ING Groep N.V.

Summary

-  ■■ ING Groep, headquartered in Amsterdam, the Netherlands, is a financial institution, offering banking, insurance and asset management to about 50 million clients in 60 countries.

-  ■■ For the fiscal year ended December 2003, the company's revenues were Ђ69,073 million, a 9.2% decrease from the previous year.

-  ■■ Through the acquisitions of Reliastar and Aetna Financial Services in 2000, ING became one of the top 10 life insurers in the United States. ING is currently also number one in life insurance in the Netherlands and number two in property and casualty insurance and its brand is well known across Europe.

-  ■■ Distribution is one of the strongest features of ING. It operates a 'click-call-face'

type of distribution; meaning a flexible mix of Internet, call centres, intermediaries and branches.

-  ■■ ING is currently actively reorganising its global insurance business, closing and selling the subsidiaries, which are not profitable (e.g. in Argentina and non-life insurance arm in Australia), at the same time focusing on conquering new, more promising markets, for example in China.

Overview

ING Groep, headquartered in Amsterdam, the Netherlands, is a financial institution, offering banking, insurance and asset management to about 50 million clients in 60 countries. ING Groep offers life, health, and disability products; personal insurance lines (auto and fire coverage); commercial property/casualty insurance and reinsurance. ING's banking lines range from post office deposit accounts (the Postbanks) in the Netherlands to consumer and corporate banking throughout Europe. Other lines are corporate finance, securities, and investment and asset management services (through its ING banking network subsidiary) and auto, airplane, and other equipment leasing.

ING offers savings and investment accounts, retirement accounts and investment funds. It also offers a wide range of mutual funds, various forms of securities brokerage and asset management services.

Individual loans range from credit on current accounts to a mortgage loan tied to a securities portfolio. ING offers loan products via its branches, the Internet, the telephone, through a financial intermediary or an account manager. In addition, individual insurance includes life insurance and pension services. It also offers medical insurance, as well as insurance protection against fires, car accidents and other risks.

ING Groep's operating segments relate to the internal business segmentation by executive centres. These include the geographical areas ING Europe (including ING Direct activities outside Europe and wholesale banking activities worldwide), ING Americas (including the group's reinsurance activities) and ING Asia/Pacific and ING Asset Management. ‘Other’ mainly includes items not directly attributable to the executive centres.

For the fiscal year ended December 2003, the company's revenues were Ђ69,073 million, a 9.2% decrease from the previous year. Operating net profit amounted to Ђ4,053 million, an 18.1% increase compared with 2002. Banking profits were up by 72.6%, which compensated for the somewhat weaker performance of insurance activities.

History

ING originated in 1991 from the merger between Nationale-Nederlanden and NMB Postbank Group. The company was renamed Internationale Nederlanden Group (ING Groep). Nationale-Nederlanden was established in April 1963. As a result of extensive acquisitions in the United States, Canada and Australia, more than half of its revenues were accrued from foreign markets. Moreover, it was one of the largest domestic investors, selling insurance products through its intermediaries.

Since its formation ING has experienced a period of rapid growth. It expanded its scope through the acquisition of the investment bank, Barings, in 1995 and the American insurer Equitable of Iowa Companies in 1997. The purchase of the Belgian Bank Brussels Lambert in January 1998 added to this growth, as did the acquisition of the German BHF-Bank in 1999; and the American insurer ReliaStar in 2000.

This acquisition strategy continued in October 2000 with the purchase of Afore Bital, a Mexican private pension fund. December 2000 saw the company acquire Aetna Financial Services for $7.7 billion and Aetna International. Meanwhile, in the same month the company's subsidiary, ING Canada, purchased Esquisure Financial Networks.

It was reported in March 2003, that ING Groep was seeking to introduce more cost-cutting measures and decided to announce more job cuts, as a result of pressure on revenue growth in the European banking and insurance sectors continuing over the next two years.

ING acquired full ownership of DiBa (Germany) in July 2003. ING acquired an additional 30% stake in DiBa (Allgemeine Deutsche Direktbank) from BGAG, the investment company of a number of German trade unions. ING currently owns all shares in DiBa.

In March 2004, ING agreed to sell off its Asian equities business (the former Asian equities business of Barings) to Macquarie Bank, a pre-eminent provider of investment banking and financial services that operates throughout Australia and selected international markets.

In May 2004, ING agreed to sell its 50% interest in joint venture, Mercantile Mutual, for around $525 million (A$765 million) to Australian insurance group, QBE.

In June 2004 ING Lease, a subsidiary of the ING Group, completed the acquisition of the asset finance and leasing businesses from Abbey National plc. Also in June the company announced it had reached an agreement in principle to buy a 49% stake in KB Life, a new life insurance company being formed in Korea by Kookmin Bank.

SWOT analysis

Strengths

Strong and well established position in insurance markets: through the acquisitions of Reliastar and Aetna Financial Services in 2000, ING became one of the top 10 life insurers in the United States. ING is currently also number one in life insurance in the Netherlands and number two in property and casualty insurance and its brand is well known across Europe.

Wide diversification of locations, products and distribution channels: the operations of ING are strongly diversified in terms of activities (life, non-life insurance, investment and retail banking), geographic exposure (developed countries as well as high-growth emerging markets), distribution channels and segments targeted. The fact that the company is so diversified in terms of its product offering means that it faces lower risks than others.

Strong distribution channels: distribution is one of the strongest features of ING. It operates a 'click–call–face' type of distribution; meaning a flexible mix of Internet, call centres, intermediaries and branches. This enables ING to deliver and reach their customers quickly and effectively. The right distribution channel mix is a key to success for insurers in today’s increasingly competitive market.

