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ING Group

Annual Report 2009

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ING Group Annual Report 2009 Back to Basics

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...Chairman's statement ING share 1.2 Report of the Executive Board ING and the ï¬nancial environment Strategy Corporate responsibility Capital management Risk management Banking overview Retail Banking ING Direct Commercial Banking Insurance overview Insurance Europe Insurance Americas Insurance Asia...

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... Underlying addition to loan loss provision (in EUR million) Underlying net result (in EUR million) Core Tier 1 capital ING Bank N.V. per 31 December Balance sheet total ING Bank N.V. per 31 December (in EUR billion) Bank core Tier 1 ratio per 31 December (2) Risk-Weighted Assets per 31 December (in...

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...is a global ï¬nancial institution of Dutch origin, currently offering banking, investments, life insurance and retirement services to meet the needs of a broad customer base. Going forward, we will concentrate on our position as an international retail, direct and commercial bank, while creating an...

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.... We are building leading positions in a number of key product areas, including Structured Finance, Financial Markets, Payments and Cash Management, and Leasing. Commercial Banking also manages ING Real Estate. INSURANCE EUROPE Operates in the Netherlands, Belgium, Luxembourg, Spain, Greece, Poland...

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...chief risk ofï¬cer positions. Throughout the Group, our governance model has been adapted to our strategy, with rigorous business performance reviews, better accountability and increased focus. Back to Basics culminated in the decision to separate our banking and insurance and investment management...

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...creating strong and independent banking and insurance companies. 2010 will be a year of transition as we work towards the operational separation of these individual businesses, and prepare them for forging their own futures. Jan Hommen chairman of the Executive Board ING Group Annual Report 2009 7

Page 10
... they directly affect the Company's ï¬nancing costs and hence proï¬tability. For their part, the capital providers expect a dividend which reï¬,ects ING Group's ï¬nancial results and is relatively predictable. It is ING's policy to pay dividends in relation to the long-term underlying development...

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...** ING BANK - short term - long term - ï¬nancial strength ING INSURANCE - short term - long term A A-1 A+ A1 P-1 Aa3 C+ P-2 Baa1 A F1+ A+ A-2 A- A- * Still valid on 15 March 2010, the date of this Annual Report. ** All ratings on ING Group have a stable outlook. ING's long-term credit ratings...

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... simpliï¬ed the governance structure by operationally separating the Bank and the Insurer under the umbrella of the Group, and carried out a portfolio review, which led to a number of divestments. Meanwhile, we managed to turn around our commercial performance. Above anything, however, 2009 will be...

Page 13
...RMBS at ING Direct USA and ING Insurance Americas. As a consequence, the Dutch State now participates in 80% of any results of the portfolio. The risk transfer took place at a discount of 10% of par value. In exchange, the Dutch State was to pay a funding fee and principal payments on two Government...

Page 14
...of ING Retail. This business, once separated, will be divested. The combined business will be the number 5 ï¬nancial institution in the Netherlands. It is proï¬table and currently has a balance sheet of EUR 37 billion, with around 200,000 mortgage contracts, 320,000 consumer lending accounts, 500...

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... 2008 2009 Insurance 2008 Underlying result before tax, excluding market impact, risk costs and VA assumption changes Subprime RMBS Alt-A RMBS Prime RMBS Other ABS CDO/CLO CMBS Monoliners Other debt securities Impairments / fair value changes debt securities Equity securities impairments Capital...

Page 16
...of ING's direct real estate exposure in 2009. Private equity revaluations were EUR 56 million, compared with EUR -413 million in 2008. Other market impact was positive despite a contribution to the deposit guarantee scheme in the Netherlands following the bankruptcy of DSB Bank in the fourth quarter...

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...recent years, managing the Group was becoming increasingly complex, as Banking and Insurance (including investment management) not only have different drivers in their business models, but they also face different challenges in managing and pricing risk as well as in managing balance sheet exposures...

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... coming years ING will focus on its position as a leading international retail, direct and commercial bank, while ensuring a bright future for our insurance businesses. We will focus on superior customer satisfaction, a strong ï¬nancial performance, leading operating efï¬ciency and a solid capital...

Page 19
... investment performance in 2009 to strengthen our asset base and attract new customers. Further, we are reviewing synergies by creating a globally coordinated Investment Manager. During the separation process, we will focus on generating sufï¬cient income and capital to fully repay the Dutch State...

Page 20
1.2 Report of the Executive Board Corporate responsibility Being a responsible ï¬nancial services provider and a good corporate citizen Key points > Key performance indicators for 2009 demonstrate the success of the Corporate Responsibility strategy > Progress in 2009 included revised Business ...

Page 21
... website and a ï¬nancial education section, eZonomics, on our corporate website ing.com. These online platforms explain the very basics of saving, investing, life insurance, retirement planning and home loans. FINANCE AND INVESTMENT POLICIES: CONTROVERSIAL WEAPONS Our vision on ethical topics, the...

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... endeavour to increase our sustainable assets under management by 5-10% more than our total assets under management and develop new sustainable products or services. For more information on ING's CR strategy and performance, see our Corporate Responsibility Performance Report 2009 to be published...

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... the Dutch State in January 2009. Through this facility ING Group transferred 80% of its Alt-A RMBS portfolio in ING Direct USA and ING Insurance US at a price of 90% of par in return for a government note. This reduced Risk Weighted Assets (RWAs) by approximately EUR 13 billion. RESTRUCTURING PLAN...

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.... ING was paid in shares and subordinated debt securities of Fubon, and as such took a 5% shareholding in the company, which had risen 71% in terms of EUR by year end 2009. ING sold its 70% stake in ING Canada for net proceeeds of EUR 1,316 million via a private placement to a group of institutional...

Page 25
... Supervisory Board level. During 2009 ING worked on further improving and simplifying the risk measurement and appetite methodology. ING'S RISK MANAGEMENT ORGANISATION Taking measured risks is part of ING's business. As a ï¬nancial services company active in banking, investments, life insurance and...

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1.2 Report of the Executive Board Risk management (continued) management; Risk Management and Finance, which provide high-level policies, limits and risk oversight, as well as day-to-day transaction approval; and Corporate Audit Services, the internal audit department within ING Group, which ...

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... Retail Banking, Commercial Banking and ING Direct) and ING Insurance. The CCRM General Manager is functionally responsible for the global network of credit risk staff, while the heads of the credit risk management functions for the business lines report directly to him. ING Group's credit policy...

Page 28
... of options, foreign exchange rates and real estate prices. Changes in ï¬nancial market prices impact the market value of ING's current asset portfolio and hedging derivatives directly as well as the calculated market value of ING's insurance liabilities. OPERATIONAL RISK MANAGEMENT (ORM) ING is...

Page 29
... improvement of the underlying results before market impacts and risk costs in all three business lines. Risk costs, however, increased signiï¬cantly, as the credit crisis affected the real economy. Retail Banking and Commercial Banking remained proï¬table, while ING Direct reduced its loss to EUR...

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1.2 Report of the Executive Board Banking Retail Banking Solid performer with a clear and consistent customer focus strategy Key points > Continuation of strategy in line with Back to Basics programme > Short-term focus on cost reduction, derisking and deleveraging > New service models in the ...

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...lower income and a sharp increase in risk costs, mainly at Private Banking. BUSINESS DEVELOPMENTS Though 2009 was characterised by high market volatility and an uncertain economic environment, consumer trends remained unchanged: clients were increasingly searching for simple products at a fair price...

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...which online banking and customer relationship management play important roles, and the programme is expected to be ï¬nalised in 2012. The new website, created in 2009, received Â´best-in-class awards'. During the year, ING Bank Turkey strongly outperformed the mortgage sector, and in the small and...

Page 33
... Back-up Facility with the Dutch State reduced the impact of losses on the Alt-A RMBS portfolio by 80%. Furthermore, ING Direct sold part of its US prime RMBS portfolio in the fourth quarter of 2009 to reduce risk-weighted assets. These management actions largely offset the impact of credit rating...

Page 34
... products are providing an increasingly diversiï¬ed income stream, thereby reducing reliance on savings earnings and reducing earnings volatility. In 2009, ING Direct invested EUR 267 million in developing the business. It continued rigorously to manage its risks, capital and expense base, in line...

Page 35
...the new accounts, 35% resulted from cross-sell efforts into ING Direct's customer base, evidencing the synergies between the two companies. Following increasing demand from customers, ING Direct Italy launched an online trading platform where customers can trade stocks, government bonds and exchange...

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... quarter of 2009, net production in client balances was positive again. Total underlying income increased 14.1% to EUR 4,687 million driven mainly by Financial Markets, General Lending & PCM and Structured Finance. This more than offset the decline at ING Real Estate. Underlying operating expenses...

Page 37
...large companies to major multinationals - as well as for governments and ï¬nancial institutions, and is made up of ï¬ve product groups: General Lending & Payments and Cash Management (PCM), Structured Finance, Leasing & Commercial Finance, Financial Markets, and ING Real Estate. Commercial Banking...

Page 38
.... Financial Markets also saw strong results in interest rate related products, including government bonds, credit bonds and interest rate derivatives. ING REAL ESTATE ING Real Estate includes the Finance, Development and Investment Management businesses, which report to ING Commercial Banking. The...

Page 39
... investment-linked product sales and the decision to limit variable annuity sales in the United States. In the Netherlands, sales increased by EUR 102 million to EUR 450 million, mainly driven by group life. The value of new business (VNB) decreased 37.6% to EUR 502 million. ING Group Annual Report...

Page 40
... offset by lower public equity income of EUR 499 million due to lower corporate proï¬ts as well as ING's derisking policy through equity securities divestments. Also, the (net) losses and impairments on ï¬xed income investments increased by EUR 154 million compared with 2008. Proï¬t sharing for...

Page 41
... negatively affected key insurance market drivers such as consumer conï¬dence, 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 beneï¬ts in the pension and longterm savings ï¬eld as...

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... insurance and investment management businesses by continuing to reduce costs, investing in top-line growth and making the best use of our talent. Our long-term goal is to strengthen our insurance and investment management businesses further as world-class players. 40 ING Group Annual Report 2009

Page 43
... demand for investment-oriented products and the decision to limit variable annuity sales in the United States. Value of New Business (VNB) in the Americas declined 17.0%, or 14.8% excluding currency impacts to EUR 190 million in 2009. At year-end 2009, IFRS reserve inadequacy for Insurance Americas...

