SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
For February 17, 2005
ING GROEP N.V.
Amstelveenseweg 500
1081-KL Amsterdam
The Netherlands
Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.
Form 20-F X Form 40-F
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Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to rule 12g3-2(b) under the Securities Exchange Act of
1934.
Yes No X
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If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b):
Page 1 of 46
This Report contains a copy of the following:
(1) The Press Release issued on February 17, 2005
Page 2 of 46
[ING GROUP LOGO]
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PRESS RELEASE
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Amsterdam o 17 February 2005
ING GROUP OPERATING NET PROFIT INCREASES 33.0% IN 2004
DIVESTMENT PROGRAMME IS LARGELY COMPLETED, ING TO RETURN TO FULL CASH DIVIDEND
o OPERATING NET PROFIT INCREASES 33.0% TO EUR 5,389 MILLION
o NET PROFIT INCREASES 47.6% TO EUR 5,968 MILLION (EUR 2.80 PER SHARE)
o OPERATING NET PROFIT FROM BANKING RISES 55.6%, LED BY ING DIRECT, WHOLESALE
BANKING
o OPERATING NET PROFIT FROM INSURANCE RISES 19.0%, LED BY ASIA/PACIFIC, AMERICAS
o AFTER TAX, RAROC BANKING INCREASES TO 14.8% AND IRR INSURANCE INCREASES TO
12.1%
o VALUE OF NEW LIFE INSURANCE BUSINESS RISES 43.6% TO EUR 632 MILLION
o DEBT/EQUITY RATIO OF ING GROUP IMPROVES TO 9.9% FROM 14.4% AT YEAR-END 2003
o TOTAL DIVIDEND PROPOSED AT EUR 1.07 PER SHARE, UP FROM EUR 0.97 PER SHARE IN
2003
o FINAL DIVIDEND TO BE PAID OUT FULLY IN CASH
CHAIRMAN'S STATEMENT
"In the past year we have seen some significant changes at ING," said Michel
Tilmant, Chairman and CEO. "The new Executive Board took a critical look at the
businesses within the Group and sold many units that either did not fit in our
strategy, or did not meet our criteria for economic returns. That divestment
programme is now largely completed. However, portfolio management is a
continuous process, and the Group will continue to allocate capital with the aim
of strengthening ING's returns and growth."
"In all, the financial results in 2004 were encouraging. Operating net profit
reached an historic high. Total operating income increased 10.6% excluding the
impact of acquisitions, divestments, and currency effects. The insurance
business lines posted strong growth in premium income, while product-pricing was
adjusted to increase returns on new business. The banking business lines
continued to benefit from lower risk costs, and operating income showed a solid
increase, despite pressure on interest rates in the past year. Although we saw
some one-offs and non-recurring expenses in the fourth quarter, underlying costs
were contained, except at Nationale-Nederlanden, where we continued to invest
deliberately to meet the structural improvements required."
"The divestments enabled us to improve the debt/equity ratio to 9.9% at the end
of 2004, in line with our 10% target. Sales completed in 2004 resulted in a
release of EUR 1.5 billion in regulatory capital that will be invested to
support the growth of businesses such as ING Direct, the activities in
developing markets such as Asia and Central Europe, and the retirement services
business such as in the U.S."
"With our capital position strengthened, we have decided to change to a full
cash dividend, starting with the final dividend for 2004. In 2005, we will focus
on execution to increase value creation for our shareholders."
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ALL FIGURES COMPARE FULL-YEAR 2004 WITH FULL-YEAR 2003 UNLESS OTHERWISE STATED.
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Page 3 of 46
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PRESS CONFERENCE: 17 February, 9:30 a.m. CET at ING House, Amsterdam.
Presentation & webcast www.ing.com
ANALYST PRESENTATION: 17 February, 11:15 a.m. CET at ING House, Amsterdam.
Presentation & webcast www.ing.com
ANALYST CONFERENCE CALL: 17 February, 4 p.m. CET.
Listen in: NL +31 45 631 6910 UK. +44 20 8400 6356 U.S. +1 303 262 2131
ANALYST PRESENTATION IN LONDON: 18 February, 11 a.m. U.K. time at 60 London
Wall. Webcast at www.ing.com
ANALYST CONFERENCE CALL ON EMBEDDED VALUE: 18 February, 3 p.m.
U.K. time / 4 p.m. CET
Listen in: NL +31 45 631 6910 U.K. +44 20 8400 6356 U.S. +1 303 262 2131
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MEDIA RELATIONS +31 20 541 6522 INVESTOR RELATIONS +31 20 541 5571
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Page 4 of 46
1.1 ING GROUP
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TABLE 1. ING GROUP KEY FIGURES
FULL YEAR FOURTH QUARTER
In EUR million 2004 2003 % 2004 2003 %
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Operating profit before tax:
- Insurance Europe 1,733 1,791 -3.2 522 556 -6.1
- Insurance Americas 1,669 1,310 27.4 699 362 93.1
- Insurance Asia/Pacific 751 411 82.7 120 107 12.2
- Other -148 -26 -73 -15
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INSURANCE OPERATING PROFIT BEFORE TAX 4,005 3,486 14.9 1,268 1,010 25.5
- Wholesale Banking 1,932 1,272 51.9 243 146 66.4
- Retail Banking 1,170 1,058 10.6 162 340 -52.4
- ING Direct 432 151 186.1 112 58 93.1
- Other -120 -110 38 -22
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BANKING OPERATING PROFIT BEFORE TAX 3,414 2,371 44.0 555 522 6.3
TOTAL OPERATING PROFIT BEFORE TAX 7,419 5,857 26.7 1,823 1,532 19.0
Taxation 1,758 1,460 20.4 380 379 -0.3
Third-party interests 272 344 -20.9 62 112 -44.6
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OPERATING NET PROFIT* 5,389 4,053 33.0 1,381 1,041 32.7
- of which Insurance 2,985 2,508 19.0 905 698 29.7
- of which Banking 2,404 1,545 55.6 476 343 38.8
Capital gains/losses on shares 579 -10 150 -5
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NET PROFIT 5,968 4,043 47.6 1,531 1,036 47.8
NET PROFIT PER SHARE (in EUR) 2.80 2.00 40.0 0.70 0.50 40.0
KEY FIGURES
Operating net return on equity 22.9% 21.5%
Debt/equity ratio 9.9% 14.4%
Total staff (average FTEs) 113,000 115,200
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* Operating net profit = net profit excluding realised capital gains/losses on shares
FULL-YEAR PROFIT
Operating net profit rose 33.0% to EUR 5,389 million in 2004, led by a strong
performance at ING's banking operations, notably ING Direct and Wholesale
Banking, mainly as a result of higher income and historically low risk costs.
The insurance operations also posted a healthy growth, driven by the life
insurance activities in Asia/Pacific and the core U.S. businesses, and continued
strong non-life results, led by Canada. Excluding one-off items, operating net
profit increased 36.2% to EUR 5,050 million, up from EUR 3,707 million in 2003.
Net profit rose 47.6% to EUR 5,968 million, lifted by EUR 579 million in
realised capital gains on equities in 2004 compared with realised capital losses
on equities of EUR 10 million in 2003. The high level of capital gains on
shares, most of which were realised in the second half of 2004, is mainly due to
a decision to sell part of the Dutch equity portfolio to reduce volatility of
the solvency ratios.
Net profit per share rose 40.0% to EUR 2.80, compared with EUR 2.00 in 2003. The
increase in earnings per share lagged growth in total net profit due to an
increase in the average number of shares outstanding as a result of ING's
dividend policy, which allowed investors to receive the dividend in cash or
stock. Dilution of earnings per share was limited in 2004 because ING stopped
issuing shares to fund the cash portion of the dividend payment, starting with
the interim dividend 2004. Beginning with the final dividend 2004, ING plans to
reduce dilution further by converting to a full cash dividend. (See Section 1.3)
Operating net profit from insurance increased 19.0% to EUR 2,985 million, lifted
by higher results in Asia/Pacific and the Americas and a lower effective tax
rate. Total operating profit before tax from
Page 5 of 46
insurance rose 14.9% to EUR 4,005 million. Insurance Asia/Pacific posted an
82.7% increase in operating profit before tax to EUR 751 million, including a
one-off gain of EUR 219 million from the sale of ING's stake in its Australian
non-life insurance joint-venture in the second quarter of 2004. Excluding that
gain, operating profit before tax from Insurance Asia/Pacific increased 29.4% to
EUR 532 million from EUR 411 million in 2003. Insurance Americas posted a 27.4%
increase in operating profit before tax to EUR 1,669 million, driven by the core
life insurance business in the U.S. and strong non-life results in Canada.
Excluding one-off items, currency effects and the transfer of investment
management activities from banking to insurance in 2004, operating profit before
tax from Insurance Americas increased 47.4%. Insurance Europe posted a 3.2%
decline in operating profit before tax to EUR 1,733 million, mainly as a result
of lower one-off gains on old reinsurance business and the gain on the sale of
the Italian life insurance business in 2003. Excluding one-off items and the
transfer of a real estate portfolio, the operating profit before tax from
Insurance Europe increased 4.6% to EUR 1,722 million. Other Insurance results
include part of the one-off gains on old reinsurance activities, the currency
hedge result, and interest on core debt, which have not been allocated to the
different insurance business lines. Excluding one-off items, total operating net
profit from insurance increased 23.4% to EUR 2,588 million in 2004, up from EUR
2,097 million in 2003.
Operating net profit from banking rose 55.6% to EUR 2,404 million, lifted by
higher profit from all three business lines and some large releases of redundant
tax provisions in the fourth quarter of 2004. Total operating profit before tax
from the banking operations rose 44.0% to EUR 3,414 million. Wholesale Banking
posted a 51.9% increase in operating profit before tax, fully driven by a sharp
decline in risk costs. A decrease in income, caused by one-off losses on
divestments, was largely compensated by lower operating expenses. Excluding
one-off items and the transfer of activities between insurance and banking,
operating profit before tax from Wholesale Banking increased 57.0% to EUR 2,240
million. Operating profit before tax from Retail Banking increased 10.6%, driven
by higher income and slightly lower risk costs, particularly in the Netherlands
and Poland. Pre-tax profit in Belgium declined 31.4%, mainly due to
non-recurring expenses and risk costs in the fourth quarter of 2004, despite a
12.1% increase in operating income in 2004. Operating profit before tax from ING
Direct jumped to EUR 432 million from EUR 151 million in 2003, mainly due to
higher interest income driven by the continued strong growth in funds entrusted.
Other results consist mainly of interest expenses that are not allocated to the
different business lines. Excluding one-off items, total operating net profit
from banking rose 52.9% to EUR 2,462 million, from EUR 1,610 million in 2003.
ONE-OFF ITEMS
One-off items had a positive net impact of EUR 339 million on profit in 2004,
which was balanced by a positive impact of EUR 346 million from one-off items in
2003. Gains and losses related to ING's various divestments in 2004 resulted on
balance in a net gain of EUR 74 million. Restructuring provisions for ING
BHF-Bank and Wholesale Banking, had a total negative net impact of EUR 64
million. Other one-off items included a gain of EUR 92 million on old
reinsurance activities and EUR 237 million from releases of redundant tax
provisions. In 2003, one-off items included EUR 107 million in gains on the
sales of ING's life insurance unit in Italy and ING's stake in the Seguros Bital
joint venture in Mexico, a restructuring provision of EUR 65 million for
Wholesale Banking, a EUR 57 million release of catastrophe provisions, and a
gain of EUR 247 million on old reinsurance activities. (See Appendix 2 for a
specification of one-off items).
CURRENCY IMPACT
The weakening of most currencies against the euro had a negative impact of EUR
86 million on net profit. That was offset by a gain of EUR 188 million after tax
on the U.S. dollar hedge, compared with a gain of EUR 119 million on the hedge
in 2003. From 2005, ING no longer has hedges in place for the U.S. dollar.
Page 6 of 46
FOURTH-QUARTER PROFIT
Fourth-quarter operating net profit rose 32.7% to EUR 1,381 million from EUR
1,041 million in the fourth quarter of 2003. Operating net profit from insurance
increased 29.7% to EUR 905 million, led by Insurance Americas, which posted a
93.1% increase in operating profit before tax, boosted by the gain on the
initial public offering (IPO) in Canada and strong life insurance results in the
U.S. Excluding one-off items, operating profit before tax from Insurance
Americas rose 39.9% in the fourth quarter to EUR 445 million. Operating profit
before tax from Insurance Asia/Pacific increased 12.2%, due in part to the
release of reserves at the Australian life insurance business. At Insurance
Europe, operating profit before tax declined 6.1% due to a one-off gain on the
sale of the Italian life insurance business in 2003 and lower profit in Belgium
and the rest of Europe, which offset an increase in the Netherlands. Operating
net profit from banking increased 38.8% to EUR 476 million, mainly due to the
release of EUR 112 million redundant tax provisions. Operating profit before tax
from banking rose 6.3% to EUR 555 million, as higher results from Wholesale
Banking and ING Direct more than offset a decline at Retail Banking. Wholesale
Banking posted a 66.4% increase in operating profit before tax, despite a loss
on the sale of parts of ING BHF-Bank and a restructuring provision, due to lower
risk costs and lower operating expenses. ING Direct's operating profit before
tax almost doubled to EUR 112 million from EUR 62 million, while Retail Banking
posted a 52.4% drop in operating profit before tax in the fourth quarter, as a
result of a loss in Belgium mainly due to non-recurring operating expenses and
risk costs. Excluding one-off items, total operating net profit rose 43.1% to
EUR 1,255 million from EUR 877 million in the fourth quarter of 2003. Total net
profit of ING Group increased 47.8% in the fourth quarter to EUR 1,531 million,
including EUR 150 million in realised capital gains on equities, compared with
EUR 5 million in realised losses on equities in the fourth quarter of 2003.
Compared with the previous quarter, operating net profit rose 13.9% to EUR 1,381
million from EUR 1,212 million in the third quarter of 2004. The increase was
driven by a 48.1% increase in operating net profit from insurance, which
included a gain of EUR 249 million on the IPO in Canada, higher realised capital
gains on the sale of real estate, higher gains on the private equity portfolio
in the U.S. and improved technical life results. Operating net profit from
banking declined 20.8% to EUR 476 million in the fourth quarter, from EUR 601
million in the third quarter of 2004, as a result of one-off items as well as
lower income and higher operating expenses. Excluding the gain on the sale of
CenE Bankiers in the third quarter and the loss on the sale of parts of ING
BHF-Bank in the fourth quarter, income rose mainly because of higher interest
results and other income. Excluding restructuring provisions in both periods,
operating expenses increased 8.3%, mainly in the Netherlands and Belgium for
both Retail Banking and Wholesale Banking, due to higher IT expenses, marketing
costs, external staff costs and higher bonuses. Excluding one-off items, total
operating net profit from ING Group increased 6.1% from EUR 1,183 million in the
third quarter to EUR 1,255 million in the fourth quarter.
1.2 BALANCE SHEET & CAPITAL
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TABLE 2. KEY BALANCE SHEET FIGURES
31 December 31 December FY % 30 September 4Q %
In EUR billion 2004 2003 Change 2004 Change
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SHAREHOLDERS' EQUITY 25.9 21.3 21.2 24.6 4.9
- insurance operations 13.9 12.0 15.8 13.5 3.0
- banking operations 16.0 16.7 -4.2 17.6 -9.1
- eliminations* -4.0 -7.4 -6.5
TOTAL ASSETS 866.1 778.8 11.2 865.4 0.1
OPERATING NET RETURN ON EQUITY 22.9% 21.5% 23.2%
- insurance operations 22.6% 22.7% 21.4%
- banking operations 15.8% 11.1% 17.1%
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* own shares, subordinated loans, third-party interests, debenture loans and other eliminations
Page 7 of 46
SHAREHOLDERS' EQUITY
On 31 December 2004, ING's shareholders' equity amounted to EUR 25.9 billion, an
increase of EUR 4.6 billion, or 21.2%, compared with year-end 2003. Net profit
from the year 2004 added EUR 6.0 billion to shareholders' equity and
revaluations added EUR 1.1 billion. That was offset by EUR -0.9 billion in
realised capital gains that were released through the profit & loss account, the
interim cash dividend of EUR -0.4 billion and exchange rate differences of EUR
-1.0 billion. The shareholders' equity of the banking operations decreased by
EUR 1.6 billion compared with the end of the third quarter 2004, due to the
transfer of preference shares (Tier 1 notes) to subordinated debt, which had no
impact on solvency.
