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

Table of contents Introduction on ING Group Being a financial conglomerate Risk and capital initiatives Concluding remarks

1. Introduction on ING Group

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

Top 20 global financial institutions

Group organized along six business lines Insurance Americas Insurance Europe Insurance Asia/Pacific Wholesale Banking Retail Banking ING Direct ING Group 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

Composition of Group capital base (31 March 2005, EUR bn) Net equity Hybrid capital Debt Total capitalisation/equity Minorities Other (incl. ING shares) Capital base Group Insurance Bank 25.9 5.9 3.2 35.0 14.9 1.0 2.5 18.4 20.1 0.5 0.1 20.7

2. Being a financial conglomerate

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

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 HR&MD Culture

…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

3. Risk and capital initiatives

Risk and capital tend to be managed in ‘silos’ 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

2. Evolution of risk metrics The Risk Dashboard is a quarterly report providing Senior Management with a holistic risk view 2. Evolution of risk metrics 4. Threat scenarios 5. Key risk trends 6. Concentrations Risk Dashboard 8. Action tracking 7. Limit breaches 3. Stress analysis 1. Current risk profile 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

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

Future: The role of risk management at ING is expanding Compliance Loss minimization Risk measurement Risk management Return optimization Strategic planning integration Risk controller Balance sheet protection Risk/return optimization Value creation Link to strategy Low Medium High Industry standard (last five years) Industry best practice (next five years) #1 #2 #3 #4 #5 #6 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)

4. Concluding remarks

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