Other “Other” comprises the business of NationaleNederlanden Bank and ING Re (NN Group’s internal reinsurer), the results of the holding and other results.
The trial Internal Model Application Package (“IMAP”) was submitted to DNB, the Dutch regulator, in 2013. The submission was a first step towards gaining approval for an internal model for the quantification of NN Group’s capital requirements. The review of the IMAP by the College of Supervisors (a group of international supervisors) and the further firming up of Solvency II measures will form the basis of NN Group’s implementation efforts.
–1 1 – of which revaluations 5 –15 Special items before tax –16 –140 Result before tax 66 –51 Taxation 14 –16 Net result 53 –35
Conclusions and ambitions The weak economic environment continued to affect the business, but Netherlands Non-life is on track with profit recovery. It continues to improve its products and processes, enhance the customer experience and to lower expenses.
Net result Insurance Europe amounts in millions of euros 2013 2012 Investment margin 105 122 Fees and premium-based revenues 507 514 Technical margin 191 210 Operating income non-modelled business
The operating result for Insurance Europe was EUR 199 million in 2013, a 9.1% decline compared with EUR 219 million in 2012. A lower investment margin and technical margin were partly offset by lower administrative expenses.
Czech Republic now processes about 80% of claims within five days. In Belgium the car insurance claim process was redesigned to make it clearer for customers. In Turkey the website was re-launched with more functions, and the client portal’s self-service capability was enhanced; in addition, a mobile application was introduced to give customers access to their accounts at any time and wherever they are.
The result before tax decreased to EUR 192 million in 2013 from EUR 209 million in 2012, due to the decrease in operating result. This was partly offset by an improvement in non-operating items.
Result on divestments was a loss of EUR 50 million in 2013, compared with a loss of EUR 7 million in 2012. The result on divestments in 2013 primarily reflects a EUR 62 million loss on the sale of the Mexican mortgage business.
Isabel Martín Castellá, Carin Gorter and Hermann-Josef Lamberti were appointed to the Supervisory Board on 13 May 2013 by the annual General Meeting. Following the annual General Meeting, Carin Gorter and Isabel Martín Castellá joined the Audit Committee. Carin Gorter also joined the Corporate Governance Committee. HermannJosef Lamberti joined the Risk Committee. Henk Breukink and Yvonne van Rooy stepped down from the Audit Committee and joined the Remuneration and the Nomination committees. Please see page 3 for the composition of the Supervisory Board Committees at year-end 2013.
CORPORATE GOVERNANCE STATEMENT This chapter is our Corporate Governance Statement, required pursuant to the Decree with respect to the contents of the annual report of insurance companies (Besluit tot vaststelling van nadere voorschriften omtrent de inhoud van het jaarverslag van verzekeraars 1).
(1) Includes result before tax from continuing operations of EUR –52 million (2012: EUR –245 million; 2011: EUR 468 million) and result before tax from discontinued operations of EUR 155 million (2012: EUR 1,289 million; 2011: EUR 786 million). Result after tax from discontinued operations is EUR 20 million (2012: EUR 1,197 million; 2011: EUR 793 million).
All intercompany transactions, balances and unrealised surpluses and deficits on transactions between group companies are eliminated. Where necessary, the accounting policies used by subsidiaries are changed to ensure consistency with NN Group policies. In general, the reporting dates of subsidiaries are the same as the reporting date of NN Group N.V.
 All resulting exchange rate differences are recognised in a separate component of equity.
NN Group does not consider events that may be expected to occur in the future as objective evidence, and consequently they are not used as a basis for concluding that a financial asset or group of assets is impaired.
Investments in associates are initially recognised at cost and subsequently accounted for using the equity method of accounting.
Notes to the Consolidated annual accounts of NN Group continued 50 NN Group Annual Report 2013
Insurance provisions for universal life, variable life and annuity contracts, unit-linked contracts, etc. are generally set equal to the balance that accrues to the benefit of the policyholders. Certain variable annuity products contain minimum guarantees on the amounts payable upon death and/or maturity. The insurance provisions include the impact of these minimum guarantees, taking into account the difference between the potential minimum benefit payable and the total account balance, expected mortality and surrender rates.
