03

August 2007

A new era in retail banking 2Q: A record quarter Acquisitions fire up growth strategy

ING Shareholder 03 – August 2007 

Dear reader,

In the past few months, ING has been in the ING’s goal is to be a leading global provider of This magazine is a quarterly publication news with several major announcements about wealth accumulation and retirement services for by ING Group for shareholders and others acquisitions, divestments and a major investment individuals. ING’s three insurance executive board interested in ING. in the Dutch retail banking market. They are all members, Jacques de Vaucleroy, Tom McInerney Subscribe to ING Shareholder part of ING’s strategy of efficiently using capital and Hans van der Noordaa explain how insurance Fax (+31) 411 65 21 25 to create long term growth. In this issue, we take is changing and how companies such as ING Mail P.O. Box 258, 5280 AG Boxtel a look at some of these projects and discuss the have the capacity to play a major role in wealth The Netherlands strategy underlying them. In the Netherlands, the accumulation. Internet: www.ing.com Postbank and ING Bank combination was indeed big news. As our story explains, it is all about In the ten years ING Direct has been in business, Editorial office bringing together the best of both entities and the direct bank has become the largest direct ING Group, Corporate Communications building a bank with the best selected range of bank in the world. We profile one of ING Direct’s Investor Relations Department products and services. We talk to the key people most successful businesses: ING DiBa in Germany, P.O. Box 810, 1000 AV Amsterdam in the project and explain what customers can which has grown into the country’s third-largest The Netherlands expect. retail bank. Their secret to success: engaged Tel. (+31) 20 541 54 60 employees and satisfied customers. Fax (+31) 20 541 54 54 Oyak Bank in Turkey, Santander’s Latin American [email protected] pension businesses and Landmark Investment And finally, the holiday period offers plenty of ISSN 1874–0472 Management in South Korea are three major time for taking pictures. But good photos are an Design acquisitions announced since our last issue of ING art. In our regular art column, you’ll read about a VisualSpace Shareholder. On page 12, we detail ING’s recent new photographic award, supported by ING Real acquisitions and discuss why they are important Estate to promote contemporary international Photography for ING. photography. Cover photo by Marco Sweering (Nick Jue and Bart Schlatmann on the Borneo-Sporenburg The editorial team island bridge in Amsterdam). Other photos by Ad Bogaard, Hans van den Heuvel, Imagebank Hollandse Hoogte and Corbis.

Print Thieme Amsterdam

© 2007 ING Groep N.V.

All rights reserved. While every care was taken in the preparation of this magazine, no responsibility can be accepted for any inaccuracies.

 ING Shareholder 03 – August 2007 ING Shareholder 03 – August 2007 Contents

05 Cover story: Business & Markets Postbank and ING Bank - “We will use the best of two worlds”

12 ING acquires several important high-growth businesses

Insurance Asia / Pacific 6% Wholesale Banking 27% 14 Second quarter demonstrates strong Strategy & Results commercial momentum Insurance Americas 17%

19Retail Insurance Banking 17% is in evolution, as the baby Views & Analysis boomers hit retirement Insurance Europe 26% ING Direct 7%

23 Reality in Art

Insurance Europe 17% Wholesale Banking 30%

Insurance Americas 19% ING Shareholder 03 – August 2007 

Retail Banking 22%

Insurance Asia / Pasific 6% ING Direct 6%  ING Shareholder 03 – August 2007 Business & Markets

Nick Jue, Bart Schlatmann: “We’re bringing the best Postbank and of the two banks together” ING Bank join forces two becomes one

It was big news in the media: Postbank and ING Bank to combine activities to operate under the single ING brand name. The initial reaction was one of surprise, but also support. The new bank holds great promise for customers as ING is making a significant investment in the Dutch retail banking market.

ith seven million retail customers, Postbank has a years, our Dutch retail activities have achieved good results. But dominant position in retail banking in the Neth- we want to stay ahead of our rivals. We looked at what would W erlands. On the surface, it appears ING is taking a be the best strategy in order to secure a sustainable future in bold gamble by removing the well known Postbank brand. But the Dutch retail market. And that turns out to be combining the according to Executive Board member Eli Leenaars, the deci- strengths of our two banks. It offers the best opportunity to meet- sion was based on very sound, compelling reasons. “We’re not ing three objectives: improved customer service, creating better dropping Postbank, on the contrary we are taking the highly prospects for future growth and enhanced efficiency.” successful Postbank business model as the basis for the new bank combination. We’re making a substantial investment in the Dutch The best of both worlds retail banking market.” Leenaars says ING made the move after a Nick Jue, chairman of ING Retail Nederland, will head up the new comprehensive study. “Increasingly, customers want more choice bank. He explains: “We will use the best of both worlds. There’s and they’re becoming more and more critical. They demand the successful direct operating model of Postbank. Postbank is transparency and low costs. They are the ones who determine the all about being accessible, providing quick delivery and value for rules of the game and they know what they want. money. And then there’s ING Bank. The strength of ING Bank is its Technology also offers new possibilities and has led to many expertise and personal advice. changes. Internet is now a fixed component in retail banking. We know this because Postbank’s website Mijn Postbank.nl has “Despite its strong brand image, Postbank’s market share has one million hits a day and is one of the most frequently visited been declining among young people in recent years. Many don’t websites in the Netherlands. Young people especially use the recognise Postbank as a bank that also offers advice on invest- internet for their banking affairs.” Leenaars says the structure of ments or mortgages. Sales of different products to a customer the banking industry is also changing. “Boundaries are disappear- could also be improved. ING Bank is much more successful in ing. Competition is increasing. There are new players and non- this area. However, when compared with Postbank, ING Bank traditional competitors, for example retailers that offer financial has relatively few retail customers. The bank offers a full range of products. The number of specialist parties, such as online brokers, products and services, combined with a large branch office net- is also on the rise.” work. Due to the limited number of retail customers this network He says it was very important to stay ahead in this changing is not being used to its full potential. This is where combining the environment. “Our retail business is doing well. In the past few two banks makes a lot of sense. We are taking the best features

ING Shareholder 03 – August 2007  Business & Markets

of the two banks and are bringing them together. If we had opted 90% of customer contact. The physical channels such as branch to maintain the two labels separately and only integrate the back offices will remain important. Customers have a need for personal offices, then we would still be faced with Postbank’s relatively contact, more so with complex products. We aim for nationwide unknown reputation as a bank that also offers advice. The ING modern bank shops with long opening hours, service desks, brand name offers a chance to change this image. Our Postbank advice opportunities and services for cash transactions, such as customers can benefit from ING Bank’s strong personal advice depositing or withdrawing money. Our current experience with capabilities and ING Bank customers can profit from the strong direct banking formula of Postbank. All our customers will be able to do their banking affairs fast and easy, pay low fees and will “We will use the best have direct access to professional advisors whenever and wher- of both worlds” ever they have a need for that. Our high-quality processes and increased customer service will result in more loyal customers who will use more of our product offering under the new combination. Postbank shops in two big Dutch cities will certainly help. We will And this in turn will result in growth.” also set up ING service points that could be located in post offices or local stores. ” Different distribution channels The new bank will serve about eight million retail customers and Managing the transition 600,000 business clients. Nick Jue says low fees will remain a pri- In the coming years, a reduction of 2,500 FTEs in overall head- ority, but the new bank will not profile itself as a “price fighter”. count is expected due to the integration. Jue says ING will make “It will neither be a branch-office driven traditional bank, nor every effort to help employees from ‘work to work’. “We spend solely a direct bank like ING Direct.” He says the bank would focus a lot of time and effort on informing people about the changes. fully on convenience, value for money and expertise. “It will be a There are information sessions throughout the country that offer bank that offers all distribution channels customers expect: direct a platform for staff and management to exchange thoughts. channels, such as the internet, call centres with specialised units There’s a special newspaper and an intranet site. Most employees for certain products and services, direct mail or e-mail. Customers understand our decision and the reasons behind it. The responses can also get advice through the direct channels. We will develop I get are positive. special internet advice modules. Apart from the direct distribution “Research shows that our customers are pretty impartial about channels, there are advice channels, such as the product or branch the change of the brand. Far more important is that we maintain sales forces for the retail and corporate sector, account manag- our high service levels and that the changes will not be a cause for ers for private banking customers and small and medium-sized concern. That’s what we aim for. ING already has experience with companies and intermediaries.” re-branding operations. BBL in Belgium, Bank Slaski in Poland Nick Jue says these channels will be carefully aligned and will and Aetna in the US are all examples of well-known brands that use the same processes as much as possible. “We’re going to have transitioned successfully to the ING name. The Netherlands invest strongly in all channels. The direct channels account for has long been one of the exceptions. ING invests strongly in its