Page 44
... income and lower operating expenses also contributed to the proï¬t improvement. BUSINESS DEVELOPMENTS Insurance Americas is a market leader in providing retirement services and pension products in both the US and Latin America. As such, the company is well-positioned to take advantage of the long...

Page 45
...banking activities, the Group's short-term goal is to strengthen the proï¬tability and returns of the insurance and investment management businesses by continuing to reduce costs, investing in top-line growth, focusing on higher margin products and making the best use of our talent. ING's long-term...

Page 46
... and the Japanese Corporate Owned Life Insurance (COLI) market. Furthermore ING has a growing presence in Hong Kong, Thailand, India and China. ING is also the fourth largest regional investment manager, based on assets under management, operating in 11 markets. FINANCIAL DEVELOPMENTS Gross premium...

Page 47
... by developing more traditional savings and capital guaranteed products. Sales across all products are expected to pick up in 2010 in what promises to be a year of solid economic growth in Asia. PRODUCTS AND DISTRIBUTION CHANNELS In Asia/Paciï¬c, ING sells insurance and wealth management products...

Page 48
... Beijing Capital Group. ING therefore agreed to sell its 50% stake in Paciï¬c Antai Life Insurance Company Ltd (PALIC) to China Construction Bank (CCB). OPERATIONAL STANDARDISATION As part of ING's ongoing commitment to invest in the insurance businesses as if it were the long-term owner, Insurance...

Page 49
... retail and institutional clients. FINANCIAL DEVELOPMENTS Assets under management (AuM) were EUR 343.2 billion at year-end 2009. Higher asset prices for equity and ï¬xed-income securities resulted in a EUR 42.2 billion increase in the period together with a positive EUR 6.0 billion foreign exchange...

Page 50
...its banking and insurance operations, ING IM will form part of ING Insurance (see Strategy Chapter). During this period of change, ING's investment management businesses will remain, as ever, focused on meeting client needs and on generating alpha (above market returns). 48 ING Group Annual Report...

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...which was reï¬,ected in our work on performance management and international remuneration. Run by the Business School and divisional HR training academies, development and training programmes contributed to advance value-based leadership and our performance culture. ING Group Annual Report 2009 49

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... banking and insurance businesses. The new performance management approach will help us achieve our short-term goals as well as build our businesses for the long-term, recognising our high standards for integrity and accountability. It also provides increased transparency and reporting capabilities...

Page 53
... report 'Proposed new remuneration policy for senior management' on page 80 and 'Current general policy senior management remuneration' on page 81 are incorporated by reference in this Report of the Executive Board. AMSTERDAM, 15 MARCH 2010 THE EXECUTIVE BOARD ING Group Annual Report 2009...

Page 54
... being the quarterly results, the ï¬nancial crisis, risk management, corporate governance, the remuneration policy and human resources. GENERAL The Supervisory Board met 15 times in 2009. Seven meetings were scheduled. On average, 95% of the Supervisory Board members were present at the scheduled...

Page 55
... of the ING pension fund and the capital position of ING Insurance US as well as the derisking of the variable annuity products. RISK COMMITTEE MEETINGS A Supervisory Board Risk Committee started in August. Two meetings were held in 2009 with all members present. Group risk, ï¬nancial risk and non...

Page 56
... a member of the Executive Board and Patrick Flynn as the new CFO of ING Group. Subsequently the Supervisory Board appointed Jan Hommen as the new CEO of ING Group. In May 2009, separate Management Boards Banking and Insurance were introduced to simplify the governance structure and further increase...

Page 57
...has been paid. ING has announced that it will not pay a ï¬nal dividend in May 2010 for the year 2009. APPRECIATION FOR THE EXECUTIVE BOARD AND ING EMPLOYEES The Supervisory Board would like to thank the members of the Executive Board and two Management Boards for their work and commitment to ING in...

Page 58
...â€¢ ING Group will develop a sustainable remuneration policy for the Executive Board and Senior Management that is aligned to new international standards and submit this to its General Meeting for adoption. This remuneration policy shall include incentive schemes which are linked to long-term value...

Page 59
... all insurance operations (including investment management) and authorised the Executive Board to issue ordinary shares of such number as would be necessary to raise an amount of capital up to EUR 7.5 billion, to enable ING Group to repurchase half of the outstanding Securities from the Dutch State...

Page 60
... Dutch company law and the Corporate Governance Code, shareholder approval is only required for equity compensation plans (or changes thereto) for members of the Executive Board and Supervisory Board, and not for equity compensation plans for other groups of employees. 58 ING Group Annual Report...

Page 61
... by ING Group. The Board of ING Trust Ofï¬ce reports on its activities through an annual report, which has been included on pages 69-71. ISSUE OF SHARES ING Group's authorised capital is the maximum amount of capital allowed to be issued under the terms of the Articles of Association. New shares in...

Page 62
... governance Corporate governance (continued) GENERAL MEETING FREQUENCY, NOTICE AND AGENDA OF GENERAL MEETINGS General meetings are normally held each year in April or May, to discuss the course of business in the preceding ï¬nancial year on the basis of the reports prepared by the Executive Board...

Page 63
... setting and achieving of the company's objectives, strategy and policies, as well as the ensuing delivery of results. It also includes the day-to-day management of ING Group. The Executive Board is accountable for the performance of these duties to the Supervisory ING Group Annual Report 2009 61

Page 64
... in the Remuneration report, starting on page 76. Members of the Executive Board are permitted to hold shares and depositary receipts for shares in the share capital of ING Group for long-term investment purposes. Transactions by members of the Executive Board in these shares and these depositary...

Page 65
... member already in ofï¬ce. The recommendation right of the Dutch State is subject to applicable law and to corporate governance practices, generally accepted under stock listing regimes applicable to ING Group and continues as long as the Dutch State holds at least 250 million Securities, as long...

Page 66
..., paid positions and ancillary positions they may hold. Such positions may not conï¬,ict with the interests of ING Group. It is the responsibility of the individual member of the Supervisory Board and the Corporate Governance Committee to ensure that the directorship duties are performed properly...

Page 67
... managing director in the Investment Banking Division of JP Morgan. The Risk Committee assists and advises the Supervisory Board in monitoring the risk proï¬le of ING Group as well as the structure and operation of the internal risk management and control systems. On 31 December 2009, the members...

Page 68
... of DBS Group Holdings. Former managing director in the Investment Banking Division of JP Morgan. Other business activities: non-executive director of each of MasterCard Incorporated, CapitaLand and Cassis International. Non-executive chairman of the Board of Directors of Brookstone, Inc. Member of...

Page 69
... for the 2010 annual General Meeting, available on the website of ING Group (www.ing.com). FINANCIAL REPORTING A description of the main features of ING Group's internal control and risk management systems in relation to the ï¬nancial reporting process is included in the statement with respect to...

Page 70
... fees, supported by sufï¬ciently detailed information. This overview is periodically evaluated by the Audit Committee during the year. More information on ING Group's policy on external auditor independence is available on the website of ING Group (www.ing.com). 68 ING Group Annual Report 2009

Page 71
... entail commercial risk shall be excluded from the foundation's object. During the 2009 reporting year, the board of ING Trust Ofï¬ce (the 'Board') held eight meetings. On 3 March 2009, the Board met to discuss the agreement ING Group reached with the Dutch State regarding the Illiquid Assets Back...

Page 72
... be cast on ordinary shares for three consecutive years. The threshold of 35% was exceeded at the annual General Meeting in 2007 (36.7%), 2008 (38.7%) and 2009 (35.6%). At the EGM, the level was 31.1%. At the AGM, ING Group announced that it would consider the steps to be taken with respect to the...

Page 73
... to in the Articles of Association and in the Dutch Corporate Governance Code. The annual remuneration for the chairman of the Board amounts to EUR 25,000.00 and for the other members of the Board to EUR 20,000.00. In 2009, the costs of the activities of ING Trust Ofï¬ce amounted to EUR 530,204.84...

Page 74
... a member of the Board as of 31 March 2009. All members of the Board stated that they meet the conditions regarding independence as referred to in the Articles of Association of ING Continuity Foundation. AMSTERDAM, 15 MARCH 2010 BOARD OF STICHTING CONTINUITEIT ING 72 ING Group Annual Report 2009

Page 75
...Annual Report gives a true and fair view of the position at the balance sheet date, the development and performance of the business during the ï¬nancial year 2009 of ING Groep N.V. and the enterprises included in the consolidation taken as a whole, together with a description of the principal risks...

Page 76
...of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The Executive Board assessed the effectiveness of our internal control over ï¬nancial reporting as of 31 December 2009. In making this assessment, the Executive Board performed tests based on...

Page 77
... Public Company Accounting Oversight Board (United States), the consolidated balance sheet of ING Groep N.V. as of 31 December 2009, the consolidated proï¬t and loss account, consolidated statement of comprehensive income, consolidated statement of cash ï¬,ows and consolidated statement of changes...

Page 78
... that banks and insurance companies play in society. The globally changing views on remuneration policies have ampliï¬ed the call upon ï¬nancial institutions to develop more moderate remuneration policies with an increased emphasis on long-term value creation and performance measurement based on...

Page 79
...to pay a contribution to their pension premium in line with the contributions under ING's Collective Labour Agreement in the Netherlands. Members of the Executive Board working on a non-Dutch employment contract, will be offered pensions in line with local practices. ING Group Annual Report 2009 77

Page 80
... responsibility. Variable compensation for members of the Executive Board and the CEO will only be awarded as long as ING Group has a positive net underlying proï¬t in 2010. The Supervisory Board will review the remuneration paid over time, in line with the policy. 78 ING Group Annual Report 2009

Page 81
...salary applies from his appointment date in 2009. Jan Hommen is not contractually entitled to a severance payment. Comparison of current and new 2010 remuneration other Executive Board members in EUR Current New policy Change Base salary Variable remuneration - at target Variable remuneration - at...

Page 82
...linked to long term value creation and risk. It will be determined based on individual, business and company performance criteria. Performance measurement will increasingly account for estimated risks and costs of capital. There will be increased emphasis on long term value creation by means of long...

Page 83
...with ING Groep N.V. continued to remain in effect in 2009. Executive Board base salary 2009 The base salary of all Executive Board members has been frozen for 2009. Executive Board short-term incentive plan 2009 Under the terms of the agreement reached with the Dutch State on an Illiquid Assets Back...

