposals will be included on the agenda for the general meeting.
• the relevant holder of depositary receipts may delegate the powers conferred upon him or her by means of the voting proxy, provided that the relevant holder of depositary receipts has announced his or her intention to do so to ING Trust Office observing a term before the commencement of the general meeting, which term will be determined by ING Trust Office.
SUPERVISORY BOARD APPOINTMENT AND DISMISSAL Members of the Supervisory Board are appointed by the General Meeting from a binding list to be drawn up by the Supervisory Board. The list will be rendered non-binding if a resolution of the General Meeting to that effect is adopted by an absolute majority of the votes cast, which majority represents more than one-third of the issued share capital. Candidates for appointment to the Supervisory Board must comply with the expertise and reliability requirements set out in the Dutch Financial Supervision Act. Pursuant to current Dutch law, this list is to contain at least two candidates for each vacancy, and if not, the list will be non-binding. With respect to the second candidate, ING Group’s policy is to propose (retired) senior managers or other high-ranking officers who, in view of the forthcoming abolition of this requirement, do not have to meet the independency requirements of the Corporate Governance Code or the requirements of the Supervisory Board Profile.
PETER A.F.W. ELVERDING (VICE-CHAIRMAN) (Born 1948, Dutch nationality, male; appointed in 2007, term expires in 2015) Former chairman of the Managing Board of Directors of Koninklijke DSM N.V. Former vice-chairman of the Supervisory Board of De Nederlandsche Bank N.V. (Dutch central bank). Other business activities: chairman of the Supervisory Board of Océ N.V. and chairman of the Supervisory Board of Koninklijke BAM Groep N.V. (listed companies). Vice-chairman of the Supervisory Board of SHV Holdings N.V. Chairman of the Supervisory Board of Q-Park N.V. Member of the Supervisory Board of Koninklijke FrieslandCampina N.V. Member of the Board of Stichting Instituut GAK.
DEPOSITARY-RECEIPTS STRUCTURE During the years 2008-2011, participation of shareholders, excluding ING Trust Office, and holders of depositary receipts in annual general meetings of ING Group continually increased from 38.7% to 47.1%. Only the extraordinary General Meeting of 25 November 2009 deviates from this trend with a markedly lower turnout of 31.1%.
On 26 January 2011, the Articles of Association of ING Continuity Foundation were amended.
The composition of the Board is currently as follows: Bas Kortmann, chairman of the Board, Rob van den Bergh, appointed as of 10 February 2011, Allard Metzelaar, who was reappointed as of 12 May 2011 and Wim van Vonno.
The Executive Board is responsible for maintaining proper accounting records, for safeguarding assets and for taking reasonable steps to prevent and detect fraud and other irregularities. It is responsible for selecting suitable accounting policies and applying them on a consistent basis, making judgements and estimates that are prudent and reasonable. It is also responsible for establishing and maintaining internal procedures which ensure that all major financial information is known to the Executive Board, so that the timeliness, completeness and correctness of the external financial reporting are assured.
Pension costs of the individual members of the Executive Board amounts in thousands of euros 2011 2010 2009
(7) Claus Dieter Hoffmann retired in June 2011. The compensation figure for 2011 reflects the partial year as a member of the Supervisory Board. He did not receive any compensation in relation to 2011.
The Unrealised revaluations after taxation comprises EUR –16 million (2010: EUR –2 million; 2009: EUR 15 million) related to the share of other comprehensive income of associates.
Unrecognised past service costs –2 –3 –3 –5 –3 Unrecognised actuarial gains/(losses) 483 –1,731 –1,450 –2,072 198 Net liability (asset) recognised in the balance sheet –3,384 –2,915 –2,554 –1,172 –14
Actuarial gains and losses related to pensions and post-employment benefits for the year ended 31 December 2011 include EUR 1,760 million (2010: EUR 1,085 million; 2009: EUR 387 million; 2008: EUR –2,647 million; 2007: EUR –789 million) experience gain adjustments for assets and EUR 10 million (2010: EUR 154 million; 2009: EUR 172 million; 2008: EUR –70 million; 2007: EUR 83 million) experience gain adjustments for liabilities.