2002 939 2003 917 2004 1.092 2005 1.387 2006 1.409 Snapshot of the financials Profit development ING Retail What customers want 8 ING will invest EUR 890 million over a five-year Netherlands 2002–2006 (EUR m) Recently, researchers Capgemini conducted period. a survey among retail banks in the 8 The new bank is expected to make a positive 2002 939 Netherlands. They looked into what contribution to profit from 2009. 2003 917 customers appreciate most. Researchers 8 From 2011 onward, it will yield an additional 2004 1,092 Manfred van Gurchom and Sander van annual profit before tax of EUR 440 million. 2005 1,387 Geffen said: “We found that ING’s integra- 8 This additional profit will be realised through 2006 1,409 tion strategy fits well with our findings. Our improved product and distribution capa- report supports a number of choices ING bilities, economies of scale and enhanced (CAGR: 11%) made. Customers look for convenience and efficiency. simplicity. They want to bank whenever and 8 The new bank aims for a cost/income ratio of wherever they want, supported by excellent less than 50% in 2011. customer service. They don’t care that 8 As a result the combination will be the most much for innovative products, but they do efficient and most competitive bank of the appreciate an innovative approach. Innova- Netherlands. tion in the field of access to direct channels will be the key in the coming years.” 2002 6.68 i www.nl.capgemini.com 2003 7.89 2004 8.68  ING Shareholder 03 – August 2007 2005 9.31 2006 10.08 2007 10.89 2008 11.76 2009 12.69 2010 13.69 2011 14.76

2002 6,68 2003 7,89 2004 8,68 2005 9,31 2006 10,08 2007 10,89 2008 11,76 2009 12,69 2010 13,69 2011 14,76 Marjon Boerman, retail with transfers. If I transfer money Prof. Wil Reijnders, retail Postbank’s systems and products customer at Postbank: from my standard account to my expert and professor should be leading. They’re simply “I have been a customer at internet savings account, it takes TiasNimbas Business School: good and suited for the internet. Postbank ever since my first pay two days. That’s crazy. If the new “From a marketing perspective, With appealing advertising cam- cheque. I’m not worried about combination avoids that from you could say that a strong brand paigns and a successful merger of Postbank joining forces with happening, I’ll certainly stay.” is wasted. The chances of the the back offices, customers will ING Bank. I mean, it’s been one new bank becoming a success be used to the new label within company for a long time, hasn’t it? are pretty high, I feel, provided it 18 months once the introduction I did consider switching to another meets a number of key conditions. of the ING brand in 2009 takes bank at some time, to ABN Amro, The most important one is that the place.” for example. Only because that’s new bank maintains the service a full services bank. But there’s no level – at Postbank level that is to need for it now. What frustrates say. Or even better, that customer me about Postbank, is the fuss service is even improved. I think

brand name. Take for example the sponsoring of the Formula 1. merged into a single new head office, which will house all central Postbank did not benefit from it. The new bank will.” functions and management. We’re also working on integrating the systems, products and channels. We aim for single systems Step by step and processes and a uniform product portfolio. Special product Chief operating officer Bart Schlatmann will lead the integration. teams are looking into a uniform product offering. Another team Quite a challenge, given the fact that it involves an operation in is dealing with the integration of internet, call, mail and branch which several change processes now run parallel, but ultimately offices. Yet another team is focusing on the various customer will have to be integrated. “We decided for a phased approach. segments. Superior execution is the key. We want to distinguish We’re fully committed to maintaining the high customer service ourselves from other banks with our state-of-the art processes. level. That’s why we are thoroughly preparing everything, so there Also in 2008, a number of pilot bank shops will open to build up is no customer disruption. Account numbers will not change and experience with the new shop formula. In 2009, retail customers that’s very important to our customers.” will switch to the new bank. Our larger corporate clients and Schlatmann said the first major milestone along the path to customers in the small and medium-sized sector will follow a year the new bank takes place next year. “In early 2008, the three later.” It will take a little while, but from 2009, everything will be current head offices of ING Bank, Postbank and ING Retail will be ready. By then, the new bank will be reality.

ING Shareholder 03 – August 2007  Business News Trailblazer

In Central Europe, ING has for over 5 years. Combining an captured the Award for Regional entrepreneurial approach with Cum b\trâne]ea Insurer of the Year from the inter- sound risk management, ING built prive[titu ? national magazine Life & Pensions. a strong position in the region in At a special ceremony in London, both life insurance and pensions. Indiferent cum ai privi, the monthly magazine presented ING Insurance Central Europe has ai nevoie de Cei pesimiøti Cei optimiøti 2 awards to recognise excellence operations in nine countries. Its privesc în jos! Pensia ING privesc în sus! by the leading insurance and pen- 3,800 employees and over 3,000 sions providers in the fi eld of risk, agents serve more than six million PENSII capital and fi nancial management. clients and manage total assets of WWW.CUMPRIVESTIBATRANETEA.RO WWW.ING.RO According to the jury: “ING Insur- EUR 9 billion. ance Central Europe has shown Tom Kliphuis, CEO of Insurance An advertisement for a voluntary itself to be consistently ahead Central Europe, said: “The award pensions campaign from ING Romania, part of ING’s award-winning Central of the game. It has displayed a is a token of recognition for our European insurance operations healthy appetite for risk, in return employees and agents who work for being the fi rst to enter these hard every day to help our clients high-growth markets.” manage their fi nancial future. The ING won the Regional Insurer needs and wishes of our clients are Award for being a pioneer, innova- the driving forces for remaining a tor and leader in the insurance and trailblazer in Central Europe.” pension markets in Central Europe

Dealing in carbon credits

ING established an Emissions parties in developed countries to resulting carbon credits to buyers Structured Finance/Emissions Products Products team earlier this year to meet their obligations by trading in developed countries. Mandates Creating and selling engage in the growing market emission reduction allowances. to date include renewable energy, Carbon Credits of reducing greenhouse gas These can be bought through waste heat utilisation and energy emissions resulting from the recognised fi nancial exchanges effi ciency projects in China, Rus- United Nations’ Kyoto Protocol or from projects which produce sia and Ukraine. Stephen Hibbert, on climate change. Countries certifi ed emission reduction. Such who heads the team says: “The that ratify this protocol commit to projects can be in developing combination of ING’s expertise in reduce their emissions of carbon countries or in certain developed relevant business sectors and our dioxide and other greenhouse countries with ‘economies in established client relationships gases, or engage in emissions transition’. These emission reduc- in developed and developing trading if they maintain or in- tion allowances are also known markets positions us well for crease their emissions. Countries as ‘carbon credits’. the opportunities in this new are broadly separated into two The Emissions Products team uses market.” categories: developed countries, ING’s international network and who have accepted emission client relationships to identify i See: www.ing.com/carboncredits WHOLESALE BANKING

reduction obligations; and de- emission reduction opportunities. WWW.INGWHOLESALEBANKING.COM veloping countries, who have no The team advises projects on the obligations but have an incentive technical and regulatory aspects to invest in emission reduction of the UN process and also acts projects. Kyoto provides for as intermediary in the sale of

8 ING Shareholder 03 – August 2007 Business News Ballast Nedam chooses ING IM

After an extensive survey of several this diversification, the fund is less asset managers, Dutch construc- vulnerable to market volatility. tion company Ballast Nedam has According to Arthur van der Wal, selected ING Investment Man- managing director and head of agement to manage the equity Institutional Clients at ING IM, the portfolio of its pension fund. The decisive factor was the strong track complete portfolio with a value of record – dating back to 1989 – of EUR 190 million will be invested the ING Multi Manager Global in the ING Multi Manager Global Equity Fund, combined with its Equity Fund. excellent service. ING IM has had a A multi-manager strategy offers very good relationship with Ballast clear benefits for the pension fund. Nedam for many years now. It aims for broad diversification in global shares by investing in a select number of the world’s best fund managers, each with their i www.ingim.com own investment style. As a result of

Ballast Nedam industrial equipment at work

ING partnership in Greece Powering up Poland

ING has entered into a Memo- ing distribution channels. Jacques ING’s experience in the power due to its size and nature - the randum of Understanding with de Vaucleroy, ING Executive Board industry and skills in complex largest in Poland’s power industry Piraeus Bank, the fourth largest member responsible for Insurance financing were rewarded in - and the evolving and uncertain bank in Greece, for a 10-year Europe, said: “We are pleased Poland when the Group was local power markets. Ultimately, exclusive distribution partnership that we will be able to continue chosen among 35 banks to it required cooperation between covering life, employee benefits the fruitful co-operation with finance the largest power plant multilateral institutions and com- and pension insurances. In addi- Piraeus Bank. The 10-year term in Europe. The state-run BOT mercial banks. The deal is now tion, ING will acquire full owner- of this distribution agreement Group is in charge of over a fifth likely to prove the standard bearer ship of ING Piraeus Life, the joint confirms ING’s firm commitment of the country’s electric power for other plants throughout venture between ING and Piraeus to the Greek insurance market.” needs. It appointed ING as lead the region that will also require Bank. The new partnership follows ING Greece ranks 5th in the Greek arranger and joint bookrunner modernising. “This is a key deal the current agreement, which was life market with a market share of along with Citibank for EUR to have,” says Clara Alvarez, signed in 2002. The distribution 8.4%. Combined, ING Greece and 879 million in financing the head of power finance at ING. partnership will give ING exclusive ING Piraeus Life occupy the 3rd expansion and modernisation of “It has high visibility and show- access to Piraeus Bank’s network position in the Greek life insurance BOT Elektrownia Belchatów SA cases our expertise in the sector of 305 branch offices in Greece for market. (EBSA), its 4,400MW lignite-fired and our leading skills. We are well the distribution of life insurance power plant. The modernisation positioned to play a leading role and pension products. The new is part of the government’s push as the market opens up.” distribution partnership is in line to upgrade its electricity genera- with ING’s growth strategy in tion to meet EU environmental Central Europe, which has a strong standards. It was a complex deal focus on extending and broaden-

ING Shareholder 03 – August 2007  Business & Markets

Satisfied employees drive results

ING Direct has challenged the status quo in the finance industry by offering value for money and putting the customer first. In this article we take a close look at ING Direct in Germany, ING-DiBa, which was recently named ‘Germany’s best bank’ for the third consecutive year.