Page 84
... sold within a period of ï¬ve years from the grant date of the options to pay tax over the exercised award. Compensation in cash of the individual members of the Executive Board amounts in thousands of euros 2009 2008 2007 Jan Hommen Base salary(1) Short-term performance related bonus Total cash...

Page 85
...strike prices of these options) and the number of performance shares, adjusted for the effects of the rights issue. Long-term incentives of the individual members of the Executive Board (1, 2) fair market value at grant in thousands of euros 2009 2008 2007 (1) Jan Hommen Number of options Number of...

Page 86
... governance Remuneration report (continued) Long-term incentives of the individual members of the Executive Board (1) (2) (continued) fair market value at grant in thousands of euros 2009 2008 2007 Jacques de Vaucleroy Number of options Number of perf ormance shares Fair market value of long-term...

Page 87
... a long-term investment. The table below shows the holdings by members of the Executive Board. ING depositary receipts for shares held by members of the Executive Board number of shares 2009 2008 2007 Jan Hommen Patrick Flynn Koos Timmermans 46,426 14,457 2,546 2,000 ING Group Annual Report 2009...

Page 88
... ï¬gure for 2009 reï¬,ects the partial year as member of the Supervisory Board. (1) Compensation of former members of the Supervisory Board who are not included in the above table amounted to nil in 2009, EUR 16 thousand in 2008, and to EUR 162 thousand in 2007. 86 ING Group Annual Report 2009

Page 89
... shares as a long-term investment. The table below shows the holdings by members of the Supervisory Board. Supervisory Board members did not hold ING options at year-end 2009. ING depositary receipts for shares and options held by members of the Supervisory Board (1) number of shares 2009 2008 2007...

Page 90
1.3 Our governance Works councils CENTRAL WORKS COUNCIL As at 1 ...Netherlands Mieczyslaw Bielawski, Mariusz Cieslik, Jakub Dzianowicz, Poland Mihai Ailincai, Roxana Florescu, Romania Miguel Angel Hernandez, Araceli Rodriguez, Spain Sam Chaudhuri, Rina Goldenberg, UK. 88 ING Group Annual Report 2009

Page 91
...) Banking result before tax Insurance result before tax Total result before tax Taxation Minority interests Net result Figures per ordinary share (in EUR) Net result Basic earnings Dividend Shareholders' equity (in parent) Balance sheet (in EUR billion) Total assets per 31 December Total equity per...

Page 92
... Consolidated annual accounts Consolidated balance sheet of ING Group as at 31 December amounts in millions of euros 2009 2008 ASSETS Cash and balances with central banks 1 Amounts due from banks 2 Financial assets at fair value through proï¬t and loss 3 - trading assets - investments for risk...

Page 93
... and loss account of ING Group for the years ended 31 December amounts in millions of euros 2009 2009 2008 2008 2007 2007 Interest income banking operations Interest expense banking operations Interest result banking operations 35 Gross premium income 36 Investment income 37 Net result on...

Page 94
2.1 Consolidated annual accounts Consolidated statement of comprehensive income of ING Group for the years ended 31 December amounts in millions of euros 2009 2008 2007 Net result Unrealised revaluations after taxation Realised gains/losses transferred to proï¬t and loss Changes in cash ï¬,ow...

Page 95
... annual accounts Consolidated statement of cash ï¬,ows of ING Group for the years ended 31 December amounts in millions of euros 2009 2008 2007 Result before tax Adjusted for: - depreciation - deferred acquisition costs and value of business acquired - increase in provisions for insurance...

Page 96
2.1 Consolidated annual accounts Consolidated statement of changes in equity of ING Group for the years ended 31 December amounts in millions of euros Share capital Share premium Reserves Total shareholders' Non-voting equity (parent) equity securities Minority interests Total equity Balance...

Page 97
2.1 Consolidated annual accounts Consolidated statement of changes in equity of ING Group (continued) amounts in millions of euros Share capital Share premium Total shareholders' equity (parent) Reserves Non-voting equity securities Minority interests Total equity Balance as at 31 December ...

Page 98
...ING Group applies International Financial Reporting Standards as adopted by the European Union ('EU'). The following new or revised standards, interpretations and amendments to standards and interpretations became effective in 2009: â€¢ Amendment to IFRS 2 'Share-based Payments - Vesting Conditions...

Page 99
... for the consolidated balance sheet and proï¬t and loss account of ING Group (continued) The presentation of, and certain terms used in, the consolidated balance sheet, the consolidated proï¬t and loss account, consolidated statement of cash ï¬,ows, consolidated statement of changes in equity and...

Page 100
... Consolidated annual accounts Accounting policies for the consolidated balance sheet and proï¬t and loss account of ING Group (continued) FAIR VALUES OF REAL ESTATE Real estate investments are reported at fair value; all changes in fair value are recognised directly in the proï¬t and loss account...

Page 101
... rates, rates of increase in future salary and beneï¬t levels, mortality rates, trend rates in health care costs, consumer price index, and the expected return on plan assets. The assumptions are based on available market data and the historical performance of plan assets, and are updated annually...

Page 102
... of borrowings and other instruments designated as hedges of such investments, are taken to shareholders' equity. When a foreign operation is sold, these exchange rate differences are recognised in the proï¬t and loss account as part of the gain or loss on sale. 100 ING Group Annual Report 2009

Page 103
.... Investment securities and actively traded loans intended to be held for an indeï¬nite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices, are classiï¬ed as available-for-sale. ING Group Annual Report 2009 101

Page 104
...sheet classiï¬cation Investments (available-for-sale and held-to-maturity); â€¢ Money market risk arises when ING Group places short term deposits with a counterparty in order to manage excess liquidity and among others relates to the balance sheet classiï¬cations Amounts due from banks and Loans...

Page 105
... risk management strategies, but which do not qualify for hedge accounting under ING Group's accounting policies, are presented as non-trading derivatives. Non-trading derivatives are measured at fair value with changes in the fair value taken to the proï¬t and loss account. OFFSETTING OF FINANCIAL...

Page 106
... enterprises and retail portfolios) that reï¬,ect factors such as the frequency with which customers in the sub-portfolio disclose credit risk sensitive information and the frequency with which they are subject to review by the Group's account managers. Generally, the frequency increases in relation...

Page 107
...ï¬cant inï¬,uence is determined taking into account both the Group's ï¬nancial interests for own risk and its role as investment manager. REAL ESTATE INVESTMENTS Real estate investments are stated at fair value at the balance sheet date. Changes in the carrying amount resulting from revaluations...

Page 108
2.1 Consolidated annual accounts Accounting policies for the consolidated balance sheet and proï¬t and loss account of ING Group (continued) Property under development Property developed and under development for which ING Group has the intention to sell the property after its completion is ...

Page 109
... future gross proï¬ts ING Group assumes the short-term and long-term separate account growth rate assumption to be the same. Higher/lower expected proï¬ts (e.g. reï¬,ecting stock market performance or a change in the level of assets under management) may cause a lower/higher balance of DAC due to...

Page 110
... loss by management. Trading liabilities include equity securities, debt securities, funds on deposit and derivatives. Designation by management will take place only if it eliminates a measurement inconsistency or if the related assets and liabilities are managed on a fair value basis. ING Group has...

Page 111
... Group companies operate various pension schemes. The schemes are generally funded through payments to insurance companies or trustee-administered funds, determined by periodic actuarial calculations. The Group has both deï¬ned beneï¬t and deï¬ned contribution plans. ING Group Annual Report 2009...

Page 112
...assets. The excess is charged or credited to the proï¬t and loss account over employees' remaining working lives. The corridor was reset to nil at the date of transition to IFRS-EU. For deï¬ned contribution plans, the Group pays contributions to publicly or privately administered pension insurance...

Page 113
...2007, ING Group has generally provided cash-settled share-based payment transactions. The fair value of equity-settled share-based payment transactions is measured at the grant date and the fair value of cash-settled share-based payment transactions is measured at each balance sheet date. GOVERNMENT...

Page 114
... statement of cash ï¬,ows and the change in Cash and cash equivalents in the balance sheet is due to exchange rate differences and is accounted for separately as part of the reconciliation of the net cash ï¬,ow and the balance sheet change in Cash and cash equivalents. 112 ING Group Annual Report...

Page 115
... to the consolidated balance sheet of ING Group amounts in millions of euros, unless stated otherwise ASSETS 1 CASH AND BALANCES WITH CENTRAL BANKS Cash and balances with central banks 2009 2008 Amounts held at central banks Cash and bank balances Short term deposits insurance operations 10,989...

Page 116
... in investment funds (with underlying investments in debt, equity securities, real estate and derivatives) are included under equity securities. Non-trading derivatives by type 2009 2008 Derivatives used in: - fair value hedges - cash ï¬,ow hedges - hedges of net investments in foreign operations...

Page 117
2.1 Consolidated annual accounts Notes to the consolidated balance sheet of ING Group (continued) 4 INVESTMENTS Investments by type 2009 2008 Available-for-sale - equity securities - debt securities 8,853 188,850 197,703 8,822 234,030 242,852 Held-to-maturity - debt securities 14,409 14,409 ...

Page 118
... annual accounts Notes to the consolidated balance sheet of ING Group (continued) Reclassiï¬cations to Loans and advances to customers and Amounts due from banks Q2 2009 Q1 2009 Q4 2008 As per reclassiï¬cation date Fair value Effective interest rate (weighted average) Expected recoverable cash...

Page 119
2.1 Consolidated annual accounts Notes to the consolidated balance sheet of ING Group (continued) Derecognition of Available-for-sale debt securities - Transaction with the Dutch State ING Group and the Dutch government ('State') reached an agreement on an Illiquid Assets Back-Up Facility ('IABF') ...

Page 120
... Loans and advances to customers by type - banking operations Netherlands 2009 2008 2009 International 2008 2009 Total 2008 Loans to, or guaranteed by, public authorities Loans secured by mortgages Loans guaranteed by credit institutions Personal lending Mortgage backed securities Corporate loans...

Page 121
... timing or certainty of the consolidated cash ï¬,ows of the Group. Loan loss provisions analysed by type - banking operations Netherlands 2009 2008 2009 International 2008 2009 Total 2008 Loans secured by public authorities Loans secured by mortgages Loans guaranteed by credit institutions Personal...