For the year ended 31 December 2011, ING Group recognised EUR –1,028 million (2010: EUR –748 million) of fair value changes on derivatives designated under fair value hedge accounting in the profit and loss account. This amount was partly offset by EUR 1,047 million (2010: EUR 752 million) fair value changes recognised on hedged items. This resulted in EUR 19 million (2010: EUR 4 million) net accounting ineffectiveness recognised in the profit and loss account. As at 31 December 2011, the fair values of outstanding derivatives designated under fair value hedge accounting was EUR –6,286 million (2010: EUR –4,474 million), presented in the balance sheet as EUR 3,192 million (2010: EUR 4,127 million) positive fair values under assets and EUR 9,478 million (2010: EUR 8,601 million) negative fair values under liabilities.
Proceedings in which ING is involved, include complaints and lawsuits concerning the performance of certain interest sensitive products that were sold by a former subsidiary of ING in Mexico. Proceedings also include lawsuits that have been filed by former employees of an Argentina subsidiary, whose employment was terminated as a result the Republic of Argentina’s nationalisation of the pension fund system. Litigation has been filed by the purchaser of certain ING Mexican subsidiaries who claims that the financial condition of the subsidiaries was not accurately depicted. Further, purported class litigation has been filed in the United States District Court for the Southern District of New York alleging violations of the federal securities laws with respect to disclosures made in connection with the 2007 and 2008 offerings of ING’s Perpetual Hybrid Capital Securities. The Court has determined that the claims relating to the 2007 offerings were without merit and has dismissed them. The challenged disclosures that survived the Court’s ruling relate solely to the June 2008 offering, and primarily to ING Group’s investments in certain residential mortgage-backed securities. Additional purported class litigation challenges the operation of the ING Americas Savings Plan and ESOP and the ING 401(k) Plan for ILIAC Agents. The District Court has dismissed the latter case and plaintiffs have appealed. Also an administrator of an ERISA plan has filed a lawsuit seeking to represent a class of ERISA plan administrators claiming that an ING subsidiary has breached certain of its ERISA duties. These matters are being 170 ING Group Annual Report 2011
Transactions with ING Bank N.V. and ING Verzekeringen N.V. ING Bank N.V. ING Verzekeringen N.V.
• launch of a EUR 7.5 billion rights issue, in order to finance the repayment of 50% of the non-voting equity securities and a mitigation of the capital impact of the additional Illiquid Assets Back-up Facility payment as part of the overall agreement with the European Commission to the Dutch State of EUR 1.3 billion; • execution of the Restructuring Plan before the end of 2013; • if the overall return on the (remaining) non-voting equity securities (core Tier 1 securities) issued to the Dutch State is expected to be lower than 10% p.a., the European Commission may consider the imposition of additional behavioural constraints; and • The calling of Tier 2 capital and Tier 1 hybrids will in the future be proposed case by case to the Commission for authorisation, for the shorter period of three years starting from the date of the Commission decision or up to the date on which ING has fully repaid the non-voting equity securities (core Tier 1 securities) to the Dutch State (including the relevant accrued interest of core Tier 1 coupons and exit premium fees).
In order to determine which independent price in the range of prices obtained best represents fair value under IAS 39, ING applies a discounted cash flow model to calculate an indicative fair value. The key input to this model is a discount rate derived from an internal matrix that is used to construct the discount rate per security by applying credit and liquidity spreads relevant to the characteristics of such asset classes. The main assumptions in this matrix include: • a base spread; • a liquidity risk premium; and • an additional credit spread, based on: – seniority in the capital structure – an adjustment is applied to each security based on its position in the capital structure; – vintage – an adjustment is applied for underwriting guidelines deteriorating from 2004 to 2007 in combination with differences in home price developments for these vintages.