Equity securities in 2013 include EUR 1,832 million shares in NN Group managed investment finds and EUR 1,565 million shares in third party managed investment funds.
Reference is made to Note 22 “Investment income” for details on impairments.
Investments in associates other than Sul América S.A., are mainly real estate investment funds or vehicles, operating predominantly in Europe.
In 2011, Transfers to and from Investments relates to the real estate funds for which significant influence ceased to exist due to the sale of ING Real Estate Investment Management.
Changes in real estate investments 2013 2012 2011 Opening balance 805 954 1,063 Additions 200 56 23 Changes in the composition of the group and other changes
In 2013, Changes in the composition of the group and other changes includes EUR –6 million as a result of the transfer of ING U.S. and nil as a result of the classification to continuing operations of NN Group’s business in Japan. Reference is made to Note 53 “Other events”.
2011 – Changes in composition of the group and other changes In 2011, “Changes in composition of the group and other changes” related mainly to the disposal of the Latin American operations.
In 2013, Changes in the composition of the group and other changes includes EUR –4,493 million as a result of the transfer of ING U.S. and EUR 2,409 million as a result of the classification to continuing operations of NN Group’s business in Japan. Reference is made to Note 53 “Other events”.
Changes in Share premium 2013 Opening balance 17,750 Capital contribution 1,330 Transfer of ING U.S. –6,826 Dividend –649 Closing balance 11,605
Impact of IPO of ING U.S. –3 –359 –2 –364 Unrealised revaluations –1 –4,804 –4,805 Realised gains/losses transferred to profit and loss –123 –123 Change in cash flow hedge reserve –832 –832 Transfer to insurance liabilities/DAC 2,154 2,154 Closing balance 6 1,217 2,726 3,949
Other borrowed funds by remaining term 2018 Total Loans contracted 1,009 20 15 12 490 1,546 Loans from credit institutions 2,732 60 479 3,271 3,741 20 75 12 0 969 4,817
Loans contracted 884 76 617 1,577 Loans from credit institutions 5,088 642 5,730 5,972 0 76 0 0 1,259 7,307
Where discounting is used in the calculation of the claims provision the rate is, based on weighted averages, within the range of 3.0% to 4.0% (2012: 3.0% to 4.0%; 2011: 3.0% to 4.0%).
The retail banking activities of Nationale-Nederlanden have grown significantly during the year 2013, mainly due to the partial transfer of WestlandUtrecht Bank.
Reference is made to Note 49 “Companies and businesses acquired and divested” for more details.
Underwriting expenditure 2013 2012 2011 Gross underwriting expenditure: – before effect of investment result for risk of policyholder 8,655 10,350 13,238 – effect of investment result for risk of policyholder 4,930 5,517 206 13,585 15,867 13,444
NN Group’s business in Japan After carefully exploring and evaluating the options available for the divestment of ING Life Japan, it was concluded that ING Life Japan will be included with NN Group’s European insurance and investment management businesses in the base case IPO of NN Group in 2014.
Taxation –162 –16 25 69 27 –84 33 –5 –113 Minority interests 12 9 21 Net result from continuing operations
Determination of the net defined benefit asset/liability The table provides the key assumptions used in the determination of the Net defined benefit asset/liability and the Other post-employment benefits.
Alternative investments: – Private equity 115 104 81 115 104 81 – Hedge funds 56 51 88 56 51 88 – Commodities 65 94 65 94 Total alternative investments 0 0 0 171 220 263 171 220 263
Total unused tax losses carried forward 2,313 4,753 5,919 Unused tax losses carried forward not recognised as a deferred tax asset
Adjustment to prior periods in 2013 relates to a true up of the tax position in the Netherlands.
Unrealised revaluations property in own use 4 Unrealised revaluations available-for-sale investments and other
Financial liabilities at fair value through profit or loss The fair value of securities in the trading portfolio and other liabilities at fair value through profit or loss is based on quoted market prices, where available. For those securities not actively traded, fair value is estimated based on internal discounted cash flow valuation techniques using interest rates and credit spreads that apply to similar instruments. Reference is made to Financial assets at fair value through profit or loss above.