Page 8 of 46
CAPITAL RATIOS
The debt/equity ratio of ING Groep N.V. improved to 9.9% from 14.4% at the end
of 2003 and 11.4% at the end of the third quarter of 2004. The improvement was
caused by a EUR 4.9 billion increase in the Group capital base, excluding
third-party interests, due to retained earnings and the issue of hybrid
securities in June as well as a EUR 1.0 billion decrease in core debt. The
capital coverage ratio for ING's insurance operations increased to 210% of
regulatory requirements at the end of December, compared with 180% at year-end
2003 and 185% at the end of September 2004. The Tier-1 ratio of ING Bank N.V.
stood at 7.71% on 31 December 2004, up from 7.59% at the end of 2003 and 7.61%
at the end of the third quarter of 2004. The solvency ratio (BIS ratio) for the
bank improved to 11.47% from 11.34% at the end of 2003. Compared with year-end
2003, total risk-weighted assets rose by EUR 22.8 billion, or 9.1%, to EUR 274.1
billion, almost fully caused by the growth of ING Direct. An increase at Retail
Banking was largely offset by a decrease at Wholesale Banking, due to
divestments.
RETURN ON EQUITY
The operating net return on equity increased to 22.9% in 2004 from 21.5% in
2003. The operating net return on equity of the insurance operations was 22.6%
in 2004, little changed from 2003, while the operating net return on equity from
banking rose to 15.8% from 11.1%.
ASSETS UNDER MANAGEMENT
Assets under management increased 6.3% in 2004 to EUR 491.9 billion compared
with EUR 462.7 billion at the end of 2003. The EUR 29.2 billion increase
resulted from a net inflow of EUR 26.5 billion and higher stock markets (+EUR
25.3 billion). That was partially offset by a stronger euro (- EUR 16.1 billion)
and divestments (- EUR 6.5 billion), notably the sales of Delta Asset
Management, CenE Bankiers, Baring Private Equity Partners, and the exit of the
individual reinsurance business in the U.S.
1.3 DIVIDEND
At the Annual General Meeting of Shareholders on 26 April 2005, ING will propose
a total dividend for 2004 of EUR 1.07 per (depositary receipt for an) ordinary
share, up from EUR 0.97 per (depositary receipt for an) ordinary share in 2003.
Taking into account the interim dividend of EUR 0.49 made payable in September
2004, the final dividend will amount to EUR 0.58 per (depositary receipt for an)
ordinary share to be paid fully in cash. ING's shares will be quoted ex-dividend
as of 28 April 2005 and the dividend will be made payable on 4 May 2005.
Following the introduction of International Financial Reporting Standards (IFRS)
-- which is expected to increase volatility in net profit -- ING intends to pay
dividends in relation to the longer-term underlying development of profit.
Page 9 of 46
1.4 INSURANCE OPERATIONS
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TABLE 3. ING GROUP: INSURANCE PROFIT & LOSS ACCOUNT
FULL YEAR FOURTH QUARTER
In EUR million 2004 2003 % 2004 2003 %
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PREMIUM INCOME 43,617 41,192 5.9 10,869 10,605 2.5
- of which life 36,975 33,904 9.1 9,408 8,969 4.9
- of which non-life 6,642 7,288 -8.9 1,461 1,636 -10.7
Income from investments 9,944 9,721 2.3 2,799 2,589 8.1
Commission income 1,201 1,313 -8.5 309 335 -7.8
Other income 636 1,007 -36.8 130 297 -56.2
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TOTAL OPERATING INCOME 55,398 53,233 4.1 14,107 13,826 2.0
Underwriting expenditure 45,384 43,396 4.6 11,217 11,129 0.8
Other interest expenses 1,140 1,291 -11.7 288 340 -15.3
Operating expenses 4,837 4,897 -1.2 1,366 1,339 2.0
Investment losses 32 163 -80.4 -32 8
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TOTAL OPERATING EXPENDITURE 51,393 49,747 3.3 12,839 12,816 0.2
OPERATING PROFIT BEFORE TAX 4,005 3,486 14.9 1,268 1,010 25.5
- of which life insurance 2,396 2,478 -3.3 748 762 -1.8
- of which non-life insurance 1,609 1,008 59.6 520 248 109.7
Taxation 901 861 4.6 324 277 17.0
Third-party interests 119 117 1.7 39 35 11.4
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OPERATING NET PROFIT* 2,985 2,508 19.0 905 698 29.7
Capital gains/losses on shares 579 -10 150 -5
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NET PROFIT 3,564 2,498 42.7 1,055 693 52.2
KEY FIGURES
Value of new life business 632 440 43.6
Internal rate of return 12.1% 10.9%
Operating net return on equity 22.6% 22.7%
Staff (average FTEs) 49,400 51,000 -3.1
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* Operating net profit = net profit excluding realised capital gains/losses on shares
FULL-YEAR PROFIT
Operating net profit from insurance rose 19.0% to EUR 2,985 million, driven by a
strong increase in results from non-life insurance, due to a favourable claims
experience as well as gains on the sale of ING's non-life insurance joint
venture in Australia and the initial public offering of the Canadian non-life
insurance business. Results from life insurance were negatively impacted by
one-off items, including the charge at the U.S. individual reinsurance business,
which offset higher results at the core life insurance businesses in the U.S.
and Asia/Pacific. Excluding one-off items, operating net profit from insurance
increased 23.4% to EUR 2,588 million from EUR 2,097 million in 2003. The
transfer of activities between insurance and banking had a negative net impact
of EUR 59 million in 2004.
Net profit from insurance increased 42.7% to EUR 3,564 million in 2004,
including EUR 579 million in realised capital gains on the sale of equities
compared with realised capital losses of EUR 10 million last year. The effective
tax rate on operating profit declined to 22.5% in 2004, from 24.7% in 2003, due
to the release of tax provisions and the inclusion of a number of gains with
zero or minimal tax charges. Total operating profit before tax from insurance
increased 14.9% to EUR 4,005 million.
Operating profit before tax from life insurance declined 3.3% to EUR 2,396
million, as the impact of divestments and other one-off items offset strong
results at the core life insurance businesses, particularly in the U.S. One-off
items had a negative impact of EUR 237 million in 2004, including a charge of
EUR 219 million at the individual life reinsurance business in the U.S., which
ING exited. That compares with a positive impact of EUR 269 million from one-off
items in 2003. Excluding one-off items, total operating profit before tax from
life insurance increased 19.2% to EUR 2,633 million from EUR 2,209 million in
2003. In particular, the life businesses in the U.S., Asia/Pacific and Belgium
posted
Page 10 of 46
strong results. Life results in the Netherlands decreased 2.3% excluding
one-off gains in both years from old reinsurance activities, as improved
morbidity results were more than offset by higher operating expenses and the
impact of the transfer of a real estate portfolio to the bank.
Operating profit before tax from non-life insurance increased 59.6% to EUR 1,609
million, driven by strong underwriting experience in the Netherlands and Canada,
as well as some one-off items. Excluding the gains on the IPO in Canada and the
sale of the Australian non-life joint venture and one-off gains on old
reinsurance activities, profit from non-life insurance increased 36.8% to EUR
1,055 million from EUR 771 million in 2003. The combined ratio improved to 94%
from 98% in 2003.
Total premium income increased 5.9% to EUR 43,617 million, as strong growth,
particularly from the life insurance businesses in the U.S. and Asia, was offset
in part by divestments and currency effects. Excluding the impact of
acquisitions and divestments as well as exchange rate differences, total premium
income increased 13.6%. Total life insurance premiums increased 9.1% to EUR
36,975 million, and rose 15.6% on a comparable basis. Total non-life premiums
declined 8.9% to EUR 6,642 million, mainly as a result of the sales of the
Australian non-life joint venture and the Dutch health insurance business.
Excluding currency effects, divestments and acquisitions, non-life premiums
increased 3.0%. In addition, total inflows into ING's pension fund businesses in
Central Europe, Asia and Latin America increased to EUR 2,423 million from EUR
1,768 million in 2003. All three insurance business lines contributed to this
increase.
Operating expenses from the insurance operations declined 1.2% to EUR 4,837
million. However, excluding the impact of divestments and currency effects,
operating expenses increased 6.1%, mainly due to higher costs in the
Netherlands, Belgium, the Rest of Europe, and Australia. Expenses as a
percentage of assets under management for investment products increased 8 basis
points to 0.94%. Expenses as a percentage of life premiums improved to 12.76% in
2004 from 13.17% in 2003. The expense ratio for non-life insurance was 31%
compared with 28% in 2003. The average number of employees at the insurance
activities declined 3.1% to 49,400 in 2004, mainly due to the divestments of the
Dutch health business and non-life operations in Australia.
Investment losses amounted to EUR 32 million, or just 2 basis points of total
fixed-interest securities, due in part to recoveries in the U.S. portfolio in
the fourth quarter. In 2003 investment losses were EUR 163 million, or 13 basis
points of total fixed securities.
EMBEDDED VALUE
The value of new life insurance business written in 2004 increased to EUR 632
million, up 43.6% from EUR 440 million in 2003. The increase is due to improved
pricing margins, higher sales, and investment in new business. Insurance
Asia/Pacific generated more than half of the total value of new business created
by ING Group, indicating the strong future earnings potential of the business in
the region. In 2004 ING invested EUR 1,607 million to write new life insurance
business. The overall rate of return expected on this investment is 12.1%. This
compares to an overall return of 10.9% in 2003. The expected internal rate of
return in developing markets is 13.5%.
The total embedded value of ING's life insurance operations was EUR 23,500
million before dividends of EUR 1,049 million to the Group, an 8.2% increase
from EUR 21,724 million at year-end 2003. After dividends the embedded value was
EUR 22,451 million. The 2004 year-end figures reflect ING's adoption of the
European Embedded Value principles. The most significant impact of this adoption
on the embedded value was a reduction of EUR 616 million for the expenses
associated with financial options and guarantees, resulting in a 2.7% decrease
in the embedded value at year-end 2004. Another significant change was the
adoption of a new internal capital model, which better aligns capital with the
economics of the business. This change reduced embedded value by EUR 744
million. Currency impacts had a negative impact of EUR 529 million, while
assumption changes and financial variances increased embedded value by EUR 314
million and EUR 431 million respectively. (See Appendix 7)
Page 11 of 46
1.5 BANKING OPERATIONS
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TABLE 4. ING GROUP: BANKING PROFIT & LOSS ACCOUNT
FULL YEAR FOURTH QUARTER
In EUR million 2004 2003 % 2004 2003 %
-------------------------------------------------------------------------------------------------------
Interest result 8,808 8,115 8.5 2,246 2,056 9.2
Commission 2,581 2,464 4.7 590 654 -9.8
Other income 1,148 1,101 4.3 145 274 -47.1
------ ------ ----- -----
TOTAL OPERATING INCOME 12,537 11,680 7.3 2,981 2,984 -0.1
OPERATING EXPENSES 8,658 8,184 5.8 2,327 2,192 6.2
------ ------ ----- -----
Gross result 3,879 3,496 11.0 654 792 -17.4
Addition to provisions for loan losses 465 1,125 -58.7 99 270 -63.3
------ ------ ----- -----
OPERATING PROFIT BEFORE TAX 3,414 2,371 44.0 555 522 6.3
Taxation 857 599 43.1 56 102 -45.1
Third-party interests 153 227 -32.6 23 77 -70.1
------ ------ ----- -----
OPERATING NET PROFIT* 2,404 1,545 55.6 476 343 38.8
Capital gains/losses on shares 0 0 0 0
------ ------ ----- -----
NET PROFIT 2,404 1,545 55.6 476 343 38.8
KEY FIGURES
Cost/income ratio 69.1% 70.1% 78.1% 73.5%
RAROC (pre-tax) 19.7% 17.0%
RAROC (after tax) 14.8% 12.7%
Total risk-weighted assets (in EUR billion) 274.1 251.3 9.1
Addition to provisions for loan losses in
basis points of average credit-risk-weighted
assets 18 46
Staff (average FTEs) 63,600 64,200 -0.9
-------------------------------------------------------------------------------------------------------
* Operating net profit = net profit excluding realised capital gains/losses on shares
FULL-YEAR PROFIT
Operating net profit from banking rose 55.6% to EUR 2,404 million, driven by a
7.3% increase in operating income and a sharp reduction in risk costs. All three
banking business lines reported higher profits before tax. One-off items,
including results on divestments, restructuring charges, and the release of tax
provisions, on balance had a negative impact of EUR 58 million. Excluding
one-off items, operating net profit from the banking operations increased 52.9%
to EUR 2,462 million from EUR 1,610 million in 2003. The transfer of activities
between banking and insurance had a positive net impact of EUR 59 million. The
effective tax rate in 2004 decreased to 25.1% due to some large releases of
redundant tax provisions in the fourth quarter. Operating profit before tax from
banking rose 44.0% to EUR 3,414 million.
Total operating income from banking rose 7.3% to EUR 12,537 million. Interest
income continued to be the most important and stable contributor to income at
the bank. The interest result increased 8.5% to EUR 8,808 million, driven by a
higher average balance sheet total, mainly due to the continued strong growth of
ING Direct. The total interest margin narrowed 10 basis points to 1.48% compared
with full-year 2003. That was mainly caused by lower interest results on the
asset and liability matching book in the Netherlands as well as the increased
share of the balance sheet total from outside the Netherlands, mainly triggered
by ING Direct, which has an interest margin of about 1%. The interest margin in
the fourth quarter improved to 1.46% from 1.42% in the third. Bank lending
increased by EUR 24.9 billion, or 8.5%, from the end of 2003 to EUR 317.5
billion at year-end 2004. Corporate lending rose by EUR 2.0 billion, while
personal lending increased by EUR 22.5 billion. The growth in personal lending
was almost entirely due to a EUR 22.0 billion increase in residential mortgages,
of which EUR 11.8 billion was from ING Direct. The sale of CenE Bankiers (as of
30 September 2004) and parts of ING BHF-Bank (as of 31 December 2004) had a
negative impact of approximately EUR 8 billion on the growth of total bank
lending. (See Appendix 6.4) Funds entrusted to and debt securities of the
banking operations
Page 12 of 46
increased by EUR 58.1 billion, or 15.4%, to EUR 435.9 billion, to a large extent
caused by the continued strong growth of ING Direct.
Commission income increased 4.7% to EUR 2,581 million, mainly driven by higher
securities-related commissions. Management fees increased by EUR 172 million, or
29.0%, of which EUR 97 million is the net effect from the transfer of activities
between banking and insurance. Commissions from the securities business were EUR
665 million, unchanged from 2003, despite the sale of the Asian cash equities
business in the first quarter of 2004, which had a negative impact on revenue of
about EUR 60 million. Commission from insurance broking rose 18.3% to EUR 136
million, mainly in the Netherlands. Commissions on Funds Transfer, Brokerage and
Advisory Fees, and Other items were down 2.0%, 4.8% and 16.0% respectively. (See
Appendix 6.5)
Other income increased 4.3% to EUR 1,148 million. Income from securities and
participating interests fell to EUR 47 million from EUR 154 million as a result
of a loss of EUR 210 million before tax on the sale of parts of ING BHF-Bank in
the fourth quarter, and a loss of EUR 42 million on the sale of the Asian cash
equities business in the first quarter, which were partly compensated by a EUR
87 million gain on the sale of CenE Bankiers in the third quarter. Results from
financial transactions increased 6.0% to EUR 596 million, due to improved market
conditions. In the fourth quarter of 2004 results from financial transactions
increased to EUR 126 million from EUR 92 million in the third quarter and EUR 15
million in the fourth quarter of 2003. Other results increased 31.2% to EUR 505
million, mainly due to higher leasing income and higher results from real
estate, including rental income and profit from sales. (See Appendix 6.6)
Total operating expenses increased 5.8% to EUR 8,658 million, in large part due
to continued investments to support the growth of ING Direct. Restructuring
provisions had a negative impact of EUR 101 million, including EUR 60 million in
the third quarter for ING BHF-Bank and EUR 41 million for the international
Wholesale Banking network in the fourth quarter. Including EUR 42 million in
one-off costs related to the sale of the Asian cash equities business in the
first quarter of 2004, total one-off expenses this year amounted to EUR 143
million against EUR 82 million last year, when provisions were taken to pay for
restructuring at Wholesale Banking. Excluding those one-off items, currency
effects, and the impact of transfers of activities between insurance and
banking, operating expenses increased 5.5% of which 3.5%-points was due to ING
Direct. As the increase in income outpaced the expense growth, the cost/income
ratio of the banking activities improved to 69.1% in 2004, from 70.1% in 2003.
Excluding one-off items, the cost/income ratio improved to 67.0% from 69.4%. The
average number of staff declined 0.9% to 63,600 in 2004. At the end of 2004,
staff numbers were down 4.0% from year-end 2003.