Page 122
... 2009 Interest held (%) Fair value of listed investment Balance sheet value Total assets Total liabilities Total income Total expenses TMB Public Company Limited Sul America S.A. ING Winkels Basisfonds ING Dutch Ofï¬ce Master Fund C.V. Lionbrook Property Partnership Property Fund Iberica ING...

Page 123
... annual accounts Notes to the consolidated balance sheet of ING Group (continued) Investments in associates 2008 Interest held (%) Fair value of listed investment Balance sheet value Total assets Total liabilities Total income Total expenses TMB Public Company Limited ING Dutch Ofï¬ce Master Fund...

Page 124
... sheet of ING Group (continued) 7 REAL ESTATE INVESTMENTS Changes in real estate investments 2009 2008 Opening balance Additions Changes in the composition of the group Transfers to and from Property in own use Transfers to and from Other assets Fair value gains/(losses) Disposals Exchange rate...

Page 125
... accounts Notes to the consolidated balance sheet of ING Group (continued) 8 PROPERTY AND EQUIPMENT Property and equipment by type 2009 2008 Property in own use Equipment Assets under operating leases 1,686 1,442 2,991 6,119 1,841 1,407 3,148 6,396 Property in own use by banking and insurance...

Page 126
... the consolidated balance sheet of ING Group (continued) Changes in equipment Data processing equipment 2009 2008 Fixtures and ï¬ttings and other equipment 2009 2008 2009 Total 2008 Opening balance Additions Changes in the composition of the group Disposals Depreciation Impairments Exchange rate...

Page 127
...Europe Retail Banking - Netherlands ING Direct Commercial Banking Leasing & Factoring Commercial Banking Real Estate Commercial Banking Other Insurance Europe - Benelux Insurance Europe - Rest of Europe Insurance Americas - Latin America Insurance Americas - United States Insurance Americas - Canada...

Page 128
... Assets held for sale 2009 2008 Cash and balances with central banks Amounts due from banks Financial assets at fair value though proï¬t and loss Available-for-sale investments Loans and advances to customers Reinsurance contracts Property and equipment Intangible assets Deferred acquisition costs...

Page 129
2.1 Consolidated annual accounts Notes to the consolidated balance sheet of ING Group (continued) Liabilities held for sale 2009 2008 Insurance and investments contracts Amounts due to banks Customer deposits and other funds on deposit Financial liabilities at fair value through proï¬t and loss ...

Page 130
2.1 Consolidated annual accounts Notes to the consolidated balance sheet of ING Group (continued) EQUITY 13 SHAREHOLDERS' EQUITY (PARENT)/NON-VOTING EQUITY SECURITIES Shareholders' equity (parent) 2009 2008 2007 Share capital Share premium Revaluation reserve Currency translation reserve Other ...

Page 131
... Consolidated annual accounts Notes to the consolidated balance sheet of ING Group (continued) Share buy-back programme (2007/2008) In May 2007, ING Group announced a plan to adopt a buy-back programme under which it planned to purchase (depositary receipts for) ordinary shares with a total value...

Page 132
... (net of deferred tax). Reference is made to Note 17 'Insurance and investment contracts, reinsurance contracts'. Changes in currency translation reserve 2009 2008 2007 Opening balance Unrealised revaluations after taxation Realised gains/losses transferred to proï¬t and loss Exchange rate...

Page 133
2.1 Consolidated annual accounts Notes to the consolidated balance sheet of ING Group (continued) The unrealised revaluations after taxation relate to changes in the value of hedging instruments that are designated as net investment hedges. Changes in other reserves 2009 Retained earnings Share of ...

Page 134
...the consolidated balance sheet of ING Group (continued) Non-voting equity securities (Core Tier 1 securities) On 12 November 2008, ING Groep N.V. issued one billion non-voting equity securities to the Dutch State at EUR 10 per non-voting equity security, resulting in an increase of ING Group's core...

Page 135
2.1 Consolidated annual accounts Notes to the consolidated balance sheet of ING Group (continued) Moreover, ING Groep N.V.'s ability to pay dividends is dependent on the dividend payment ability of its subsidiaries. ING Groep N.V. is legally required to create a non-distributable reserve insofar ...

Page 136
2.1 Consolidated annual accounts Notes to the consolidated balance sheet of ING Group (continued) LIABILITIES 14 SUBORDINATED LOANS Subordinated loans Interest rate Year of issue Due date Notional amount in original currency 2009 Balance sheet value 2008 9.000% 8.500% 8.000% 7.375% 6.375% 5.140% ...

Page 137
... under the Credit Guarantee Scheme of the State of the Netherlands and are part of ING Group's regular medium-term funding operations. ING Group pays a fee of 84 basis points over the issued bonds to the Dutch State to participate in the Credit Guarantee Scheme. ING Group Annual Report 2009 135

Page 138
... for ING Group's own account) is presented in the balance sheet gross under 'Insurance and investment contracts' and 'Reinsurance contracts'. Insurance and investment contracts, reinsurance contracts Provision net of reinsurance 2009 2008 Reinsurance contracts 2009 2008 Insurance and investment...

Page 139
2.1 Consolidated annual accounts Notes to the consolidated balance sheet of ING Group (continued) Changes in life insurance provisions Provision net of reinsurance 2009 2008 Reinsurance contracts 2009 2008 Insurance and investment contracts 2009 2008 Opening balance Changes in the composition of ...

Page 140
... Consolidated annual accounts Notes to the consolidated balance sheet of ING Group (continued) Changes in provision for unearned premiums and unexpired risks Provision net of reinsurance 2009 2008 Reinsurance contracts 2009 2008 Insurance and investment contracts 2009 2008 Opening balance Changes...

Page 141
... 196 21,085 Exchange rate differences Other changes Closing balance Changes in the composition of the group in 2009 relate mainly to the sale of ING Australia. Reference is made to Note 30 'Companies acquired and companies disposed'. Gross claims development table Underwriting year 2004 2005 2006...

Page 142
... other funds on deposit 2009 2008 Savings accounts Credit balances on customer accounts Corporate deposits Other 304,104 110,087 53,272 2,045 469,508 263,637 174,141 80,230 4,775 522,783 Customer deposits and other funds on deposit by type Netherlands 2009 2008 2009 International 2008 2009 Total...

Page 143
2.1 Consolidated annual accounts Notes to the consolidated balance sheet of ING Group (continued) Non-trading derivatives by type 2009 2008 Derivatives used in: - fair value hedges - cash ï¬,ow hedges - hedges of net investments in foreign operations Other non-trading derivatives 8,866 6,468 316 ...

Page 144
... annual accounts Notes to the consolidated balance sheet of ING Group (continued) Changes in deferred tax Net liability 2008 Change through equity Changes in the Change through composition net result of the group Exchange rate differences Net liability 2009 Other Investments Financial assets...

Page 145
... related to the reorganisation of Postbank, Postkantoren, Nationale Nederlanden, RVS and Insurance Americas. The provision for reorganisation as at 31 December 2008 includes EUR 360 million for the restructuring of the retail business of Postbank and ING Bank. ING Group Annual Report 2009 143

Page 146
... are paid to the funds at a rate necessary to adequately ï¬nance the accrued liabilities of the plans calculated in accordance with local legal requirements. Plans in all countries comply with applicable local regulations governing investments and funding levels. 144 ING Group Annual Report 2009

Page 147
...other than pensions 2009 2008 Opening balance Current service cost Interest cost Employer's contribution Participants contributions Beneï¬ts paid Actuarial gains and losses Past service cost Changes in the composition of the group and other changes Effect of curtailment or settlement Exchange rate...

Page 148
... the types of assets held in the Funds, and the current economic environment. Based on these factors, it is expected that the Funds' assets will earn an average annual percentage in the long term. This estimate takes into account a reduction for administrative expenses and non-ING investment manager...

Page 149
... annual accounts Notes to the consolidated balance sheet of ING Group (continued) Expected cash ï¬,ows During 2010 the expected contributions to pension plans are EUR 1,193 million. The following beneï¬t payments, which reï¬,ect expected future service as appropriate, are expected to be paid...

Page 150
...from banks Financial assets at fair value through proï¬t and loss - trading assets - investments for risk of policyholders - non-trading derivatives - designated as at fair value through proï¬t and loss Investments - available-for-sale - held-to-maturity Loans and advances to customers Reinsurance...

Page 151
... years Maturity not applicable Total Subordinated loans Debt securities in issue Other borrowed funds Insurance and investment contracts Amounts due to banks Customer deposits and other funds on deposit Financial liabilities at fair value through proï¬t and loss - trading liabilities - non-trading...

Page 152
... to manage its exposure to credit risk, including total return swaps and credit default swaps, to sell or buy protection for credit risk exposures in the loan, investment and trading portfolios. Hedge accounting is not applied in relation to credit derivatives. Fair value hedge accounting ING Group...

Page 153
2.1 Consolidated annual accounts Additional information to the consolidated balance sheet of ING Group (continued) Cash ï¬,ow hedge accounting ING Group's cash ï¬,ow hedges principally consist of (forward) interest rate swaps and cross-currency interest rate swaps that are used to protect against ...

Page 154
... loss Available-for-sale debt securities Held-to-maturity debt securities Loans and advances to customers: - policy loans - public authorities - secured by mortgages - guaranteed by credit institutions - unsecured loans - other personal lending - mortgage backed securities - other corporate lending...

Page 155
... of credit mainly secure payments to third parties for a customer's foreign and domestic trade transactions in order to ï¬nance a shipment of goods. ING Group's credit risk in these transactions is limited since these transactions are collateralised by the commodity shipped and are of a short...

Page 156
... duration and bear interest at a ï¬,oating rate. ING Group's credit risk and interest rate risk in these transactions is limited. Most of the unused portion of irrevocable credit facilities is secured by customers' assets or counter-guarantees by the central governments and exempted bodies under the...

Page 157
...of the transaction; ING Group structures the SPE, acquires the assets for the SPE and sells the CDOs to investors; â€¢ collateral manager of the assets in the SPE; ING Group manages the assets based on strict conditions of the SPEs charter. ING Group receives market-rate fees for structuring, asset...

Page 158
...Company ING North America Insurance Corporation Lion Connecticut Holdings Inc. ReliaStar Life Insurance Company ReliaStar Life Insurance Company of New York Security Life of Denver Insurance Company ING USA Annuity and Life Insurance Company ING Life Insurance Company (Bermuda) Limited Security Life...