Weaknesses

Low profitability in some markets: the company's worst performing market is the United States, which ING entered in the second half of the 1990s via three large acquisitions. The problems that ING faces in the United States, since the completion of the acquisitions of Aetna and ReliaStar, have been getting worse since the September 11 events. The main reason behind low profitability of ING in the U.S. markets is the weak performance of equity markets, which had an impact on most of the global insurers. Other reasons include the low interest rates, which again are causing problems for many insurers operating in the United States.

High leverage: this is one of the main weaknesses ING is facing at the moment. According to the industry, the double usage of capital on banking and on insurance should not be above 25%, while the level that ING faces at the moment is 30%. Compared with other companies, for example, Fortis, ING is potentially under more strain in case the economic circumstances change negatively.

Worsening position in home market, Belgium: ING's market position in Belgium has deteriorated and ING, once the largest in the Belgian market, now had to give up to BBL’s leadership in the Belgian market.

Opportunities

Growth of ING Direct: the export of the company's direct marketing concept (ING Direct), which has been very successful and profitable in the Netherlands for several years under the name Postbank, has enabled the company to enter new markets, such as Canada, Spain, Australia, France, United States and Italy, at a relatively low cost.

Reduced exposure to equity markets: at June 30, 2003, equity investments had returned to their cost value, up from March 31, 2003 when unrealised capital losses amounted to Ђ735 million.

Entering emerging markets: in India, ING last year increased its stake to 44% in Vysya Bank, the number five private bank. One of the recent examples of new market entry is the announcement by ING Group and Beijing Capital Group that their joint venture, ING Capital Life Insurance Company, has received approval from the China Insurance Regulatory Committee to establish a branch office in Beijing. China at the moment is the land of opportunities for the troubled global insurers needing to recover their losses.

However, there are also substantial legal and political risks associated with entry into these emerging markets. Further, there is also risk of failure to replicate the current successful business strategy in these markets.

Threats

Abolition of tax relief in the Netherlands and declining earnings: the Dutch life market was one of the most depressed in Europe in 2002 and 2003, with premium income falling by 7%, largely because of the phased abolition of tax advantages on life insurance products.

Diminishing capital: from the beginning of 2000 to December 2003, shareholders' funds decreased from Ђ34.6 billion to Ђ21.3 billion.

Company activity snapshot

-  ■■ ING Capital Life Insurance announced in September 2004 that it is to launch in Beijing. ING Group and Beijing Capital Group announced that its joint venture, ING Capital Life Insurance Company has now received approval from the China Insurance Regulatory Committee to establish a branch office in Beijing. The ICLIC Beijing branch will initially employ up to 300 tied-sales agents, and offer a mix of traditional life and personal accident policies to customers. Operations are due to commence in the first quarter of 2005 and the ICLIC Beijing branch is expected to employ up to 1,000 agents by the end of the year. The Beijing market saw growth in 2003 of 24.8% to reach total life insurance premium income of US$2.25 billion. ING expects that the premium growth rate will continue to remain strong, and since ING, in a similar position to other global insurers, desperately needs new markets for entry in order to make up for the losses it incurred so far, Asia seems to be one of the most promising. ING is hoping that the strong growth in the region will have a positive impact on their life insurance business;

-  ■■ in June 2004, ING has signed a contract with NetEconomy, a leader in real-time enterprise risk monitoring solutions for the finance industry, to roll out a worldwide effort to combat money laundering and ensure compliance. The contract covers multiple installations of NetEconomy's Erase Compliance Manager Solution. The first system has already been accepted at ING Luxembourg. This is just another step to ensure that ING is a reputable and safe business, and the company is hoping that this will have a positive impact on the credibility of ING;

-  ■■ in May 2004, QBE Insurance Group, Australia's largest property and casualty insurer, has agreed to pay ING Group $765 million to acquire the Dutch financial service company's 50% stake in its Australian joint venture. QBE will take complete control of Mercantile Mutual as part of plans to expand its operations in Australia's strongly performing insurance market. QBE has also agreed to purchase Mercantile Equities Pty Limited, a small subsidiary of Mercantile Mutual. ING said that while the collaboration had shown a strong record of profitability, the company had chosen to withdraw from the non-life insurance industry in Australia in favour of concentrating upon its core wealth management, direct banking and real estate businesses. This indicates that non-life insurance was not a profitable area for ING in Australia, and therefore the company decided to focus its efforts in areas where it can achieve profitability. ING is currently Australia's fourth largest retail fund manager, the third largest life insurer in terms of new business premiums and Australia's leading direct bank. ING is also one of the largest real estate managers and property developers in Australia, which means that ING has many other businesses in Australia where it can achieve profitability;

-  ■■ following a review of its business, in February 2004, ING announced plans to reorganise ING Insurance in Argentina. As a result of this decision, ING Insurance Argentina is closing its branch offices throughout the country and will be terminating the 650 staff at these locations, as well as part of the Buenos Aires head office. ING made the decision following a strategic business review process that determined its Argentina unit was not generating sufficient return on investment. This strategic move, including others outlined previously in this profile, indicate that ING is actively reorganising its global insurance business, closing and selling the subsidiaries which are not profitable (e.g. in Argentina and non-life insurance arm in Australia), at the same time focusing on conquering new, more promising markets, for example China.

In May 2004, ING agreed to sell its 50% interest in joint venture, Mercantile Mutual, for around $525 million (A$765 million) to Australian insurance group, QBE.

In June 2004 ING Lease, a subsidiary of the ING Group, completed the acquisition of the asset finance and leasing businesses from Abbey National plc. Also in June the company announced it had reached an agreement in principle to buy a 49% stake in KB Life, a new life insurance company being formed in Korea by Kookmin Bank.