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Executives

Jan H. M. Hommen - Chairman of the Executive Board, Chief Executive Officer, Member of Management Board of Insurance & Banking, Chief Executive Officer of Ing Bank and Chief Executive Officer of Ing Insurance

Lard Eilard Friese - Member of the Management Board - Insurance Eurasia

David Knibbe - Chief Executive Officer of Insurance Central & Rest of Europe (CRE)

Constant Eduard Maria Beckers - Chief Executive of Investment Management Division

Delfin Rueda - Chief Financial Officer and Member of The Management Board

Dorothee van Vredenburch

Doug Caldwell - Chief Risk of Insurance/IM Eurasia and Member of The Management Board of Insurance Eurasia (MBE)

Jan-Willem Vink - Company Secretary and General Counsel

Dorothy Hillenius - Head of Investor Relations

Analysts

Farquhar Murray - Autonomous Research LLP

Ashik Musaddi - JP Morgan Chase & Co, Research Division

William Hawkins - Keefe, Bruyette & Woods Limited, Research Division

Farooq Hanif - Citigroup Inc, Research Division

Gordon Aitken - RBC Capital Markets, LLC, Research Division

Anton Kryachok - UBS Investment Bank, Research Division

Michael van Wegen - BofA Merrill Lynch, Research Division

William Elderkin - Societe Generale Cross Asset Research

Benoit Petrarque - Kepler Cheuvreux, Research Division

Marcus Rivaldi - Morgan Stanley, Research Division

Francois Boissin - Exane BNP Paribas, Research Division

David T. Andrich - Morgan Stanley, Research Division

ING Groep N.V. (ING) ING Insurance IPO preparations Update Conference September 19, 2013 3:30 AM ET

Unknown Executive

Ladies and gentlemen, please welcome Jan Hommen.

Jan H. M. Hommen

Welcome, everyone, here today and welcome, those of you who are following it on the webcast. We invited you here today to give an update on our preparation for the IPO of our insurance company, European insurance company, to introduce you to the management team and to let you deal with the business environment we are in, the businesses itself and the plans that we have to make that a better company and the drivers for a better performance.

Now I noticed some of you had been hoping to get all type of targets on capital and return and rating, and all that. We're going to hold you off with that for the time being. That will be at a later day when we get closer to the IPO issue. And that's the same that we have done, by the way, in the U.S. so we'll follow the same process here. But we're going to share a little bit information with you here today and I'm sure it will be an interesting and good experience for you.

So looking at the next slide, we have entered the end phase of the restructuring program and we have also, at the same time, streamlined our portfolio of businesses. The next payments we need to make to the Dutch State will take place in November, that's a payment of EUR 1.1 billion. And having done that, we are then having already paid more than the EUR 10 billion that we got from them in 2008, so we're basically paying the premium, and you may remember we have to pay a 50% premium on top of the EUR 10 billion. The double leverage has been brought down to EUR 4.4 billion at the end of Q2 and is now cared for by the market values of the shares we own in ING U.S. and in Sul America. So basically, you can say we have neutralized the value here. You also have seen that we have issued an -- U.S. has issued an SEC statement filed in connection with the potential sale of a second tranche of ING U.S. The divestment of Insurance in Asia and the Investment Management business in Asia has generated proceeds of about EUR 4.7 billion and a transaction gain of around EUR 800 million, and of course, the base case for an IPO of Insurance Europe will then be the final mark of our restructuring program.

Next, yes. Since this is the last time that I will be presenting to you, maybe it's good to give you an overview of what we have done since the time that I became the CEO. We entered the end phase of the restructuring and we have significantly reduced and resized our portfolio. There are divestments we have made of about 35 divestments, that's a total value of around EUR 25 billion. Some of them are still in the works to be closed, but most of them have closed already. Besides the divestments, we also have optimized our portfolio of businesses. An example, we have significantly reduced our real estate development business, almost completely eliminated that. We have put 11 lease operations in different countries in runoff. We have closed our international equity business in the bank and -- those in the bank and in the Insurance company. We have done a lot on redefining our savings. We have simplified our products and we have merged our IT platforms in many different ways.

So when you look at where we are today, I think you see that we are a much more focused company and a much more efficient company at the same time. Significantly reduced the assets. If you look at the assets in Insurance, you see that they have gone up even though we have divested EUR 48 billion already. And the reason is that a lot of the asset-rich activities are still in our balance sheet like the U.S., like Korea, like Japan, also Europe and that will be going out as soon as we divest them further or when we deconsolidate them.