For the year ended 31 December 2013, NN Group recognised EUR –832 million (2012 EUR 665 million; 2011: EUR 1,316 million) in equity as effective fair value changes on derivatives under cash flow hedge accounting. The balance of the cash flow hedge reserve in equity as at 31 December 2013 is EUR 3,644 million (2012: EUR 4,736 million; 2011: EUR 3,835 million) gross and EUR 2,726 million (2012: EUR 3,548 million; 2011: EUR 2,883 million) after deferred tax. This cash flow hedge reserve will fluctuate with the fair value of the underlying derivatives and will be reflected in the profit and loss account under Interest income/expense over the remaining term of the underlying hedged items. The cash flow hedge reserve relates to a large number of derivatives and hedged items with varying maturities up to 44 years with the largest concentrations in the range of 1 year to 8 years. Accounting ineffectiveness on derivatives designated under cash flow hedge accounting resulted in EUR 50 million income (2012: EUR 13 million loss; 2011: EUR 16 million loss) which was recognised in the profit and loss account.
Latin American operations Total Sales proceeds Cash proceeds (1) 82 2,572 2,654 Non-cash proceeds 65 65 Sales proceeds 82 2,637 2,719
Board (3) Total Fixed compensation – Base salary 3,309 3,351 6,660 – Pension costs 549 745 1,294 – Termination benefits 765 765 Variable compensation – Upfront cash 395 395 – Upfront shares 395 395 – Deferred cash 593 593 – Deferred shares 593 593 Total compensation 3,858 6,837 10,695
Under the terms of the transaction as agreed on 26 January 2009, the overall sales proceeds amounted to EUR 2.6 billion at the transaction date. The amortised cost (after prior impairments) at the transaction date was also approximately EUR 2.7 billion. The transaction resulted in a loss in the first quarter of 2009 of EUR 154 million after tax (the difference between the sales proceeds and the amortised cost). The fair value under IFRS-EU at the date of the transaction was EUR 1.7 billion.
The 2009 Restructuring Plan included restrictions on acquisitions and price leadership for certain products in EU markets. These restrictions will continue to apply until 18 November 2015 or until the date on which more than 50% of each of the insurance and investment management operations has been divested, whichever date comes first.
As part of the previously announced amended restructuring agreement with the EC in 2012, ING planned to divest more than 50% of ING’s Asian insurance and investment management businesses by the end of 2013. ING successfully divested most of these businesses over the course of the past year. Under the revised timelines announced, ING will divest ING Life Japan in line with the divestment timeline for ING’s European insurance and investment management activities. This means that the timeline to divest more than 50% of ING Life Japan has effectively been extended by two years to year-end 2015, which is also the unchanged timeline to divest more than 50% of ING’s European insurance and investment management businesses. As part of the revised 2013 agreement, ING will accelerate the timeline to complete the divestment of 100% of ING’s European insurance and investment management activities by two years to year-end 2016. Preparations for an base case IPO of NN Group in 2014 are on track.
 Objective setting. Business planning and priority setting is undertaken through an annual medium term planning (MTP) process, which is integrated with NN Group’s own risk and solvency assessment (ORSA) process. At the start of the MTP process, NN Group establishes strategic objectives at a holding level. Those strategic objectives are used to establish and define NN Group’s risk appetite, which consists of quantitative and qualitative statements defining those risks NN Group wishes to acquire, to avoid, to retain and/or to remove. The strategic objectives are cascaded through the enterprise and business unit plans and evaluated against the risk appetite. Targets and risk limits for the business units are derived from NN Group’s overall strategy and risk appetite framework.
RISK POLICY FRAMEWORK NN Group’s risk policy framework ensures that all risks are managed consistently and that NN Group as a whole operates within its risk tolerances. The policies/minimum standards focus on risk measurement, risk management and risk governance. To ensure that policies are efficient and effective they are governed by the risk committee structure. Potential waivers to the policies have to be approved through the respective risk committees.
NON-FINANCIAL RISK DASHBOARD Non-financial risks are monitored through the non-financial risk dashboard (NFRD) process at all levels in the organisation. The NFRD is one tool which provides management at all organisational levels with information about key operational, compliance and legal risks and incidents. The exposure of NN Group to non-financial risks is regularly assessed through risk assessments and monitoring. After identification of the risks, each risk is assessed as to its likelihood of occurrence as well its potential impact should it occur. Actions required to mitigate the risks are identified and tracked until the risk is either reduced, if such a reduction is possible, or accepted as a residual risk if the risk cannot be mitigated.