“ING-DiBa snaps up the German banking market,” the German with ING Direct. They bring the energy, enthusiasm and drive to business magazine Wirtschaftswoche wrote on 21 May 2007. The continually meet customer expectations. As such they provide a facts are indeed convincing: Its clientele has grown from less than very important personal touch in the relationship. Tellings believes one million to over six million in five years time. Funds entrusted that: “Happy employees give good service, so that is the best rose from EUR 19.2 billion to over EUR 59 billion. ING-DiBa is now guarantee of a happy and satisfied customer. Good service pushes the largest business unit of ING Direct by funds entrusted. In April, up the profits, and the employees, in turn, benefit. That’s why I renowned German financial magazineG uro named ING-DiBa always say ‘Start with the staff’.” ‘Germany’s best bank’ for the third year in a row. So what is their ING Direct puts a lot of time and effort into the quality of its secret to success? Happy employees give good service. ING-DiBa workforce. And ING-DiBa is no exception. “We keep building on a managed to grow from an all but invisible savings bank to become high performance environment and culture which recognises the importance of performance execution and behavioural standards. But first our people need to feel comfortable,” Tellings adds. “So “Customers should get we offer good working conditions such as the atmosphere, the a good and fair deal” workplace and flexible working hours, so that they still have time for children, studies or hobbies. We also give employees a chance to get in-depth training.” And the material rewards are good. ING-DiBa just concluded a new collective labour agreement. Germany’s third-ranking retail bank after Deutsche Postbank and Gudrun Schmidt, representative of the German trade union Deutsche Bank. Germany still has around 2,400 banks, many with Ver.di, finds this labour agreement “an example for the entire local status. Ben Tellings, CEO of ING-DiBa since 2003: “Five years direct banking and call centre sector”. She continues: “The work- ago, bankers didn’t regard the retail business as very interesting. ing hours schedule fits the needs of ING-DiBa as a direct bank but But consumers were ready for our concept. Our high volumes and also takes into consideration the private interests of employees, in low costs give us a much better profit margin. But the fact that we particular with regard to the balance of work life and family life. pass on part of that to our customers does not make us a discount There are bonuses in time and money in case of overtime, like in bank. Our product offering includes 14 clear and convenient weekends. And ING-DiBa lets employees share its success through products. We’re especially successful in savings, mortgages and bonuses. These bonuses make costs increase, but I can tell that online brokerage. We offer fast, friendly, top-quality service.” employees who are respected also perform better.”

Happy employees Sense of belonging Banking is first and foremost a people’s business. The absolute “Apart from material rewards, what matters is the sense of key to ING Direct’s overall success is its employees, who are highly belonging,” Tellings explains. “We work hard to foster the strong engaged and motivated and bring their positive attitude to work ING Direct spirit that is critical to our success. That’s really part of each day. It is often the staff on the phones at the call centres with our corporate strategy to put our own staff first, and we do it with their skills and attitude who determine if a customer feels at home conviction.” There is a long list of joint sports activities, and there

10 ING Shareholder 03 – August 2007 Business & Markets 90.399_Master_Image_1-1 19.04.2007 18:59 Uhr Seite 1

Erfolgreich: Key fi gures 8 ING-DiBa’s three call centres are located in Hannover, Frankfurt and Nuremberg. 8 Around 800 agents take calls from customers 24/7. 8 Some eight million incoming calls a year; often more than 30,000 a day. 8 Funds entrusted amount to EUR 59.2 billion, Master off-balance funds to EUR 2.7 billion. 8 Residential mortgages: EUR 28. billion. ET: Werbeträger: Version:

Deutschlands „Beste Bank“! 230 x 285 mm 19.04.2007 20.04.2007 Digital-Pre-Press Digital-Pre-Press GmbH 069/85 • 70 83 Tel.: 01 • 069/85 Fax: 70 86 01 • Email: [email protected]

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Was über fünf Millionen zufriedene Kunden bereits wissen, wurde nun zum dritten Mal von Experten des Magazins €uro bestätigt: Die ING-DiBa ist Deutschlands „Beste Bank“. Profitieren auch Sie von der Leistungsstärke und Zuverlässigkeit des Testsiegers. Basketball star Dirk Nowitzki

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are parties every year at various locations, as well as for the entire always have the highest rates any more, but we do have the trust company every few years. And it does not stop there. The ‘We of our customers, because we are reliable.” ING-DiBa makes no care’ programme as part of ING-DiBa’s corporate social respon- secret of how much it invests in marketing each year: around sibility programme enables employees to donate a cash sum to EUR 00 million. Each year, around 60 million letters are sent to a charitable organisation themselves, on behalf of ING-DiBa. It customers. But no-one gets more than one letter a month. Adver- works. The working atmosphere at ING-DiBa is really good. The tising goes on day in and day out, on TV and in print, always with usual annual staff turnover at call centres is 5% to 20%. At a sports metaphor and often with basketball star Dirk Nowitzki. ING-DiBa, it is less than 5%. In the ‘2007 Great Place to Work’ “You have to be extremely consistent, otherwise people no longer staff satisfaction survey, ING-DiBa climbed to 26th place among recognise you,” Tellings adds. 98 German companies last year and ranked as the best fi nancial services provider. Proud customers “People are often really proud to be our customers,” adds former Copy cat operators marketing manager Katharina Herrmann, now CEO and general Naturally, such a successful newcomer tends to be eyed closely by manager of ING-DiBa Austria. And she knows that satisfi ed the competition. The established order counters with similar offers, customers are a good advertisement. That is why ING-DiBa runs and sometimes seemingly better ones. Some advertisements are the so-called Member-get-Member programme: Every ING-DiBa almost identical to those of ING-DiBa. Tellings: “We don’t watch customer who introduces a new customer for ING-DiBa’s savings the competition too closely. They are the ones watching us. account receives a reward. Today, 40% of new customers are won Customers who go to rival savings banks and tell them what our over in this way. For ING Direct as a whole, on average 94% rates are immediately get offered the same. The difference is that of customers are likely to recommend ING Direct to friends, rela- they don’t have our business model. So the question is how long tives and colleagues – evidenced by customer satisfaction surveys our rivals can afford to give their customers those rates.” (April 2006). The bank faces more of a challenge from interest rate develop- But how do you create proud customers? “Better terms and great ments. “If interest rates recover, then I predict a second growth service are essential, and being rated ‘Germany’s Best Bank’ also wave,” Tellings says. “Online banking is the trend, and we’re helps,” Herrmann tells. “All working processes are examined simply the best at that. We have a 5% market share at the from start to fi nish, entirely from the customer’s point of view. moment, and we want to grow it to 5 to 20%.” When there have been complaints, we analyse the details of the customer’s complaint thoroughly. And when there’s room Stay true for improvement, follow-up is given.” Because fi rst class service But those customers will have to be won over. ING-DiBa has to is what ING Direct aims for. Not only in Germany, but in all of stay true to low-cost banking. And it has to prove continually that the other countries where it is active: Canada, Spain, Australia, customers get a good and fair deal. Tellings: “When we started, France, the US, the UK, Italy and Austria. we offered twice as much interest as the other banks. And we have shown that those were not fl y-by-night offers. We do not

ING Shareholder 03 – August 2007  Strategy & Results

A consistent strategy to invest in growth

ING has a clear and consistent strategy of creating value for its shareholders. We maintain a well-balanced portfolio of businesses that are strong and successful within their own right. Oyak Bank’s headquarters in Istanbul, Turkey