You can also see that apart from the separation of Bank and Insurance, we have sharpened the strategic focus on the Bank in particular, and that has resulted in much lower assets and a lot less employees and a reduction of the leverage by almost half. And at the same time, you can see that we have really kept a firm eye on our cost and significantly reduced our cost ratios. But not only a simple and more focused company, also a company that I think is more robust and more strong and better founded. As you can see here, you can see that our equity in the group has recovered strongly from the end of 2008. Our market cap, compared to the end of 2008, has more than tripled. Our debt equity ratio has come down as a result of the strong reduction that we had done in our core debts, in our double leverage, and the core tier 1 ratio on the bank is considerably stronger, especially when you take into account that the definition today is a lot more tight than the definition was in 2008. All in all, we have become a lot simpler, a lot more focused and notably, a stronger company.

I told you already the next payment for the Dutch State will be in November. You can see here where we are. The core tier 1 of the Bank has permitted us to upstream dividends to the group, and the bank has maintained very strong capital ratios in the meantime, even when you apply the new regulation on the core tier 1 in CRD IV, and you apply that immediately which is only due in 2016, then we still have a core tier 1 ratio pro forma here of 10.2%. So the Bank is well capitalized, and it allows us to pay back the next payment to the Dutch government.

Moving into double leverage, it has come down. At the end of Q2, it was EUR 4.4 billion and if you set it off against the value we still have in SulAmerica and in the U.S., you basically can see that we can completely pay off the double leverage with the value of those stakes. And on the right side, you see that that stake has done quite well and that we have filed with the SEC for a possible second tranche.

Looking at the divestments in Asia. You can see here that we have, in the last year, completed a lot of divestments in Asia for a total value of EUR 4.7 billion, there's a transaction gain of about EUR 800 million. And what we still have to do is Japan and a small portion of the IM business in Asia and that is being worked on aggressively to make that happen as well.

Then we have the debt level in Insurance. What we plan to do, by the way, in Insurance is that we will IPO the entity of INGV, INGV [indiscernible]. We will do that by taking the U.S. business, the U.S. Insurance business out, dividend it up to the group before the end of the year. And that way, we have a clean company that we can bring to the markets in the form of an IPO.

And the impact that this will have on the group capital ratios is completely negligible. It will have no impact, and as I said earlier, we will use the U.S. and SulAmerica to redeem the double leverage at the group level.

The next one you can see that we have significantly reduced the debt in our Insurance business. If you net that for the U.S., so you take the U.S. out, at this moment, the net debt in Insurance Europe is EUR 3.1 billion. We have reduced that from EUR 4.7 billion and that is on a pro forma basis. So I think we will provide you with more targeted capital ratios and more defined other ratios as well by the time we get closer to the IPO process.

The process of preparing for the IPO is on track. We called it IPO, but it's also possible that we -- they'll have different forms. It can be a spend, can be a partial spend, together there's an IPO that will be decided later as well. And that has to do, of course, with the amount of risk that we are willing to take plus the exposure, the time-to-market exposures plus the capital requirements. And we will certainly take into account the impact that it has on shareholder value as well. So that is all to be decided going forward as we get closer to the IPO date.

And the last thing I would like to show you here today in the introduction is the management team of our Insurance operations. I must say I'm very proud of the team. It's a new team but a very experienced team. They have taken a lot of steps already to get ready for the IPO. They're enthusiastic. I've seen they're very committed to the program as you will see today, and I'm fully convinced that they can do the job that is required and that they will be successful in not just bringing it to the market, but also bringing it into a successful stand-alone business over time.

Our presenters today will be Lard Friese. Lard, together, then there's Delfin, Delfin Rueda, CFO. Doug Caldwell will be present, but he will not present today, but he will be part of the Q&A. We have Dorothee van Vredenburch. She will present the [indiscernible], and Stan Beckers and the rest of the team that I think will take you through the information that we want to share with you here today.

There will be presentations then a coffee break, and then after the total presentations, we all come back. We have plenty of seats so that everybody can have a seat and answer your questions. And I will be the moderator for the questions, in case I can be of any help from this podium on this side. So having said that, Lard, would you like to take over?