Page 159
...deposits and other funds on deposit Miscellaneous other liabilities Net assets Goodwill recognised Proï¬t since date of full consolidation Income if fully consolidated as of start of year Proï¬t if fully consolidated as of start of year 5 51 21 51 -21 26 -16 -5 -19 ING Group Annual Report 2009...

Page 160
... companies disposed in 2009 ING Life Taiwan (5) Annuity and Mortgage ING Canada business of Chile Australia/ New Zealand Total General Primary line of business Sales proceeds Cash proceeds (1) Non-cash proceeds Sales proceeds Assets Cash assets Investments Loans and advances to customers Financial...

Page 161
... to sell three of its US independent retail broker-dealer units, which comprise threequarters of ING Advisors Network, to Lightyear Capital LLC. The transaction concerns Financial Network Investment Corporation, based in El Segundo, California., Multi-Financial Securities Corporation, based in...

Page 162
... shares acquired Purchase price Purchase price Costs directly attributable to the acquisition Cash purchase price Cash in company acquired Cash outï¬,ow on acquisition (2) Assets Cash assets Investments Loans and advances to customers Amounts due from banks Financial assets at fair value through...

Page 163
...2008, ING closed the ï¬nal transaction to acquire 100% of Banco Santander's Latin American pension and annuity businesses through the acquisition of the pension business in Chile. See Acquisitions effective in 2007 in this note for full details of the entire deal. ING Group Annual Report 2009 161

Page 164
... balance sheet of ING Group (continued) Most signiï¬cant companies disposed in 2008 NRG Mexican non-life business Total General Primary line of business Sales proceeds Sales proceeds Cash proceeds Cash in company disposed Cash inï¬,ow on disposal (1) Assets Cash assets Investments Loans...

Page 165
... shares acquired Purchase price Purchase price Costs directly attributable to the acquisition Cash purchase price Cash in company acquired Cash outï¬,ow on acquisition (2) Assets Cash assets Investments Loans and advances to customers Amounts due from banks Financial assets at fair value through...

Page 166
... General Primary line of business Sales proceeds Sales proceeds Cash proceeds Cash in company disposed Cash inï¬,ow on disposal (1) Assets Cash assets Investments Loans and advances to customers Financial assets at fair value through proï¬t and loss Miscellaneous other assets Liabilities Insurance...

Page 167
... guarantee insurance, to HAL Investments BV and Egeria. In July 2007, ING sold ING Trust to management and Foreman Capital, an independent investment company based in the Netherlands. The sale is part of ING's strategy to focus on its investment, life insurance and retirement services. In July 2007...

Page 168
... sheet of ING Group (continued) 32 JOINT VENTURES Joint ventures are included proportionally in the consolidated ï¬nancial statements as follows: Most signiï¬cant joint ventures 2009 Interest held (%) Assets Liabilities Income Expenses Postkantoren B.V. KB Life Insurance Company ING Capital Life...

Page 169
...annual accounts Additional information to the consolidated balance sheet of ING Group (continued) Key management personnel compensation (Executive Board and Management Boards) Management Boards of ING Bank N.V. and ING Verzekeringen N.V. (2) amounts in thousands of euros Base salary and short-term...

Page 170
... equity securities to the Dutch State at EUR 10 per non-voting equity security, resulting in an increase of ING Group's core Tier 1 capital of EUR 10 billion. The nominal value of each security is EUR 0.24. The non-voting equity securities do not form part of ING Group's share capital; accordingly...

Page 171
...â€¢ ING Group will develop a sustainable remuneration policy for the Executive Board and Senior Management that is aligned to new international standards and submit this to its General Meeting for adoption. This remuneration policy shall include incentive schemes which are linked to long-term value...

Page 172
... of ING Group. Fair value of ï¬nancial assets and liabilities Estimated fair value 2009 2008 2009 Balance sheet value 2008 Financial assets Cash and balances with central banks Amounts due from banks Financial assets at fair value through proï¬t and loss - trading assets - investments for risk of...

Page 173
..., equity prices and foreign currency exchange rates. These inputs are determined with reference to quoted prices, recently executed trades, independent market quotes and consensus data, where available. Equity securities The fair values of public equity securities are based on quoted market prices...

Page 174
... are based on quoted market prices, where available. For those securities not actively traded, fair values are estimated based on internal discounted cash ï¬,ow valuation techniques using interest rates and credit spreads that apply to similar instruments. Reference is made to Financial assets at...

Page 175
... in determining fair values of ï¬nancial assets and liabilities 2009 Level 1 Level 2 Level 3 Total Assets Trading assets Investments for risk of policyholders Non-trading derivatives Financial assets designated at fair value through proï¬t and loss Available-for-sale investments 40,357 100...

Page 176
... prices sources increased signiï¬cantly. Furthermore approximately EUR 0.7 billion of equity securities in the private equity business (included in Trading and Available-for-sale) were transferred from Level 3 to Level 2 as pricing inputs became market observable; 174 ING Group Annual Report 2009

Page 177
... relevant balance sheet items during the year. Changes in Level 3 Assets Financial assets designated at fair value through proï¬t and loss 2009 Trading assets Investment for risk of policyholders Non-trading derivatives Available-forsale investments Total Opening balance Amounts recognised...

Page 178
... value under IFRS-EU. These sensitivities mainly relate to the banking operations. Reference is made to the 'Risk management' section with regard to the exposure of these asset backed securities as at 31 December 2009 and 2008 and the impact from these asset backed securities on net result in 2009...

Page 179
...ING Canada, Annuity and Mortgage business of Chile and Australia/New Zealand. Furthermore, gross premium income declined due to ING's decision to limit variable annuity sales in the United States and to cease variable annuity sales in Japan, as well as a lower appetite for investment-linked products...

Page 180
... of equity securities Change in fair value of real estate investments Investment income -945 -1,491 -2,436 24 -49 -25 -588 -2,846 40 -2,127 -2,087 30 -331 -301 -350 -2,458 138 -57 81 330 -17 313 93 809 -168 -584 -752 404 -360 44 -125 6,188 Reference is made to the 'Risk management' section...

Page 181
... Note 30 'Companies acquired and companies disposed' for more details. 39 COMMISSION INCOME Gross fee and commission income Banking operations 2009 2008 2007 2009 Insurance operations 2008 2007 2009 2008 Total 2007 Funds transfer Securities business Insurance broking Asset management fees Brokerage...

Page 182
... credit risk as disclosed in Note 20 'Financial liabilities at fair value through proï¬t and loss'. 41 NET TRADING INCOME Net trading income Banking operations 2009 2008 2007 2009 Insurance operations 2008 2007 2009 2008 Total 2007 Securities trading results Foreign exchange transactions results...

Page 183
2.1 Consolidated annual accounts Notes to the consolidated proï¬t and loss account of ING Group (continued) 42 OTHER INCOME Other income Banking operations 2009 2008 2007 2009 Insurance operations 2008 2007 2009 2008 Total 2007 Net operating lease income Income from real estate development ...

Page 184
... sales prices, changes in strategy of ING Real Estate Development whereby certain projects are not developed further and operational inefï¬ciencies in a limited number of projects. Amortisation of intangible assets relates to intangible assets recognised as part of companies acquired. Until 2007...

Page 185
... loss account of ING Group (continued) 45 STAFF EXPENSES Staff expenses Banking operations 2009 2008 2007 2009 Insurance operations 2008 2007 2009 2008 Total 2007 Salaries Pension and other staff-related beneï¬t costs Social security costs Share-based compensation arrangements External employees...

Page 186
... remains in employment for an uninterrupted period of three years from the grant date, the entitlement becomes unconditional. In 2009, no shares (2008: 211,049; 2007: 139,113) have been granted to the members of the Executive Board of ING Group, Management Boards of ING Bank and ING Insurance and...

Page 187
... simulation. This model takes the risk free interest rate into account (2.64% to 4.62%), as well as the expected life of the options granted (5 year to 8 years), the exercise price, the current share price (EUR 2.90 - EUR 26.05), the expected volatility of the certiï¬cates of ING Group shares (25...

Page 188
... Carlo simulation based valuation model. The model takes into account the risk free interest rate, the current stock prices, expected volatilities and current divided yields of the performance peer group used to determine ING's Total Shareholder Return (TSR) ranking. As at 31 December 2009 total...

Page 189
... operating lease has terms and conditions that materially affect the amount, timing and certainty of the consolidated cash ï¬,ows of the Group. The External advisory fees include fees for audit services and non-audit services provided by the Group's auditors. Fees of Group's auditors 2009 2008 2007...

Page 190
... It is also assumed that ING Group uses the cash received from exercised stock options and warrants or non-voting equity securities converted to buy its own shares against the average market price in the ï¬nancial year. The net increase in the number of shares resulting from exercising warrants and...

Page 191
... of the businesses as disclosed are the local results after Group overhead charges, while the investment returns |on equity are based on the risk free euro rate on economic capital. The Corporate Line Insurance includes items related to capital management, capital gains on public equities (net of...

Page 192
2.1 Consolidated annual accounts Segment reporting (continued) Operating segments 2009 Retail Banking ING Direct Commercial Banking Insurance Europe Insurance Insurance Americas Asia/Paciï¬c Other Total segments Eliminations Total Underlying income - Gross premium income - Net interest result - ...

Page 193
2.1 Consolidated annual accounts Segment reporting (continued) Operating segments 2008 Retail Banking ING Direct Commercial Banking Insurance Europe Insurance Americas Insurance Asia/Paciï¬c Other Total segments Eliminations Total Underlying income - Gross premium income - Net interest result - ...

Page 194
2.1 Consolidated annual accounts Segment reporting (continued) Operating segments 2007 Retail Banking ING Direct Commercial Banking Insurance Europe Insurance Americas Insurance Asia/Paciï¬c Other Total segments Eliminations Total Underlying income - Gross premium income - Net interest result - ...

Page 195
2.1 Consolidated annual accounts Segment reporting (continued) Interest income (external) and interest expense (external) breakdown by business lines 2008 Retail Banking ING Direct Commercial Banking Insurance Europe Insurance Americas Insurance Asia/Paciï¬c Other Total Interest income Interest ...

Page 196
... annual accounts Notes to the consolidated statement of cash ï¬,ows of ING Group amounts in millions of euros, unless stated otherwise 53 NET CASH FLOW FROM INVESTING ACTIVITIES Information on the impact of companies acquired or disposed of is presented in Note 30 'Companies acquired and companies...

