ING Direct 2009 Annual Report Download - page 41

Underlying profit before tax in Belgium and Luxembourg decreased
by EUR 53 million to EUR 27 million in 2009, due to EUR 18 million
higher operating expenses and EUR 76 million losses and
impairments on fixed income securities, partly offset by EUR 46
million higher commission income. The increase in commissions
and expenses was completely due to the legal transfer of ING’s
Investment Management activities in Belgium and Luxembourg
from Bank to Insurance in the fourth quarter of 2008. Underlying
profit before tax decreased by EUR 10 million to EUR 319 million,
as EUR 63 million lower operating expenses were more than offset
by losses and impairments on fixed income securities that were
EUR 35 million higher and EUR 50 million lower revaluations of
non-trading derivatives.
BUSINESS DEVELOPMENTS
The economic environment in 2009 had a clear impact on
Insurance Europe’s performance and will leave a long-lasting
impression on the insurance sector. The new market reality gave
rise to risk-averse consumer behaviour, leading to shifts in product
uptake and, consequently, product design. Real gross domestic
product (GDP) is expected to have fallen by around 4% in the
eurozone in 2009. Prospects for Europe’s economy brightened,
however, in the second half of the year, not least due to the impact
of the exceptional measures taken by national governments and
monetary authorities. In most European countries economic
activity picked up in the third quarter, marking the official end
of the recession.
BENELUX INSURANCE OPERATIONS
In the Benelux, the economic downturn negatively affected key
insurance market drivers such as consumer confidence,
employment and wage growth. In addition, competition increased
in the Dutch retail life market, as banks are now allowed to sell
certain savings products with tax benefits in the pension and long-
term savings field as well. In this mature market, ING focused on
increasing margins through efficiency improvements and rigorous
cost containment to offset declining premiums. ING experienced
volume growth in life products, especially annuities which are
attractive to customers wanting guarantees. VNB was negatively
impacted by changes in yield curves and the discount rate as a
result of the economic climate.
Integration of the Dutch insurance operations
In 2009 it was announced that Nationale-Nederlanden, RVS
and ING Verzekeren Retail (formerly Postbank Verzekeren) will
be combined into one customer-oriented organisation under the
Nationale-Nederlanden brand. This strategic decision is driven by
the desire to respond to customer needs for convenience, personal
advice, transparency and security. By using all current distribution
channels, customers will be able to choose how and where they
want to purchase products. The network of independent brokers
will continue to play an important role, as will the banking channels
and ING’s own advisers in the Netherlands.
CENTRAL AND REST OF EUROPE
The customer needs towards protection products was clear in
Central and Rest of Europe. The market turmoil had an adverse
impact on in-force business in Central and Rest of Europe where
lapses and surrenders increased in the first half of 2009, stabilising
later in the year. There were severe regulatory changes for pension
currencies against the euro and EUR 53 million was due to
a change in the allocation method for corporate expenses.
The remaining expense reduction was realised through cost
containment efforts. In 2009, an internal staff reduction of
1,366 full-time equivalents was achieved. Furthermore,
significant reductions were achieved in the cost categories
in external staff, accommodation and marketing. Material
expenses related to restructuring initiatives were not included in
underlying operating expenses, but presented as special items.
Life sales Annual Premium Equivalent (APE) decreased EUR 28
million to EUR 982 million in 2009, a decline which was
predominantly caused by developments in Central and Rest of
Europe. In the Netherlands, sales increased by EUR 101 million
to EUR 450 million, mainly driven by higher contract renewals in
group life and pensions, and EUR 31 million APE related to a
change in premium recognition within group life. In Belgium and
Luxembourg, APE increased EUR 29 million to EUR 139 million
driven by the introduction of variable annuity products in Belgium
and in Italy sold by ING Life Luxembourg through the private
banking arm of UniCredit. APE declined in Central and Rest of
Europe by EUR 159 million, with all countries contributing to the
decline except Turkey, where a pension fund was acquired in late
2008. The EUR 56 million APE decline in Romania was largely due
to the launch of second- and third-pillar pension funds in late 2007,
contributing EUR 57 million sales in 2008 compared with EUR 10
million in 2009. The depreciation of Central European currencies
against the euro caused EUR 48 million of the sales decline.
Value of New Business (VNB) in Insurance Europe declined to
EUR 185 million in 2009 from EUR 397 million in 2008. The
Netherlands contributed EUR 53 million to this decline and Central
and Rest of Europe another EUR 162 million. VNB in the
Netherlands was lower despite higher sales and lower operating
expenses, due to higher risk margins as well as a shift in the
business mix to group unit-linked contracts from more profitable
retail annuities. Lower VNB in Central and Rest of Europe was
caused by lower expected asset returns and higher risk margins in
the assumed discount rates as well as lower single premium sales
and a EUR 28 million negative currency impact in Central and Rest
of Europe. Margins in the Central and Rest of Europe pension
business continued to be under pressure due to changes in the fee
structure, partly triggered by legislative changes. The second- and
third-pillar pension funds in Romania contributed EUR 12 million in
VNB in 2009 against EUR 80 million in 2008.
COUNTRY DEVELOPMENTS
Underlying profit before tax in the Netherlands increased by
EUR 62 million to EUR 305 million in 2009. The main reasons
for this increase were EUR 420 million in higher revaluations on
private equity, EUR 217 million in lower operating expenses and an
improvement of EUR 190 million in the change in the provision for
guarantees on separate account pension contracts (net of hedging).
These positive items were largely offset by EUR 452 million lower
public equity income following the divestment of equity
investments due to derisking. In addition, the impairments on fixed
income investments increased by EUR 43 million, and profit sharing
for policyholders increased by EUR 89 million. The result on equity
index options that hedge equity investments fell by EUR 56 million,
and the Non-life underwriting result decreased by EUR 97 million.
ING Group Annual Report 2009 39