ING Direct 2008 Annual Report Download - page 34

ING Group Annual Report 2008
1.2 Report of the Executive Board
32
Insurance Asia/Pacific (continued)
expenses for the greenfield business units in China, India and
Thailand from their VNB.
COUNTRY DEVELOPMENTS
In Australia and New Zealand, underlying result before tax
decreased 41.4%, or EUR 89 million to EUR 126 million in 2008
from EUR 215 million in 2007. This was driven by reduced fee
income due to a decline in assets under management and lower
investment earnings. New sales in life risk products and favourable
in-force retention drove life premium income up by 6.2%, or
EUR 17 million to EUR 292 million in 2008 from EUR 275 million
in 2007. Operating expenses decreased 5.0%, but were up 1.6%
excluding currency effects. The increase was driven by a higher
in-force base, investment in select business transformation projects
and restructuring costs.
In Japan, underlying result before tax decreased EUR 191 million
from a profit of EUR 24 million in 2007 to a loss of EUR 167 million
in 2008. The turnaround was driven primarily by adverse hedge
results on the variable annuities business due to extraordinary
market volatility, especially in October. This was partially offset
by an increase in profits on the Corporate Owned Life Insurance
(COLI) business on an increased premium base and improved
investment results. The turbulent financial market environment
severely affected single premium variable annuity (SPVA) sales.
Premium income declined 14.2% to EUR 4,026 million from
EUR 4,693 million in 2007. Despite this decrease, ING is a
top-3 player in the COLI segment and a top-4 player in the
SPVA segment.
In South Korea, underlying result before tax decreased 45.7%, or
33.3% excluding currency effects, to EUR 163 million in 2008 from
EUR 300 million in 2007. The decline was mainly due to market
related impacts, comprising negative revaluations on an equity
derivative fund and credit-linked securities and impairments on
fixed income securities. Results in 2007 had also been supported
by the one-off recognition of EUR 10 million in dividend income
from consolidation of equity funds. Premium income decreased
8.8%, but was up 13.8% excluding currency effects, to EUR 3,291
million in 2008 from EUR 3,607 million in 2007 due to favourable
retention rates and stable new sales. Operating expenses
decreased 9.5%, but were up 13.6% excluding currency effects,
to EUR 229 million in 2008 from EUR 253 million in 2007.
In Rest of Asia (India, China, Hong Kong, Thailand and Malaysia),
underlying result before tax from life insurance decreased by
EUR 43 million to a loss of EUR 9 million in 2008, compared with
a profit of EUR 34 million in 2007 due to negative revaluations on
credit linked securities, debt impairments and an adjustment to the
deferred acquisition cost balance in Thailand. Results in 2007 had
also been supported by a one-off positive deferred acquisition cost
adjustment in Malaysia of EUR 10 million. Greenfield operations
in China, India and Thailand recorded losses as ING continued to
invest for future growth in these markets. New sales grew 36.3%
in China, 20.9% in India and 15.0% in Thailand, excluding
currency effects, on the strength of increased distribution reach
through agency force expansion and successful bank partnerships.
In Malaysia, ING’s largest market in the Rest of Asia, ING became
the third-largest insurer in Individual Life business, up from fifth
in 2007 and maintained first place in Group Life business.
BUSINESS DEVELOPMENTS
Challenging markets affected investment-linked sales, while
increased customer demand for more traditional protection
products emerged in the fourth quarter. ING helped customers
protect their wealth and reduce risk across their portfolio through
protection-type and capital-guaranteed products. Although Asia is
being affected by negative developments in the global economy,
long-term economic growth trends remain favourable.
ING is the region’s second-largest international life insurer, based
on annual premium equivalent (APE), with 11 operations in
9 countries. APE is the sum of regular annual premiums from new
business plus 10% of single premiums on new business written
during the year. ING has strong positions in Australia, New
Zealand, Japan, Hong Kong, Malaysia and South Korea, and has
a growing presence in the high-growth markets of China, India
and Thailand. ING is also the third-largest regional asset manager,
based on assets under management, operating in 12 markets.
Continued strengthening of distribution channels
Broadening distribution methods and increasing the efficiency of
existing channels continues to be a strategic priority for ING in Asia.
Traditionally, the tied agent channel has been the largest, but
distribution through banks is on the rise. The number of tied agents
grew from 75,000 in 2007 to over 100,000. This growth took place
mainly in India, South Korea and Thailand. Insurance Asia/Pacific’s
bank distribution takes place through partnerships with other banks
as well as through ING’s retail banking presence in the region.
ING entered into a number of new distribution agreements and
selectively invested in distribution initiatives and infrastructure
enhancements to expand its presence across the region.
In Australia, ING operates a retail wealth management and life
insurance business through ING Australia, a joint-venture with
ANZ Group. ING Australia expanded its distribution reach with
the acquisition of both Pinnacle Partners and Financial Lifestyle
Solutions. These acquisitions position ING Australia as one of the
top-three in the country in terms of distribution capacity with
over 1,500 aligned advisers. ING Australia is one of the country’s
leading financial institutions, providing financial services to over
1 million customers through aligned and open market advisers
and ANZ.
In South Korea, Insurance Asia/Pacific operates two life insurance
companies, ING Life and KB Life. KB Life is a bancassurance
joint-venture with Kookmin Bank. In 2008, life sales by these two
companies quickly reached the government-enforced 33% ceiling
for how much share of Kookmin Bank sales these two companies
(which have ING as a common substantial shareholder) can have.
They led the market in terms of new business production through
banks with a market share of about 11%, as of September 2008.
On 29 December 2008, ING Group completed the purchase of the
remaining minority interest of 14.9% held by Kookmin Bank in ING
Life Korea for KRW 339 billion (approximately EUR 190 million),
lifting ING’s ownership interest to 100%.
In Japan, ING Life was selected as one of the principal product
providers by the newly privatised Japan Post Group. Sales through
Japan Post commenced in the second quarter of 2008.