Page 197
...Consolidated annual accounts Risk management Contents Structure of Risk Management Section Risk Management in 2009 ING Group Risk Governance ING Group Financial Risk Proï¬le ING Bank ING Bank Risk Proï¬le ING Bank - Credit risks ING Bank - Market risks ING Bank - Liquidity risk ING Insurance ING...

Page 198
2.1 Consolidated annual accounts Risk management amounts in millions of euros, unless stated otherwise Risk Management in 2009 RISK MANAGEMENT IN 2009 Taking measured risks is part of ING Group's business. As a ï¬nancial services company active in banking, investments, life insurance and ...

Page 199
.../CLOs has investment grade corporate credit as underlying assets. Other changes includes purchases and sales of CDOs/CLOs, as well as foreign currency effects. â€¢ The CMBS portfolio had a market value of EUR 7.7 billion at 31 December 2009. The current fair value is 81% of original purchase price...

Page 200
... in equity, except impairments on these trades going through P&L). At 31 December 2009 the fair value of US Subprime RMBS, US Alt-A RMBS, CDOs/CLOs and CMBS was as provided in the tables below, where the following split is made: Level 1 - Quoted prices in active markets; Level 2 - Valuation...

Page 201
... price of the security is below the cost price for longer than six months. Impact on counterparty risk The impact on counterparties for 2009 is limited mainly to the collapse of the DSB Bank in the Netherlands. The DSB Bank was covered by the Dutch Deposit Guarantee scheme, and as such ING Group...

Page 202
... a high level overview of the risk management governance and risk proï¬le from an ING Group perspective. This is followed by a more detailed overview, split into the different risk types (credit, market, liquidity, insurance, operational and compliance risk) both for ING Bank and ING Insurance. The...

Page 203
... Consolidated annual accounts Risk management (continued) ING Group The heads of these departments (Corporate Risk General Managers) report to the CRO and bear direct responsibility for risk (mitigating) decisions at the Group level. The Corporate Risk General Managers and the CRO are responsible...

Page 204
... to reï¬,ect changes in markets, products and emerging best practices. ING GROUP FINANCIAL RISK PROFILE ING Group uses an integrated risk management approach. The risk dashboard captures the risks in all Banking and Insurance business lines in terms of Earnings at Risk and Capital at Risk, and shows...

Page 205
..., or wider market factors. It is the risk inherent to strategy decisions and internal efï¬ciency. The business risk methodology for ING Bank was revised during 2008 and the ï¬rst quarter of 2009. The methodology was changed to more closely align with the methodology used for ING Insurance and to...

Page 206
2.1 Consolidated annual accounts Risk management (continued) ING Group Earnings at Risk by risk type Credit and Transfer 2009 Interest Rate Market Equity Real Estate FX Insurance Business Operational Inter-risk diversiï¬cation % Total ING Bank ING Insurance Bank-Insurance diversiï¬cation % ...

Page 207
... for ING Group has not changed. Capital at Risk by risk type Credit and Transfer 2009 Interest Rate Market Equity Real Estate FX Insurance Business Operational Inter-risk diversiï¬cation % Total ING Bank ING Insurance Bank-Insurance diversiï¬cation % Total ING Group Capital at Risk by risk type...

Page 208
... Group has not changed. Capital at Risk and Earnings at Risk by Line of Business (Group diversiï¬ed) Earnings at Risk 2009 2008 2009 Capital at Risk 2008 Commercial Banking Retail Banking ING Direct Corporate Line Bank Line of Business diversiï¬cation % Bank ING Bank Insurance Americas Insurance...

Page 209
... calculations done at ING Group level (2008: 15%). The table below shows the contribution of the different risk drivers to the consolidation beneï¬t: Contribution to consolidated beneï¬t 2009 2008 Risk Type Interest Rate risk Equity risk Foreign Exchange risk Real Estate risk Credit risk Business...

Page 210
...2009 2008 Credit risk (including Transfer risk) Market risk Business risk Operational risk Total banking operations 9,991 8,435 2,581 2,074 23,081 8,686 10,349 1,221 2,151 22,407 Economic Capital (Bank diversiï¬ed only) by Line of Business 2009 2008 Commercial Banking Retail Banking ING Direct...

Page 211
... ING Bank (e.g. Retail Banking, Commercial Banking and ING Direct) and ING Insurance. The CCRM General Manager is functionally responsible for the global network of credit risk staff, while the heads of the credit risk management functions for the business lines report directly to him. Credit risk...

Page 212
...loans secured by residential property. Loans (including guarantees issued) to businesses are often collateralised, but can be unsecured based on internal analysis of the borrowers' creditworthiness. Bonds in the investment portfolio are generally unsecured. Securitised assets such as Mortgage Backed...

Page 213
... still exists after 90 days, the obligation is transferred to one of the 'problem loan' units. In order to reduce the number of arrears, ING banking units encourage their obligors to set up automatic debits from their (current) accounts to ensure timely payments. ING Group Annual Report 2009 211

Page 214
... return for ING, the sale of repossessed assets could be the sale of the obligor's business as a whole (or at least all of its assets), or the assets could be sold piecemeal. Impaired Loans: ING Bank portfolio, outstandings by economic sector 2009 2008 Private Individuals Real Estate General...

Page 215
2.1 Consolidated annual accounts Risk management (continued) ING Bank Provisions: ING Bank portfolio Commercial Banking 2009 2008 2009 Retail Banking 2008 2009 ING Direct 2008 Total ING Bank 2009 2008 Opening balance Changes in the composition of the group Write-offs Recoveries Increase/(decrease...

Page 216
...mirrored the developments in the portfolio as a whole. The growth at ING Direct in The Netherlands and the decrease in the United States are the result of the Alt-A transaction with the Dutch government. The increase in Australia is largely driven by exchange rate effects. In Canada, the increase in...

Page 217
... trading limits and the validation of pricing models. CMRM also reviews trading mandates and limits, and performs the gatekeeper role in the product review process. The management of trading market risk is performed at various organisational levels, from CMRM overall down to speciï¬c business areas...

Page 218
... loss exceeded the daily consolidated VaR of ING Commercial Banking. ING reports the results of this backtesting to DNB on a quarterly basis. Stress testing Stress tests are used for the monitoring of market risks under extreme market conditions. Since VaR in general does not produce an estimate...

Page 219
... of the ING Commercial Banking trading portfolio for 2009 and 2008 are provided in the table below. Consolidated VAR trading books: ING Commercial Bank Minimum 2009 2008 2009 Maximum 2008 2009 Average 2008 2009 Year-end 2008 Foreign exchange Equities Interest rate / Credit spread Diversiï¬cation...

Page 220
...: ING Bank Capital Management ING Direct Risk transfer to market Retail Banking Risk transfer to FM ALM Commercial Banking Commercial Bank Model risk (replication, prepayments) Model risk (replication, prepayments) Risk transfer to FM ALM Financial Markets ALM Financial Markets Trading...

Page 221
... client rate earned and paid imperfectly correlate with the changing market rates (basis risk). Examples of products in which these risks are inherent are current accounts, saving accounts and mortgages. Within ING Direct the interest rate risk is managed and measured at the level of the local ING...

Page 222
... banks. Retail Banking and ING Direct in particular invested in more short term assets. This led to a relatively low level ES ï¬gure at the end of 2008. In the course of 2009 the client coupons on savings accounts were lowered in line with the development of market rates. Simultaneously, client...

Page 223
...) and strategic equity stakes in foreign currencies. The policy regarding these exposures is brieï¬,y explained below. Commercial banking business Every business unit hedges the FX risk as result of their commercial activities into the base currency of the unit. Consequently assets and liabilities...

Page 224
... overall real estate market, although the general policy is to mitigate risk by pre-sale agreements where possible. Third, for various real estate funds, ING Bank has co-invested seed capital and bridge capital to support the launch of new funds. A decrease in real estate prices will cause the value...

Page 225
2.1 Consolidated annual accounts Risk management (continued) ING Bank Real Estate Exposure banking books recorded as fair value through P&L 2009 Residential Ofï¬ce Retail Industrial Other Total Europe Americas Australia Asia Total 146 18 34 198 357 93 24 24 498 196 91 298 267 852 94 1,040 ...

Page 226
... on and off balance sheet positions are considered from a structural asset and liability management perspective. For this purpose ALCO Bank established a working group consisting of Corporate Market Risk Management, Capital Management and Financial Markets that focuses on liquidity risk aspects from...

Page 227
... that investment mandates adequately address credit portfolio risk. Risk management governance ING's Insurance Risk Management (IRM) is organised along a functional line comprising three levels within the organisation: the corporate, business line and business unit levels. The General Manager of...

Page 228
... markets in combination with improved modelling of interest rate and credit spread risk exposure. In addition, there were several changes to the risk proï¬le due to selling of business units and increases in business risk due to improved lapse risk modelling. 226 ING Group Annual Report 2009

Page 229
...includes funding activities at ING Insurance level, explicit internal transactions between business unit and Corporate Line, managed by Capital Management, and corporate reinsurance. The responsibility (and risk) of free assets located within the business line for which there is no explicit transfer...

Page 230
... annual accounts Risk management (continued) ING Insurance The MVaR limits are managed by ALCO Insurance at the relevant organisational level. The Group Insurance ALCO determines the aggregate limit and ensures that the Group stays within the limit and allocates the sub-limits to business lines...

Page 231
... in ING's insurance portfolios which are reviewed annually by the ING Group Executive Board. ING Group has established actuarial and underwriting risk tolerance levels in speciï¬c areas of its insurance operations as described below. For non-life insurance, risk tolerance levels are set by line of...

Page 232
... Economic Capital and Available Financial Resources at Risk. Overall exposures and concentrations are actively managed within limits and risk tolerance levels through the purchase of external reinsurance from approved reinsurers in accordance with ING's reinsurance credit risk policy. Particularly...

Page 233
2.1 Consolidated annual accounts Risk management (continued) ING Insurance ING INSURANCE - CREDIT RISKS The credit risks in the general accounts portfolio within ING Insurance are subject to the same principles, policies, deï¬nitions and measurement as those of the banking operations. The credit ...

Page 234
...accounts Risk management (continued) ING Insurance Largest economic exposures: ING Insurance portfolio, by country (1) (2) Insurance Americas amounts in billions of euros 2009 2008 Insurance Europe 2009 2008 Insurance Asia/Paciï¬c 2009 2008 Total ING Insurance 2009 2008 United States Netherlands...