In 2004, ING added EUR 465 million to the provision for loan losses, compared
with EUR 1,125 million in 2003. The addition equalled 18 basis points of average
credit-risk-weighted assets in 2004, compared with 46 basis points in 2003. The
lower addition was possible due to a further improvement of the credit
portfolio, the release of some debtor provisions and the absence of large
defaults. In the fourth quarter of 2004, ING added EUR 99 million to the
provision for loan losses, equal to 15 basis points of credit-risk-weighted
assets. Risk costs remained well below the long-term average of about 30-35
basis points.
RAROC
The after-tax Risk-Adjusted Return on Capital (RAROC) of ING's banking
operations improved strongly to 14.8% in 2004, compared with 12.7% in 2003, due
entirely to higher economic returns. Retail Banking continued to perform well
above ING's target of 12.0% with a return of 29.1%. The after-tax RAROC of
Wholesale Banking improved strongly to 12.2% from 10.3% in 2003. Excluding the
loss on the sale of ING BHF-Bank activities, the RAROC would have improved to
13.6% in 2004. The after-tax RAROC of ING Direct improved sharply from 6.1% in
2003 to 11.3% in 2004. In the RAROC calculation,
Page 13 of 46
the actual credit risk provisioning is replaced by statistically expected losses
reflecting average credit losses over the entire economic cycle.
Page 14 of 46
2.1 INSURANCE EUROPE OPERATING PROFIT BEFORE TAX DECLINES 3.2%
o PROFIT FROM INSURANCE EUROPE RISES 4.6% EXCLUDING ONE-OFF ITEMS, REAL ESTATE
TRANSFER
o VALUE OF NEW LIFE INSURANCE BUSINESS IN EUROPE RISES 46.8% TO EUR 138
MILLION
o EMBEDDED VALUE RISES 15.2% BEFORE DIVIDENDS TO ING GROUP
---------------------------------------------------------------------------------------------
TABLE 5. INSURANCE EUROPE PROFIT & LOSS ACCOUNT
FULL YEAR FOURTH QUARTER
In EUR million 2004 2003 % 2004 2003 %
---------------------------------------------------------------------------------------------
PREMIUM INCOME 11,369 11,401 -0.3 2,661 2,816 -5.5
- of which life 9,304 9,199 1.1 2,314 2,446 -5.4
- of which non-life 2,065 2,202 -6.2 347 370 -6.2
Income from investments 4,365 4,456 -2.0 1,291 1,333 -3.1
Commission and other income 475 680 -30.1 121 184 -34.2
------ ------ ----- -----
TOTAL OPERATING INCOME 16,209 16,537 -2.0 4,073 4,333 -6.0
Underwriting expenditure 12,325 12,554 -1.8 2,914 3,176 -8.2
Other interest expenses 322 352 -8.5 92 69 33.3
Operating expenses 1,832 1,815 0.9 553 524 5.5
Investment losses -3 25 -8 8
------ ------ ----- -----
TOTAL OPERATING EXPENDITURE 14,476 14,746 -1.8 3,551 3,777 -6.0
OPERATING PROFIT BEFORE TAX 1,733 1,791 -3.2 522 556 -6.1
- of which life insurance 1,421 1,498 -5.1 436 452 -3.5
- of which non-life insurance 312 293 6.5 86 104 -17.3
KEY FIGURES
Value of new life business 138 94 46.8
Internal rate of return 12.4% 10.9%
Staff (average FTEs) 15,900 16,500 -3.6
---------------------------------------------------------------------------------------------
FULL-YEAR PROFIT
Operating profit before tax from Insurance Europe fell 3.2% to EUR 1,733
million, caused by a 5.1% decline in profit from life insurance to EUR 1,421
million, due to one-off items, such as the sale of the Italian life business in
2003 and lower gains on old reinsurance business. Excluding one-off items and
the transfer of a real estate portfolio, operating profit before tax from
Insurance Europe increased 4.6% to EUR 1,722 million from EUR 1,647 million in
2003. Life results in the Netherlands declined 4.4%, caused by higher operating
expenses, the impact of the transfer of a real estate portfolio to the bank, and
a lower one-off gain on old reinsurance activities. Life results in Belgium and
Central Europe increased 29.1% and 11.5% respectively. Operating profit before
tax from non-life insurance increased 6.5% to EUR 312 million, mainly as a
result of favourable claims experience in the Netherlands, which offset lower
non-life results from Belgium.
Total premium income declined 0.3% to EUR 11,369 million, due to a 6.2% drop in
non-life premium income, as a result of the sale of the Dutch health insurance
portfolio. Excluding the impact of this sale, non-life premiums increased 3.8%.
Life premium income increased 1.1% to EUR 9,304 million as a 4.3% increase in
the Netherlands was largely offset by a 6.3% decline in Belgium. Inflows into
ING's pension fund businesses in Central Europe increased 42.4% to EUR 850
million. Commission and other income declined 30.1% to EUR 475 million due to
the transfer of a real estate portfolio to ING Bank, lower gains from old
reinsurance business and lower income from private equity investments.
Operating expenses increased 0.9% to EUR 1,832 million as the impact from
divestments helped to offset higher operating expenses in the Netherlands.
Excluding the sales of the life insurance business in Italy in 2003 and the
Dutch health insurance business in 2004, as well as the transfer of a real
estate portfolio to ING Bank, operating expenses rose 10.9%, due to
substantially higher costs in the Netherlands, including external staff,
investments in new IT systems and a restructuring provision in the
Page 15 of 46
second quarter to improve service and comply with Dutch legislative changes at
Nationale-Nederlanden. Operating expenses in Belgium increased 5.0%. The average
number of staff at Insurance Europe declined 3.6% to 15,900, due in part to the
sale of the Italian life insurance business in the fourth quarter of 2003.
EMBEDDED VALUE
The value of new life insurance business written by Insurance Europe was EUR 138
million in 2004, an increase of 46.8% compared with 2003. The overall internal
rate of return expected on these sales is 12.4%, up from 10.9% a year earlier.
The improvement was seen largely in the Netherlands, due to price adjustments on
single-premium products. The internal rate of return in the Netherlands
increased to 10.5% from 8.0% in 2003, while the value of new business improved
to EUR 58 million from EUR 11 million. The value of new business in Belgium
declined to EUR 42 million from EUR 55 million in 2003, due to more competitive
market conditions. However, the internal rate of return in Belgium remained high
at 22.8%. The Rest of Europe posted a 35.7% increase in the value of new
business to EUR 38 million from EUR 28 million with Central Europe as the key
contributor to this increase.
The embedded value for Insurance Europe increased 15.2% before dividends of EUR
993 million to the Group. After dividends, the 2004 embedded value was EUR
12,257 million. Changes to the capital model and other modelling changes
increased embedded value by EUR 966 million, while favourable investment returns
and a reduction in the corporate tax rate combined to increase value by EUR 688
million.
Value was reduced through a revision to the expense assumptions (EUR
-498 million) and a change to persistency assumptions (EUR -185 million) in the
Netherlands, as well as the adverse impact of adding the cost of financial
options and guarantees (EUR -291 million). The emerging markets of Central
Europe showed an increase of EUR 425 million in embedded value to EUR 1,837
million in 2004 before dividends of EUR 51 million. This is a 30.1% increase in
embedded value before dividends.
GEOGRAPHICAL BREAKDOWN INSURANCE EUROPE
--------------------------------------------------------------------------------
TABLE 6. INSURANCE EUROPE OPERATING PROFIT BEFORE TAX
FULL YEAR FOURTH QUARTER
In EUR million 2004 2003 % 2004 2003 %
--------------------------------------------------------------------------------
Netherlands 1,423 1,451 -1.9 456 411 10.9
- of which life 1,139 1,192 -4.4 370 317 16.7
- of which non-life 284 259 9.7 86 94 -8.5
Belgium 128 109 17.4 29 37 -21.6
- of which life 111 86 29.1 32 32
- of which non-life 17 23 -26.1 -3 5 -160.0
Rest of Europe* 182 231 -21.2 37 108 -65.7
----- ----- --- ---
Total 1,733 1,791 -3.2 522 556 -6.1
--------------------------------------------------------------------------------
* Poland, Hungary, Czech Republic, Slovakia, Romania, Bulgaria, Greece, Spain
In the Netherlands, operating profit before tax from insurance declined 1.9% to
EUR 1,423 million, as a decline in life insurance results more than offset an
increase from non-life insurance. Profit before tax from life insurance fell
4.4% to EUR 1,139 million, due to the impact of the transfer of a real estate
portfolio to banking and lower one-off gains from old reinsurance activities.
Excluding those items, life results improved 1.9% despite higher operating
expenses, due to good morbidity results and a reduction of profit-sharing for
policyholders in line with competitors. Life premium income increased 4.3%,
driven mainly by Group Life insurance due to the acquisition of new contracts by
Nationale-Nederlanden. Profit before tax from the Dutch non-life insurance
business increased 9.7% to EUR 284 million, driven by favourable claims
experience, particularly in the lines Fire and Loss of Income/Accident, which
more than offset the sale of the health insurance portfolio. Premium income from
non-life insurance declined 8.3% due to the sale of the health insurance
portfolio. Excluding health premiums from both years, non-life premium income
increased 3.6% and total premium income rose 4.1%. Total operating expenses at
the Dutch insurance businesses rose 0.9% to EUR 1,423 million. However,
excluding the sale of the
Page 16 of 46
health insurance portfolio, operating costs increased 10.5%, due to investments
in new IT systems and continued efforts to reduce backlogs and update policies
to comply with Dutch legislative changes at Nationale-Nederlanden. Operating
profit before tax from Nationale-Nederlanden, which is the main contributor to
insurance profit in the Netherlands, increased 5.2% to EUR 684 million, mainly
driven by favourable morbidity results as well as lower profit sharing for
policyholders. Excluding gains on the old reinsurance business in both years,
operating profit before tax at Nationale-Nederlanden increased 10.0%.
In Belgium, operating profit before tax from the insurance operations increased
17.4% to EUR 128 million. Life results rose 29.1% to EUR 111 million, due to
higher fee and investment income due to growth in assets under management.
However, non-life results declined 26.1% to EUR 17 million, due to higher
expenses and a loss on the run-off of an old book of business. Life premium
income fell 6.3% to EUR 2,115 million as a result of lower sales through the
banking distribution channel, while non-life premium income grew 4.2% to EUR 324
million.
In the Rest of Europe, operating profit before tax fell 21.2% to EUR 182
million, mainly as a result of currency impacts and the sale of ING's life
insurance business in Italy in 2003. Excluding one-offs, divestments and
currency impacts, operating profit before tax from the Rest of Europe rose 4.6%,
driven by higher life results in Central Europe, notably in Poland (+12%), the
Czech Republic (+12%) and Hungary (+19%). Premium income increased 0.7% to EUR
1,414 million as currency effects and the sale of the Italian life business in
2003 offset higher sales. Excluding divestments and currency effects, life
premium income rose 9.1% and non-life premiums rose 7.9%. In addition, inflows
into ING's pension fund businesses in Central Europe, including Bulgaria, the
Czech Republic, Hungary, Poland and Russia, increased 42.4% to EUR 850 million.
ING also obtained a license in 2004 to start a second-pillar pension fund in
Slovakia, which started sales in January 2005.
--------------------------------------------------------------------------------
TABLE 7. INSURANCE EUROPE PREMIUM INCOME
FULL YEAR FOURTH QUARTER
In EUR million 2004 2003 % 2004 2003 %
--------------------------------------------------------------------------------
Netherlands 7,516 7,429 1.2 1,690 1,665 1.5
- of which life 5,823 5,582 4.3 1,428 1,379 3.6
- of which non-life 1,693 1,847 -8.3 262 286 -8.4
Belgium 2,439 2,568 -5.0 545 746 -26.9
- of which life 2,115 2,257 -6.3 473 674 -29.8
- of which non-life 324 311 4.2 72 72
Rest of Europe* 1,414 1,404 0.7 426 405 5.2
------ ------ ----- -----
Total 11,369 11,401 -0.3 2,661 2,816 -5.5
--------------------------------------------------------------------------------
* Poland, Hungary, Czech Republic, Slovakia, Romania, Bulgaria, Greece, Spain
Page 17 of 46
2.2 INSURANCE AMERICAS OPERATING PROFIT BEFORE TAX RISES 27.4%
o PROFIT IN CANADA INCREASES STRONGLY DUE TO GOOD UNDERWRITING RESULTS, GAIN ON
IPO
o VALUE OF NEW LIFE BUSINESS INCREASES 84.0% TO EUR 173 MILLION
o U.S. LIFE SALES INCREASE 44.6%, ANNUITY SALES INCREASE 42.7% IN LOCAL CURRENCY
-------------------------------------------------------------------------------------------
TABLE 8. INSURANCE AMERICAS PROFIT & LOSS ACCOUNT
FULL YEAR FOURTH QUARTER
In EUR million 2004 2003 % 2004 2003 %
-------------------------------------------------------------------------------------------
PREMIUM INCOME 22,760 22,319 2.0 5,411 5,652 -4.3
- of which life 18,428 17,503 5.3 4,301 4,473 -3.8
- of which non-life 4,332 4,816 -10.0 1,110 1,179 -5.9
Income from investments 4,500 4,423 1.7 1,365 1,013 34.7
Commission and other income 850 847 0.4 212 222 -4.5
------- ------- ------ ------
TOTAL OPERATING INCOME 28,110 27,589 1.9 6,988 6,887 1.5
Underwriting expenditure 24,057 23,778 1.1 5,658 5,936 -4.7
Other interest expenses 118 103 14.6 57 20 185.0
Operating expenses 2,230 2,263 -1.5 594 569 4.4
Investment losses 36 135 -73.3 -20 0
------- ------- ------ ------
TOTAL OPERATING EXPENDITURE 26,441 26,279 0.6 6,289 6,525 -3.6
OPERATING PROFIT BEFORE TAX 1,669 1,310 27.4 699 362 93.1
- of which life insurance 760 918 -17.2 285 264 8.0
- of which non-life insurance 909 392 131.9 414 98 322.4
KEY FIGURES
Value of new life business 173 94 84.0
Internal rate of return 10.7% 9.0%
Staff (average FTEs) 25,300 26,200 -3.4
-------------------------------------------------------------------------------------------
FULL-YEAR PROFIT
Operating profit before tax from Insurance Americas increased 27.4% to EUR 1,669
million. The results include several one-off items related to the U.S.
individual reinsurance business, which ING has exited, the pending sale of Life
of Georgia, and the initial public offering of the non-life insurance business
in Canada. Excluding those items and the gain on the sale of the Seguros Bital
joint venture in 2003, profit before tax from Insurance Americas increased 31.7%
to EUR 1,667 million from EUR 1,266 million in 2003. The decline of the U.S.
dollar and the Mexican peso against the euro in 2004 reduced results by EUR 105
million. Excluding one-off items, currency effects and the transfer of
investment management activities from banking to insurance in 2004, operating
profit before tax increased 47.4%.
Premium income increased 2.0% to EUR 22,760 million, as strong production,
particularly in the U.S. was largely offset by currency effects. Life premium
income rose 5.3% to EUR 18,428 million, boosted by the introduction of new
products as well as enhanced distribution, particularly through independent
agents and broker dealers. Non-life premiums declined 10.0% mainly due to lower
premium income from motor and property insurance in Mexico as well as currency
effects. Excluding currency impacts, total premium income from Insurance
Americas increased 11.4%. In addition, total fund inflows into the pension fund
businesses in Chile, Mexico and Peru increased 33.5% to EUR 1,542 million.
Operating expenses declined 1.5%, mainly as a result of currency effects.
Excluding currency effects, operating expenses increased 7.2% primarily as the
result of the transfer of certain investment management activities from banking
to insurance at the beginning of 2004, as well as additional expenses related to
exiting the U.S. individual life reinsurance business and the pending sale of
Life of Georgia. Excluding those costs, operating expenses rose 2.6%, due to
higher sales and benefit costs. The average number of staff at Insurance
Americas declined 3.4% to 25,300, mainly as a result of staff
Page 18 of 46
reductions in Argentina and outsourcing of IT functions in the U.S., partially
offset by the purchase of Allianz in Canada.
EMBEDDED VALUE
The value of new life insurance business written by Insurance Americas increased
84.0% to EUR 173 million from EUR 94 million in 2003. The internal rate of
return increased to 10.7% from 9.0% due to continued focus on profitable growth
and expense controls in the U.S., and the inclusion of the Latin American
pension business in 2004. For the U.S. business, the internal rate of return
rose to 10.3% from 9.2% and reached 10.7% in U.S. dollar terms.
The embedded value of the life businesses of Insurance Americas declined 2.3% to
EUR 8,118 million in 2004, largely due to currency effects (EUR -604 million)
and the inclusion of the financial options and guarantees costs (EUR -272
million) as a result of adopting European Embedded Value principles. The
embedded value of the U.S. life insurance business fell to EUR 7,271 million
from EUR 7,933 million in 2003 due to these items and the exit of the individual
life reinsurance business (EUR -495 million). Restating for these changes, the
U.S. embedded value would have increased 8.7%. The embedded value of the Latin
American businesses, including Mexico and South America, climbed to EUR 901
million before dividends of EUR 54 million from EUR 372 million, due to the
inclusion of pension businesses in the region from 2004.
