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

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

3. 1. Introduction on ING Group

4. 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

5. Top 20 global financial institutions

6. 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

7. 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

8. 2. Being a financial conglomerate

9. 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

10. 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

11. …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

12. 3. Risk and capital initiatives

13. 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

14. 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

15. 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

16. 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)

17. 4. Concluding remarks

18. 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