We anticipate the needs of our customers, and transaction in the second half of 2007. distribution and knowledge of the market, we consistently allocate capital to those businesses Michel Tilmant, chairman of the Executive are in a good position to rapidly expand our posi- and client segments that generate high returns Board of ING Group, said at a presentation in tion in Turkey.” and growth. We have taken a number of steps in Istanbul that Oyak Bank is a high quality bank Oyak Bank will be integrated in the retail the last quarter that complement our strategy to with a strong position in the rapidly growing banking business of ING Group and will be seek out the best growth for our shareholders. Turkish market. “The acquisition is in line with re-branded under the ING brand within the first This includes add-on acquisitions that comple- our strategy of supporting our strong organic year of the purchase. ment our strategy in the high-potential growth growth with suitable bolt-on acquisitions and markets of Turkey, South Korea and Latin will provide ING with a solid banking platform A Landmark opportunity America and growth initiatives in Central Europe with significant further growth potential. It also ING reached an agreement with Morgan and Asia. provides the opportunity to distribute wealth Stanley Private Equity Asia to acquire Landmark The Group raises capital through business management products in the future as the Investment Management in South Korea, the profits, capital gains on shares, divestments market grows.” country’s 12th largest asset manager. The and external capital funding. We have used this Founded in 1984, Oyak Bank is a top-ten bank acquisition of Landmark will give ING a solid capital very efficiently in the last few years and in the Turkish market with more than 5,500 asset management presence in one of the most this has given us the opportunity to invest in employees and a market share of 3%. It offers important markets in Asia. South Korea is one additional organic growth, to engage in bolt-on a full range of banking services with a focus on of Asia’s largest asset management markets acquisitions and to return capital to sharehold- retail banking. The bank has about 1.2 million with an annual growth rate of 20%. The acqui- ers, either through good dividends or by buying active retail customers and 10,000 small and sition complements ING’s existing presence as back shares. medium-sized business customers. In total it has the leading foreign life insurer in South Korea. 360 branches throughout Turkey with a good Landmark had approximately EUR 6.9 billion in Big investment in Turkey representation in all major cities. assets under management as of 31 May 2007. We recently bought Oyak Bank in Turkey, giving Eli Leenaars, Executive Board member ING intends to integrate Landmark with its us a sound platform for growth in the important responsible for ING’s global retail banking activi- recently established asset management business Turkish market and underscoring our ability to ties, said: “Oyak Bank is a strong bank with an in the country. The acquisition will position allocate capital to high growth markets. The deal excellent management team. By further leverag- ING among the top-ten asset managers in the will be entirely financed from existing internal ing ING’s retail banking expertise, especially in market with combined assets under manage- resources and would provide us with 100% of internet banking, marketing and risk manage- ment of over EUR 10 billion and a market share the shares in Oyak Bank. We expect to close the ment in combination with Oyak Bank’s strong of 3.7%.

12 ING Shareholder 03 – August 2007 Strategy & Results

Recent acquisitions Buyback details 8 Landmark Investment Given the total buyback value, the maximum Management in South Korea number of ordinary shares (or depository 8 Oyak Bank in Turkey receipts for such shares) that can be repurchased 8 Santander pension businesses in Latin America under this programme will be around 150.6 mil- lion, based on the closing share price of 15 May. Recent divestments This represents 6.8% of shares outstanding. ING 8 ING Trust, Nationale Borg and Regio Bank in intends to cancel the shares that it receives upon the Netherlands cancellation of the depository receipts acquired, 8 Broker and Employee Benefits Insurance for which it will seek shareholder approval at the business in Belgium next Annual General Meeting of Shareholders. 8 Degussa Bank in Germany

and CEO for ING Insurance Americas. “ING’s kets with a developed infrastructure for direct financial strength, global brand recognition, banking. Japan is therefore of key strategic retirement services and investment manage- importance as it represents large potential with ment capabilities comprise the foundation for a savings market worth EUR 5.6 trillion. our growth strategy.” EUR 5 billion share buyback Investing in organic growth While ING continues to reinvest to support In addition to bolt-on acquisitions, ING the strong growth momentum of the business, continues to invest in organic growth, both in the combination of strong earnings, refinanc- mature and high growth markets. In May it was ings and Basel II are expected to create a capital announced that Postbank and ING Bank are surplus in 2007. After funding the growth of joining forces under a single ING brand in The the business ING will remain within its target Latin American pensions Netherlands. This reinforces our position as the capital and leverage ratios in 2007 and 2008. We also reached an agreement with Santander leading Dutch retail bank with more than 8 mil- Against this background, ING announced in May to acquire its Latin American pension businesses lion customers. Regarding Central and Eastern that part of its capital would be used to reward in Mexico, Chile, Colombia and Uruguay, Europe, several initiatives are being taken. On shareholders with a EUR 5 billion buyback further strengthening our position in this the insurance side, ING received approval from programme. In May ING started to purchase fast growing region. The mandatory pension the Russian regulatory authorities in June to ordinary shares, or depository receipts for such fund management companies will make ING start life insurance activities in Russia, while in shares, with a total value of EUR 5 billion over the second largest pension fund manager in Romania we are preparing for the launch of a a period of approximately 12 months. The pro- Latin America. We will acquire 100 percent of mandatory second-pillar pension fund following gramme is expected to run until June 2008. Santander’s shares of these pension businesses pension fund reform. “The buyback plan illustrates ING’s disciplined and the deal will be financed entirely from With regards to banking, ING focuses on approach to capital management in the interest existing internal resources. ING and Santander large countries with significant growth potential of maximising shareholder value,” said Tilmant. are also in separate discussions regarding in the region: Poland, Turkey, Romania, Russia “The buyback will optimise the capital structure Santander’s pension and annuities business and Ukraine. Together these countries hold of the Group, reduce the cost of capital and in Argentina, which was not included in the 76% of Central and Eastern Europe’s GDP and improve earnings per share.” acquisition at that stage. 81% of its population. In Poland and Turkey, Santander’s Latin American pension business the entry strategy is through add-on acquisi- Interim dividend (excluding Argentina) currently has more than tions, respectively Bank Slaski (1994) and Oyak Because of efficient capital management ING 5.5 million customers and 5,084 employees and Bank (see above). In Romania a retail banking is able to reward shareholders with an interim distributes its products primarily through a net- greenfield operation was started in 2005. Based cash dividend of EUR 0.66 per ordinary share, work of tied agents. In 2006 its Latin American on the favourable experiences in this country, up from last year’s interim dividend of EUR 0.59, pension businesses reported EUR 13.8 billion of ING intends to launch this concept in Ukraine in and equal to half of the total dividend paid over assets under management by year end and after 2008. As regards direct banking, ING is in the the book-year 2006 (EUR 1.32). ING’s overall tax profits of EUR 64 million. process of obtaining a banking licence in Japan ambition is to create value for our shareholders. “This transaction represents an attractive for ING Direct. The aim is to launch direct bank- We know that we are well positioned to do so opportunity for long-term growth in Latin ing in the Japanese market in the second half of due to our strong business model, well-balanced America as ING expands its wealth accumula- 2007. ING Direct is transforming from a savings portfolio of companies, diverse range of prod- tion core competency in the region,” said into a direct consumer bank and maintains a ucts and services, efficient capital management Tom McInerney, ING Executive Board member global strategy to enter large and mature mar- and disciplined risk management.

ING Shareholder 03 – August 2007 13 Results 2Q, 2007 Financial figures 2nd quarter 2006 Results 2Q, 2007 Strong commercial momentum and continued value creation Record quarterly profits

Michel Tilmant (r) and John Hele at the press conference in Amsterdam

On Wednesday 8 August, Michel Tilmant, chair- to help offset pressure from flat yield curves. and Landmark Investment Management in South man of ING Group, John Hele, CFO, and Koos Risk costs remained low, and there is no sign Korea will build scale and give ING access to at- Timmermans, CRO, presented ING’s second-quar- of deterioration in the credit portfolio. The life tractive new markets. Preparations continue for ter 2007 results. Underlying net profit increased insurance businesses benefited from growth in the launch of ING Direct in Japan later this year. 36.7% to EUR 2,747 million compared to the assets under management and higher investment second quarter of 2006. This result was boosted gains as stock markets rallied. New life sales were by a gain of EUR 573 million on the sale of part dominated by strong growth in single-premium of ING’s stake in ABN AMRO. Excluding that gain, products as ING capitalises on a global shift from underlying net profit increased 8.2% to a record traditional life insurance products to unit-linked Update share buyback programme EUR 2,174 million. wealth accumulation products.” (as per 3 August 2007) 8 21.9% of programme completed Michel Tilmant said: “ING posted strong results in Michel Tilmant continued to explain that “ING 8 Total number of shares repurchased is 33.6 m the second quarter as the business continued to is taking new initiatives to accelerate growth 8 Amount repurchased: EUR 1,097 m benefit from solid economic and market condi- organically and through bolt-on acquisitions. The 8 Average price of repurchased shares is tions. At the banking business, volume growth recent agreements to buy Oyak Bank in Turkey, EUR 32.63 in mortgages and current accounts continued the Latin American pension business of Santander