Asset backed securities in the United States Level 3 assets include EUR 373 million at 31 December 2011 and EUR 3,362 million at 31 December 2010 for investments in asset backed securities in the United States. These assets are valued using external price sources that are obtained from third party pricing services and brokers. In 2011, these asset backed securities in the United States decreased as a result of a transfer from Level 3 to Level 2. Previously these were classified in Level 3 because of the dispersion between prices obtained for the same security from different price sources. In 2011 prices supported by market observable inputs became available and were used in determining the fair value. Furthermore the decrease was caused by the classification of ING Direct USA as a disposal group held for sale. Reference is made to Note 11 ‘Assets and liabilities held for sale’.
Income from real estate investments 24 128 157 56 57 55 80 185 212
On 2 June 2010 ING Groep N.V. announced that it bought 2,080,000 (depositary receipts for) ordinary shares for its delta hedge portfolio, which was used to hedge employee options and facilitate employee share programmes. The shares were bought in the open market on 1 and 2 June 2010 at an average price of EUR 6.33 per share.
Weighted average number of ordinary shares outstanding during the period (in millions) Per ordinary share
ING Group evaluates the results of its operating segments using a financial performance measure called underlying result. The information 1 W ho w e are 2 Report of the Executive Board 3 C orporate governance 4 C onsolidated annual accounts 5 Parent com pany annual accounts 6 O ther inform ation 7 A
Underlying income – Gross premium income 30,009 30,009 – Net interest result – banking operations 12,628 –165 12,463
The operating result for the life insurance business is also broken down into expenses and the following sources of income: • Investment margin which includes the spread between investment income earned and interest credited to insurance liabilities
Effective as of 2011, the estimate for the short-term equity growth assumption used to calculate the amortisation of DAC in the United States (Insurance US) was changed to a mean reversion assumption. The impact of this change in estimate in 2011 was approximately EUR 14 million lower result before tax.
Gains/losses and impairments –44 –44 –515 38 26 –7 –546 Revaluations –356 272 –4 –9 –33 –213 –343 Market & other impacts 66 –1 31 –821 1 –194 –918 206 ING Group Annual Report 2011
Like most insurance companies, in normal circumstances liquidity risk is quite remote to ING Insurance. Also under the current challenging market circumstances ING Insurance liquidity position is comfortable.
In order to measure the remaining sensitivity of the target core Tier 1 ratio against FX rate fluctuations, the core Tier 1 ratio at Risk (cTaR) measure is used. It measures the drop in the core Tier 1 ratio from the target when stressing a certain FX rate. The stress scenarios for the FX rates that are used for calculating the cTaR, are presented in the last two columns. Only the scenarios that negatively impact the target core Tier 1 ratio are presented: depending on whether the actual foreign currency position is above or below the target position, the worst case scenario is either a negative or positive movement. A positive stress scenario means that the foreign currency appreciates against the Euro. For the US dollar this means that at the end of 2011 the target core Tier 1 ratio would decrease by 0.12% in absolute terms (e.g. from 9.12% to 9.00%) if the US dollar appreciates by 15%. The US dollar cTaR excluding ING Direct USA (not shown in the table below) is significantly lower at 0.01%, which shows that the core Tier 1 ratio excluding ING Direct USA is well protected. Back testing shows that the strategy was effective in 2011; the core Tier 1 ratio was hardly affected by changing FX rates.
ING Bank has three main different categories of real estate exposure on its banking books. First, ING Bank owns buildings it occupies. Second, ING Bank has a Real Estate Development company for which results are dependent on the overall real estate market. The general policy is to mitigate this risk by pre-sale agreements where possible. Third, ING Bank has co-invested seed capital and bridge capital to support the launch of various real estate funds included in the Real Estate Investment Portfolio (REIM). A decrease in real estate prices will cause the value of this seed and bridge capital to decrease and will lower the level of third party assets under management, which in turn will reduce the fee income from this activity. For the third category mentioned above, real estate price shocks will have a direct impact on reported net profit and loss. Please note that exposures mentioned in this paragraph are shown from a risk perspective, which excludes interests of third parties.
