Highlights
ING Insurance Europe operates in the mature Benelux market and the emerging markets in Central and Eastern Europe with a strong focus on life insurance and retirement services. Across the region, a number of trends affecting the insurance industry are becoming increasingly visible. First of all, as in many other parts of the world, the European population is living longer than any generation before. Consequently, insurers will increasingly need to focus on insuring longevity risk, providing solutions to help customers create and manage the capital needed to finance a long retirement. Second, the distinction between commodity and advisory products is becoming more apparent, with bank and direct channel distribution growing at the expense of the intermediary channel in commodity products. Third, increased transparency requirements and heightened competition, with some competitors adopting aggressive pricing strategies to capture market share, are putting pressure on premium volumes and margins.
Insurance Europe is addressing these trends by tailoring the specific strategies of its individual insurance companies to the maturity of the markets in which they operate. In the mature markets of the Benelux where there is moderate growth, ING focuses on improving efficiency and optimising distribution, whereas in the fast-growing markets of Central Europe, the focus is on accelerating growth. Across all regions, ING Insurance Europe is taking advantage of the opportunities created by ageing populations and is reinforcing its position.
These tailored strategies are raising Insurance Europe’s growth profile. This is underpinned by active capital management within ING Group, where capital is being redeployed to those regions (high-growth markets), products (retirement services) and distribution channels (especially bank and direct) which offer the highest growth potential.
Optimising the Benelux insurance operations...
In the Benelux region, ING is improving cost and capital efficiency, actively managing its business portfolio, enhancing customer satisfaction and leveraging its solid distribution power across the various distribution channels. These are fundamental factors in sustaining the profitability of the Benelux insurance operations.
...by improving cost efficiency…
Nationale-Nederlanden (NN) made substantial progress to improve its cost efficiency. It has reduced internal staff by 1,200 FTEs over the last three years. Important changes in regulations (such as the Dutch pension act) temporarily increased the number of external staff needed to meet expectations from customers and regulators, slightly mitigating the overall impact of the cost efficiency programme. In the coming years, large cost reductions can be further realised by standardising and rationalising the current IT applications, as a major part of the cost reductions are IT related.
...by improving capital efficiency…
To improve capital efficiency, the Dutch insurance companies paid EUR 5.8 billion of dividends to the holding company of ING Insurance in the course of 2007, of which EUR 5.0 billion was surplus capital. It is expected that these capital transactions will structurally reduce the pre-tax profit capacity of Insurance Netherlands by approximately EUR 250 million per year going forward. The surplus capital dividend was a direct consequence of an asset and liability management study which was conducted in the course of 2007. The study also resulted in a recommendation to change the strategic asset allocation by reducing the exposure to equities and Dutch residential mortgages, and increasing the share of long-term fixed income investments. In May 2007, NN started to cede its mortgages to ING Bank. The cessions of residential mortgages of NN and RVS to ING Bank will be finalised during 2008.
...by actively managing the business portfolio…
The business portfolio in the Benelux was actively managed in 2007 with the sale of the non-core broker and employee benefits business of ING Belgium to P&V Verzekeringen. ING will continue to sell life and non-life insurance products in Belgium exclusively through its proprietary retail bank channels (ING Bank and Record Bank). It is expected that this distribution channel will become more dominant in the future, and will experience above industry average growth rates. In the Netherlands, NN has decided to discontinue several industry pension fund contracts that have marginal returns, thereby freeing up economic capital and improving returns. At the same time, the add-on acquisition of AZL which was completed early 2007, strengthens ING’s position in the Netherlands as an integrated services provider for pension funds. An integrated service offering, including fiduciary asset management and excellent administration capabilities, is critical to obtain mandates from company pension funds which are increasingly outsourcing activities.
...by enhancing customer satisfaction…
NN continues to make strong progress in improving customer satisfaction, as satisfaction levels increased in every segment in which NN operates, as measured by the annual Dutch Insurance Performance Survey.