14 ING Shareholder 02 – May 2007 Financial figures 2ndResults quarter 2Q, 2007 2006

Insurance Underlying profit contribution of business lines 2Q Underlying profit before tax from insurance rose 49.8% to EUR 1,971 million, including EUR 802 ING Direct 6% Insurance Europe 24% million in realised gains on equities, including the sale of part of ING’s stake in ABN AMRO. Life Retail Banking 20% results increased 69.9% to EUR 1,626 million and non-life insurance results declined 3.9%, driven by lower results in Canada and Mexico as the businesses continued to experience more chal- lenging underwriting conditions. Gross premium income increased 1.5% excluding Insurance Americas 21% currency effects as growth in Belgium, South Korea and Central & Rest of Europe was largely Wholesale Banking 24% offset by declines in US fixed annuities, Japan Insurance Asia/Pacific 5% and the Netherlands. Total single-premium sales increased 16.8%, and were up 22.8% from the * excluding corporate line first quarter, driven by strong growth in Japan, Australia, Korea, Taiwan, Central Europe, and in Additional investments of EUR 65 million are capital gains on equities. The underlying effective US variable annuities. anticipated in the second half to accelerate the tax rate declined from 21.0% to 14.4%, and is commercial growth of ING Direct. Next year we expected to be in the 15-20% range for the full The value of new business (VNB) improved will launch a retail bank in Ukraine as we continue year, significantly below a normalised level of strongly in the second quarter from the first, up to expand ING’s retail distribution franchise 20-25%. 0 23.2%3 to EUR 2076 million,9 driven by 12strong sales15 eastward into the largest markets in the Central in Japan after a new product was introduced in Insurance Asia/Pacific 2e kwartaal 2007 EuropeanInsurance Asia/Pacific region.” 7% Net profit increased 27.1% to EURWholesale 2,559 mil Banking- 30%April. Compared with the second quarter last Insurance Americas 11,6 miljard lion after a charge of EUR 188 million (EUR 252 year, VNB declined 9.6%, or EUR 22 million. Insurance Europe 22% 49% 29% LookingInsurance forward, Americas Michel21% Tilmant said that: “ING’s before tax) for combining Postbank and ING Bank proprietary investment portfolio is expected to in the Netherlands. 2e kwartaal 2006 12,1 miljard produce substantial gains in the second half Operating expenses for the Group remained 20% 52% 28% which we will partially reinvest to support further under control, with underlying expenses up organic growth. Credit markets have very recently 4.2% including additional expenses to grow the Insurance Europe become more turbulent, however based on business. Insurance Americas today’s market circumstances we expect no mate- Retail Banking 22% Insurance Asia/Pacific rial impact on 2007 earnings. The commercial performanceInsurance Europe of the23% business remains robust and ING Direct 6% we are confident that ING’s risk profile and the Premium income* diversification of our businesses will enable ING 0 3 6 9 12 15 to continue to create value for shareholders while Insurance Asia/Pacific focusing on long-term growth.” 2Q 2007 Insurance Americas 11.6 billion Insurance Europe 22% 49% 29% Earnings analysis 2Q 2006 second quarter 12.1 billion ING posted strong earnings in the second 20% 52% 28% quarter as the company benefited from a healthy Insurance Europe economic climate, including relatively low risk Insurance Americas costs as well as strong equity markets. ING ben- Insurance Asia/Pacific efited from a low effective tax rate in the second quarter, mainly due to substantial tax-exempt *including inter-company eliminations

ING Shareholder 03 – August 2007 15 Results 2Q, 2007 Financial figures 2nd quarter 2006

Insurance Europe Key figures ING Group Strong growth in Central & Rest of Europe In EUR million Quarterly results continued to drive sales and new business growth 2Q 2007 2Q 2006 change at Insurance Europe. Underlying profit before tax Underlying profit before tax1 at Insurance Europe declined slightly to EUR 694 – Insurance Europe 694 704 -1.4% million from a very strong second quarter of – Insurance Americas 593 457 29.8% 2006. Profit in the second quarter last year – Insurance Asia/Pacific 153 157 -2.5% included a EUR 135 million positive revaluation of – Corporate Line Insurance 531 -2 the provision for guarantees on separate account Underlying profit before tax from Insurance 1,971 1,316 49.8% pension contracts in the Netherlands. That com- – Wholesale Banking 668 717 -6.8% pares with a EUR 19 million negative revaluation – Retail Banking 555 454 22.2% in the second quarter this year. Excluding this – ING Direct 171 190 -10.0% impact, underlying profit before tax for Insurance – Corporate Line Banking -65 -25 Europe increased 25.3% to EUR 713 million. Underlying profit before tax from Banking 1,329 1,336 -0.5% Total premium income grew 5.7% driven by Underlying profit before tax 3,300 2,652 24.4% higher life sales in Belgium and Central & Rest of Taxation 476 557 -14.5% Europe. Operating expenses were flat despite a Profit before minority interests 2,824 2,095 34.8% 4.5% increase in Central & Rest of Europe. VNB Minority interests 76 86 -11.6% was unchanged at EUR 55 million as a 30.8% Underlying net profit 2,747 2,009 36.7% increase in Central & Rest of Europe was offset by Net gains/losses on divestments -9 a decline of 34.6% in the Netherlands. Net profit from divested units 14 Special items after tax -188 Insurance Americas Net profit (attributable to shareholders) 2,559 2,014 27.1% Strong growth in assets under management and Earnings per share (in EUR) 1.18 0.93 26.9% favourable investment results in the US drove profit growth at Insurance Americas in the second Net return on equity2 23.9% 25.0% quarter. Underlying profit before tax climbed Assets under management (end of period) 636,700 546,200 16.6% 29.8% to EUR 593 million, and was up 37.3% Total staff (FTEs end of period) 119,097 119,409 -0.3% excluding currency effects. Premium income declined 4.1% (excluding cur- 1. Underlying profit before tax and underlying net profit are non-GAAP measures for profit excluding divestments rency effects), mainly due to lower sales of fixed and special items. annuities in the US. Operating expenses increased 2. Year to date. 6.0% (excluding currency effects) as staff was Note: Small differences are possible in the tables due to rounding. added to support customer service and the ex- pansion of distribution in the US businesses. VNB increased strongly to EUR 53 million from EUR 33 million in the first quarter. The figures include EUR 28 million from the establishment of two volatility. Excluding this volatility in Japan, under- on-shore captives to address the redundant regu- lying profit before tax from Insurance Asia/Pacific Interim dividend latory reserves in the US individual life business. increased 19.3% to EUR 173 million. 8 ING will pay an interim cash dividend of Compared with the second quarter of last year, Total premium income rose 9.4% (excluding cur- EUR 0.66 per ordinary share VNB declined 18.5%, reflecting currency effects rency effects), driven mainly by growth of 24.9% 8 Equals half of the total dividend paid and the increase in the discount rate at year-end in South Korea and 9.2% in Taiwan. Operating over the book-year 2006 (EUR 1.32) 2006, as well as lower annuity margins and lower expenses increased 20.9% (excluding currency 8 Up 11.9% from the interim dividend in fixed annuity sales. effects), reflecting investments to support the 2006 (EUR 0.59) growth of the business. 8 ING’s shares will be quoted ex-interim Insurance Asia/Pacific Compared with the first quarter, VNB rose 20.7%. dividend from 9 August 2007 and the Underlying profit before tax from Insurance Sales of single-premium products dominated new dividend will be made payable on 16 Asia/Pacific declined slightly to EUR 153 million as production as ING capitalises on a shift across the August 2007 for NYSE Euronext. higher results in Australia were offset by declines region from traditional life to wealth accumula- in Japan and South Korea. Results in Japan were tion products. VNB was down 9.2% from the negatively impacted by EUR 32 million from SP- second quarter last year, reflecting unfavourable VAs, mainly because of volatility from unhedged currency effects, slower sales and margins in the positions related to an increase in implied market COLI business in Japan, as well as a lower IRR.

16 ING Shareholder 02 – May 2007 Financial figures 2ndResults quarter 2Q, 2007 2006

Banking Strong commercial growth in current accounts Income banking operations and mortgages continued to help offset the 0 1 2 3 4 5 impact of flat yield curves at ING’s banking busi- ING Direct nesses. Total underlying profit before tax declined 2Q 2007 Retail Banking 3.7 billion slightly by 0.5% compared with strong results in Wholesale Banking the second quarter of 2006. 41% 44% 15%