GEOGRAPHICAL BREAKDOWN INSURANCE AMERICAS
--------------------------------------------------------------------------------
TABLE 9. INSURANCE AMERICAS OPERATING PROFIT BEFORE TAX
FULL YEAR FOURTH QUARTER
In EUR million 2004 2003 % 2004 2003 %
--------------------------------------------------------------------------------
United States 727 837 -13.1 282 226 24.8
Canada 711 171 315.8 372 36 933.3
Latin America 231 302 -23.5 45 100 -55.0
- of which Mexico 147 242 -39.3 13 84 -84.5
- of which South America* 84 60 40.0 32 16 100.0
----- ----- --- ---
Total 1,669 1,310 27.4 699 362 93.1
--------------------------------------------------------------------------------
* Argentina, Brazil, Chile, Peru
In the United States, operating profit before tax declined 13.1% to EUR 727
million, due to one-off charges related to adverse mortality experience at the
individual life reinsurance business in the third quarter, and costs related to
exiting that business in the fourth quarter, as well as expenses related to the
pending sale of Life of Georgia. Excluding those items, operating profit before
tax rose 16.5% to EUR 973 million. The decline of the U.S. dollar against the
euro also had a negative impact of EUR 76 million. Excluding one-off items and
currency impacts, operating profit before tax rose 28.1%. Earnings were boosted
by higher fee income as asset levels increased, driven by higher sales and
positive net inflows in the retirement services, life and annuities businesses.
Results from asset management increased, driven by higher gains on the private
equity portfolio as well as expense management. Results on private equity,
reported under investment income, increased from a loss of EUR 9 million in 2003
to a gain of EUR 44 million in 2004, of which EUR 32 million was booked in the
fourth quarter.
Premium income rose 3.6% to EUR 18,450 million as strong production in the U.S.
was tempered by a lower dollar. Excluding currency effects, premiums increased
13.8%, driven by strong sales of life and annuities, which increased 44.6% and
42.7% respectively, due to the introduction of new products and increased
distribution capacity through independent agents and broker dealers.
Investment losses dropped to EUR 41 million, or 7 basis points of average
fixed-interest securities in 2004, down from 21 basis points in 2003. In the
fourth quarter, a net credit gain of EUR 13 million was realized due to the
recovery of previously reported losses. The improvement was driven by strong
credit risk standards, an active work-out programme for impaired securities, and
improvements in the market
Page 19 of 46
conditions. As a result, the composite margin increased to 158 basis points in
the fourth quarter of 2004 compared with 127 basis points in the third.
Excluding credit-related investment losses, the composite margin narrowed to 149
basis points in the fourth quarter from 154 basis points in the third quarter.
Operating expenses in the U.S. increased 0.7% to EUR 1,492 million. However,
excluding currency effects, operating expenses increased 10.7%, mainly due to
the transfer of investment management activities from Wholesale Banking to
Insurance Americas in 2004. Operating expenses also include additional costs of
EUR 17 million related to exiting the individual life reinsurance business and
EUR 15 million from the pending sale of Life of Georgia. Excluding those one-off
costs and currency effects, operating expenses increased 2.6%, in line with
higher production levels.
In the fourth quarter of 2004, ING implemented the Technical Practice Aid (TPA)
to the US GAAP accounting standard "Statement of Position 03-1: Accounting and
Reporting by Insurance Enterprises for Certain Non-Traditional Long Duration
Contracts and for Separate Accounts" (SOP 03-1) for both its Dutch and U.S.
accounting, with an effective date of January 1, 2004. The TPA clarified certain
key implementation issues with respect to SOP 03-1. The TPA had no impact on
ING's annuity business; there was an impact on ING's interest-sensitive life
insurance business. This accounting change resulted in a EUR 46 million
after-tax reduction in shareholders' equity as of January 1, 2004, in addition
to the impact of SOP 03-1, which was adopted in the first quarter of 2004. The
pre-tax impact on 2004 profit from the above accounting changes was a reduction
in income of EUR 16 million.
In Canada, operating profit before tax increased to EUR 711 million from EUR 171
million in 2003, including a one-off gain of EUR 249 million from the initial
public offering of shares in ING Canada in the fourth quarter. Excluding that
gain, operating profit before tax increased to EUR 462 million, driven by
favourable claims experience, due to mild weather and a regulatory change that
capped motor insurance claims. The combined ratio improved to 85% in 2004 from
95% in 2003.
In Mexico, operating profit before tax declined 39.3% to EUR 147 million,
largely due to the decline of the peso against the euro and the sale of the
Seguros Bital joint venture in the fourth quarter of 2003. Excluding these
impacts, operating profit before tax fell 10.7% as a result of reserve
strengthening, higher acquisition costs and higher claims, particularly in
health insurance.
In South America, operating profit before tax from Chile, Brazil, Peru and
Argentina increased 40.0% to EUR 84 million, due to favourable health results
and investment income in Chile. The consolidation of offices and branches in
Chile led to 3.4% decline in operating expenses. Premium income in Chile
increased 18.8%. Results in Argentina improved because 2003 included costs
associated with the decision to close the branch offices and focus on managing
existing client accounts. In October 2004, ING agreed to sell the portfolio and
other assets of the Argentine business to Zurich Financial Services Group.
------------------------------------------------------------------------------------
TABLE 10. INSURANCE AMERICAS PREMIUM INCOME
FULL YEAR FOURTH QUARTER
In EUR million 2004 2003 % 2004 2003 %
------------------------------------------------------------------------------------
United States 18,450 17,817 3.6 4,291 4,545 -5.6
Canada 2,213 2,164 2.3 555 541 2.6
Latin America 2,097 2,338 -10.3 565 566 -0.2
- of which Mexico 1,551 1,885 -17.7 424 445 -4.7
- of which South America* 546 453 20.5 141 121 16.5
------ ------ ----- -----
Total 22,760 22,319 2.0 5,411 5,652 -4.3
------------------------------------------------------------------------------------
* Argentina, Brazil, Chile, Peru
Page 20 of 46
2.3 INSURANCE ASIA/PACIFIC OPERATING PROFIT BEFORE TAX RISES 82.7%
o EXCLUDING GAIN ON SALE OF AUSTRALIAN VENTURE, OPERATING PROFIT RISES 29.4%
o LIFE PREMIUM INCOME INCREASES 28.3% TO EUR 9,232 MILLION
o VALUE OF NEW LIFE BUSINESS RISES 27.4% TO EUR 321 MILLION
-------------------------------------------------------------------------------------------------------
TABLE 11. INSURANCE ASIA/PACIFIC PROFIT & LOSS ACCOUNT
FULL YEAR FOURTH QUARTER
In EUR million 2004 2003 % 2004 2003 %
-------------------------------------------------------------------------------------------------------
PREMIUM INCOME 9,469 7,594 24.7 2,795 2,164 29.2
- of which life 9,232 7,193 28.3 2,788 2,048 36.1
- of which non-life 237 401 -40.9 7 116 -94.0
Income from investments 914 640 42.8 175 169 3.6
Commission and other income 104 190 -55.3 8 71 -88.7
----- ----- ----- -----
TOTAL OPERATING INCOME 10,487 8,424 24.5 2,978 2,404 23.9
Underwriting expenditure 9,003 7,213 24.8 2,650 2,059 28.7
Other interest expenses 8 12 -33.3 2 4 -50.0
Operating expenses 726 785 -7.5 210 234 -10.3
Investment losses -1 3 -4
----- ----- ----- -----
TOTAL OPERATING EXPENDITURE 9,736 8,013 21.5 2,858 2,297 24.4
OPERATING PROFIT BEFORE TAX 751 411 82.7 120 107 12.2
- of which life 473 336 40.8 115 58 98.3
- of which non-life 278 75 270.7 5 49 -89.8
KEY FIGURES
Value of new life business 321 252 27.4
Internal rate of return 13.6% 14.7%
Staff (average FTEs) 8,200 8,300 -1.2
-------------------------------------------------------------------------------------------------------
FULL-YEAR PROFIT
Operating profit before tax from Insurance Asia/Pacific increased 82.7% to EUR
751 million, including a one-time gain of EUR 219 million from the sale of ING's
50% stake in the Australian non-life insurance joint venture in the second
quarter of 2004. Excluding that gain, operating profit before tax increased
29.4% to EUR 532 million, led by the Australian life and wealth businesses and
the life insurance businesses in South Korea and Japan.
Premium income rose 24.7% to EUR 9,469 million, driven by higher life insurance
sales. Premium income from life insurance increased 28.3% to EUR 9,232 million,
led by Korea and Japan, while non-life premium income fell 40.9%, reflecting the
sale of the Australian non-life business in the second quarter of 2004.
Excluding the impact of currencies and divestments, total life premiums
increased 32.9%. Double-digit growth rates in local currencies were recorded in
Japan (81.8%), South Korea (49.6%), Malaysia (17.1%), Hong Kong (16.2%),
Thailand (37.6%), India (211.3%) and China (10.5%). In addition, fund inflows
into ING's pension fund businesses in Hong Kong and Japan increased to EUR 31
million from EUR 16 million in 2003.
Operating expenses fell 7.5% to EUR 726 million, due to divestments and other
one-off items as well as the decline of many currencies against the euro. In
2004, expenses benefited from the release of a EUR 30 million reserve for a wage
tax assessment in the second quarter which had been provisioned for in the
fourth quarter of 2003. In Taiwan, premium tax rates fell from 5% to 2%
resulting in a EUR 12 million reduction in expenses. Excluding those items and
the divestment in Australia, operating expenses increased 9.5%, reflecting the
growth of business in Japan and Korea as well as additional costs in Australia
to improve quality and integrate IT systems. The average number of full-time
staff declined 1.2% to 8,200 in 2004, as a reduction from the sale of the
Australian joint venture was partially offset by increases in Korea and India.
Page 21 of 46
EMBEDDED VALUE
The value of new life insurance business written by Insurance Asia/Pacific was
EUR 321 million in 2004, up 27.4% compared with 2003 and accounting for more
than half of ING Group's total. Most units contributed to this growth in new
business value, in particular Japan, where strong sales, higher margins and
higher assumed investment returns all had a favourable impact on the value of
new business. ING invested EUR 431 million to write new life insurance business
in the region in 2004, and the overall internal rate of return expected on this
investment is 13.6%.
The embedded value of the life business at Insurance Asia/Pacific increased to
EUR 2,076 million at the end of 2004.The increase was driven by the value added
from new business, positive 2004 performance variances (EUR 189 million), and an
upward revision to assumed investment returns (EUR 539 million). These embedded
value gains were partially offset by a higher cost of capital resulting from a
change in ING's internal capital model (EUR -1,201 million).
GEOGRAPHICAL BREAKDOWN INSURANCE ASIA/PACIFIC
-------------------------------------------------------------------------------
TABLE 12. INSURANCE ASIA/PACIFIC OPERATING PROFIT BEFORE TAX
FULL YEAR FOURTH QUARTER
In EUR million 2004 2003 % 2004 2003 %
-------------------------------------------------------------------------------
Australia 437 176 148.3 71 78 -9.0
- of which life 162 101 60.4 67 28 139.3
- of which non-life 275 75 266.7 4 50 -92.0
Korea 114 79 44.3 37 22 68.2
Taiwan 100 139 -28.1 11 48 -77.1
Japan 70 48 45.8 5 11 -54.5
Rest of Asia* 30 -31 -4 -52
---- ---- ---- ----
Total 751 411 82.7 120 107 12.2
-------------------------------------------------------------------------------
* Including China, India, Thailand, Indonesia, Hong Kong and Malaysia
In Australia, operating profit before tax increased from EUR 176 million to EUR
437 million, including the EUR 219 million gain on the sale of the non-life
insurance business. Excluding that gain, operating profit before tax increased
23.9% to EUR 218 million. The non-life joint venture, which was sold in the
second quarter of 2004, contributed EUR 75 million to operating profit before
tax in full-year 2003 and EUR 55 million in the first half of 2004. Excluding
those earnings and the impact of the transfer of real estate businesses from
insurance to Wholesale Banking, profit from the ongoing Australian life and
wealth operations rose 70.5% to EUR 162 million. Earnings included a release of
EUR 29 million in excess reserves in the fourth quarter, which were held for the
capital guarantee business. Profit growth was driven by higher investment
earnings and higher fees as a result of growth in assets under management, due
to favourable capital market developments, and favourable claims and lapse
results. Sales through the ANZ bank channel also increased compared with the
prior year.
In Korea, operating profit before tax rose 44.3% to EUR 114 million, driven by
higher sales of life insurance, higher renewal premiums and continued low claim
levels. Premium income rose 42.2% to EUR 1,598 million, and increased 49.6% in
local currency terms. In the second quarter of 2004, ING Life Korea became the
largest foreign insurance company in the country and ranks fourth in the life
insurance market overall based on premiums. In January 2005, ING also completed
the acquisition of a 49% stake in a life insurance joint venture with Kookmin
Bank, called KB Life.
In Taiwan, operating profit before tax declined 28.1% to EUR 100 million as ING
Antai set aside EUR 100 million to strengthen reserves as a result of the low
interest rate environment, up from EUR 50 million which was used to strengthen
reserves in 2003. Operating profit in 2003 also included a gain of EUR 23
million on the sale of the SinoPac credit card business. Excluding those items,
profit before tax
Page 22 of 46
increased 29.3% in 2004, driven mainly by higher premium income, mortality
profits and a 6.2% drop in operating expenses due in part to the reduction of
the premium tax rate from 5% to 2%. In the fourth quarter, operating profit
before tax decreased due to the doubling of reserve strengthening, a shift in
product mix as the company increased its focus on selling investment-linked
products, and a decrease in production.
In Japan, operating profit before tax increased 45.8% to EUR 70 million, led by
higher sales of corporate-owned life insurance products and single-premium
variable annuity products. Variable annuity single premium income increased
164.9% to EUR 2,267 million and premium income from traditional life products
increased 13.9% to EUR 1,192 million, excluding currency effects. In the fourth
quarter, operating profit before tax declined due to higher mortality claims and
expenses.
In the Rest of Asia, operating profit before tax rose to EUR 30 million from a
loss of EUR 31 million in 2003. The change reflects a EUR 30 million reserve
release from the favourable settlement of a wage tax assessment in the second
quarter of 2004 which had been provisioned for in the fourth quarter of 2003.
The results also reflect increased start-up losses to expand the businesses in
India and China.
------------------------------------------------------------------------------
TABLE 13. INSURANCE ASIA/PACIFIC PREMIUM INCOME
FULL YEAR FOURTH QUARTER
In EUR million 2004 2003 % 2004 2003 %
------------------------------------------------------------------------------
Australia 1,423 1,644 -13.4 329 547 -39.9
- of which life 1,223 1,288 -5.0 329 439 -25.1
- of which non-life 200 356 -43.8 0 108
Korea 1,598 1,124 42.2 450 329 36.8
Taiwan 2,348 2,277 3.1 726 626 16.0
Japan 3,459 1,942 78.1 1,113 489 127.6
Rest of Asia* 641 607 5.6 177 173 2.3
----- ----- ----- -----
Total 9,469 7,594 24.7 2,795 2,164 29.2
------------------------------------------------------------------------------
* including India, China, Hong Kong, Thailand, Indonesia and Malaysia
Page 23 of 46
2.4 WHOLESALE BANKING OPERATING PROFIT BEFORE TAX RISES 51.9%
o RISK COSTS DECLINE SHARPLY TO 12 BASIS POINTS FROM 56 BASIS POINTS
o RESTRUCTURING PROVISION OF EUR 41 MILLION FOR INTERNATIONAL NETWORK
o ING REAL ESTATE OPERATING PROFIT BEFORE TAX RISES 47.1% TO EUR 325
MILLION
-----------------------------------------------------------------------------------------------------------------
TABLE 14. WHOLESALE BANKING PROFIT & LOSS ACCOUNT
FULL YEAR FOURTH QUARTER
In EUR million 2004 2003 % 2004 2003 %
-----------------------------------------------------------------------------------------------------------------
Interest result 3,381 3,545 -4,6 830 824 0.7
Commission 1,363 1,368 -0.4 310 429 -27.7
Other income 1,017 912 11.5 68 139 -51.1
------ ------ ----- -----
TOTAL OPERATING INCOME 5,761 5,825 -1.1 1,208 1,392 -13.2
OPERATING EXPENSES 3,637 3,685 -1.3 946 1,023 -7.5
------ ------ ----- -----
Gross result 2,124 2,140 -0.7 262 369 -29.0
Addition to provisions for loan losses 192 868 -77.9 19 223 -91.5
------ ------ ----- -----
OPERATING PROFIT BEFORE TAX 1,932 1,272 51.9 243 146 66.4
KEY FIGURES
Cost/income ratio 63.1% 63.3% 78.3% 73.5%
RAROC pre-tax 16.0% 13.9%
RAROC after tax 12.2% 10.3%
Total risk-weighted assets (in EUR billion) 147.5 152.9 -3.5
Addition to provisions for loan losses in
basis points of average credit-risk-weighted
assets 12 56
Staff (average FTEs) 24,000 25,000 -4.0
-----------------------------------------------------------------------------------------------------------------
FULL-YEAR PROFIT
Operating profit before tax from Wholesale Banking increased 51.9% to EUR 1,932
million, driven by a sharp decline in risk costs. Profit was impacted by a
number of one-off items, including losses on the sale of ING BHF-Bank activities
and the Asian cash equities business, a gain on the sale of CenE Bankiers in the
Netherlands, as well as restructuring costs and the transfer of businesses
between insurance and banking. Excluding those items, operating profit before
tax increased 57.0% to EUR 2,240 million. Currency effects had a negative impact
of EUR 25 million.