Capital and Market –Consistent Valuations which are applied within ING Insurance Eurasia. – Impairment Committee – The authority where impairments for financial reporting purposes are approved (including loan loss provisions).
• Risk Committee MBI Eurasia The Risk Committee MBI Eurasia includes all MBI Eurasia members and heads of finance & risk staff departments. It discusses and decides on risk related items, approving limits and tolerance levels per risk category and approving and mandating action plans for specific financial, product and operational risk issues. The Risk Committee MBI Eurasia has three sub-committees dealing with different risk areas: – Financial Risk Committee – Oversees all financial risks within the ING Insurance Eurasia entities – Product Risk Committee – Oversees all insurance product risks within the ING Insurance Eurasia entities – Non-Financial Risk Committee – Oversees all non-financial risks within ING Insurance Eurasia
Model disclosure The table below shows the main risk categories for business risk within ING Insurance Eurasia. EC numbers are determined using a 99.5% confidence interval on a one-year horizon.
• Extra-territorial Laws: The UK Bribery Act was effective 1 July 2011 and is deemed applicable to ING’s business globally. Accordingly, the ING Group Gifts, Entertainment and Anti-Bribery Policy was amended to comply with the UK Bribery Act, and ING Insurance US adopted and implemented the amended Group policy to enhance ING Insurance US’s existing anti-corruption and anti-bribery policies and procedures.
REGULATORY CAPITAL For the capital adequacy assessment of ING Insurance’s US domiciled regulated insurance businesses, available capital is measured under US statutory accounting principles and required capital is measured under the US regulatory Risk Based Capital (RBC) methodology defined by the National Association of Insurance Commissioners (NAIC). Commonly in the US an insurer’s financial strength and ability to meet policyholder obligations is measured in terms of the amount of statutory capital held in relation to the ‘Company Action Level’ RBC defined by the NAIC framework. Note that the level of capital required by rating agencies to maintain an acceptable claims paying ability rating is well above the regulatory minimum defined by Company Action Level RBC. Consequently, ING Insurance US manages its available capital primarily with respect to capital metrics that are aligned with the models of the various rating agencies.
The relevant capital requirements of the ING US business units consist of statutory Risk Based Capital requirements (RBC) for its US domiciled business, along with additional requirements for the Cayman Islands based subsidiary Security Life of Denver International (SLDI). ING US targets a RBC ratio of 425% for its US-domiciled business.
The exclusion of non-ING Insurance Eurasia AFR and EC mainly relate to the business in Latin America and the financial leverage of ING Insurance excluding US that was considered in last year’s AFR position and EC requirement. The capital structure of Eurasia underlying the AFR does not include any senior debt.
REPORT ON THE ANNUAL ACCOUNTS We have audited the accompanying annual accounts 2011 of ING Groep N.V., Amsterdam (as set out on pages 90 to 295). The annual accounts include the consolidated annual accounts and the parent company annual accounts. The consolidated annual accounts comprise the consolidated balance sheet as at 31 December 2011, the profit and loss account, statement of comprehensive income, statement of cash flows and statement of changes in equity for the year then ended, and a summary of significant accounting policies and other explanatory notes. The parent company annual accounts comprise the parent company balance sheet as at 31 December 2011, the parent company profit and loss account for the year then ended and the notes, comprising a summary of significant accounting policies and other explanatory notes.
We are subject to a variety of regulatory risks as a result of our operations in certain countries. In certain countries in which we operate, judiciary and dispute resolution systems may be less developed. As a result in case of a breach of contract we may have difficulties in making and enforcing claims against contractual counterparties and, if claims are made against us, we might encounter difficulties in mounting a defence against such allegations. If we become party to legal proceedings in a market with an insufficiently developed judiciary system, it could have an adverse effect on our operations and net result.