ING Direct 2009 Annual Report Download - page 43

Insurance Americas
Key points
> Insurance Americas improved profitability
> Latin America continued to record solid results
> Insurance in the US began strategic
business transformation
> Expense reductions well ahead of target
2009 was a year of progress and significant change in Insurance
Americas. The US businesses embraced ING Group’s Back to Basics
strategy by substantially derisking the business, exiting two
non-core operations and reducing costs. Latin America intensified
its focus on mandatory and voluntary pensions and delivered
substantial profits. ING Canada was sold. Insurance Americas
improved profitability in the second quarter as economic and
market conditions improved and finished the year well ahead
of target on expense reductions.
FINANCIAL DEVELOPMENTS
Insurance Americas’ improved profitability in 2009, posting
underlying results before tax of EUR 61 million, up EUR 1,019
million from the loss reported in 2008. Underlying loss before tax
in the US was EUR 219 million in 2009, a substantial improvement
on EUR –1,117 million in 2008, mainly due to lower negative
deferred acquisition cost (DAC) unlocking, lower investment losses
and impairments, and lower operating expenses. In Latin America,
underlying profit before tax improved 76.1% to EUR 280 million,
led by strong results in the pension businesses.
The weak economy had a negative impact on underlying premium
income in the Americas, especially in the US. The underlying
premium income decreased 26.2% to EUR 13,973 million,
primarily due to a decision to limit variable annuity sales in the
US. Investment and other income decreased 62.2%, or EUR 1,807
million, to EUR 1,096 million due to a combination of lower
investment yields from derisking actions and unfavourable results
from non-trading derivatives, including the funding capital hedge
entered into in late 2008.
Underlying expenses declined 8.1% to EUR 1,611 million in 2009.
In the US, expenses declined due to lower staff cost and lower
sales-related expenses, primarily as a result of restructuring efforts.
The expenses for the integration of CitiStreet in the US, the costs
related to the IABF with the Dutch State, and the expenses related
to the restructuring activities are not included in underlying
operating expenses, but were presented as special items and
amounted to EUR 77 million in total.
Life sales (APE) decreased 28.7% to EUR 2,450 million in 2009,
a decline which was concentrated in the US. The decrease was
primarily caused by lower 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
deteriorated compared with year-end 2008. The net liability
provisions for Insurance Americas became insufficient by EUR 1.6
billion at the 90% confidence level, which is significantly more
conservative than using the best estimate reserve adequacy
approach commonly employed, particularly among US companies.
The net liability provisions remain sufficient by EUR 1.8 billion at the
50% confidence level.
Insurance
Financial overview
in EUR million 2009 2008
Underlying* premium income 13,973 18,935
Underlying* operating expenses 1,611 1,753
Underlying* result before tax 61 –958
Total result before tax –246 –589
Value of new life business** 190 229
Internal rate of return (IRR) 11.9% 11.8%
New sales 2,450 3,438
** Underlying numbers are derived from IFRS-EU numbers, excluding the
impact of divestments and special items.
** The Value of new life business and IRR for 2008 have been restated to
reflect the corrected application of capital factors for the variable annuity
business and modest adjustments to expense factors for both the variable
and fixed annuity business.
Geographical breakdown of premium income
in EUR million 2009
US 99% 13,812
Latin America* 1% 161
Total 100% 13,973
* Excludes ING’s joint venture in Brazil because it is a minority interest.
Major business transformation under way
ING Group Annual Report 2009 41