Total operating income declined 1.1% to EUR 5,761 million, due in part to
divestments. The interest result declined 4.6%, particularly in the Netherlands.
Commission income decreased 0.4% to EUR 1,363 million. Other income increased
11.5% to EUR 1,017 million despite a charge of EUR 165 million from the combined
impact of the sales of ING BHF-Bank activities (EUR -210 million), the Asian
cash equities business (EUR -42 million) and CenE Bankiers (EUR 87 million).
That was offset by an increase in other income in the Netherlands and Belgium
due to higher results from financial transactions.
Operating expenses declined 1.3% to EUR 3,637 million, despite restructuring
provisions of EUR 60 million in the third quarter of 2004 for ING BHF-Bank and
EUR 41 million in the fourth quarter for the international Wholesale Banking
network. One-off expenses totalled EUR 143 million in 2004, including EUR 42
million in costs related to the sale of the Asian cash equities business in the
first quarter. That compares with a one-off charge of EUR 82 million in 2003 to
pay for restructuring at ING BHF-Bank, ING Bank France and the international
Wholesale Banking activities. Excluding those one-off costs as well as currency
effects and the impact of the transfer of activities between insurance and
banking, operating expenses declined 2.8%. The cost/income ratio improved to
63.1% in 2004 from 63.3% in 2003. The average number of wholesale staff fell
4.0% compared with 2003. At the end of 2004, staff numbers were 9.2% lower
compared with year-end 2003, mainly due to the sales of, CenE Bankiers,
Page 24 of 46
the Asian cash equities business and parts of ING BHF-Bank. That was partially
offset by higher staff numbers at ING Real Estate as a result of the transfer of
activities from insurance to banking. The restructuring provision of EUR 41
million before tax, which was taken in the fourth quarter, will be used to
streamline the International Network of the Wholesale Banking, as part of a
strategy to focus on core products and clients. In total about 400 jobs are
being eliminated in Asia, the U.K. and the Americas, primarily in back-office
and IT functions, out of a total of 22,363 Wholesale Banking jobs worldwide at
the end of 2004. ING Wholesale Banking will maintain its geographical coverage
with branches or representative offices in more than 40 countries.
The addition to the provision for loan losses declined sharply to EUR 192
million from EUR 868 million in 2003, mainly due to improvements in the
Netherlands, Belgium, Germany and the Americas. The addition was equal to 12
basis points of average credit-risk-weighted assets, compared with 56 basis
points in 2003.
GEOGRAPHICAL BREAKDOWN WHOLESALE BANKING
----------------------------------------------------------------------------------------------------------
TABLE 15. WHOLESALE BANKING OPERATING PROFIT BEFORE TAX
FULL YEAR FOURTH QUARTER
In EUR million 2004 2003 % 2004 2003 %
----------------------------------------------------------------------------------------------------------
Netherlands 937 866 8.2 181 149 21.5
Belgium 690 482 43.2 109 2
Germany -243 -249 -206 -78
Rest of world 278 63 341.3 89 6
Other -78 -115 -35 -42
----- ----- --- ---
SUBTOTAL WHOLESALE BANKING 1,584 1,047 51.3 138 37 273.0
Asset management* 348 225 54.7 105 109 -3.7
----- ----- --- ---
TOTAL 1,932 1,272 51.9 243 146 66.4
----------------------------------------------------------------------------------------------------------
* mainly ING Real Estate and Baring Asset Management
In the Netherlands, operating profit before tax from Wholesale Banking increased
8.2% to EUR 937 million, due to a sharp decline in risk costs and the gain on
CenE Bankiers. Excluding the gain on CenE Bankiers, operating profit before tax
from the Dutch wholesale banking activities declined 1.8% to EUR 850 million,
mainly due to lower results from financial markets activities, including lower
interest results on the asset and liability-matching book and relatively high
non-recurring revenues in 2003 from the Dutch branch network. Results from ING
Lease showed a significant improvement, while results in the mid-corporate
segment continued to be strong. Total operating income in the Netherlands fell
2.5%, while operating expenses rose 2.3%, partly due to the refined allocations
of expenses. Risk costs amounted to just 12 basis points of average
credit-risk-weighted assets, compared with 39 basis points last year, partially
due to the release of some debtor provisions.
In Belgium, operating profit before tax from Wholesale Banking increased 43.2%
to EUR 690 million, driven by strong corporate banking results and lower risk
costs. Total income rose 4.9%, while operating expenses declined 4.0%. Risk
costs were only 3 basis points of average credit-risk-weighted assets, down from
33 basis points in 2003, supported by the release of some debtor provisions.
Risk costs were particularly high in the fourth quarter of 2003, resulting in an
operating profit before tax of only EUR 2 million in that quarter. In the fourth
quarter of 2004, operating profit before tax was EUR 109 million.
In Germany, the wholesale banking activities posted an operating loss before tax
of EUR 243 million compared with a loss of EUR 249 million in 2003. The result
includes a pre-tax loss of EUR 210 million on the sale of parts of ING BHF-Bank
and a restructuring provision of EUR 60 million taken in the third quarter of
2004. Excluding these one-off items and a EUR 30 million restructuring charge in
2003, the German wholesale activities turned from a loss of EUR 219 million
before tax in 2003 to a profit of EUR 27 million in 2004, mainly due to lower
risk costs. The addition to the provision for loan losses fell to 55
Page 25 of 46
basis points of average credit-risk-weighted assets from 154 basis points in
2003. Excluding the loss on the sale, operating income increased 11.4%, driven
by higher interest results. Excluding the restructuring provisions, operating
expenses were 0.6% lower.
In Rest of world the wholesale banking activities posted an operating profit
before tax of EUR 278 million, up from EUR 63 million profit posted in 2003. The
increase was almost fully caused by EUR 213 million lower risk costs, which fell
to 4 basis points of average credit-risk-weighted assets, supported by releases
of debtor provisions, compared with 73 basis points in 2003. Excluding currency
effects, restructuring charges and the loss and expenses related to the sale of
the Asian cash equities business, the gross result, before risk costs, increased
by EUR 89 million. Results improved particularly in Central Europe, due to
higher income from financial markets and corporate banking, and in the U.K., due
to cost savings.
Other Wholesale Banking contains results which are not allocated to the
different geographical regions of Wholesale Banking. In 2004, EUR 31 million
from the restructuring provision taken in the fourth quarter of 2004 is
included, while 2003 contained EUR 55 million for depreciation of software.
The asset management activities in banking, mainly ING Real Estate and Baring
Asset Management, posted a 54.7% increase in operating profit before tax. ING
Real Estate posted an operating profit before tax of EUR 325 million, up 47.1%
from EUR 221 million in 2003, including EUR 53 million from the transfer of the
investment management activities of ING Real Estate from insurance to banking.
Excluding that impact, operating profit before tax from ING Real Estate rose
18.6%, driven by strong revenue growth across all business lines and
substantially higher profits from the finance and investment management
activities in 2004. Baring Asset Management posted an operating profit before
tax of EUR 30 million, up from EUR 12 million in 2003, mainly as a result of
higher stock market levels. ING reached an agreement in November 2004 to sell
Baring Asset Management to Mass Mutual and Northern Trust. The transactions are
expected to be completed in the first quarter of 2005.
RAROC
The after-tax Risk-Adjusted Return on Capital for Wholesale Banking operations
improved to 12.2% in 2004, compared with 10.3% in the previous year, driven by
higher economic returns while the use of economic capital has gradually
decreased. Excluding the loss on the sale of ING BHF-Bank activities, the RAROC
after tax would have improved to 13.6%. The Wholesale Banking activities in the
Netherlands and Belgium, as well as Asset Management are showing strong pre-tax
RAROCs. Within the Rest of world, Central Europe and the Americas also showed
good pre-tax RAROCs of 23.8% and 18.0% respectively, while the performance in
Asia and the UK were both well below ING's target.
--------------------------------------------------------------------------------------
TABLE 16. WHOLESALE BANKING RISK-ADJUSTED RETURN ON CAPITAL
RAROC % (pre-tax) ECONOMIC CAPITAL (in EUR billion)
FY 2004 FY 2003 FY 2004 FY 2003
--------------------------------------------------------------------------------------
Netherlands 25.5 28.2 3.0 2.9
Belgium 22.2 16.1 2.5 2.7
Germany -20.7 -3.8 1.1 1.3
Rest of world 8.8 5.0 2.0 2.5
Other -43.6 -45.5 0.2 0.3
--- ----
SUBTOTAL WHOLESALE BANKING 13.6 12.6 8.8 9.7
Asset management* 39.5 44.0 0.8 0.4
--- ----
TOTAL PRE-TAX 16.0 13.9 9.6 10.1
TOTAL AFTER TAX 12.2 10.3
--------------------------------------------------------------------------------------
* mainly ING Real Estate and Baring Asset Management
Page 26 of 46
2.5 RETAIL BANKING OPERATING PROFIT BEFORE TAX RISES 10.6%
o INCOME INCREASES 5.5%, DRIVEN BY MORTGAGE LENDING IN THE NETHERLANDS
o COST/INCOME RATIO CONTINUES TO IMPROVE
o RISK-ADJUSTED RETURN ON CAPITAL AFTER TAX REMAINS HIGH AT 29.1%
-----------------------------------------------------------------------------------------------------------------
TABLE 17. RETAIL BANKING PROFIT & LOSS ACCOUNT
FULL YEAR FOURTH QUARTER
In EUR million 2004 2003 % 2004 2003 %
-----------------------------------------------------------------------------------------------------------------
Interest result 3,928 3,630 8.2 995 918 8.4
Commission 1,137 1,056 7.7 260 209 24.4
Other income -30 87 10 103 -90.3
----- ----- ----- -----
TOTAL OPERATING INCOME 5,035 4,773 5.5 1,265 1,230 2.8
OPERATING EXPENSES 3,681 3,526 4.4 1,039 869 19.6
----- ----- ----- -----
Gross result 1,354 1,247 8.6 226 361 -37.4
Addition to provisions for loan losses 184 189 -2.6 64 21 204.8
----- ----- ----- -----
OPERATING PROFIT BEFORE TAX 1,170 1,058 10.6 162 340 -52.4
KEY FIGURES
Cost/income ratio 73.1% 73.9% 82.1% 70.7%
RAROC pre-tax 43.1% 43.4%
RAROC after tax 29.1% 29.3%
Total risk-weighted assets (in EUR billion) 76.5 69.9 9.4
Addition to provisions for loan losses in
basis points of average credit-risk-weighted
assets 25 27
Staff (average FTEs) 34,300 35,200 -2.6
-----------------------------------------------------------------------------------------------------------------
FULL-YEAR PROFIT
Operating profit before tax from Retail Banking rose 10.6% to EUR 1,170 million,
driven by solid income growth and slightly lower risk costs. Results were
bolstered by higher profit in the Netherlands, driven by increased mortgage
lending and savings, and in Poland, which benefited from lower risk costs.
Profit from Belgium declined, due to non-recurring expenses and risk costs which
resulted in a loss in the fourth quarter, despite a 12.1% increase in operating
income for full-year 2004.
Total operating income rose 5.5% to EUR 5,035 million in 2004. Interest income
increased 8.2% due to higher mortgage lending and increased savings, while
interest margins narrowed slightly. Commission income rose 7.7%, mainly driven
by higher securities-related commissions. Other income declined sharply, due in
part to a EUR 48 million loss taken by Postbank in the first quarter of 2004 to
compensate customers for a disappointing return on investments related to the
unit-linked mortgage product `MeerWaardehypotheek'. Excluding that loss, total
income increased 6.5%.
Operating expenses from Retail Banking increased 4.4% to EUR 3,681 million
mainly due to the impact of the collective labour agreement in the Netherlands
which came into effect in May 2003, higher business volumes, the acceleration of
IT-projects and provisions for some litigation issues, particularly in the
fourth quarter. However, income growth exceeded expense growth in 2004, and the
cost/income ratio improved to 73.1% from 73.9% in 2003, including the negative
impact of some non-recurring expenses in the fourth quarter. The average number
of retail staff was 2.6% lower than in 2003. At the end of 2004, retail staff
numbers were 3.6% lower than at year-end 2003, mainly due to the sale of ING
BHF-Bank activities and lower staff numbers in Belgium, India and the
Netherlands.
The addition to the provision for loan losses declined 2.6% to EUR 184 million
from EUR 189 million in 2003. Lower risk costs in the Netherlands and Poland
were largely offset by higher risk costs in Belgium. The total addition in 2004
was equal to 25 basis points of average credit-risk-weighted assets compared
with 27 basis points for the full-year 2003.
Page 27 of 46
GEOGRAPHICAL BREAKDOWN RETAIL BANKING
--------------------------------------------------------------------------------
TABLE 18. RETAIL BANKING OPERATING PROFIT BEFORE TAX
FULL YEAR FOURTH QUARTER
In EUR million 2004 2003 % 2004 2003 %
--------------------------------------------------------------------------------
Netherlands 1,066 917 16.2 222 219 1.4
Belgium 72 105 -31.4 -60 65
Poland 19 7 171.4 6 11 -45.5
Other retail* 13 29 -55.2 -6 45
----- ----- --- ---
TOTAL 1,170 1,058 10.6 162 340 -52.4
--------------------------------------------------------------------------------
* mainly ING Vysya Bank, the retail activities of ING BHF-Bank, Private Banking
rest of world, Kookmin Bank stake
In the Netherlands, operating profit before tax from retail banking rose 16.2%
to EUR 1,066 million. Total income increased 3.1%, driven by higher interest
results due to increased mortgage lending and savings, which were partly offset
by lower interest margins. The residential mortgage portfolio in the Netherlands
increased by EUR 8.3 billion, or 11.2%, to EUR 82.2 billion at the end of 2004.
The higher interest result more than offset the EUR 48 million loss taken by
Postbank for the unit-linked mortgage product in the first quarter of 2004.
Excluding that loss, total income increased 4.6%. Operating expenses were 1.3%
lower. Risk costs fell to 21 basis points of average credit-risk-weighted assets
from 26 basis points in 2003.
In Belgium operating profit before tax from retail banking declined 31.4% to EUR
72 million, due to non-recurring expenses and higher risk costs, which resulted
in a pre-tax loss of EUR 60 million in the fourth quarter of 2004. The loss was
mainly caused by the acceleration of IT-projects, restructuring costs,
provisions for litigation issues and a change in legislation that resulted in
higher risk costs. Operating income was also lower than in the previous quarters
of 2004, in part due to the success of the new product `structured notes', which
reduced the sales of mutual funds. As a result, immediate fees were replaced by
fee income which is amortised. In the first nine months of 2004, the fees on
structured notes were not amortised. Compared with 2003, total income rose
12.1%, mainly driven by higher interest results due to higher lending and
savings volumes. Operating expenses increased 14.4%, mainly due to non-recurring
items. Excluding those items, operating expenses were almost flat. Risk costs
increased to 34 basis points of average credit-risk-weighted assets from 12
basis points in 2003. In the fourth quarter of 2004, risk costs were EUR 20
million, mainly due to a change in legislation, compared with EUR 1 million in
the third.
In Poland, operating profit before tax from the retail banking activities of ING
Bank Slaski rose to EUR 19 million from EUR 7 million in 2003, almost fully due
to a 50.0% decline in risk costs. The level of loan loss provisioning, however,
remains high at 227 basis points of average credit-risk-weighted assets.
Other retail banking activities posted an operating profit before tax of EUR 13
million, down from EUR 29 million in 2003, mainly due to a litigation issue at
ING Trust and the absence of dividend income on ING's stake in Kookmin Bank. ING
Vysya Bank turned to profit after a loss in 2003, when a trading portfolio was
reclassified into an investment portfolio to bring ING Vysya Bank into line with
ING's accounting principles.