Page 235
2.1 Consolidated annual accounts Risk management (continued) ING Group - Non-ï¬nancial risks ING GROUP - NON-FINANCIAL RISKS In addition to the above ï¬nancial risks (credit, market, insurance and liquidity risk) the next paragraphs describe the non-ï¬nancial risks, being operational and ...

Page 236
... Operational Risk Management (CORM) reports directly to the CRO and is responsible for managing operational risks and developing and establishing the Operational Risk Framework within ING Group, ING Bank and ING Insurance. The General Manager Corporate ORM also establishes and approves the policies...

Page 237
... manage operational risk. Main developments in 2009 Control risk policy A new Control Risk policy was developed which now provides overall-policy direction for control-risk related areas from ORM, Finance and Legal, such as governance, new product approval, project management, ï¬nancial reporting...

Page 238
...and clear, respectful, and responsible. Clear and practical policies and procedures are embedded in ING business processes in all Business Lines. Systems are in place to enable management to track current and emerging Compliance Risk issues, to communicate these to internal and external stakeholders...

Page 239
... Consolidated annual accounts Risk management (continued) ING Group - Non-ï¬nancial risks In addition to effective reporting systems, ING has a Whistleblower procedure which encourages staff to speak up if they know of or suspect a breach of external regulations or internal policies or Business...

Page 240
...ï¬nancial condition, and accordingly ING's primary focus is to support good business practice through its Business Principles and group policies. Main developments in 2009 Building Customer Trust Group Compliance Risk Management and Corporate Operational Risk Management have worked closely together...

Page 241
... are planned or in place to ensure all policies are operationally effective, all ING Business Units produce quarterly progress reports. To ensure the quality of the policy embedding data, Group Compliance Risk Management has formalised a robust Risk Challenging and veriï¬cation process. The process...

Page 242
...90% conï¬dence level. CaR risk appetite is measured against Available Financial Resources. Aggregation model risk dashboard To derive the Earnings at Risk and Capital at Risk ï¬gures at an ING Group level, the underlying risk inputs from the ING Bank and ING Insurance business units are aggregated...

Page 243
... annual accounts Risk management (continued) Model Disclosures Major risk types distinguished: Risk type Credit and transfer risk (2) Market risk (8) - Interest rate risk Europe, Asia and America - Equity risk Europe, Asia and America - FX risk - Real Estate risk Insurance risk (1) Business risk...

Page 244
...the banking and the insurance operations. Economic Capital for credit risk and for transfer risk are calculated using internally developed models with a 99.95% conï¬dence level and a time horizon of one year, which represents ING's desired credit rating. ING uses a series of credit risk models that...

Page 245
... returns. During 2009, the Economic Capital levels for credit and transfer risk were calculated on a daily basis for most of the Commercial Bank and ING Direct investment portfolios and for the SME portfolios within the Retail banking operations. For consumer loans, residential mortgages, credit...

Page 246
...each state-of-the-world, the market value is recalculated and the 99.95% worst-case change in market value is the Economic Capital level. Economic Capital for market risk for the mortgage portfolios within ING Retail Banking and ING Commercial Banking is calculated for embedded option risk (e.g. the...

Page 247
2.1 Consolidated annual accounts Risk management (continued) Model Disclosures Loss Distribution approach The main objective of the LDA approach is to derive an objective capital amount based on the size and the risk appetite of an institution and its business units. This approach estimates the ...

Page 248
..., frequency and time to payment of future claims, development of outstanding claims and allocated loss adjustment expenses for P&C product lines recognising external reinsurance. Strategic business risk has been excluded from the EC calculations of ING Insurance. 246 ING Group Annual Report 2009

Page 249
2.1 Consolidated annual accounts Risk management (continued) Model Disclosures Economic Capital Model The ING Economic Capital calculation is calculated based on a 'Surplus-at-Risk' concept. 'Surplus-at-Risk' is calculated based on the steps: â€¢ Calculate the complete balance sheet (all assets ...

Page 250
...Economic Capital calculations. Non-market risk Economic Capital is calculated by business units, Corporate Credit Risk Management and Corporate Operational, Information and Security Risk Management and inputted into ECAPS at the sub risk level. ECAPS than aggregates 21 sub-risk types (e.g. mortality...

Page 251
2.1 Consolidated annual accounts Risk management (continued) Model Disclosures Economic Capital. Second, they assist business units in hedging strategies and management of Economic Capital. Third, the process of replicating portfolio calculations increases the understanding of the complex nature ...

Page 252
... Policy. For the Corporate Treasury there are many policies and limits that guide the management of the balance sheets and the execution of capital market transactions. The above capital deï¬nitions and policies have been approved by the ING Group Executive Board or delegated authorities. PROCESSES...

Page 253
... value. Group hybrid Tier 1 instruments other than preference shares are provided as hybrid capital to ING Insurance or ING Bank. (2) Investments in subsidiaries less equity (including core Tier 1 securities) of the Group holding company. This net debt position is provided as equity to ING Insurance...

Page 254
...available capital see Capital base table. Under ING's internal economic capital (EC) and market value balance sheet approach, the ratio of Available Financial Resources (AFR) to EC was 107% at the end of 2009 compared to 106% at the end of 2008. ING GROUP ING Group reports to the Dutch Central Bank...

Page 255
...143% Revaluation reserves debt securities, crediting to life policyholders and cashï¬,ow hedge (see ING's Capital base table). Capital adequacy and ratios Quantitative disclosures on capital measures and ratios Group 2009 2008 2009 Bank 2008 2009 Insurance 2008 Tier 1 ratio (Bank) Year-end actual...

Page 256
2.1 Consolidated annual accounts Capital management (continued) Main credit ratings of ING at 31 December 2009 (1) Standard & Poor's Moody's Fitch ING Group - long term ING Bank - short term - long term - ï¬nancial strength ING Insurance - short term - long term (1) A stable A1 negative A ...

Page 257
2.1 Consolidated annual accounts AUTHORISATION OF ANNUAL ACCOUNTS Amsterdam, 15 March 2010 THE SUPERVISORY BOARD Peter A.F.W. Elverding, chairman Jeroen...de Waal THE EXECUTIVE BOARD Jan H.M. Hommen, CEO and chairman Patrick G. Flynn, CFO Koos (J.) V. Timmermans, CRO ING Group Annual Report 2009 255

Page 258
... annual accounts Parent company balance sheet of ING Group as at 31 December before appropriation of result amounts in millions of euros 2009 2008 Assets Investments in wholly owned subsidiaries 1 Other assets 2 Total assets Equity 3 Share capital Share premium Non-voting equity securities...

Page 259
... Parent company annual accounts Parent company proï¬t and loss account of ING Group for the years ended 31 December amounts in millions of euros Result of group companies after taxation Other results after taxation 6 Net result 2009 2008 167 -1,102 -935 -569 -160 -729 ING Group Annual Report...

Page 260
...company annual accounts Parent company statement of changes in equity of ING Group for the years ended 31 December amounts in millions of euros Share capital Share premium Non-voting equity securities Share of associates reserve Currency translation reserve Other reserves (1) Total Balance...

Page 261
...company annual accounts Accounting policies for the parent company balance sheet and proï¬t and loss account of ING Group BASIS OF PRESENTATION The parent company accounts of ING Group are prepared in accordance with the ï¬nancial reporting requirements included in Part 9 of Book 2, of the Dutch...

Page 262
2.2 Parent company annual accounts Notes to the parent company balance sheet of ING Group amounts in millions of euros, unless stated otherwise 1 INVESTMENTS IN WHOLLY OWNED SUBSIDIARIES Investments in wholly owned subsidiaries Balance sheet value 2009 2008 ING Bank N.V. ING Verzekeringen N.V. ...

Page 263
... company annual accounts Notes to the parent company balance sheet of ING Group (continued) Changes in issued share capital Ordinary shares (par value EUR 0.24) Number x1,000 Amount Issued share capital as at 31 December 2007 Issue of shares Buy-back of shares Exercise of B warrants Issued share...

Page 264
...-voting equity securities' in the consolidated annual accounts for additional information, including restrictions with respect to dividend and repayment of capital. Change in treasury shares Amount 2009 2008 2009 Number 2008 Opening balance Purchased/sold Rights issue Cancelled Share-based payments...

Page 265
2.2 Parent company annual accounts Notes to the parent company balance sheet of ING Group (continued) Debenture loans Balance sheet value Interest rate Year of issue Due date 2009 2008 5.625% 4.699% 4.750% Variable Variable 4.125% 6.125% 5.500% 2008 2007 2007 2006 2006 2006 2000 1999 3 September...

Page 266
2.2 Parent company annual accounts REMUNERATION OF SENIOR MANAGEMENT, EXECUTIVE BOARD AND SUPERVISORY BOARD The information on share-based payment plans and remuneration of the members of the Executive Board and the Supervisory Board is included in the Consolidated annual accounts (page 166 up to ...

Page 267
... annual accounts and the parent company annual accounts. The consolidated annual accounts comprise the consolidated balance sheet as at 31 December 2009, the proï¬t and loss account, statement of other comprehensive income, statement of changes in equity and statement of cash ï¬,ows for the year...

Page 268
... paid to the Dutch State in relation to the repayment of EUR 5 billion non-voting equity securities. As the non-voting equity securities are presented as equity in the balance sheet, the coupon is presented as a dividend and is part of the appropriation of result. 266 ING Group Annual Report 2009

Page 269
... asset management business. Factors such as interest rates, securities prices, credit (including liquidity) spreads, exchange rates, consumer spending, business investment, real estate and private equity valuations, government spending, inï¬,ation, the volatility and strength of the capital markets...

Page 270
..., there is a risk that external funding sources might not be available, or available at unfavorable terms. Disruptions, uncertainty or volatility in the capital and credit markets may also limit our access to capital required to operate our business. Such market conditions may limit our ability to...

Page 271
... adequacy and permitted investments, ethical issues, money laundering, privacy, record keeping, and marketing and selling practices. Banking, insurance and other ï¬nancial services laws, regulations and policies currently governing us and our subsidiaries may also change at any time in ways which...

Page 272
... of ï¬xed income securities, including those rated investment grade, the international credit and interbank money markets generally, and a wide range of ï¬nancial institutions and markets, asset classes, such as public and private equity, and real estate sectors. As a result, the market for ï¬xed...