Lard Eilard Friese

Yes, thank you. Yes, thank you, Jan. Welcome. We are delighted that you are here today with us here, but also on the webcast. It is a very exciting moment for the team. We are indeed very motivated to -- on this journey. We think we have a great set of businesses and we like to share with you today the plans for these businesses, what we are doing to improve them and how we are preparing to take these businesses successfully public. So with no further ado, I suggest that we dive in.

ING Insurance forms a unique combination of mature and growth markets. Our plans are designed to extract the full value of our leading market positions. Our strategy is centered around 3 key themes, and you will hear a lot of that this morning. It's consumer, efficiency and capital generation. The plans are already being implemented, so in our financial improvements, we can see some first signs of progress there. And we have a renewed but very experienced leadership team that indeed is fired up to deliver. We -- if you look at our businesses, we operate in 12 markets with our European Insurance businesses and in 15 markets for investment management. And in addition, we have a global presence with Investment Management with offices in the U.S. and in the Middle East. We have about 11,500 staff. Now it's important to note that we have built these businesses from scratch, no acquisitions. And as a result, we have an intimate customer knowledge and an intimate operating knowledge in the markets in which we operate. In all these markets, we have scale. This is obvious for the Netherlands where we are the largest life insurance company with the strongest brand, and our task as management is to ensure that this translates into excellent customer experience and profitability.

But it's not only in the Netherlands. The same is true for our international businesses where we feel we truly have a fantastic platform to grow from. In many of these countries, we were one of the first, if not the first, to enter. We have built a strong distribution platform and we offer products that provide value to the customer and to the shareholder. Not only have we exported best-in-class knowledge and experience from our Dutch talent base, but the synergies also have traveled back and forth here because many of our strongest people are coming from the Central and Eastern European region.

In addition, we have a well-established international asset manager that does not only provide the Intel Inside of our pension and life insurance products, but also has a sizable third-party business and is a meaningful contributor to operating results. We are a company on a transformation journey, a company that aims to secure long-term success by owning and improving the customer experience. We want customers to choose us over others and to refer us actively to others because of the experience that they have with our products, with our services and with our staff. To achieve this, we are upgrading our processes, we are improving our efficiency and we are simplifying our products. And in addition, we continuously train our staff. We execute with precision and with tenacity. We have set clear priorities for each business, and you can see it here on the screen. For the Netherlands, the key priority is expense reduction, moving into higher-yielding assets, active in-force book management and selective growth. For international businesses, it is all about accelerating profitable growth and continuing to innovate the business model. For investment management, the focus is on continuing the solid investment performance that they deliver to grow the third-party business and to improve their cost-income ratio. For the corporate line, it's all about reducing overhead expense and making sure that we transition to a stand-alone capital structure.

Our strategy is about customer, efficiency and capital generation. We will offer products that are easy to understand. We want to continuously improve the customer experience. We have strict approaches regarding the quality and the customer service in the selection of the partners with whom we operate, and we will increasingly route consumers to direct servicing models. We are improving our efficiency today and we'll continue our efficiency drive in the years ahead, only because we believe that this is obvious for an expense in capital benefits, but there is a fundamental belief that efficient processes will deliver an outstanding and better customer service as well. There is much more we can do here, and customers and shareholders will benefit from this.

While we acknowledge that we have a journey ahead of us, we are already on our way. We simplified the organization. We now have 1 head office, we delayered the regional structures and business units. We launched the headcount reduction program associated with this in the Netherlands of 1,350 FTEs, and we are well on track to deliver on it. We renewed our leadership team, not only in the top structure but also in the layers beneath, and we did this to ensure that we have the right persons at the right job for the right task ahead, and to make sure that we boost the energy and the momentum in the company.

In the first half of this year, we generated capital at NN Life and it was offset, unfortunately, in July by the removal of France out of the AAA Euro curve after the decision of Fitch to downgrade French sovereign debt.

We reduced expenses and delivered EUR 65 million of the program that we announced in November to take out EUR 200 million pretax of our expense base before the end of 2014. We're well on track there.

For Non-Life, we have a detailed improvement plan in place which demonstrates the first results in the second quarter of this year. For Group Life, we repriced and changed the conditions to improve the risk-return profile of the in-force book and in addition, we improved the hedging and lowered the hedge expenses with EUR 30 million run rate. We successfully shifted the product mix in the international businesses to higher margin products and in spite of macroeconomic headwinds, the Central and Eastern European countries delivered a growth of sales of 22% in the first half of the year.