RAROC
The after-tax Risk-Adjusted Return on Capital for the business line Retail
Banking decreased slightly to 29.1% from 29.3% last year, but remained well
above ING's target of 12.0%. The already strong pre-tax RAROC in the Netherlands
improved further. The negative pre-tax RAROC in Other retail can be mainly
attributed to ING Vysya Bank.
Page 28 of 46
--------------------------------------------------------------------------------
TABLE 19. RETAIL BANKING RISK-ADJUSTED RETURN ON CAPITAL
RAROC % (pre-tax) ECONOMIC CAPITAL (in EUR billion)
FY 2004 FY 2003 FY 2004 FY 2003
--------------------------------------------------------------------------------
Netherlands 68.0 62.2 1.6 1.5
Belgium 17.8 18.3 0.4 0.5
Poland 20.5 19.5 0.1 0.1
Other retail* -3.1 5.4 0.6 0.4
--- ---
TOTAL PRE-TAX 43.1 43.4 2.7 2.5
TOTAL AFTER TAX 29.1 29.3
--------------------------------------------------------------------------------
* mainly ING Vysya Bank, the retail activities of ING BHF-Bank, Private Banking
rest of world, Kookmin Bank stake
Page 29 of 46
2.6 ING DIRECT PROFIT RISES TO EUR 432 MILLION FROM EUR 151 MILLION
o FUNDS ENTRUSTED INCREASE 46.3% TO EUR 145.4 BILLION AT END OF 2004
o ABOUT 3 MILLION NEW CUSTOMERS ADDED IN 2004, BRINGING TOTAL TO 11.5 MILLION
o MORTGAGE LENDING PORTFOLIO INCREASES 57.6% TO EUR 33.1 BILLION
-----------------------------------------------------------------------------------------------------------------
TABLE 20. ING DIRECT* PROFIT & LOSS ACCOUNT
FULL YEAR FOURTH QUARTER
In EUR million 2004 2003 % 2004 2003 %
-----------------------------------------------------------------------------------------------------------------
Interest result 1,608 992 62.1 431 324 33.0
Commission 82 39 110.3 22 15 46.7
Other income 15 14 7.1 6 3 100.0
----- ----- ----- -----
TOTAL OPERATING INCOME 1,705 1,045 63.2 459 342 34.2
OPERATING EXPENSES 1,184 829 42.8 331 258 28.3
----- ----- ----- -----
Gross result 521 216 141.2 128 84 52.4
Addition to provisions for loan losses 89 65 36.9 16 26 -38.5
----- ----- ----- -----
OPERATING PROFIT BEFORE TAX 432 151 186.1 112 58 93.1
KEY FIGURES
Cost/income ratio 69.4% 79.3% 72.1% 75.4%
RAROC pre-tax 19.9% 12.5%
RAROC after tax 11.3% 6.1%
Total risk-weighted assets (in EUR billion) 50.1 28.5 75.8
Addition to provisions for loan losses in basis
points of average credit-risk-weighted assets 22 26
Staff (average in FTE) 5,300 4,000 32.5
-----------------------------------------------------------------------------------------------------------------
* Including ING Card from 2004
FULL-YEAR PROFIT
Operating profit before tax from ING Direct increased to EUR 432 million in 2004
compared with EUR 151 million in 2003 as it continued to attract new customers
and gain critical mass in the markets where it operates. Of the eight countries
in which ING Direct is active, it is profitable in seven.
Operating income increased 63.2% to EUR 1,705 million, driven mainly by a 62.1%
increase in the interest result, driven by the continued growth in funds
entrusted. Total funds entrusted grew by EUR 46.0 billion, or 46.3%, to EUR
145.4 billion at the end of December. In the fourth quarter, funds entrusted
increased by EUR 5.7 billion, despite negative currency effects of EUR 3.3
billion. Growth in mortgage lending also boosted income. At year-end 2004, ING
Direct had a total mortgage portfolio of EUR 33.1 billion, an increase of EUR
12.1 billion from the end of 2003, driven by growth in Germany and the U.S.
Operating expenses at ING Direct increased 42.8% to EUR 1,184 million as a
result of higher marketing costs and higher expenses to handle the continued
growth of the business, notably the strong increase in mortgage distribution.
Since year-end 2003, the number of customers increased by nearly 3 million, or
34.6%, reaching 11.5 million at the end of December. The cost/income ratio of
ING Direct improved to 69.4% from 79.3% in 2003. The average number of full-time
employees at ING Direct increased by 1,300 to 5,300 in 2004, mainly due to
expansion in Germany, the U.S. and the U.K.
The addition to the provision for loan losses increased 36.9% to EUR 89 million
in 2004 from EUR 65 million in 2003, in pace with the strong growth of the
business. Risk costs equalled 22 basis points of average credit-risk-weighted
assets, compared with 26 basis points in the full-year 2003.
RAROC
The after-tax Risk-Adjusted Return on Capital for ING Direct improved from 6.1%
in 2003 to 11.3%, slightly below ING's target of 12.0%. The increase was due
entirely to higher economic returns as the
Page 30 of 46
business units reach critical mass. In line with the strong growth of the
business, economic capital increased to EUR 2.4 billion from EUR 1.7 billion in
2003.
GEOGRAPHICAL BREAKDOWN ING DIRECT
--------------------------------------------------------------------------------
TABLE 21. ING DIRECT OPERATING PROFIT BEFORE TAX (including ING Card)
FULL YEAR FOURTH QUARTER
In EUR million 2004 2003 % 2004 2003 %
--------------------------------------------------------------------------------
Canada 66 56 17.9 17 17 0.0
Spain 32 18 77.8 4 7 -42.9
Australia 60 52 15.4 16 15 6.7
France 5 -26 1 -5
United States 173 58 198.3 50 14 257.1
Italy 9 -27 3 -6
United Kingdom -54 -44 -24 -13
Germany* 147 64 129.7 51 29 75.9
--- --- --- ---
SUBTOTAL ING DIRECT 438 151 190.1 118 58 103.4
ING Card -6 0 -6 0
--- --- --- ---
TOTAL 432 151 186.1 112 58 93.1
--------------------------------------------------------------------------------
* Including Austria
Of the eight ING Direct operations, seven posted a profit before tax in 2004.
France and Italy both turned to profit in the course of 2004. Only the U.K.,
which started operations in May 2003, is still loss making. Canada, Australia,
the U.S. and Germany are performing above ING's target for risk-adjusted return
on capital, while Spain is close. The performance of the other operations
(including ING Card) is still below the target.
The U.S. and Germany posted the strongest profit increases, driven by the
continued growth of funds entrusted, mortgages and the number of clients.
Although developments in the U.K. have been much better than planned, with
higher-than-expected funds entrusted and client numbers, the loss in the fourth
quarter of 2004 increased both compared to previous quarter and the same quarter
last year, mainly due to higher marketing costs and low interest results due to
a flat yield-curve. ING Card showed a loss of EUR 6 million in 2004, entirely
caused by higher operating expenses in the fourth quarter due to the intensified
marketing campaigns and the start of some new projects. The loss, however, was
lower than expected.
--------------------------------------------------------------------------------------
TABLE 22. ING DIRECT CLIENTS AND FUNDS ENTRUSTED
NUMBER OF CLIENTS FUNDS ENTRUSTED
(x 1,000) (in EUR billion)
31 Dec. 30 Sept. 31 Dec. 31 Dec. 30 Sept. 31 Dec.
2004 2004 2003 2004 2004 2003
--------------------------------------------------------------------------------------
Canada 1,121 1,070 905 9.0 9.1 7.0
Spain 975 896 753 10.2 9.8 7.9
Australia 996 915 719 8.5 7.9 6.9
France 413 382 339 9.2 9.0 7.6
United States 2,226 2,048 1,399 21.2 21.3 12.8
Italy 485 461 379 10.6 10.0 7.6
United Kingdom 762 689 305 27.9 26.1 11.5
Germany* 4,511 4,262 3,735 48.8 46.5 38.1
------ ------ ----- ----- ----- ----
TOTAL 11,489 10,723 8,534 145.4 139.7 99.4
--------------------------------------------------------------------------------------
* Including Austria
Page 31 of 46
3. ASSETS UNDER MANAGEMENT INCREASE 6.3% TO EUR 491.9 BILLION
o NET INFLOW OF EUR 26.5 BILLION, DRIVEN BY INSURANCE ASIA/PACIFIC, PRIVATE
BANKING
o THIRD-PARTY ASSETS UNDER MANAGEMENT INCREASE 6.8% TO EUR 334.8 BILLION
o ING REAL ESTATE PORTFOLIO INCREASES TO EUR 50.1 BILLION INCLUDING REAL ESTATE
FINANCE
Total assets under management increased EUR 29.2 billion, or 6.3%, in 2004 to
EUR 491.9 billion. The increase resulted from a net inflow (EUR 26.5 billion)
and higher stock markets (EUR 25.3 billion), which were partially offset by the
decline of most currencies against the euro (-EUR 16.1 billion) and divestments
(-EUR 6.5 billion), mainly due to the sales of Delta Asset Management, CenE
Bankiers, Baring Private Equity Partners, and the exit of the U.S. individual
reinsurance business. The mutual funds sold by ING Direct were included for the
first time and amounted to EUR 2.6 billion.
FUND INFLOW
The net inflow of EUR 26.5 billion was mainly realised by Insurance
Asia/Pacific, Private Banking and ING Real Estate. Insurance Asia/Pacific
reported an inflow of EUR 9.4 billion, as a result of good sales of Money Market
Funds and structured products at KB Asset Management in Korea and good life
premium growth in Taiwan and Korea. ING Private Banking, which is consolidated
under Retail Banking, had an inflow of EUR 6.2 billion, driven mainly by
Belgium. ING Real Estate realised an inflow of EUR 5.6 billion, which is
included below under Wholesale Banking.
-----------------------------------------------------------------------------------------
TABLE 23. ASSETS MANAGED BY BUSINESS LINE
31 December 31 December FY % 30 September 4Q %
In EUR billion 2004 2003 Change 2004 Change
-----------------------------------------------------------------------------------------
Insurance Europe 153.1 139.6 9.7 147.4 3.8
Insurance Americas 163.2 167.0 -2.3 174.3 -6.8
Insurance Asia/Pacific 56.7 43.1 31.6 53.8 5.0
Retail Banking 55.1 52.2 5.6 55.6 -0.9
Wholesale Banking 61.2 60.8 0.7 61.9 -1.1
ING Direct 2.6 0.0 - 0.0 -
----- ----- -----
TOTAL 491.9 462.7 6.3 493.0 -0.2
-----------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
TABLE 24. ASSETS ORIGINATED BY BUSINESS LINE
31 December 31 December FY % 30 September 4Q %
In EUR billion 2004 2003 Change 2004 Change
-----------------------------------------------------------------------------------------
Insurance Europe 47.3 41.0 15.4 45.4 4.2
Insurance Americas 98.0 99.9 -1.8 103.1 -5.0
Insurance Asia/Pacific 28.2 22.4 25.7 26.8 5.1
Retail Banking 102.6 94.5 8.6 102.8 -0.1
Wholesale Banking 56.1 55.7 0.6 56.3 -0.4
ING Direct 2.6 0.0 - 0.0 -
----- ----- -----
TOTAL THIRD PARTIES 334.8 313.5 6.8 334.4 0.1
Proprietary assets 157.1 149.2 5.3 158.6 -1.0
----- ----- -----
TOTAL 491.9 462.7 6.3 493.0 -0.2
-------------------------------------------------------------------------------------
DISTRIBUTION CHANNELS
Total assets managed on behalf of third-parties increased 6.8% to EUR 334.8
billion. All business lines contributed to that growth with the exception of
Insurance Americas, which was impacted by the decline of the U.S. dollar against
the euro. Correcting for currency effects, third-party assets under management
originated by Insurance Americas increased 5.3%. Insurance Asia/Pacific and
Insurance Europe both realised record growth in 2004, with assets increasing by
25.7% and 15.4%, respectively. Of the total third-party assets managed by ING,
14.1% are originated by Insurance Europe, 29.3% by Insurance Americas, 8.4% by
Insurance Asia/Pacific, 30.6% by Retail Banking, 16.8% by Wholesale Banking, and
0.8% by ING Direct.
Page 32 of 46
FUND INVESTMENT PERFORMANCE
The investment performance statistics of the ING Mutual Funds were, in general,
improving. Notably ING has a good track record for fixed income and balanced
strategies.
-------------------------------------------------------------------------------------------------
TABLE 25. ASSETS UNDER MANAGEMENT BY ASSET CLASS
In EUR billion 31 December 2004 30 September 2004 31 December 2003
-------------------------------------------------------------------------------------------------
Equities 160.2 32% 159.1 32% 161.0 35%
Fixed income 258.3 53% 259.2 53% 236.6 51%
Real Estate* 33.8 7% 33.4 7% 28.9 6%
Cash 39.6 8% 41.3 8% 36.2 8%
----- ---- ----- ---- ----- ----
TOTAL 491.9 100.0% 493.0 100% 462.7 100%
-------------------------------------------------------------------------------------------------
* mainly ING Real Estate investment management and development activities, plus
real estate assets from other business lines
-------------------------------------------------------------------------------------
TABLE 26. ASSETS UNDER MANAGEMENT BY CLIENT CATEGORY
31 December 31 December FY % 30 September 4Q%
In EUR billion 2004 2003 Change 2004 Change
-------------------------------------------------------------------------------------
Private clients 215.2 187.9 14.6 201.0 7.1
Institutional clients 119.6 125.6 -4.8 133.4 -10.3
----- ----- -----
Total third parties 334.8 313.5 6.8 334.4 0.1
Proprietary assets 157.1 149.2 5.3 158.6 -1.0
----- ----- -----
TOTAL 491.9 462.7 6.3 493.0 -0.2
Share of third parties 68.1% 67.8% 67.8%
-------------------------------------------------------------------------------------
ING INVESTMENT MANAGEMENT
ING Investment Management seeks to use its global scale and broad asset
management skills to help ING's local business units to deploy global asset
management strategies. Some of ING IM-Europe's investment strategies were
exported to other markets: the "protected mix" was introduced in Korea, the
"global brands equity strategy" was marketed by ING Antai in Taiwan, and a
dividend fund was recently introduced by ING Funds in the U.S. ING IM-Americas
achieved success with its fixed income strategies, with funds attracting total
inflows of EUR 4.1 billion in 2004. In the fourth quarter, institutional fixed
income sales reached EUR 800 million, including a EUR 400 million mandate from a
U.S. Transportation agency. The Senior Income Fund received the third largest
flows in its fund category with EUR 1.2 billion of sales in 2004. Third-party
assets under management of ING IM-Asia/Pacific increased 40.5% as a result of
increased distribution in the region and advanced product offerings.
ING REAL ESTATE
ING Real Estate's total portfolio, including the real estate finance portfolio,
increased by EUR 7.9 billion to EUR 50.1 billion, compared with year-end 2003.
The increase was driven mainly by strong organic growth in real estate finance
and investment management. The real estate investment management portfolio
increased by EUR 4.6 billion to EUR 30.9 billion, mainly due to the introduction
of ten new investment funds. ING Clarion Global Real Estate Income Fund (U.S.),
a listed fund which had EUR 2.2 billion in assets under management by year-end,
was the largest-ever initial public offering of a real estate fund in history.
The acquisition of Rodamco Asia also added EUR 800 million to property assets
under management. The real estate finance portfolio increased to EUR 17.1
billion from EUR 13.8 billion at year-end 2003. Roughly two-thirds of the
increase stemmed from new business won in an extremely competitive environment,
while the remaining third was the result of internal transfers. The real estate
development portfolio was stable at EUR 2.1 billion. Development activities
returned to a more normalised level. Prominent real estate projects were
delivered in Belgium, Czech Republic, Italy and the U.S. Sales proceeds of
completed projects amounted to approximately EUR 900 million, which were
re-invested in new projects.
PROFIT CONTRIBUTION
The functional operating profit before tax from asset management (which is
derived from figures included in the insurance and banking results) increased
14% to EUR 484 million in 2004. This growth was mainly realised by the
institutional asset management businesses of ING Real Estate and Baring Asset
Management, as well as ING Investment Management and private banking. Asset
management activities accounted for 7% of ING Group's total operating profit
before tax.