Volume growth was led by strong sales of mort- 2Q 2006 gages at ING Direct, growth of current accounts 3.5 billion and term deposits at Retail Banking, as well as 41% 43% 16% the continued growth of ING Real Estate. Net risk costs swung to an addition to the provision for Wholesale Banking loan losses from a release of provisions in the sec- Retail Banking ond quarter last year, however risk costs remained ING Direct low and there was no indication of a deterioration in the quality of the credit portfolio. Pricing discipline and an emphasis on capital efficiency led to a further improvement in returns 0 1 2 3 4 5 ING Direct with the underlying risk-adjusted return on capital 2e kwartaal 2007 Retail Banking (RAROC) after tax up to 24.8% from 22.0% in costs. The gross result, before risk costs,3,7 was miljard up Assets under Management Wholesale Banking the first half of 2006. 14.4%. Growth was driven by an 11.4% increase Assets under41% management44% increased15% by EUR 17.3 in the Netherlands, where substantial volume billion, or 2.8%, in the second quarter to reach 2e kwartaal 2006 Wholesale Banking growth was achieved in all product groups.3,5 miljard EUR 636.7 billion at the end of June. Growth was Wholesale Banking continued to benefit from Total underlying income increased 6.7%, out- driven mainly41% by a solid 43%net inflow16% of EUR 10.4 strong growth at ING Real Estate, as well as pacing a 2.7% increase in operating expenses. billion. volume growth in Payments & Cash Management Continued pricing discipline helped Retail Bank- Wholesale Banking (PCM) and Leasing, which helped offset margin ing sustain high returns, with a total risk-adjusted Retail Banking compression. Underlying profit before tax of return on capital after tax of 42.8%, up from ING Direct Wholesale Banking declined 6.8% to EUR 668 34.2% in the first half of 2006. million, reflecting a smaller net release from the provision for loan losses. The profit development ING Direct Risk Management was obscured by the asymmetrical tax treat- ING Direct results remained solid in the second 8 Credit markets have recently become more ment embedded in the equity derivative trading quarter while it continued to make substantial turbulent amid concerns about US subprime activities and their related cash equity hedges. investments to build the business by rolling out mortgages, collateralised debt obligations Corrected for that impact, the gross result rose new products. Underlying profit before tax was (CDOs), collateralised loan obligations (CLOs) 15.2% and underlying profit before tax was up EUR 171 million, up 3.6% from the first quarter, and leveraged finance. 5.2%. and down 10.0% from the second quarter last 8 To date this market disruption has had Operating expenses declined 1.7% from the first year. The challenging interest rate environment a limited impact on ING. quarter but increased 5.7% compared with the continued with flat or inverted yield curves in 8 ING does not originate subprime second quarter last year, driven by increases to most currency zones, and interest rates continued mortgages in the US. support growth at ING Real Estate and invest- to rise. Total client retail balances, including funds 8 The Group’s total exposure of EUR 3.2 billion ments to prepare for the Single European Pay- entrusted, off-balance sheet funds, residential to subprime mortgages via asset-backed secu- ment Area (SEPA). Returns continued to improve mortgages and consumer loans, increased to rities represents just 0.25% of total assets. Of with the underlying RAROC after tax at 25.9%, EUR 302.0 billion, up from EUR 290.5 billion at these assets, 93% are rated AAA or AA. The up from 22.4% in the first half last year. the end of March. A record EUR 7.0 billion in market value at 31 July 2007 was a mere own-originated mortgages was added in the EUR 58 million lower than the book value. Retail Banking second quarter excluding currency effects, taking 8 ING’s total exposure to CDOs and CLOs is Retail Banking posted solid earnings growth the total mortgage portfolio to EUR 82.8 billion EUR 0.9 billion, or 0.07% of assets, and the in the second quarter, despite the challenging at the end of June. ING Direct added almost half market value at 31 July 2007 was some interest rate environment, as continued volume a million new customers, bringing the total to EUR 35 million below book value. growth more than offset margin pressure. Under- 18.7 million. Returns improved, with the after-tax 8 Overall, ING considers its subprime and lying profit before tax rose 22.2% from the sec- risk-adjusted return on capital at 16.7%, up from CDO/CLO exposure to be of limited size and ond quarter last year, when profit was impacted 11.7% in the first half of 2006, partly due to of relatively high quality. by a litigation provision and a catch-up of risk lower tax charges.

ING Shareholder 03 – August 2007 17 18 ING Shareholder 03 – August 2007 Views & Analysis

Left to right: Hans van der Noordaa, Insuring a long Tom McInerney and Jacques de Vaucleroy retirement

Living to age 90 and beyond will become a reality for many people in the not too distant future. Although this is good news for many, anyone faced with this prospect will need to accumulate enough retirement income to cover the cost of their extended lifetime. This is where financial companies can play a prominent role.

In many countries, demographic trends all point in the same direc- guarantees as well.” tion. People are having fewer children and they are living longer “I always like to call the period 1980-2005 the era of the than any generation before. According to the United Nations, a mutual funds,” adds McInerney. “The baby boomer generation Japanese person born in 1950 can expect to live 63.9 years. Born concentrated on accumulating assets, through savings and invest- in 2050, this figure will have risen to 87.1 years. For the US and ing in mutual funds. Now, this generation is approaching retire- Europe, the same story applies (see graph). The result: the world ment and we are entering the era of guarantees: customers want population is ageing at a rapid pace. And as there are fewer and to be sure they have sufficient guaranteed income to last through fewer wage earners to finance the pensions of a growing number their retirement. At the same time, though, they want to retain of retirees, many government financed pensions are becoming the flexibility to withdraw money from their pension plans at their increasingly unsustainable. What opportunities and challenges convenience. That’s why I think the next twenty five years will be does this pose to the finance industry? We ask the three Executive fantastic for insurers who are focused on wealth management Board members responsible for ING’s insurance activities: Tom and retirement services.” McInerney (Insurance Americas), Hans van der Noordaa (Insurance Asia/Pacific) and Jacques de Vaucleroy (Insurance Europe). Annuity products The ageing of the population creates strong demand for products The era of guarantees offering customers protection against longevity risk, such as “Basically, it is very simple,” says de Vaucleroy. “The insurance savings, mutual funds, mortgages, retirement services, real estate industry has to be less and less focused on insuring mortality risk funds, private banking and other wealth accumulation products. and increasingly on insuring longevity risk, as this is the topic A key solution the insurance industry is offering is the variable that people are focusing on. This implies that we have to provide annuity product. This also holds for ING. After years of proven accumulation solutions that help customers to create the capital success in the US and Japan, ING has introduced variable annuities that later can be transformed into sufficient retirement income. to Europe. In return for a single premium payment, ING offers This holds for the younger client segment. With respect to people the customer a regular stream of income or a lump-sum payment who are retiring, a lot of them are looking for security and are when the contract ends. Within the variable annuity, customers trying to get life-long retirement income. Insurers can aid these can choose from a range of equity and fixed-income funds. The retirees by offering guarantees, which protect them from the risk variable annuity product offers both guarantees for the invested of outliving their savings. In the past, insurance companies were capital and a benefit in case of premature death. Currently, ING is just focusing on investment solutions, now they have to provide also working on a regular premium version.

ING Shareholder 03 – August 2007 19 Views & Analysis

Specialist skills required complex. This arises because everybody has a different financial By offering such protection to its customers, it may seem that situation, requires different financial planning, and has to deal insurance companies are taking a potentially significant risk expo- with issues like taxes and legislation. “On top of that, we have a sure on their books. Customers may live longer than expected, complex business in the sense that we have products with a 20 or for instance, or the equity market might collapse. “That’s why it’s 30 year lifetime,” adds McInerney. “By nature these products are so important to have the right risk management in place,” says more complex to administer. Products may remain the same, but Van der Noordaa. “We take on the risks associated with these the legislation may change two or three times, the tax system may guarantees, aggregate them in a position, which we subsequently hedge in the capital markets. So that’s why at this stage there Lifeare not manyexpectancy insurance companies entering thisat market, birth as you Research shows that, increasingly need to have the risk management capabilities in place to provide customers want simple and straightfor- this hedging programme and you’ll need to have the capital to support these guarantees.” ward products that deliver the features “We are mixing the risk management techniques that you they expect 90 traditionally need to have in insurance, with capital market hedg- 80 ing solutions, which are more traditional investment bank and World 70 asset manager risk management skills,” McInerney explains. “You changeAsia three times, and people may switch employers. We need have to be at the fine line of these converging industries.” But to adapt to that. So the product may have been quite simple and 60 Europe here also lies the challenge, as de Vaucleroy explains. “You need straightforward at the origin, but 20 or 30 years later the situation 50 to have people that have the capabilities to understand and man- canJapan be totally different.” 40 age the risks that are more traditional for insurance companies USHaving said this, simplifying products so that they are straight- 30 and at the same time build expertise of the capital market side. So forward, self-explanatory, and transparent in terms of cost struc- what we increasingly need are people that are able to understand ture remains on the top of the agenda of the insurance industry. both sides of the balance sheet, i.e. the risks associated with the Van der Noordaa: “In these fields we continuously need to make

1950-19551965-1970liabilities1975-1980 and1985-1990 the asset1995-2000 side.”2005-2010 2015-20202025-20302035-20402045-2050 progress. This means investing in systems to foster straight through processing, and training your sales force is also crucial. Simplicity Intermediaries and brokers have to make sure that if their clients World Research shows that, increasingly, customers want simple and step into a product, such as a variable annuity, they understand Asia straightforward products that deliver the features they expect. what the pros and cons of this product are.” Europe By their very nature, though, many insurance products are quite Japan complex. Does this also apply to these guarantee products? de US Distribution challenge Vaucleroy explains: “A lot of insurance products are complex in The nature and relative complexity of post-retirement planning the sense that they are covering needs that by nature are also is such that it seems unlikely that sales could easily take place

Retirees are increasingly looking for the security of guarantees that protect them from the risk of outliving their savings

Life expectancy at birth

90 World 80 Asia 70 Europe 60 Japan World 50 US Asia 40 Europe 30 Japan US

1950-1955 1965-19701975-19801985-19901995-20002005-20102015-20202025-20302035-20402045-2050