ING Insurance offers an attractive investment proposition. Number one, we will extract the full potential from Nationale-Nederlanden, the Dutch market either. We'll focus on customer, expense reduction and capital generation. We'll continue our individual life closed block strategy, focus at efficiency and verbalization of expenses. We'll focus on repricing and in-force book management for both Non-Life and for Group Life. We will improve the investment margin over time and we will grow selectively and build out our NN Bank platform.

Number two, we have an attractive international growth businesses. They are self-funding, and beyond that, they're capital generative. With strong positions in key Central, Eastern European markets with the secular growth trend, we have diversified distribution and we have shifted towards investments and protection products. 60% of our sales comes from other than tied agency. And 72% of our operating result comes from the Life Insurance. International is self-funding, and beyond that, a capital generator.

Number three, we have a profitable and growing asset manager, a capital generator and a dividend contributor. Number four, we have a robust and clean balance sheet with limited intangibles and a relatively low investment risk. And in addition, the Dutch solvency mark-to-market framework fully reflects the current low-rate environment. And finally, number five, we have management, management committed to generate capital. We have a diverse portfolio of cash-generative businesses, and we strongly believe in disciplined capital management, withdrawing capital from the low-return businesses and allocating it back to businesses and products where we can have higher returns.

That's our investor proposition. So let's now turn to how we are implementing this in Nationale-Nederlanden in the whole market, the Netherlands. Nationale-Nederlanden is the largest Dutch life insurance company and the third largest nonlife insurance company, and it has a very powerful household brand in the Netherlands. NN's overall gross written premium is EUR 5.3 billion on a total market size of roughly EUR 35 billion. While independent intermediaries are still our largest distribution channel, we have built within and over time a multichannel platform, including direct sales, online capabilities and bank distribution. Our focus is on expense reductions and customer service.

Now the Dutch life Insurance market is undergoing fundamental changes, and we have an effective response. We will continue our individual life closed book strategy. We will lead the move from defined benefit pensions to defined contribution. We will selectively and gradually take on higher-yielding assets. We will reduce expenses, and we will focus on capital generation.

Non-Life is executing a detailed plan to structurally improve profitability and grow selectively, and NN Bank is a good strategic fit and complements Nationale-Nederlanden's retail product offering.

As I said, we are well positioned in retail, in SME and in corporate segments, and has built a multi-channel platform over time. And I also said that in the Netherlands, the insurance market is undergoing quite some changes in the regulatory environment. We'll dig a little bit deeper into this when we talk about the pension and the life business, but another example is the ban on commissions to intermediaries for complex financial products like life Insurance and pensions.

We do not believe that the Dutch market will grow very fast near term due to current economic headwinds, but we do think that longer term, when the market will pick up as the economy recovers. The underlying need for long-term savings and pensions is a very important driver for our business. And this will only increase as the economy recovers. Consumers' long-term savings and pension pools will have been eroded as a result of the crisis, and they will feel the need to catch up. In the meantime, the infrastructure of financial advisors has been upgraded due to the increased regulatory demands for the quality of advice. Now given our size, our brand, our expertise, our distribution reach and installed client base, we are well positioned to extract the full value of our business in this market. And how? By a relentless focus on customer service, efficiency and capital generation.

In the Individual Life market -- Life Insurance products are substituted by so-called bank annuities. Low yields, longevity risk and accounting regulation drive the need for employers to redesign their pension plans from defined benefit to defined contribution over time. And we feel we are effectively responding. We were the first mover in the creation of an individual closed book organization with dedicated management. We are improving the risk and return profile of our in-force group pension books. We have built the capabilities to be preeminent in the defined benefit, defined contribution transformation, and we have identified selective growth areas where we will play selectively and under very strict pricing conditions.

In the past couple of years, we have stopped the new business in individual life except for term insurance and direct annuities. We have drastically reduced our sales force of tied agency and from EUR 620 million to under EUR 100 million. We created the closed block organization by integrating the individual life portfolios of Nationale-Nederlanden, RVS Life and Postbank Insurance Life into 1 organization and in services. And the creation of that closed block, you can see here on the slide, when it moves from 2.8 million to 3.6 million policies and to 23.8 billion of liabilities represented by -- after this integration, by the end of 2012. The reason for us to create this closed block is that we believe that for this particular business, we need management that is very dedicated and has very specific skill sets to focus on verbalization of expenses, expense reduction and customer retention. We expect this book to throw off capital in the future as the book runs off. We implemented a business process layer around the legacy systems to reduce expenses, to standardize processes and improve service. And we will continue to further simplify and standardize our operations. We will continue verbalizing the cost base and reducing the expenses while improving customer service.