Page 33 of 46
APPENDICES
1. Key figures
2. Consolidated profit and loss account (Insurance/Banking) full-year, one-off
items
3. Consolidated profit and loss account (Insurance/Banking) fourth quarter,
one-off items
4. Consolidated balance sheet and changes in shareholders' equity
5. Condensed consolidated statement of cash flows
6. Additional information: quarterly results, specification of realised
capital gains on real estate and equities from insurance, insurance profit
& loss by life/non-life, bank lending, bank commission income, banking
other income
7. Embedded value
8. Information for shareholders
----------------
The accounting principles applied in this document correspond with those applied
in ING Group's Annual Accounts 2003. However, starting 1 January 2004, ING
adopted the US GAAP accounting standard "Statement of Position 03-1: Accounting
and Reporting by Insurance Enterprises for Certain Non-Traditional Long-Duration
Contracts and for Separate Accounts" for both its Dutch and US accounting.
Certain of the statements contained in this release are statements of future
expectations and other forward-looking statements. These expectations are based
on management's current views and assumptions and involve known and unknown
risks and uncertainties. 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) mortality and morbidity
levels and trends, (v) persistency levels, (vi) interest rate levels, (vii)
currency exchange rates, (viii) general competitive factors, (ix) changes in
laws and regulations, and (x) changes in the policies of governments and/or
regulatory authorities. ING assumes no obligation to update any forward-looking
information contained in this document.
This release shall not constitute an offer to sell or the solicitation of an
offer to buy, nor shall there be any sale of the common shares of ING Canada
Inc. in any jurisdiction in which such offer, solicitation or sale would be
unlawful. Such shares have not been and will not be registered under the U.S.
Securities Act of 1933, and may not be offered or sold in the United States
except pursuant to an exception from the registration requirements of such
Securities Act.
Page 34 of 46
APPENDIX 1.
---------------------------------------------------------------------------------------------------------------------------
1. KEY FIGURES
FY FY FY FY FY
2004 2003 2002 2001 2000
--------------------------------------------------------------------------------------------------------------
BALANCE SHEET (EUR x billion)
Total assets 866 779 716 705 650
Shareholders' equity 26 21 18 22 25
ASSETS UNDER MANAGEMENT (EUR x billion) 492 463 449 513 503
MARKET CAPITALISATION (EUR x billion) 49 39 32 57 83
OPERATING INCOME (EUR x million)
Insurance operations 55,398 53,233 59,449 55,274 34,521
Banking operations 12,537 11,680 11,201 11,111 11,302
OPERATING EXPENSES (EUR x million)
Insurance operations 4,837 4,897 5,203 5,583 5,023
Banking operations 8,658 8,184 8,298 8,186 8,273
ADDITIONS TO THE PROVISION FOR LOAN/INVESTMENT
LOSSES (EUR x million) 497 1,288 2,099 907 400
PROFIT (EUR x million)
Insurance operations 4,005 3,486 3,170 2,792 2,307
Banking operations 3,414 2,371 1,468 2,170 2,605
------ ------ ------ ------ ------
Operating profit before tax 7,419 5,857 4,638 4,962 4,912
Operating net profit 5,389 4,053 3,433 3,539 3,388
Capital gains/neg. value adjustment shares 579 -10 820 713 620
Non-operating net profit 247 325 7,976
------ ------ ------ ------ ------
Net profit 5,968 4,043 4,500 4,577 11,984
Distributable net profit 5,968 4,043 4,253 4,252 4,901
FIGURES PER ORDINARY SHARE OF EUR 0.24 NOMINAL VALUE
Operating net profit 2.53 2.00 1.77 1.83 1.76
Net profit 2.80 2.00 2.32 2.37 6.27
Distributable net profit 2.80 2.00 2.20 2.20 2.56
Dividend 1.07 0.97 0.97 0.97 1.13
Shareholders' equity 11.76 10.08 9.14 11.03 13.04
RATIOS (in %)
ING Group
Operating return on equity (ROE) 22.9 21.5 17.4 15.3 10.3
Operating net profit growth 33 18 -3 4 27
Insurance operations
Combined ratio 94 98 102 103 104
Capital coverage ratio 210 180 169 180 235
Banking operations
BIS ratio ING Bank 11.47 11.34 10.98 10.57 10.75
Tier-1 ratio ING Bank 7.71 7.59 7.31 7.03 7.22
Cost/income ratio 69.1 70.1 74.1 73.7 73.2
EMPLOYEES (average FTEs) 113,000 115,200 113,060 112,000 92,650
--------------------------------------------------------------------------------------------------------------
Page 35 of 46
APPENDIX 2. FULL-YEAR PROFIT & LOSS ACCOUNT
-------------------------------------------------------------------------------------------------------------------------
2.1 ING GROUP FULL-YEAR CONSOLIDATED PROFIT & LOSS ACCOUNT
INSURANCE BANKING TOTAL*
In EUR million FY 2004 FY 2003 FY 2004 FY 2003 FY 2004 FY 2003 %
-------------------------------------------------------------------------------------------------------------------------
Premium income 43,617 41,192 43,617 41,192 5.9
Income from investments of the
insurance operations 9,944 9,721 9,781 9,503 2.9
Interest result banking operations 8,808 8,115 8,850 8,166 8.4
Commission 1,201 1,313 2,581 2,464 3,782 3,777 0.1
Other income 636 1,007 1,148 1,101 1,784 2,108 -15.4
------ ------ ----- ----- ------ ------
TOTAL OPERATING INCOME 55,398 53,233 12,537 11,680 67,814 64,746 4.7
Underwriting expenditure 45,384 43,396 45,384 43,396 4.6
Other interest expenses 1,140 1,291 1,019 1,124 -9.3
Operating expenses 4,837 4,897 8,658 8,184 13,495 13,081 3.2
Additions to the provision for loan
losses/investment losses 32 163 465 1,125 497 1,288 -61.4
------ ------ ----- ----- ------ ------
TOTAL OPERATING EXPENDITURE 51,393 49,747 9,123 9,309 60,395 58,889 2.6
OPERATING PROFIT BEFORE TAX 4,005 3,486 3,414 2,371 7,419 5,857 26.7
Taxation 901 861 857 599 1,758 1,460 20.4
Third-party interests 119 117 153 227 272 344 -20.9
------ ------ ----- ----- ------ ------
OPERATING NET PROFIT 2,985 2,508 2,404 1,545 5,389 4,053 33.0
Capital gains/losses on shares 579 -10 579 -10
------ ------ ----- ----- ------ ------
NET PROFIT 3,564 2,498 2,404 1,545 5,968 4,043 47.6
-------------------------------------------------------------------------------------------------------------------------
* Including inter-company eliminations.
-------------------------------------------------------------------------------------------------------------------------
2.2 ONE-OFF ITEMS BEFORE TAX
INSURANCE BANKING TOTAL
In EUR million 2004 2003 2004 2003 2004 2003 %
-------------------------------------------------------------------------------------------------------------------------
OPERATING PROFIT BEFORE TAX 4,005 3,486 3,414 2,371 7,419 5,857 26.7
- gain Australia non-life 219 219
- losses related to exit ING Re -219 -219
- costs from pending LOG divestment -28 -28
- initial public offer Canada 249 249
- gain old reinsurance business 96 303 96 303
- release catastrophe provision 88 88
- gain joint venture Bital/Italy 115 115
- loss Asian equities business -84 -84
- loss BHF-Bank -210 -210
- gain CenE Bankiers 87 87
- restructuring provisions -101 -82 -101 -82
----- ----- ----- ----- ----- -----
Total one-off items 317 506 -308 -82 9 424
OPERATING PROFIT BEFORE TAX EXCLUDING
ONE-OFF ITEMS 3,688 2,980 3,722 2,453 7,410 5,433 36.4
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
2.3 ONE-OFF ITEMS AFTER TAX
INSURANCE BANKING TOTAL
In EUR million 2004 2003 2004 2003 2004 2003 %
-------------------------------------------------------------------------------------------------------------------------
OPERATING NET PROFIT 2,985 2,508 2,404 1,545 5,389 4,053 33.0
- gain Australia non-life 166 166
- losses related to exit ING Re -217 -217
- costs from pending LOG divestment -18 -18
- initial public offer Canada 249 249
- gain old reinsurance business 92 247 92 247
- release catastrophe provision 57 57
- gain joint venture Bital/Italy 107 107
- loss of Asian equities business -54 -54
- loss BHF-Bank -139 -139
- gain CenE Bankiers 87 87
- restructuring provisions -64 -65 -64 -65
- release redundant tax provisions 125 112 237
----- ----- ----- ----- ----- -----
Total one-off items 397 411 -58 -65 339 346
OPERATING NET PROFIT
EXCLUDING ONE-OFF ITEMS 2,588 2,097 2,462 1,610 5,050 3,707 36.2
-------------------------------------------------------------------------------------------------------------------------
Page 36 of 46
APPENDIX 3. FOURTH QUARTER PROFIT & LOSS ACCOUNT
-------------------------------------------------------------------------------------------------------------------------
3.1 ING GROUP FOURTH QUARTER CONSOLIDATED PROFIT & LOSS ACCOUNT
INSURANCE BANKING TOTAL*
In EUR million 4Q 2004 4Q 2003 4Q 2004 4Q 2003 4Q 2004 4Q 2003 %
-------------------------------------------------------------------------------------------------------------------------
Premium income 10,869 10,605 10,869 10,605 2.5
Income from investments of the
insurance operations 2,799 2,589 2,799 2,469 13.4
Interest result banking operations 2,246 2,056 2,231 2,071 7.7
Commission 309 335 590 654 899 989 -9.1
Other income 130 297 145 274 275 571 -51.8
------ ------ ----- ----- ------ ------
TOTAL OPERATING INCOME 14,107 13,826 2,981 2,984 17,073 16,705 2.2
Underwriting expenditure 11,217 11,129 11,217 11,129 0.8
Other interest expenses 288 340 273 235 16.2
Operating expenses 1,366 1,339 2,327 2,192 3,693 3,531 4.6
Additions to the provision for loan
losses/investment losses -32 8 99 270 67 278 -75.9
------ ------ ----- ----- ------ ------
TOTAL OPERATING EXPENDITURE 12,839 12,816 2,426 2,462 15,250 15,173 0.5
OPERATING PROFIT BEFORE TAX 1,268 1,010 555 522 1,823 1,532 19.0
Taxation 324 277 56 102 380 379 0.3
Third-party interests 39 35 23 77 62 112 -44.6
------ ------ ----- ----- ------ ------
OPERATING NET PROFIT 905 698 476 343 1,381 1,041 32.7
Capital gains/losses on shares 150 -5 150 -5
------ ------ ----- ----- ------ ------
NET PROFIT 1,055 693 476 343 1,531 1,036 47.8
-------------------------------------------------------------------------------------------------------------------------
* Including inter-company eliminations.
-------------------------------------------------------------------------------------------------------------------------
3.2 ONE-OFF ITEMS BEFORE TAX
INSURANCE BANKING TOTAL*
In EUR million Q4 2004 Q4 2003 Q4 2004 Q4 2003 Q4 2004 Q4 2003 %
-------------------------------------------------------------------------------------------------------------------------
OPERATING PROFIT BEFORE TAX 1,268 1,010 555 522 1,823 1,532 19.0
- losses related to exit ING Re 33 33
- costs from pending LOG divestment -28 -28
- initial public offer Canada 249 249
- release catastrophe provision 88 88
- gain joint venture Bital/Italy 115 115
- loss BHF-Bank -210 -210
- restructuring provisions -41 -41
----- ----- ---- --- ----- -----
Total one-off items 254 203 -251 0 3 203
OPERATING PROFIT BEFORE TAX EXCLUDING
ONE-OFF ITEMS 1,014 807 806 522 1,820 1,329 36.9
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
3.3 ONE-OFF ITEMS AFTER TAX
INSURANCE BANKING TOTAL*
In EUR million Q4 2004 Q4 2003 Q4 2004 Q4 2003 Q4 2004 Q4 2003 %
-------------------------------------------------------------------------------------------------------------------------
OPERATING NET PROFIT 905 698 476 343 1,381 1,041 32.7
- gain Australia non-life 20 20
- losses related to exit ING Re -53 -53
- costs from pending LOG divestment -18 -18
- initial public offer Canada 249 249
- release catastrophe provision 57 57
- gain joint venture Bital/Italy 107 107
- loss BHF-Bank -139 -139
- restructuring provisions -28 -28
- release redundant tax provisions -17 112 95
----- ----- ---- --- ----- -----
Total one-off items 181 164 -55 0 126 164
OPERATING NET PROFIT
EXCLUDING ONE-OFF ITEMS 724 534 531 343 1,255 877 43.1
-------------------------------------------------------------------------------------------------------------------------
Page 37 of 46
APPENDIX 4.
----------------------------------------------------------------------------------------------------------------
4.1 ING GROEP N.V. CONSOLIDATED BALANCE SHEET
31 December 31 December FY % 30 September 4Q %
In EUR million 2004 2003 Change 2004 Change
----------------------------------------------------------------------------------------------------------------
ASSETS
Tangible fixed assets 1,252 1,311 -4.5 1,251 0.1
Participating interests 3,303 3,167 4.3 3,595 -8.1
Investments 398,014 335,003 18.8 392,797 1.3
Lending 317,466 292,556 8.5 316,578 0.3
Banks 57,300 61,060 -6.2 59,805 -4.2
Cash 8,807 11,738 -25.0 4,996 76.3
Other assets 58,801 53,473 9.9 64,810 -9.3
Accrued assets 21,149 20,463 3.4 21,598 -2.1
TOTAL 866,092 778,771 11.2 865,430 0.1
EQUITY AND LIABILITIES
Shareholders' equity 25,866 21,331 21.2 24,639 4.9
Preference shares of Group companies 1,283 1,783 -28.0 1,417 -9.5
Third-party interests 2,212 1,730 27.9 1,763 25.5
------- ------- -------
Group equity 29,361 24,844 18.2 27,819 5.5
Subordinated loan 4,109 3,252 26.4 4,294 -4.3
------- ------- -------
Group capital base 33,470 28,096 19.1 32,113 4.2
General provisions 2,893 2,740 5.5 2,656 8.9
Insurance provisions 210,107 198,035 6.1 212,821 -1.3
Funds entrusted to and debt securities of
the banking operations 435,907 377,824 15.4 426,473 2.2
Banks 112,797 102,115 10.5 118,765 -5.0
Other liabilities 62,173 61,123 1.7 65,379 -4.9
Accrued liabilities 8,745 8,838 -1.0 7,223 21.1
------- ------- -------
TOTAL 866,092 778,771 11.2 865,430 0.1
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
4.2 CHANGES IN SHAREHOLDERS' EQUITY
In EUR million
----------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY AS PER 31 DECEMBER 2003 / 2002 21,331 18,254
Net profit 5,968 4,043
Revaluations (after tax) 1,063 530
Realised capital gains released to P&L account -932 -258
Write-off of goodwill -119 -145
Exchange rate differences -966 -1,123
Issue of shares 1,694 1,977
Changes in ING Groep N.V. shares held by Group companies -25 50
Dividend paid -2,093 -1,995
Other -55 -2
------ ------
SHAREHOLDERS' EQUITY AS PER 31 DECEMBER 2004 / 2003 25,866 21,331
----------------------------------------------------------------------------------------------------------------
Page 38 of 46
APPENDIX 5.
