S&P Affirms ING Group’s Ratings; Insurance Outlook Negative

Standard & Poor’s Ratings Services announced that, following a review, it has affirmed its ratings on Holland’s ING GROEP N.V. and related entities, “including its ‘A+/A-1’ counterparty credit ratings on holding companies ING GROEP N.V., ING Verzekeringen N.V., and ING America Insurance Holdings Inc., ‘AA/A-1+’ counterparty credit and insurer financial strength ratings on the core insurance operating subsidiaries (mostly U.S.-based), and ‘AA-/A-1+’ counterparty credit ratings on ING Bank N.V.”

While S&P assigned a stable outlook on the holding companies and on ING Bank and related entities, it indicated that the outlook for the “core insurance operating subsidiaries and related entities remains negative.”

Noting the overall diversified position of ING GROEP N.V., the ultimate holding company of the ING Group, S&P credit analyst Richard Barnes indicated :”this diversity, together with the strength of the group’s competitive positions in its chosen markets, are key supportive rating factors.” The ratings on the holding companies reflect the structural subordination of their obligations to those of their operating subsidiaries.

“ING made tangible progress during 2003 in reinforcing its credit profile,” said S&P. “The comprehensive balance-sheet strengthening plan implemented in late 2002 has succeeded in alleviating leverage and solvency pressure. The plan included significant measures such as stock dividends, which ING has committed to keep in place as long as it considers necessary. Furthermore, management has been increasingly decisive in exploiting intra-group synergies, improving risk-pricing and resource allocation, and reducing the group’s risk profile.”

The rating agency noted, however: “This progress has to some extent been offset by the continued delay, partly caused by the adverse economic environment, in the expected earnings improvement from ING’s very strong commercial positions in the Dutch and U.S. life markets.” Although ING forecasts a 10 to 15 percent increase in net operating profit for the 2003 full year, S&P observed that this “is primarily driven by improved banking and non-life earnings, with life profits expected to remain broadly flat.”

S&P said that while it “is now more confident in management’s ability to realize the full earnings potential of the Dutch and U.S. life operations,” it estimates that it “will take three years for ING’s increasing focus on new business profitability to produce its targeted internal rate of return in these markets.”

Barnes explained that the “stable outlook on the holding companies recognizes Standard & Poor’s expectation that the future financial management of the group will be less aggressive and more risk-conscious than in the past.” Continued improvement of leverage and solvency ratios and greater consistency of performance should demonstrate this. “Stronger, sustained profitability is the key to ING’s financial strength over the medium term,” he added.

“The negative outlook on the core insurance operating subsidiaries and related entities reflects the challenge of leveraging ING’s strong business profile to produce a commensurate earnings performance,” said the bulletin. S&P said it “expects the 2004 organic operating net profit from insurance to be about 10 percent higher than 2003.”

Credit analyst Paul Bradley further indicated that S&P would “pay close attention to ING’s ability to manage the internal rate of return in the Dutch and U.S. life markets toward its internal targets, and to its efforts in improving cost efficiency.”

The report also observed: “The stable outlook on ING Bank and related entities assumes greater earnings stability and an improved risk profile in the medium term given ongoing strategic moves to harness further cost synergies, refocus wholesale banking activities, and implement more proactive risk management.”