Insurance Europe (continued)
Business developments
Insurance Europe operates in the mature Benelux market and the emerging markets of Central Europe, with a focus on life insurance and retirement services. It is the leading life insurer and pension provider in both the Netherlands and Central Europe. In addition, Insurance Europe operates life insurance businesses in Spain, Greece, Russia and has a growing presence in Turkey. Commercial performance was resilient in 2008, especially in Central Europe, which continued to see strong net pension inflows and traditional life sales. However, like others in the industry, Insurance Europe was negatively affected by the global financial turmoil. The lower net result is mainly attributable to negative fair value changes on real estate and private equity investments.
Benelux insurance operations
Within the Benelux, ING maintains its focus on the pension and life insurance business while continuing to enhance cost and capital efficiency.
Cost containment and capital
Cost containment in the Netherlands was reflected in lower staffing levels and increased operational efficiency. Underlying operating expenses decreased by 6% excluding the one-off release of employee benefits provision of EUR 89 million in the fourth quarter of 2007. Life insurance operations in Belgium are continuing their operational efficiency efforts.
Efforts have been made to reduce the capital needs of the business by reducing the risk in the investment portfolio, including net sales of EUR 3 billion of public equity and a European equity hedging programme of EUR 2.8 billion, substantially reducing the impact of market volatility on the financial results.
Leveraging solid distribution power
The life insurance market in the Benelux remains highly competitive. ING is focused on maintaining profitability and returns by enhancing its multi-channel distribution platform, reducing costs and reinforcing its market position as the specialist in retirement services.
AZL, a Dutch provider of pension fund management services which was acquired in 2007, has been successfully incorporated into the Group life business and is now operating as an integrated pension provider. This enables ING to provide integrated service offerings – fiduciary asset management and administration capabilities – to company pension funds, which are increasingly outsourcing these activities.
In the non-life sector, the innovative car insurance product distributed through the proprietary bank channel (via the internet, phone and bank branches) in Belgium continued its strong performance with over 50,000 policies sold in 2008. In the Netherlands, non-life maintained its market share in the property & casualty as well as the disability & accident insurance business in a competitive market.
Settling of dispute
In mid-November 2008 ING reached an outline agreement with consumer organisations in the Netherlands to resolve a dispute regarding individual universal life insurance products sold to customers in the Netherlands by ING's Dutch insurance subsidiaries. It was agreed ING's Dutch insurance subsidiaries will offer compensation to policy holders where individual universal life policies have a cost charge in excess of an agreed maximum. The costs of the settlement have been valued at EUR 365 million. Although the agreement is not binding for policyholders, ING believes a significant step was set towards resolving the issue.
Nationale-Nederlanden further demonstrated its commitment to improve customer confidence and transparency by ceasing production of its individual unit-linked life insurance policies, and by launching a new generation of fully transparent variable annuity products in the course of 2008.
Stable growth in Central and Rest of Europe
Based on market share, ING is the number one pension and life insurance provider in Central Europe. Markets in Central Europe tend to be sizable, with a growing middle-class: demographic conditions that are conducive to growth in life insurance and retirement services. In 2008, ING in Central and Rest of Europe showed solid financial results and sales in general were up.
Overall, the number of customers increased from 7 million to 8.6 million, especially through the success of the Romanian second pillar pension fund. In Poland, where about half the region's profit was recorded, premium income rose by 85% after the successful introduction of a single premium investment product ('Optima') sold through the bank channel. In Poland and in the Czech Republic APE increased by 42% and 24% respectively. Furthermore, an integrated transformation programme was launched in the region to leverage size into economies of scale by creating one operating model for all businesses, to reduce costs and increase synergies.
Solid performance in pensions
A growing number of customers and increasing wages resulted in a solid performance in the pensions business in Central Europe. In Poland, ING is the number two ranked pension provider with 2.6 million customers (24% market share) and over EUR 9 billion in assets under management (AuM). Strong inflows continued and the market share has increased.
The strong performance of the two Romanian ING pension funds continued in 2008 with ING's market-leading position supplemented by the final governmental 'lottery', through which a further 300,000 customers were allotted to ING's pension fund. ING is Romania's number one pension fund provider with a market share of almost 40% with 1.4 million customers. Furthermore, ING secured the pension contract for 35,000 employees at Romania Post.
ING Bulgaria won group pension deals with some well-known companies in the country, for instance with the national TV station. ING Pension Insurance Company will also provide a comprehensive voluntary pension contribution scheme to the main telecommunication operator, BTC. The contract covers approximately 5,000 employees and has the potential to extend to the entire staff of more than 9,000. It is one of the largest pension plans of its type in Bulgaria.
Enhancing the multi-channel distribution network
ING is implementing a multi-channel distribution approach, with a blend of channels such as tied agents, bancassurance and brokers. Direct channels are mainly used to generate leads. An example of this approach is a pilot with ING Direct in Spain.
Insurance Europe has the long-term ambition to grow sales through bancassurance in Central and Rest of Europe. ING has a solid retail banking presence in the large markets of Poland, Romania and Turkey. In addition, Insurance Europe has developed distribution agreements with third-party banks in other countries. In Greece it has a bancassurance joint-venture with Piraeus Bank. For the longer term, ING will focus on growth in pension and life insurance client balances driven by economic growth and growth in retirement services.
Several initiatives have been taken to enhance tied agent effectiveness in Central and Rest of Europe, such as the roll-out of a region-wide programme to increase value of new business by strict activity management, standardised monitoring, intensive coaching and joint field work.
New operations
ING entered the Turkish market by acquiring Oyak Bank in 2007, and in 2008 integrated it into the ING Group, rebranding it ING Bank Turkey. In December 2008, ING completed the acquisition of Turkish voluntary pension company Oyak Emeklilik, providing the opportunity to enter the growing Turkish pension market. Turkey is a sizeable market, with a population of approximately 70 million. Oyak Emeklilik is Turkey's sixth largest pension company with over EUR 150 million AuM. The acquisition was financed entirely by internal financial resources. Oyak Emeklilik will be integrated into Insurance Central and Rest of Europe and was rebranded under the ING brand in February 2009.
Ukrainian life insurance greenfield postponed
In July 2008, ING received approval from the relevant authorities to start life insurance operations in Ukraine. However, economic circumstances in Ukraine have deteriorated drastically due to the global financial turmoil. As a result of this instability, ING decided to postpone its greenfield life insurance operation there. ING still considers Ukraine to be an attractive emerging market, with strong growth indicators and potential and will continue to monitor Ukraine's commercial climate. This is witnessed by the fact that ING launched retail banking operations in Ukraine in 2008, based on the successful Romanian self-banking concept.
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