In the Group Life and Pension business, we focus on 3 things. Number one, improving the risk and return profile of our in-force business; number two, improve efficiency; and number three, selective growth. Let me first expand on what we are doing in improving the risk and return improvements in the existing pension business book.

We are changing product features with improved asset matching and pricing based on current market rates. We have agreed with clients during negotiations to move their assets from separate to general accounts. So far, EUR 2.2 billion has been moved and there's more to come. We have modified our hedging to improve economic solvency protection and to reduce the hedge expenses by EUR 30 million per annum. We will convert our defined benefit book for our small and medium-sized employers to modern, defined benefit [ph] solutions with improved hedge effectiveness and pricing reflecting current market realities.

The second player is efficiency. At the same time, we're improving that. We have rationalized the current product suites by removing low added value product features that are consuming a lot of expense and that are very complex to administer. We ring-fence legacy books, we clean up processes and reduce expenses. We continuously improve data quality and processes all in the basis of first-time rate. Now this is not rocket science. This is day-to-day blocking and tackling. This requires disciplined execution to drive expenses down and to improve customer service at the same time.

We have identified 3 pockets of growth and have built the capabilities to capture this successfully. In the first place, it's the transformation from defined benefit pension plans to defined contribution

[Audio Gap]

want to redesign their plans. This is driven by accounting standards, cost of the guarantees and the low interest rate environment. We have the capabilities, the expertise and the brand credibility to play a very important role in this transformation for our own clients, but also for new clients. We offer a full suite of insured and noninsured solutions, combining our capabilities and track record in the areas of administration services, fiduciary services, insurance and guarantee options and asset management.

The second pocket of growth that we are -- have identified, the buyout market. As you can see here on the slide, there is a great number of pension -- company pension funds, especially smaller company pension funds, that may want to liquidate and move their pension plans to insured solutions. This is largely driven by new and stricter rules for pension fund management and the required attention and skill sets this requires. At this point in time, a lot of these pension funds have low coverage ratios but they are improving. And when these ratios improve over time due to rising rates and improved financial markets, the buyout opportunity will manifest itself. We will selectively participate in this market, but only under very strict pricing discipline.

The third area of growth that we see is the pension rollover market, so the move from defined benefit to defined contribution, in combination with the demographic profile of the Netherlands, will open up the opportunity for rollover products. This is in the decumulation phase of the funds that the participants have built up in their pension plans. Our large installed client base, our experience in communicating with participants, employer pension plans provide us with a good opportunity. We have and will launch web-based solutions to offer rollover products in a very convenient way.

Here's a slide about AZL. AZL is an example that I would like to show here to demonstrate that our capabilities go beyond traditional insured solutions in the pension market in the Netherlands. AZL delivers administration, communication, risk, actuarial and other fiduciary services to 61 pension funds and 9,000 employers and their participants. AZL is well known for excellent customer service, demonstrated by high satisfaction scores and a positive Net Promoter Score, and it has a steady growth in fee-based revenues and recently, they passed the mark of 1 million participants. NN Life's strategy is about improving the customer experience, about efficiency and about capital generation. In the period between 2007 and 2012, NN Life reduced the administrative expenses by 38% as you can see on this slide. And in the first half of this year, their run rate reduced by another 10% on a same-store basis as a result of FTE reductions and improved efficiency of our processes mentioned earlier in my presentation. We are determined to reduce NN Life's expenses further in the coming years. We will continue our focus on improving operational efficiency and lowering the expenses in the operations, technology and overhead.

So let's now move to Non-Life. Nationale-Nederlanden if the #3 player in the Non-Life market. It is a stable and profitable business with around EUR 1.6 billion of gross written premium. NN's focus is on retail and SME clients with a diversified product range in property and casualty and disability and accident. Due to the weak economy in the Netherlands, results have suffered in 2012 as they were affected by high claims experience and reserve strengthening in our disability and income protection business. We have a detailed improvement plan in place, as I said before, and took decisive measures to return this business to profitability, and this started to materialize in the second quarter of this year. So let's go through the measures that we took in the big piece of the business which is the group disability and accident line.