Source: United Nations, World population prospects, 2006 revision

20 ING Shareholder 03 – August 2007 Views & Analysis

A trend you cannot afford to miss consumers’ more complicated needs during this these products will become quite challenging, as Steve Aldersley, Partner at Ernst & Young, retirement period. For people who are retiring in asset classes to match the duration of these long and Robert Stein, Global Vice Chair of Ernst & their early 60s, we are looking at 25-30 years of term retirement based products are not going to Young’s Global Financial Services a relatively active life. be available in the market place.” . It is a trend you cannot afford to miss. If you’re People are increasingly afraid of outliving left out of the area of offering post-retirement What does it take to grow an insurance their savings. This leads to a huge demand products and services, you’ll see assets leaving business successfully? for retirement services products. How does your institution rapidly. At the time of retire- “When you look at what it’s going to take to this affect the insurance industry? ment, people will re-evaluate where they are run a competitive insurance operation, you get “The retirement services market should be going to place their money and which products quickly to a recognition that the big companies viewed upon in two sections: the pre-retirement to buy. And if you don’t have a competitive and are going to have a competitive advantage: you and the post-retirement section. During the comprehensive post-retirement services product have the complexity of the product side, the pre-retirement phase, people are looking for offer, that money is going to go some place else asset strategy, the risk management, the regula- opportunities to accumulate assets and to create as there is stiff competition.” tory requirements and compliance burden, and wealth. There is severe competition between the need to effectively manage multiple distri- companies offering services in this area and What challenges does this pose to the risk bution channels, because no single company there is no question that top-notch asset and management of insurers? will survive on one single distribution channel. investment management skills over a very broad “The products in the pre- and post-retirement Underneath that you will see a wide variety range of products is going to be needed to be area are increasingly complex, they have all of high-quality specialist companies, usually competitive. In the post-retirement segment, kinds of embedded guarantees and benefits. focused on specialist product plays in a more we’re beginning to see competition between When you couple that with growing diversity limited geographical setting. They may ulti- financial services organisations, with several and challenging asset classes, you end up with mately become product suppliers to some of the trillion of assets at stake in terms of a transfer of a need for high quality risk management and larger companies that won’t be expert product wealth from one generation to the next. We see product capabilities. But the risk management manufacturers in all areas. So we’ll slowly be companies really ramping up their investments. development is certainly picking up in the insur- moving towards a somewhat more open archi- Clearly, as individuals reach their retirement age, ance field. In Europe, it is driven by Solvency tectural structure like in the asset management as the post-war baby boomer generation is now II, the planned reform of prudential regulation world. Scale is very important and will continue doing, they are wealthier, have more assets to for European insurers. To some degree, the to be a competitive element within the insur- protect, and they are more concerned about European insurers seem to be ahead of the ance industry and is one of the factors causing health and disability care in their senior years. game a little bit more than in the US. Looking a further bifurcation in the financial services So there is a wide range of protection needs. forward, as people live longer and longevity risks industry, between the large players and the rest. The leaders in the industry are generally focus- are getting increasingly bigger, we are going to a You see it in banking and you will increasingly ing on multiple product offerings to achieve situation where the investment strategy backing see it in asset management and insurance.”

through direct channels such as the internet or the telephone. This advice is needed. For these latter products you need people who fits within a broader trend where insurance companies are moving can explain the product and, if needed, are accessible for further towards a multi-distribution model. This is certainly also the case advice and information.” This, however, does not imply that the for ING. McInerney: “There are not many countries where we are internet cannot play a role in the distribution of these advisory selling through only one channel. So in the majority of countries in products. “The added value of the internet for these products,” which we operate, we have our own agents sales force, we have a says Van der Noordaa, “is that it is an excellent lead generator for number of bank-insurance agreements, and we operate through arranging a follow-up appointment with an advisor or a broker. brokers, while in some countries we also have direct sales. ING US And I can imagine we will be able to come up with simple, stand- Wealth Management, with access to more than 200,000 distribu- ardised annuity products which could be an interesting product to tion points covering this whole range of distribution channels, is sell on-line.” a case in point.” The same holds for the Asia/Pacific region where ING makes use of well diversified distribution channels creating Scale strong growth in revenues. One might come to the conclusion that scale is an important The challenge, however, is to focus the product offering on the factor for insurers, given for instance the need to create an right channel. This will depend on the type of product, but also on appropriate risk management organisation, to build a multi- customer demands, as de Vaucleroy explains “Customers are not distribution framework and to exchange best practices in areas uni-dimensional. There are things that they do on the internet, such as product design. “True,” says de Vaucleroy, “but although and there are things for which they are still willing to drive 30 min- individual customers are facing the same trends and similar needs, utes for an appointment. So you have to offer an internet solution they are reacting differently from country to country, as the social for products that are easily sold via internet, such as fire and car security, the pension and the tax system will vary. So it is all about insurance, while at the same time making sure that customers applying universal rules and practices and at the same time keep- have access to face to face channels for solutions for which expert ing the local touch.”

ING Shareholder 03 – August 2007 21 Views & Analysis

Equities to lead the way

Following recent volatility on world risen so it will be more difficult for real estate to dence in the US. We haven’t seen the whole fall sharemarkets, many investors outperform. We have seen (real estate) perform- out yet, nor how big the issue really is. As long as may wonder what the outlook for ance changing over the past couple of months the US labour market remains strong, the overall versus the various equity blocs. We don’t think impact should be limited.” equities is over the next 12 months. it will plunge but we also don’t think it will be ING Investment Management’s as good as equities.” Despite the strong rise in “Up to now, you see the issue flare up and the chief investment officer Maes van sharemarkets, Van Lanschot believes equities market has a scare and moves on, but it shows Lanschot gives his view. are not overvalued as an asset class. “Equities how sensitive investors are to this theme.” In the are relatively fairly priced. If you look at historical equities universe, ING IM expects large cap com- Equities should outperform bonds and real P/Es (price to earnings ratios), values are not panies to outperform their small to medium sized estate over the next 12 months, provided the overstretched at this point in time. In comparison counterparts. This is because the prices of small current problems in the US subprime mortgage to bond yields, equities are also still attractively to medium sized companies have been bid up market don’t result in a global liquidity squeeze. valued.” He said corporate profit margins are at strongly on possible interest from private equity Van Lanschot said world equity markets should historically high levels, due to companies ration- and management buy-out syndicates. It is expect- continue to be supported by ongoing huge share alising their operations early this decade and ed that this type of interest which has supported buyback programmes and mergers and acquisi- because of strong global growth. Furthermore, share prices will reduce. Large cap prices rose tions activity, provided interest rates remain corporate debt levels are fairly low, as a result relatively less and are now trading at the biggest reasonably stable. “We are currently overweight of low levels of new investment in recent years, discount ever to mid and small caps (25 per cent) equities, looking 12 months ahead. The expected which means that they will be able to increase despite their lower risk profile. Among the various return we have on equities is something like eight leverage going forward. stockmarket sectors, ING IM favours the energy, per cent which is more than what you would get consumer staples, information technology and from bonds,” Van Lanschot said. He said all four However, as we have recently seen, there are utilities industries to outperform the world and major regions (US, Europe, Japan and Asia) were some dark clouds on the investment horizon that European sharemarkets over the next 12 months. performing strongly. could threaten sharemarket growth and two in This is because of higher oil prices in the case of particular stand out. Van Lanschot lists these as energy, continued M&A activity in utilities, above “In Europe, the economy has maintained its the current troubles in the US subprime mortgage market growth prospects for information tech- strong growth momentum at 3 per cent, the market (loans made to home owners with shaky nology companies and good defensive growth US growth outlook has improved somewhat credit histories), and secondly, banks and other prospects for consumer staples companies. and Japan is likely to continue forging ahead at major lenders causing a liquidity squeeze by a decent pace. In addition, the Asian markets overreacting to either higher interest rates or i For more information on ING IM’s global outlook including China are demonstrating continued, the US subprime problems by unduly restricting and its comprehensive range of funds, please go to less volatile growth.” lending. He believes any protracted worsening www.ingim.com. “China and Asia (ex Japan) have become so of the problems in US subprime sector having important we now have four blocs where we used a twofold impact. The first impact could be on Global market returns (%) to have three (US, Europe and Japan). And now global investors. “The subprime in the US is still First half 2007 1-year 3-years1 5-years1 Asia along with the others means there is more lingering on, we haven’t seen it all yet and there is Global Bonds2 -1.98 -0.91 0.54 -0.17 chance of continued stable global growth, more a lot of money involved. It is very difficult to assess Global Equities3 6.90 17.58 13.28 7.60 stabilisers.” And after several years of real estate who ultimately holds all the risks, what have the Global Real Estate4 -2.40 18.30 22.80 17.20 outperforming equities, Van Lanschot believes the banks managed to get off their balance sheets by Cash5 1.90 3.54 2.67 2.63 positions will be reversed in the coming year. repackaging loans, and who is the ultimate holder 1 Annualised 2 Lehman Brothers Global Aggregate “Real estate has seen an outstanding perform- of that risk.” He sees the second impact on US in euro unhedged. 3 MSCI World (gross. in euro) ance over the past couple of years. It is very consumption. “If people lose their homes it will 4 Global Property Research (GPR) 250 Global index 5 interest rate sensitive, and interest rates have have a very negative effect on consumer confi- (gross. in euro) Eonia (Euro Overnight Index Average)

