ING Direct 2008 Annual Report Download - page 27

ING Group Annual Report 2008
25
Insurance Europe
Resilient performance despite lower net profit
Key points
> Investment losses across asset classes
negatively impacted results
> Strong performance Central Europe
> Major drive for cost containment
and capital efficiency in the Benelux
> Favourable long-term prospects,
despite market turmoil
Insurance Europe delivered a resilient performance in 2008,
especially in Central Europe. However, like others in the life
insurance industry, Insurance Europe was affected by the
global financial turmoil. The lower net result was mainly
due to negative revaluations of real estate and private
equity investments. The business responded to the difficult
financial and economic climate by focusing on efficiency
and de-risking its balance sheet. With a range of products
designed to meet the needs of customers throughout their
lives, Insurance Europe continues to be well positioned to
take advantage of long-term trends.
FINANCIAL DEVELOPMENTS
Insurance Europe’s underlying result before tax fell 64.6% to
EUR 651 million in 2008, as most European investment portfolios
were negatively impacted by the financial market turmoil that
intensified in the second half of the year. The EUR 1,189 million
decline in underlying result before tax was primarily caused by
lower income from real estate of EUR -278 million from EUR 371
million in 2007 and private equity income of EUR -296 million
down EUR 456 million from 2007, due to impairments and
revaluations. The lower investment income particularly affected
the life insurance results, which declined EUR 1,066 million from
EUR 1,412 million to EUR 346 million in 2008. The decline was
concentrated in the Benelux, as the life result in Central and Rest
of Europe was flat with ongoing growth in the first half of the year
being offset by higher expenses. Underlying profit before tax from
non-life insurance declined 28.7% to EUR 305 million, primarily
due to a decline of EUR 120 million in investment income to
EUR 193 million. Despite the sharply lower result before tax,
corporate income tax fell only 36.9% to EUR 159 million as the
fall in result mainly involved tax-exempt investment income.
Underlying premium income decreased by 0.6% to EUR 10,194
million, as both life and non-life premiums fell marginally in the
deteriorating economic environment. Life premiums in the
Netherlands were flat at EUR 5.0 billion notwithstanding
unfavourable market conditions, as single premium immediate
annuities were re-priced more frequently to reflect the current
interest rate conditions. In Belgium, life premiums declined 8.3%
to EUR 1,064 million as the outlook for single premium products
with profit participation worsened and bank deposits offered
increasingly attractive rates. Premium growth in Central and Rest
of Europe clearly slowed down in the course of the year, as the
effects of the credit crisis were increasingly felt in the emerging
economies in the region. The successful introduction of a single
premium investment product in Poland, which generated EUR 542
million in sales, is not reflected in gross premiums because of the
IFRS accounting of deposits on investment contracts. Pension
inflows in Central Europe, which continued their steady growth,
totalled EUR 2.0 billion in 2008, up 29.1% from 2007.
Underlying operating expenses of Insurance Europe increased by
2.2% in 2008. In the Netherlands, underlying operating expenses
decreased by 6% excluding the one-off release of employee
benefits provision of EUR 89 million in the fourth quarter of 2007.
Expenses in Central and Rest of Europe increased 9.1%, reflecting
business growth and a EUR 16 million investment in a multi-year
operational efficiency programme that started in 2008. This
programme aims to integrate a substantial number of the
insurance units’ back-offices in the region.
Profit and loss account (underlying)
in EUR million 2008 2007 change
Premium income 10,194 10,253 –0.6%
Operating expenses 1,764 1,726 2.2%
Underlying result before tax 651 1,840 –64.6%
Total result before tax* 651 2,300 –71.7%
* Total result before tax is defined as underlying result before tax including
divestments and special items.
Key figures
2008 2007
Value of new life business (EUR million) 397 400
Internal rate of return 17.1% 15.8%
New sales (EUR million) 1,010 969
Economic Capital (EUR billion) 3.0 5.9
Geographical breakdown of premium income
in EUR million
Benelux 76% 7,707
Central and
Rest of Europe* 24% 2,487
Total 100% 10,194
* Bulgaria, the Czech Republic, Greece, Hungary,
Poland, Romania, Russia, the Slovak Republic,
Spain and Turkey.