...and by leveraging the solid distribution power
With access to brokers (NN), tied agents (RVS) and retail banks (ING Bank and Postbank), ING is well-positioned to take advantage of current trends such as increasing bank distribution and the strong distinction between commodity products and advisory products. As part of this multi-channel strategy, NN and RVS are partnering with the introduction of the employers distribution platform, offering personal financial advice to individual employees covered by NN’s corporate contracts. RVS already interested more than 2,000 employers and started to generate around EUR 6 million of sales from this concept in 2007. Bank distribution is becoming increasingly important for standardised non-life products. This is evidenced by the successful launch by ING Bank Belgium of the sale of car insurance policies manufactured by NN, with more than 9,000 policies sold at the end of 2007. As a result of the reorientation of NN’s captive distribution channel, its scope will change from personal to business clients with a focus on high- quality advice. Postbank Insurance continued to be successful with its strategy of focusing on internet sales, lowering costs through simpler operational processes and consolidating the strong position in the mortgage-related insurance market. For example, in the term life market, sales have accelerated by 60% in 2007. The improved Postbank home insurance product has led to a 50% increase in home insurance sales compared to 2006, contributing to 25% overall sales growth.
Accelerating growth in Central Europe...
Central Europe is enjoying sustained high economic growth, which together with the low life insurance penetration and favourable demographics, make it a growth market for life insurance and pensions. Insurance Central Europe achieved strong increases in the value of new business and new sales and continued to show steady growth in premiums, pension fund inflows and profit. Building on its first-mover advantage, at year-end 2007 ING had organically created an embedded value of EUR 3.9 billion since the start of its operations in Central Europe in the early 1990s. ING’s continued strong performance in the region is based on the successful implementation of an accelerated growth strategy, based on four pillars: broadening the distribution base, extending the product range, establishing new greenfields, and increasing operational efficiency.
Tied agents are currently the main distribution channel in Central Europe. ING continued its programme to enhance the effectiveness of its tied sales agents, which is reflected in an increase in their productivity of over 20% in 2007. The sales force is primarily assessed on its value creation, persistency and retention of clients. At the same time, ING is broadening its distribution through partnerships with local brokers and banks. ING Hungary, for instance, showed successful sales of insurance-linked mortgages in cooperation with two local banks. In Greece, ING finalised an exclusive 10-year distribution partnership with Piraeus Bank, one of the country’s leading banks. Direct distribution of simple, standardised products is developed selectively as a lead generator for more advice-sensitive products.
In 2007, further progress was made with extending the product range. In Romania, Hungary, Poland and Slovakia, basic protection products have been developed that also give ING access to lower income segments.
...and starting new operations
ING launched two greenfields in Central Europe in 2007: a life insurance company in Russia and a mandatory pension fund in Romania. The first life insurance policy was sold in Russia in July. Whereas the Russian life insurance market offers substantial potential, it is still at an early stage of development and will require a long-term effort. The first priority is to recruit and train a sales force of tied agents. In addition, ING is also looking for opportunities to conclude distribution agreements with banks. The Romanian government introduced mandatory private pension funds in September 2007. With the aim of capturing a large market share, ING Romania made a remarkable achievement by recruiting and training a large flexible sales force, bringing the total to about 40,000 distributors. These efforts clearly paid off with more than one million new clients at the end of 2007, outperforming all competitors by a considerable margin and resulting in a market share of over 30%.
Finally, ING Insurance Central Europe started a large-scale Lean Six Sigma programme, comprising 40 projects to improve operational efficiency and client service.
Specialist provider of investments and retirement solutions across Europe
ING Investment Management Europe has shown a strong increase in profit during the last few years. Despite outflows in the Netherlands, growth in 2007 came from organic sources in third- party distribution and proprietary business, especially by strong sales of Bank Slaski in Poland. Net results were positively influenced by the profitable top line growth. ING Investment Management is discussed in more detail in the Asset Management chapter.
ING also launched single premium variable annuities in Spain (end of March) and Hungary (July), which contributed EUR 173 million to the premium growth. These products are long-term savings products that combine the opportunity to benefit from the upside potential of equity investments with the security of an investment guarantee. This guarantee makes these products an attractive instrument for clients saving for their retirement.