 Business risk. Business risks are the risks related to the management and development of the insurance portfolio but excludes risks directly connected to insured events. Business risk includes policyholder behaviour risks and expense risks. Business risks can occur because of internal, industry, or wider market factors.
- Separate account businesses. The separate account businesses are those in which the policyholder bears the market and credit risk. NN Group’s earnings from the separate account businesses are primarily driven by fee income. However, in the case of variable annuities and the guaranteed separate account pension business in the Netherlands, NN Group retains risk associated with the guarantees provided to its policyholders. Businesses in this category are (i) the variable annuities (VA) portfolio, (ii) the group pension business in the Netherlands for which guarantees are provided, and (iii) other separate account business, primarily the unit linked business.
Economic capital 2012 comparable in scope to 2013 2012 As reported for ING Insurance EurAsia (excluding discontinued operations) in 2012 5,868 Changes in model and methodology 438 Include Japan Life and Japan Closed Block VA as modelled business after diversification 689 Include the other Asian held-for-sale business units as unmodelled business 1,504 Include legacy units and holding as unmodelled business 220 Economic capital for 2012 for NN Group 8,719
Changes in tax laws and regulations can affect policyholder behaviour, particularly when the tax treatment of their products affects the attractiveness of these products for customers. For instance, changes in tax treatment may affect the tax efficiency of the products of the Japan Life corporate-owned life insurance (COLI) business.
The economic capital for the fixed income bonds is calculated within spread risk and the economic capital for the fixed income loans (to the extent applicable) within counterparty default risk. For the non-fixed income assets, equity and real estate, NN Group uses asset-specific risks to calculate economic capital.
General accounts equity assets 2013 2012 Common & Preferred Stock 2,500 2,087 Private Equity 943 855 Mutual Funds 2,336 2,020 Total 5,779 4,962
Interest rate risk Interest rate risk is the impact of interest rate changes on available capital as a result of the associated change in the value of the assets and liabilities. NN Group generally uses swap curves as benchmark interest rate curves when assessing interest rate risk.
To effectively match its assets to liabilities, NN Group looks at the undiscounted liability cash flows and then determines which assets to purchase to reduce interest rate risk. As can be seen in the table, the EUR denominated liabilities have a significant amount of long-term liability cash flows, which relate primarily to the pension business in the Netherlands.
This is measured by a 1 in 10 impact of the aggregate market risk shocks of the internal model on the variable annuity business
As at 31 December 2013, the result before tax sensitivities to equity risk primarily relate to the general account equity holdings in the Netherlands and Belgium, the hedging of the separate account pension business in the Netherlands and fee income from NN Group’s investment management business, for which earnings sensitivities have been included as of year-end 2013. IFRS real estate sensitivities reflect investments in real estate funds and direct real estate assets. Market movements in real estate are reflected in the IFRS result before tax. The sensitivities decreased in 2013 due to lower real estate exposures.
In order to comply with the obligations toward the European Commission, ING Group largely finalised the divestment of its Asian business, US business and Brazilian business; the total proceeds from divestments in 2013 were EUR 4.1 billion.
ING Life Japan’s capital ratio improved due to profits in the period from 1 April until 31 December 2013 and lower required capital, reflecting decreasing SPVA minimum guarantee reserve, which is led by favourable market developments and increased SPVA lapses.
NN Group N.V. has issued statements of liability in connection with Section 403, Book 2 of the Dutch Civil Code and other guarantees (mainly funding and redemption guarantees) for group companies.
Opinion with respect to the consolidated annual accounts In our opinion, the consolidated annual accounts give a true and fair view of the financial position of NN Group N.V. as at 31 December 2013 and of its result and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of the Dutch Civil Code.
Opinion with respect to the parent company annual accounts In our opinion, the parent company annual accounts give a true and fair view of the financial position of NN Group N.V. as at 31 December 2013 and of its result for the year then ended in accordance with Part 9 of Book 2 of the Dutch Civil Code.
For 2013, it is proposed to appropriate the entire result to reserves, so that no final dividend will be paid.