IMF Conference, Washington, 1 June 2005

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Financial Conglomerates Koos Timmermans General
Manager, Market Risk Management
IMF Conference, Washington, 1 June 2005
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Table of contents

• Introduction on ING Group
• Being a financial conglomerate
• Risk and capital initiatives
• Concluding remarks

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1. Introduction on ING Group
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ING in a nutshell

• Created from a merger in 1991
• Financial Conglomerate Banking, insurance and
  asset mgt
• Over 50 countries, around 115,000 employees
• Strong presence in emerging markets
• Market capitalization around EUR 50 billion
• Broad international share ownership
• Modern corporate governance
• Top 100 global brand

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Top 20 global financial institutions
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Group organized along six business lines

• Benefits of structure
• Simple, clear and transparent
• Client focus and business logic leads
• Personal accountability and empowerment
• Short and direct reporting lines
• Appropriate attention and place for growth
  engines
• Capture the benefits of the Group

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Composition of Group capital base(31 March 2005,
EUR bn)

Net equity Hybrid capital Debt Total
capitalisation/equity Minorities Hybrid
capital Other (incl. ING shares) Capital base
Group Insurance Bank

25.9 5.9 3.2 35.0
20.1 0.5 0.1 20.7
14.9 1.0 2.5 18.4
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2. Being a financial conglomerate
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What is a financial conglomerate?

• A financial conglomerate is a company that
  combines different types of financial
  institutions under one roof
• Banking
• Insurance
• Asset management
• The legal structure of the conglomerate is
  relevant

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ING believes in the benefit of being a financial
conglomerate

• Diversification between bank, insurer and asset
  manager (regions, activities, clients)
• Reduced economic capital
• Better ratings, also at holding-level
• Cross-balance-sheet utilization
• The whole is worth more than the sum of its
  parts, provided that operations are integrated
• Risk and capital management
• Back office / systems
• Distribution channels, branding and marketing
• HRMD
• Culture

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however, managing a financial conglomerate also
poses challenges

• Financial conglomerates are a relatively new
  phenomenon and not allowed in some countries
• Large, complex organization
• Different systems, accounting, risk management
• Different cultures to combine
• Myriad of regulation often local and specific
  to banking, insurance or asset management
• Basel II for Banks, EU Solvency II Directive for
  Insurance, IFRS / US GAAP, Corporate Governance
  (SOX, etc.)
• Lack of external understanding and transparency
• Most analysts specialized in either banks or
  insurers - not both
• Not straightforward to quantify and justify
  diversification benefit

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3. Risk and capital initiatives
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To reap the benefit of being a financial
conglomerate ING is integrating risk and capital
management

• Risk and capital tend to be managed in silos
• Risk silos (credit, market, operational,
  insurance etc.)
• Business silos (bank, insurance and asset
  management)
• Regional / country silos
• ING has recently launched two initiatives to gain
  an integrated view
• Group-level risk appetite framework with Board
  involvement
• Integrated Capital Management function

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The Risk Dashboard is a quarterly report
providing Senior Management with a holistic risk
view

• Presents current and projected risk profile of
  ING Group
• Aggregate level
• By risk type
• By Line of Business
• Board-level discussion takes place at least
  quarterly
• Risk issues with Group-level impact are addressed
  and agreed actions are tracked

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ING has set up an integrated Capital Management
Function

• Internally, ING Group uses economic capital as a
  core management metric
• Externally, ING is evaluated on accounting
  measures
• Integrated Capital Management centralizes the
  mismatch between internal requirements and
  external reporting/regulation

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Future The role of risk management at ING is
expanding
Evolution of risk management philosophy

• Most financial institutions have developed
  effective mechanisms to control downside risk
• Shareholders care about absolute levels of risk
  and about the relativity between risk and return
• Risk management can provide value-adding input to
  risk/return optimization and strategic planning
  (threats and opportunities)

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4. Concluding remarks
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Several themes have triggered a move towards
integrating financial management

• Benefit of financial conglomerate visible through
  risk dashboard
• First step to risk measurement per risk category
• Economic capital priority in bank insurance
• Integrated capital management deals with
  regulatory vs economic capital differences