We raised rates significantly. We adjusted policy terms and sometimes unblocked. We improved claims processes further to stimulate reintegration of ill workers. We strengthened reserves in relation to prior years claims to an amount of EUR 160 million. The future trend will remain sensitive to the economy but we expect a gradual recovery over time based on the measures taken.

In addition to the measures aimed at improving the Group D&A business, we are taking a further action to improve the overall performance and grow selectively. Also, in individual disability and accident, not only group, in retail motor, we will raise premiums, adjust conditions and improve claims handling. Also, here we will improve the expense ratio by reducing expenses. And we will discontinue small and loss-making portfolios in nontarget client segments. Let me give you 2 examples, car fleets with more than 50 cars, and the second example that I can give is, for instance, the agricultural tools and vehicles. We will develop new product propositions and effectively capture growth opportunities on a selective basis, and the combination of all these actions are aimed at the structural improvement of combined ratios and profitability.

Now finally, NN Bank. As mentioned earlier, individual life insurance, endowment products, deferred annuities as a tax incentivized vehicle for long-term savings has virtually disappeared from the market. However, the underlying need for long-term savings is still there but now it's catered for by so-called bank annuities, banksparen. And in addition, Insurance companies in the Netherlands are very well recognized by the public as a provider of mortgages, as they are not -- as they are interesting investments in the general account to back long-duration liabilities.

Our response to the fundamental changes in the Netherlands as part of our response has been the launch of NN Bank. NN Bank offers a limited range of retail products. It's about mortgages, it's about bank annuities, savings accounts. And these 2 complement the product range that NN has in the retail market in the Netherlands. It solidifies NN's overall position. As part of the agreements with the European Commission, we have merged the commercial operations of the WestlandUtrecht Bank with NN Bank to accelerate our strategy.

Next, we're offering a limited retail product range to complement the overall and an offering to the retail market. NN Bank services all NN originated mortgage loan portfolios including the strategic portfolio on the balance sheet of NN Life and the NN mortgage book that remains with WestlandUtrecht ING Bank.

So in closing, I would like to say to you the following. I leave you with the following messages. ING Insurance forms a unique combination of mature and growth businesses. Our plans are designed to extract the full value of our leading market positions. Our strategy is focused on consumer, efficiency and capital generation. Consumer, efficiency and capital generation.

I shared with you our overall proposition, our strategy and our plans and our progress and implementation that we're doing in the Dutch businesses, and now it is a pleasure to me to hand over to my friend and colleague, David Knibbe, who will take you through the translation and execution of this strategy in the international businesses. So David, over to you.

David Knibbe

Yes. Thank you, Lard, and good morning, everybody. I'm very happy to see such a big crowd because it gives me the opportunity to talk about the International business, which is a business I've been managing for almost 3 years now and I'm also very passionate about. Our goal is profitable growth and capital generation. That's the goal that we have for our region. But as Lard was saying, my presentation is not only about the strategy, on how we plan to deliver that, but I'll also try to show the track record so far on delivering on this.

So let's go to the key messages of the presentation.

First of all, we believe we have a unique, very strong regional footprint. We have a strategic focus on profitable growth, and we believe we can deliver that because of the multi-distribution platform that we're building and because of the focus that we have on Life Insurance products, and more specifically, on protection products, investment products, and on the pension side, third pillar pension products. We have a customer experience strategy in which we try to improve the performance of the overall portfolio, and we have a very tight cost control. And we believe the combination of that will lead to capital generation beyond funding our own organic growth.

So these are the main points I would like to make. So let's go one by one. Our regional footprint. As Lard were saying, we have quite a unique regional footprint. First of all, we are -- we tend to be active in more markets in Central and Eastern Europe than our international competition. But not only that, we tend to be bigger and we also hold off very well against local competition. For example, we're #1 in Hungary, we're #1 in Romania, we're a top player in the Czech Republic and a very strong player in Poland. And as Lard was saying, it's also companies that we know very well because we build them ourselves. We know these businesses very well and we know the markets very well.

On the next slide, I have some information on the markets. Many of you have already told me that not all of you are familiar with these markets. Please don't try to read the slide. You can do that later. There's a lot of pie charts on there. At the top, you will see the size of the market, in terms of our gross written premium and on Life, and below there, you will see the distribution mix from ING and the product mix. These are some of the key markets that we operate in.