-------------------------------------------------------------------------------------------------
5. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
In EUR million FY 2004 FY 2003*
-------------------------------------------------------------------------------------------------
NET CASH FLOW FROM OPERATING ACTIVITIES 76,082 64,705
Investments and advances:
- participating interests -2,688 -658
- investments in shares and property -6,323 -6,599
- investments in fixed-interest securities -279,265 -326,438
- other investments -266 -507
Disposals and redemptions:
- participating interests 1,641 911
- investments in shares and property 6,936 8,377
- investments in fixed-interest securities 213,246 273,769
- other investments 406 158
Net investment for risk of policyholders -7,291 -14,571
-------- --------
NET CASH FLOW FROM INVESTING ACTIVITIES -73,604 -65,558
Subordinated loans of ING Groep N.V. companies 1,000 1,181
Bonds, loans taken up and deposits by reinsurers 807 -221
Private placements of ordinary shares 554 44
Private placement of preference shares of group companies -410 0
Issue of shares 483 901
Changes in shares ING Groep N.V. -34 -5
Cash dividends -882 -927
-------- --------
NET CASH FLOW FROM FINANCING ACTIVITIES 1,518 973
Net cash flow 3,996 120
Cash at beginning of year 7,338 7,830
Exchange rate differences -43 -612
-------- --------
CASH AT END OF PERIOD 11,291 7,338
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
In this summary, cash comprises the following items:
Short-dated government paper 12,382 6,521
Banks, available on demand -9,898 -10,921
Cash and bank balances and call money of the insurance operations 8,807 11,738
------ --------
CASH AT END OF PERIOD 11,291 7,338
-------------------------------------------------------------------------------------------------
* Restated
Page 39 of 46
APPENDIX 6. ADDITIONAL INFORMATION
---------------------------------------------------------------------------------------------------------------------------
6.1 QUARTERLY RESULTS
4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q
In EUR million 2004 2004 2004 2004 2003 2003 2003 2003
---------------------------------------------------------------------------------------------------------------------------
Operating profit before tax
- Insurance Europe 522 437 365 409 556 437 400 398
- Insurance Americas 699 170 460 340 362 314 395 239
- Insurance Asia/Pacific 120 104 405 122 107 128 105 71
- Other -73 -32 39 -82 -15 -99 184 -96
----- ----- ----- ----- ----- --- ----- ---
INSURANCE OPERATING PROFIT BEFORE TAX 1,268 679 1,269 789 1,010 780 1,084 612
- Wholesale Banking 243 519 511 659 146 374 358 394
- Retail Banking 162 330 351 327 340 225 257 236
- ING Direct 112 117 128 75 58 62 24 7
- Other 38 -87 -21 -50 -22 -22 -25 -41
----- ----- ----- ----- ----- --- ----- ---
BANKING OPERATING PROFIT BEFORE TAX 555 879 969 1,011 522 639 614 596
OPERATING PROFIT BEFORE TAX 1,823 1,558 2,238 1,800 1,532 1,419 1,698 1,208
OPERATING NET PROFIT 1,381 1,212 1,605 1,191 1,041 944 1,166 902
- of which Insurance operations 905 611 935 534 698 545 761 504
- of which Banking operations 476 601 670 657 343 399 405 398
NET PROFIT 1,531 1,594 1,641 1,202 1,036 977 1,863 167
In EUR
Operating net profit per ordinary share 0.63 0.57 0.76 0.57 0.50 0.46 0.58 0.46
NET PROFIT PER ORDINARY SHARE 0.70 0.74 0.79 0.57 0.50 0.47 0.95 0.08
---------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
6.2 SPECIFICATION OF REALISED CAPITAL GAINS ON REAL ESTATE AND EQUITIES FROM INSURANCE
FULL YEAR BEFORE TAX FULL YEAR AFTER TAX
In EUR million 2004 2003 % 2004 2003 %
--------------------------------------------------------------------------------------------------------------------
REAL ESTATE
- life 459 454 1.1
- non-life 26 23 13.0
--- ---
Total 485 477 1.7 300 296 1.4
EQUITIES 590 20 579 -10
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
6.3 INSURANCE PROFIT FROM LIFE AND NON-LIFE
FULL-YEAR 2004 FULL-YEAR 2003
In EUR million Life Non-life Total Life Non-life Total
--------------------------------------------------------------------------------------------------------------------
Premium income 36,975 6,642 43,617 33,904 7,288 41,192
Income from investments 8,712 1,232 9,944 8,802 919 9,721
Commission and other income 1,810 27 1,837 2,311 9 2,320
------ ----- ------ ------ ----- ------
TOTAL OPERATING INCOME 47,497 7,901 55,398 45,017 8,216 53,233
Underwriting expenditure 40,284 5,100 45,384 37,347 6,049 43,396
Other interest expenses 1,140 1,140 1,291 1,291
Operating expenses 3,645 1,192 4,837 3,738 1,159 4,897
Investment losses 32 32 163 163
------ ----- ------ ------ ----- ------
TOTAL OPERATING EXPENDITURE 45,101 6,292 51,393 42,539 7,208 49,747
OPERATING PROFIT BEFORE TAX 2,396 1,609 4,005 2,478 1,008 3,486
--------------------------------------------------------------------------------------------------------------------
Page 40 of 46
--------------------------------------------------------------------------------------------------------------------
6.4 BANK LENDING
31 December 31 December FY % 30 September 4Q %
In EUR billion 2004 2003 Change 2004 Change
--------------------------------------------------------------------------------------------------------------------
- Public authorities 12.9 14.9 -13.4 14.7 -12.2
- Other corporate 164.7 160.7 2.5 167.4 -1.6
----- ----- -----
TOTAL CORPORATE 177.6 175.6 1.1 182.1 -2.5
- Mortgages 126.2 104.2 21.1 120.8 4.5
- Other personal 17.9 17.4 2.9 18.2 -1.6
----- ----- -----
TOTAL PERSONAL 144.1 121.6 18.5 139.0 3.7
Provisions for bank lending -4.2 -4.6 -4.5
TOTAL BANK LENDING 317.5 292.6 8.5 316.6 0.3
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
6.5 BANKING COMMISSION INCOME
FULL YEAR FOURTH QUARTER
In EUR million 2004 2003 % 2004 2003 %
--------------------------------------------------------------------------------------------------------------------
Funds transfer 575 587 -2.0 131 143 -8.4
Securities business 665 665 0.0 146 189 -22.8
Insurance broking 136 115 18.3 29 29 0.0
Management fees 766 594 29.0 188 160 17.5
Brokerage and advisory fees 139 146 -4.8 54 39 38.5
Other 300 357 -16.0 42 94 -55.3
----- ----- --- ---
TOTAL 2,581 2,464 4.7 590 654 -9.8
--------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
6.6 BANKING OTHER INCOME
FULL YEAR FOURTH QUARTER
In EUR million 2004 2003 % 2004 2003 %
--------------------------------------------------------------------------------------------------------------------
Income from securities and 47 154 -69.5 -135 93
participating interests
Results from financial transactions 596 562 6.0 126 15
Other results 505 385 31.2 154 166 -7.2
----- ----- --- ---
TOTAL 1,148 1,101 4.3 145 274 -47.1
--------------------------------------------------------------------------------------------------------------------
Page 41 of 46
APPENDIX 7. EMBEDDED VALUE
7.1 NEW BUSINESS PRODUCTION AND VALUE BY REGION
The value of new life business written in 2004 was EUR 632 million, up 43.6%
from EUR 440 million in 2003. The increase is due to improved pricing margins,
higher sales, and further investment in new business. During 2004 ING invested
EUR 1,607 million to write new life insurance business. The overall rate of
return expected on this investment is 12.1%. That compares to an overall return
of 10.9% in 2003. All reported internal rates of return reflect the 7.5%
discount rate in the Netherlands, adjusting for differences in interest rates
from different countries to make the reported IRRs comparable. The value of new
business fully reflects acquisition expense overruns, which represent excess
cost for acquiring new business over and above the expense allowances provided
for in the product pricing. Such overruns may exist while new operations are
achieving scale, while several businesses are being integrated into one, or
during a year where sales are lower than anticipated. During 2004, after-tax
acquisition expense overruns were EUR 73 million, compared with EUR 78 million
in 2003. The overall internal rate of return for ING's life business is 12.9%
excluding acquisition expense overruns.
----------------------------------------------------------------------------------------------------------------------
7.2 BUSINESS PRODUCTION AND VALUE BY REGION
NEW PRODUCTION 2004 NEW PRODUCTION 2003
Value of Value of
Annual Single New IRR Annual Single New IRR
In EUR million premium Premium Business in % Premium Premium Business in %
----------------------------------------------------------------------------------------------------------------------
INSURANCE EUROPE 432 3,508 138 12.4 341 3,114 94 10.9
- Netherlands 178 1,709 58 10.5 161 1,220 11 8.0
- Belgium 51 1,583 42 22.8 29 1,752 55 29.4
- Rest of Europe 202 216 38 12.6 151 142 28 11.9
INSURANCE AMERICAS 1,409 13,917 173 10.7 1,632 14,622 94 9.0
- United States 1,194 13,726 138 10.3 1,583 14,545 101 9.2
- Mexico 138 14 25 26.3 33 8 0 7.3
- South America 77 177 10 10.0 16 69 -6 4.0
INSURANCE ASIA/PACIFIC 1,086 2,996 321 13.6 985 1,588 252 14.7
- Australia 66 681 8 11.2 35 601 8 11.0
- Japan 303 1,941 112 15.0 269 845 41 11.3
- Korea 384 201 97 26.7 329 61 77 28.2
- Taiwan 221 131 97 11.0 248 48 123 15.8
- Rest of Asia/Pacific 112 42 7 9.4 104 33 3 8.3
----- ------ --- ----- ------ ---
TOTAL 2,926 20,421 632 12.1 2,958 19,325 440 10.9
----------------------------------------------------------------------------------------------------------------------
The expected internal rate of return in developing markets is 13.5% compared
with 15.3% for 2003.
----------------------------------------------------------------------------------------------------------------------
7.3 NEW BUSINESS PRODUCTION AND VALUE IN DEVELOPING MARKETS* BY REGION
NEW PRODUCTION 2004 NEW PRODUCTION 2003
Value of Value of
Annual Single New IRR Annual Single New IRR
In EUR million premium Premium Business in % Premium Premium Business in %
----------------------------------------------------------------------------------------------------------------------
Europe 138 81 33 14.2 107 53 24 13.9
Americas 215 191 35 14.7 49 77 -6 4.8
Asia/Pacific 717 374 201 13.2 682 142 204 16.9
----- ------ --- ----- ------ ---
TOTAL 1,070 646 269 13.5 838 272 222 15.3
----------------------------------------------------------------------------------------------------------------------
* The countries included as developing markets are:
Europe: Bulgaria, Czech Republic, Hungary, Poland, Romania, Slovakia
Americas: Argentina, Chile, Mexico, Peru
Asia/Pacific: China, Hong Kong, India, Korea, Malaysia, Thailand, Taiwan
Page 42 of 46
7.4 EMBEDDED VALUE
The European Embedded Value (EEV) Principles were published in May 2004 by the
CFO Forum, a group representing the Chief Financial Officers of major European
insurers. The Principles and associated guidance provide a framework for
calculating and reporting supplementary embedded value information. ING has
adopted the EEV Principles in respect of ING's year-end 2004 results.
--------------------------------------------------------------------------------
7.5. MOVEMENT IN EMBEDDED VALUE OF THE LIFE OPERATIONS
In EUR million 2004 2003
--------------------------------------------------------------------------------
Free surplus 599 2,500
Value of in-force business 21,853 19,223
------ ------
EMBEDDED VALUE 22,451 21,724
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
7.6. EMBEDDED VALUE PER BUSINESS LINE - LIFE OPERATIONS
In EUR million 2004 2003
--------------------------------------------------------------------------------
INSURANCE EUROPE 12,257 11,503
- Netherlands 9,223 9,003
- Belgium/Luxembourg 871 756
-Other Europe 2,163 1,744
INSURANCE AMERICAS 8,118 8,305
- U.S. 7,271 7,933
- Latin America 847 372
ASIA/PACIFIC 2,076 1,917
------ ------
TOTAL EMBEDDED VALUE LIFE
BUSINESS 22,451 21,724
--------------------------------------------------------------------------------
The embedded value for the life insurance operations increased by EUR 727
million in 2004 (EUR 1,776 million before dividends). Aside from the normal
additions to value attributable to new business and unwind of the discount rate
(required return), positive variances from the assumptions, changes to the
economic assumptions, discount rates and model changes in some business units
also increased embedded value. Changes to the capital model, currency movements,
the deduction of an explicit value related to options and guarantees from the
reported results, and revisions to non-economic assumptions partially offset the
gains.
--------------------------------------------------------------------------------
7.7. MOVEMENT ANALYSIS
In EUR million
--------------------------------------------------------------------------------
REPORTED EMBEDDED VALUE 2003 21,724
Investment return on free surplus 96
Value of new business 632
Required return 1,560
Financial variances 431
Operational variances 145
Discount rate changes 102
Assumption changes 314
Currency effects -529
Change to capital model -744
Addition of financial options and guarantees -616
Dividends and capital injections -1,049
Other 385
ENDING EMBEDDED VALUE 2004 22,451
--------------------------------------------------------------------------------
The major factors for each of these changes in 2004 are as follows:
o Investment income on free surplus was EUR 96 million.
o New sales in 2004 contributed EUR 632 million to the embedded value.
o The required return of EUR 1,560 million is the rollup of the discount
rate on the beginning value of in-force business and on the value of
new business.
Page 43 of 46
o Financial variances in 2004 totalled EUR 431 million. Favourable
investment experience across the businesses as well as favourable fund
returns on separate accounts in the U.S. were the drivers of this
increase.
o Operational variances increased embedded value by EUR 145 million over
2004, primarily reflecting positive mortality and morbidity experience in
Asia/Pacific.
o Assumption changes increased value by EUR 314 million, reflecting
offsetting items. An increase in the assumed long term interest rate in
Taiwan, a reduction in the corporate tax rate in the Netherlands and
changes to lapse, mortality, and morbidity assumptions in Asia/Pacific
were partially offset by an increase in expenses included in
Nationale-Nederlanden's projections.
o Currency impacts had a negative effect of EUR 529 million, primarily
reflecting the effects of a declining U.S. dollar compared with the euro.
o Changes to the ING capital model reduced the embedded value by EUR 744
million and impacted all business lines. The change increased the
embedded value for all business lines except Latin America and
Asia/Pacific. The latter of which showed a significant increase in
capital.
o The expense associated with financial options and guarantees were
incorporated into the embedded value results for 2004, decreasing the
value by EUR 616 million. The impact was reflected primarily in the
Netherlands and the U.S. results.
o The embedded value was reduced by EUR 1,049 million due to dividends from
the life operations paid to ING Group.
o Other amounts contributed EUR 385 million.
7.8 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 2004 and the value of new business
written during 2004. All material business units in the Americas, Asia Pacific
and Europe were covered by the review.
Watson Wyatt has concluded that the methodology adopted is appropriate and that
the assumptions used are reasonable. In addition Watson Wyatt has concluded that
the methodology and assumptions used in the calculation of the embedded value at
31 December 2004 comply with the European Embedded Value Principles and
Guidance.
Watson Wyatt has performed limited high level checks on the results of the
calculations and has discovered no material issues. Watson Wyatt has not,
however, performed detailed checks on the models and processes used.
Page 44 of 46
APPENDIX 8. INFORMATION FOR SHAREHOLDERS
SHARES AND WARRANTS
The average number of shares used for the calculation of net profit per share
for 2004, was 2,125.3 million (2,014.4 million for 2003). The number of
(depositary receipts for) ordinary shares of EUR 0.24 nominal value outstanding
at the end of December 2004 was 2,204.7 million (including 29.5 million own
shares to cover outstanding options for ING personnel). The number of
(depositary receipts for) "A" preference shares of EUR 1.20 nominal value
outstanding at the end of December 2004 was 87.1 million. The dividend
percentage for the "A" shares for the period from 1 January, 2004 to 1 January
2014 has been set at 4.65%. This dividend will amount to EUR 0.1582 per year
until 1 January 2014. This dividend will be paid for the first time in 2005.
On 5 January 1998, 17.2 million ING Group warrants B were issued. With an
additional payment of the exercise price of EUR 49.92 one warrant B entitles the
holder to two ING Group depositary receipts up to 5 January 2008. The number of
warrants B outstanding at the end of December 2004 was 17.2 million.
In 2004, the turnover of (depositary receipts for) ordinary shares on the
Euronext Amsterdam Stock Market was 2,403.5 million (purchases and sales). The
highest closing price was EUR 22.28, the lowest EUR 16.73; the closing price at
the end of December 2004 was EUR 22.26.
LISTING
The (depositary receipts for) ordinary shares ING Group are quoted on the
exchanges of Amsterdam, Brussels, Frankfurt, Paris, New York (NYSE) and the
Swiss exchange. The (depositary receipts for) preference shares and warrants B
are quoted on the Euronext Amsterdam Stock Market. Warrants B are also quoted on
the exchange of Brussels. Options on (depositary receipts for) ordinary shares
ING Group are traded at the Euronext Amsterdam Derivative Markets and the
Chicago Board Options Exchange.
RATING
Both ING Groep N.V. and ING Verzekeringen N.V. have an A+ rating from Standard &
Poor's and an Aa3 rating from Moody's. ING Bank N.V. has an Aa2 rating from
Moody's and an AA- from Standard & Poor's. All ratings were confirmed in 2004.
The ratings from Moody's have a stable outlook, and the ratings from S&P all
have a positive outlook.
IMPORTANT DATES IN 2005 AND 2006*
26 April 2005 Annual general meeting of shareholders
28 April 2005 ING share quoted ex-final dividend
4 May 2005 Payment date final dividend 2004
12 May 2005 Publication of first-quarter results
11 August 2005 Publication of first-half results
12 August 2005 ING share quoted ex-interim dividend
10 November 2005 Publication of results first nine months
16 February 2006 Publication of annual results 2005
25 April 2006 Annual general meeting of shareholders
27 April 2006 ING share quoted ex-final dividend
* All dates shown are provisional.
Page 45 of 46
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ING Groep N.V.
(Registrant)
By: /s/H. van Barneveld
-------------------
H. van Barneveld
General Manager Corporate Control & Finance
By: /s/C. Blokbergen
----------------
C. Blokbergen
Head Legal Department
Dated: February 17, 2005
Page 46 of 46