Page 273
...been downgraded or put on credit watch by rating agencies. See 'Risks Related to the Group - Ratings are important to our business for a number of reasons. Among these are the issuance of debt, the sale of certain products and the risk weighting of bank and insurance assets. Downgrades could have an...

Page 274
...our market share, which may have an adverse effect on our results of operations. There is substantial competition in the Netherlands and the other countries in which we do business for the types of insurance, commercial banking, investment banking, asset management and other products and services we...

Page 275
..., investment banks, mutual and hedge funds, insurance companies and other institutional clients, resulting in large daily settlement amounts and signiï¬cant credit exposure. As a result, we face concentration risk with respect to speciï¬c counterparties and customers. We are exposed to increased...

Page 276
... in increased premium payments on products with ï¬,exible premium features, and a higher percentage of insurance policies remaining in force from year-to-year, creating asset liability duration mismatches. A decrease in interest rates may also require an addition 274 ING Group Annual Report 2009

Page 277
.... We employ various economic hedging strategies with the objective of mitigating the market risks that are inherent in our business and operations. These risks include currency ï¬,uctuations, changes in the fair value of our investments, the impact of interest rate, equity markets and credit spread...

Page 278
... in order to model client behaviour for the risk calculations in our banking and insurance books. Assumptions are used to determine insurance liabilities, the price sensitivity of savings and current accounts and to estimate the embedded optional risk in the mortgage and investment portfolios. The...

Page 279
... to equity securities that we hold in our investment portfolios and reduced levels of unrealised capital gains available to us which would reduce our net income and negatively impact our solvency position, (2) negatively impact performance, future sales and surrenders of our unit-linked products...

Page 280
..., that may impact our share price include, but are not limited to: â€¢ market expectations of the performance and capital adequacy of financial institutions in general; â€¢ investor perception of the success and impact of our strategies; â€¢ a downgrade or review of our credit ratings; â€¢ the...

Page 281
... on 21 December 2009). However, the calculation is subject to uncertainties and is based on various assumptions. Future increases of capital or other changes in ownership may adversely affect our net result and equity. The remaining Core Tier 1 Securities issued to the Dutch State may be converted...

Page 282
... The Netherlands Belgium Central Europe Asia Total Retail Banking Total ING Direct General Lending & PCM Structured Finance Leasing & Factoring Financial Markets Other products Subtotal Commercial Banking ING Real Estate Total Commercial Banking Corporate Line Total banking operations Total banking...

Page 283
... the Executive Board. The CRO has several direct reports who are all responsible for a speciï¬c risk management function within ING Bank. Chief Risk Ofï¬cer Corporate Credit Risk Management Corporate Market Risk Management Corporate Operational Risk Management Group Compliance Risk Management...

Page 284
...related to ING Bank's core credit risk activities in the areas of: Securities Financing, Derivatives (collectively Pre-Settlement Risk); Money Market activities (including reserve deposits at Central Banks); Lending (both on and off balance sheet); and Investment risks. The amounts presented in this...

Page 285
... mortgage loans secured by residential property. Loans to businesses are often collateralised, but can be unsecured based on internal analysis of the obligors' creditworthiness. Financial Markets activities include derivatives trading, securities ï¬nancing, and Foreign Exchange (FX) transactions...

Page 286
...(AIRB) approach for credit risk: â€¢ Reporting on (minimum) regulatory capital requirements; â€¢ Model monitoring reports; and â€¢ Stress testing reports. The acceptance, maintenance, measurement, management and reporting of credit risks at all levels of ING Bank is accomplished through promotion...

Page 287
... loans, car loans and credit cards. Under these exposure class deï¬nitions, it is possible for a private individual to be included under both Residential Mortgages and Retail Other. For other types of counterparties or issuers, there is no potential overlap. ING Group Annual Report 2009 285

Page 288
.... Gross credit risk exposures (EAD) by geographic area Central Governments and Central Banks Institutions Corporate Residential mortgages Other retail Total 2009 Total 2008 Netherlands Germany Belgium United States of America Spain Australia France United Kingdom Italy Canada Other Total...

Page 289
...Corporate Residential mortgages Other retail Total 2009 Total 2008 Builders & Contractors Central Banks Central Governments Commercial Banks Food, Beverages & Personal Care General Industries Lower Public Administration Natural Resources Non-Bank Financial Institutions Private Individuals Real...

Page 290
... tool across ING Bank. (1) The threshold amount varies per business unit, but generally is nil in the international units, and EUR 1 million in the 'home markets'. Cumulative Provisions by geographic area Central Governments and Central Banks Country Netherlands United States of America Germany...

Page 291
... mortgages Other retail Total 2009 Total 2008 Automotive Builders & Contractors Chemicals, Health & Pharmaceuticals Commercial Banks Food, Beverages & Personal Care General Industries Media Natural Resources Non-Bank Financial Institutions Private Individuals Real Estate Retail Services...

Page 292
...risk: a) reduction of credit risk through the acceptance of pledged ï¬nancial assets as collateral, such as marketable securities or cash; or b) mitigation or shifting of credit risks to a lower risk weighting group by accepting guarantees from unrelated third parties. 290 ING Group Annual Report...

Page 293
... of ING's covered bond positions are measured under the AIRB. 20% Risk Weighting 20% Risk Weighting is applied to exposures based on their exposure class and external rating. These are generally high quality exposures. 35% Risk Weighting Exposures secured by mortgages on residential real estate are...

Page 294
... ING has implemented more than 100 rating models, including various submodels that may be applicable. Some of these models are universal in nature, such as models for Large Corporate, Commercial Banks, Insurance Companies, Central Governments, Local Governments, Funds, Fund Managers, Project Finance...

Page 295
... ï¬nancial assets, in terms of ï¬nancial accounting. As such, rating migrations are closely monitored within ING. Average LGD by PD Grade under the advanced IRB approach Central Governments and Central Banks Institutions Corporate Residential mortgages Other retail Total 2009 Total 2008...

Page 296
... from derivatives (SA and AIRB) Central Governments and Central Banks Institutions Corporate Residential mortgages Other retail Total 2009 Total 2008 Credit Derivatives Derivatives Equity Derivatives Foreign Exchange Derivatives Interest Rate Derivatives Commodity derivative Total 9 203...

Page 297
... revaluations made directly through the equity account. Counterparty credit risk outstandings from securities ï¬nancing (SA and AIRB) Central Governments and Central Banks Institutions Corporate Residential mortgages Other retail Total 2009 Total 2008 Gross positive MTM before netting and...

Page 298
... retail liabilities (the savings product is typically the ï¬rst product to be launched in a country) and retail assets (the mortgage product is typically the second product launched) is invested in high quality debt. The execution of this business model in a cost-efï¬cient manner is ING Direct...

Page 299
... money market for secured borrowings. ING Bank has created a number of these securitisations with a 31 December 2009 position of approximately EUR 70 billion of AAA rated notes. The underlying exposures are residential mortgages in the Netherlands, Canada, Germany, Belgium and Australia. ING Direct...

Page 300
... selling the clients' receivables or other ï¬nancial assets to an SPV. The transactions are funded by the ING administered multi seller Asset Backed Commercial Paper (ABCP) conduit Mont Blanc Capital Corp. (rated A-1/P-1). Despite the conditions in the international money markets Mont Blanc Capital...

Page 301
... from the trading governance resulting in differences with the 2008 numbers from the risk paragraph. CAPITAL REQUIREMENTS Capital requirements Standardised approach 2009 2008 Internal Model Approach 2009 2008 2009 Total 2008 Interest rate risk Equity position risk Foreign exchange risk (1) Total...

Page 302
...to the Market Risk Segment in the Risk Management section for a description of the equity holdings and accounting methodology. Interest rate risk Earnings Sensitivity 2009 2008 By line of business ING Commercial Banking ING Retail Banking ING Direct ING Bank Corporate Line Total By Currency Euro US...

Page 303
... solvency calculation, which, for ING, apply from 2008 onwards. Basel II is an international standard for calculating the required capital based on internal models that take into account the ï¬nancial and operational risks. BASIS POINT VALUE (BPV) The change in the Net Present Value of a cash ï¬,ow...

Page 304
...changes in bond prices and their Net Present Value. It is a very important market risk measure for portfolios containing (embedded) options. CORE DEBT Investments in ING Group subsidiaries minus the equity of the holding company including hybrids. COST OF CAPITAL The costs related to owning capital...

Page 305
...)realised investment returns on a speciï¬ed pool of assets held by the insurer, or the proï¬t of the company, fund, or other entity that issues the contract. EARNINGS AT RISK (EAR) Measures the impact on earnings resulting from changes in market rates over a one-year horizon. ECONOMIC CAPITAL The...

Page 306
...xed in terms of units of currency by contract or otherwise. Examples are cash, short or long-term accounts, notes receivable in cash and notes payable in cash. MONEY MARKET RISK Money market risk arises when ING Group places short term deposits with a counterparty in order to manage excess liquidity...

Page 307
...price of the underlying value. OVER-THE-COUNTER INSTRUMENT A non-standardised ï¬nancial instrument not traded on a stock exchange but directly between market participants. PLAN ASSETS Comprise assets held by a long-term employee beneï¬t fund and qualifying insurance policies. Assets held by a long...

Page 308
...) market price. The pre-settlement risk (potential or expected risk) is the cost of ING Group replacing a trade in the market. This credit risk category is associated with dealing room products such as options, swaps, and securities ï¬nancing transactions. Where there is a mutual exchange of value...

Page 309
... all risk factor changes. WARRANT A ï¬nancial instrument that gives the holder the right to purchase ordinary shares. WEIGHTED AVERAGE COST OF CAPITAL (WACC) The weighted average cost of capital is used as the discount rate for calculating the present value of future cash ï¬,ows. ING Group Annual...

Page 310
...in performance of ï¬nancial markets, including developing markets, (3) the implementation of ING's restructuring plan to separate banking and insurance operations, (4) changes in the availability of, and costs associated with, sources of liquidity such as interbank funding, as well as conditions in...

Page 311

Page 312
232428 ING Groep N.V. Amstelveenseweg 500 1081 KL Amsterdam P.O. Box 810, 1000 AV Amsterdam The Netherlands Telephone: +31 20 5415411 Fax: +31 20 5415444 Internet: www.ing.com Commercial Register of Amsterdam, no. 33231073 WW W.IN G .COM

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