22 ING Shareholder 03 – August 2007 ING Gallery

New and exclusive photography award

Matthias Hoch (1958) Rotterdam #23 Frans Stuurman (1952) 2007 © Beeldrecht Amsterdam, courtesy Galerie Akinci, Amsterdam Antwerpen Centraal, 1996 ING Collection Real Estate oil painting on canvas 65 x 80 cm, ING Collection Netherlands

Nature, development and archi- opening in the Netherlands photograph Rotterdam #23. Hoch Reality or illusion tecture: the integration of all three towards the end of this year and has been exploring contemporary Looking at reality and depicting is the theme of the REAL Pho- the prize money will be a substan- urban structures and spaces. it are two completely different tography Award which has been tial amount of EUR 50,000. Not the city itself, but its perfect things. And then again, all artists initiated by ING Real Estate. geometry of freeways, parking have their own view on real- Artists from all over the world Inspiration decks, playgrounds and building ity. Especially for the exhibition have been invited to submit their Inspiring artists to take part in this facades are the subjects of his ‘Another reality: between figura- photographic interpretation of the unique photography competition work. Both photographs will be tive and abstract art’, artworks award theme before 1 September was the reason the REAL Photog- presented during the exhibition of by eight Belgian and eight Dutch 2007. ING Real Estate’s business raphy Award commissioned artists the nominees. realists have been selected to hang focus is the successful integration Caroline Prisse (Dutch, 1969) and side by side. of all three elements. Through Matthias Hoch (German, 1958) Corporate photo Throughout the centuries, artists the award, ING Real Estate also to produce a photograph which collection have presented their own idea demonstrates its support for links in with the overall theme. ING Real Estate, which is the of reality. Realistic painting is far contemporary photography. For Caroline Prisse, this resulted world’s leading real estate group, more than imitating reality. In fact, in the photograph Constructing is very much interested in contem- the viewer gets to see an illusion, Exclusive travelling Meaning, which was presented porary photography. The REAL just like on stage. Reality, however, exhibition at the launch of this award at the Photography Award ties in with remains the starting point. In September, an international jury international Real Estate fair the ING Real Estate Collection, ING has loaned several of its works with members that have earned MIPIM 2007. Her main theme which was started more than a of art to this exhibition, which will their spurs in modern art, archi- is the relation between nature, year ago. This collection has now be held in the Belgian city of Sint- tecture or photography, will select human beings and technique grown into a serious corporate Niklaas between 23 September the winning entry from among the which she studied extensively photography collection of more and 9 December of this year. thirty that will be nominated for while working from her studio than 60 photographs by interna- the first prize. All thirty entries will located in the new Amsterdam tional artists with a focus on the be included in an exclusive travel- business district, Zuidas, which is same themes of nature, develop- i www.realphotographyaward.com ling exhibition. The winner will be partially complete. The German ment and architecture. www.eenanderewerkelijkheid.be announced during the exhibition’s artist Matthias Hoch made the www.ingartcollection.com

ING Shareholder 03 – August 2007 23 250 Key facts and dates 200 1 Citigroup Inc 186.2 2 Bank of America Corp 161.4 Total150 return index Key dates in 2007 and 2008 3 HSBC Holdings 157.5 250 4 Amer Intl Group 134.8 Wednesday, 7 November 2007 100 5 JPM Chase 124.2 Publication results Q3 2007 6 200 UBS 93.6 7 50 Royal Bank of Scotland 88.9 Wednesday, 20 February 2008 Publication results Q4 2007 8 150 Mitsubishi UFJ Financial 87.8 9 Wells0 Fargo 87.3 Tuesday, 22 April 2008 10100 Banco Santander 85.6 Annual General Meeting of Shareholders 2004 2005 2006 2007 29-06-2007 11 BNP Paribas 82.4 12 Allianz Certificaten ING 78.6 Wednesday, 23 April 2008 50 Record date (NYSE) 13 ING MSCI World Insurance72.3 14 Wachovia CorpMSCI World Banks72.3 Thursday, 24 April 2008 0 15 Unicredito 69.1 ING share quotation ex final dividend 2007 16 2004 Barclays 200567.6 2006 2007 29-06-2007 (NYSE Euronext and NYSE ) 17 AXA ING Depository Receipts67.0 Certificaten ING Monday, 28 April 2008 18 Goldman SachsMSCI World Insurance66.3 MSCI World Insurance Record date (NYSE Euronext) 19 Morgan StanleyMSCI World Banks66.1 MSCI World Banks Source: Thomson Financial Datastream 20 Intesa Sanpaolo Ord 65.5 Monday, 5 May 2008 Payment date final dividend 2007 Global financials top 20 (based on market value in EUR billion) (NYSE Euronext) 1 Citigroup IncING Depository 186,2Receipts186.2 Monday, 12 May 2008 2 Bank of AmericaMSCI Corp World Insurance161,4161.4 Payment date final dividend 2007 (NYSE) 3 HSBC HoldingsMSCI World Banks157,5157.5 4 Amer Intl Group 134,8134.8 (All dates are provisional) 5 JPM Chase 124,2124.2 6 UBS 93,693.6 7 Royal Bank of Scotland 88,988.9 8 BancoMitsubishi Santander UFJ Financial 87,887.8 9 Wells Fargo 87,387.3 10 MitsubishiBanco Santander UFJ Financial 85,685.6 11 BNP Paribas 82,482.4 12 Allianz 78,678.6 13 ING 72,372.3 14 Wachovia Corp 72,372.3 15 BarclaysUnicredito 69,169.1 16 UnicreditoBarclays 67,667.6 17 ABNAXA Amro 67,067.0 18 AXAGoldman Sachs 66,366.3 19 GoldmanMorgan Stanley Sachs 66,166.1 Disclaimer 20 CreditIntesa SanpaoloSuisse Group Ord 65,565.5 Source: MSCI, Bloomberg, 29 June 2007 The ING Group Condensed consolidated interim accounts for the period ended 30 June 2007 (in accordance with IAS 34 “Interim Financial reporting” and including the review 2007 Best Global Brands Fortune Global 500 report from Ernst & Young) are included in the ING Group 1 Citigroup Inc 186,2 Statistical Supplement, which is available on www.ing.com. 1 2 Coca-Cola Bank of America Corp 81 ING161,4 1 Wal-Mart Stores 11 General Electric In preparing the financial information in this press release, the same accounting principles are applied as in the 2Q 23 Microsoft HSBC Holdings 82 Kodak157,5 2 Exxon Mobil 12 Ford Motor 2007 interim accounts. All figures in this document are 34 IBM Amer Intl Group 83 Cartier134,8 3 Royal Dutch Shell 13 ING unaudited. Small differences are possible in the tables due to 45 General JPM Chase Electric 84 BP124,2 4 British Petroleum 14 Citigroup rounding.Certain of the statements contained in this release are statements of future expectations and other forward- 56 Nokia UBS 85 Moet93,6 & Chandon 5 General Motors 15 AXA looking statements. These expectations are based on 67 Toyota Royal Bank of Scotland 86 Kraft88,9 6 Toyota Motor 16 Volkswagen management’s current views and assumptions and involve 78 Intel Banco Santander 87 Hennessy87,8 7 Chevron 17 Sinopec known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those in 89 McDonald’s Wells Fargo 88 Starbucks87,3 8 DaimlerChrysler 18 Crédit Agricole such statements due to, among other things, (i) general 910 Disney Mitsubishi UFJ Financial 89 Duracell85,6 9 ConocoPhillips 19 Allianz economic conditions, in particular economic conditions in 1110 Mercedes BNP Paribas 90 Johnson82,4 & Johnson 10 Total 20 Fortis ING’s core markets, (ii) performance of financial markets, including developing markets, (iii) the frequency and severity 12 Allianz 78,6 (ranked by brand value = net present value of (Source: Fortune, July 2007, of insured loss events, (iv) mortality and morbidity levels 13 ING 72,3 the earnings the brand is expected to generate) http://money.cnn.com/magazines/fortune) and trends, (v) persistency levels, (vi) interest rate levels, (vii) 14 Wachovia Corp 72,3 currency exchange rates, (viii) general competitive factors, (Source: Interbrand, BusinessWeek, July 2007, (based on several parameters, including (ix) changes in laws and regulations, and (x) changes in 15 Barclays 69,1 www.interbrand.com) revenues, net profit, shareholder value and the policies of governments and/or regulatory authorities. 16 Unicredito 67,6 number of employees) ING assumes no obligation to update any forward-looking 17 ABN Amro 67,0 information contained in this document. 18 AXA 66,3 19 Goldman Sachs 66,1 24 ING Shareholder 03 – August 2007 20 Credit Suisse Group 65,5