Key message of this slide is it's well diversified. You see across distribution channels or across products, it's a well diversified mix and we believe that helps to stabilize our overall results in the 11 countries that we operate in outside of the Netherlands.

So let's move to strategy. As I was saying, the strategy is around accelerating profitable growth and strong capital generation. Now of course, it's highly dependent also on what's happening in all of these markets. So let me start by talking briefly about some of the trends that we see happening in these markets. I'll try to be brief on that because I think a lot of you are very familiar with that and I also will talk about our response to these trends that we see.

So first of all, shifts in channel mix. We've been seeing a lot of changes in distribution mix across countries. Some countries see tied agents coming down. Banks, brokers have been picking up, direct is still limited. But not only that, what we also see is that customer behavior has changed. We don't see tied agent customers anymore or bank customers anymore or broker customers anymore, we basically see customers moving all over the place. Some things, they want to go online, some things, they want to do themselves, for some things, they want an agent but sometimes they want to visit a bank. So that means for us, we're not only building a multi-distribution platform, but we're also building a what we call multi-access platform. So we need to be able to service these customers across all these channels. And I can assure you that's not typically how insurance is organized.

Second trend that we see, also in our markets, a growing affluent, the segment of affluent is growing. That means people have more money to save, more money to protect their families. Now obviously technology is also, in our region, playing a big role, retracting governments, we see lower interest rates so a lot of the familiar trends we see. That means for us that we have a very customer focused strategy, and we focus on Life Insurance products, particularly investment products and protection products because we see high demand there. We believe we can still make attractive margins there and they are low on capital.

Third trend we see is a need for differentiation. Now with a good multi-distribution platform and with the products I was just mentioning at, we don't believe that that's enough to really differentiate ourselves from competition. So what we have is a strategy very much focused on customer experience. We rolled out across our countries minimum standards on how we want to service our customers and of course anybody can do more than the minimum. We have Net Promoter Scores and all of this is focused on not only bringing in more customers, but certainly also to improve the retention and the overall performance of our [indiscernible]. And Dorothee will, later on, also talk about the customer experience strategy that we have.

Last but not least, also in our markets, pressure on margins. Now this is not only because of competition, but it's also we see more consumer activism, we see regulators stepping in, governments are more active. So we see, across the board, we see pressure on margins. Now what's our response to that? I already mentioned the products that we're focusing on that we believe still offer attractive margins, and the other piece is very tight cost control.

So that's it. That's our strategy. And I think the good news is that this is not new. This is not a strategy that we created for this day or for the last few months. This is a path we've been on for a few years now, and we're by no means done, but I think it's also the advantage of that we started with this earlier because a lot of these trends are not new as I can talk a little bit in the rest of presentation not only about how we're actually planning on doing this but also what the track record is so far.

So let's start high-level and then we'll go down. Operating result. At the top of the slide left, you see the operating result. You see that generally, the operating result is holding up well. We had quite some bad news to absorb. Our yields, obviously, have been dropping. Pension reforms that already took place in Poland, Czech Republic, in Hungary, Slovakia is already absorbed in here. But also, pressure has been on the profit for I would say better reasons, which is investment of growth in Turkey. As you know, the faster we grow in Turkey in the short term, for us profit will go down. And also we see that the portfolio actually start to behave better, following the customer experience strategy that we have but in the short term, that effectively leads to lower surrender profits. But in conclusion, profit is holding up well.

Second key message of this slide is, we're primarily a life insurance company. About 3/4 of our profit comes from life insurance. When you look at the other quarter, say the pension piece, I think it's also good to distinguish what we call the second pillar and third pillar, or what we call mandatory and voluntary piece. As you know, the mandatory part is primarily driven by governments, but the voluntary piece is we focus much more on and is also where much of our growth is coming from.

Third key message is net capital generation. As you see, we're well on our way to deliver a net capital generation to the holding beyond our own organic growth. Of course, it's important to mention 2012, it's written under there, we did have the PSI deal in Greece. But apart from that, you see a net capital generation, and you also see that this year we're well on our way for capital generation.

So those are the overall results. Now as I was saying, profitable growth is a key target, so let's look at the growth so far. On the right-hand side, you see the growth in APE that we've been delivering so far. And you see that on the Life side, 11% to 12%, we grew at around 11%. Also pensions is growing. Certainly this year, pensions is growing. This is on the back of third pillar pension sales in Turkey. There is some reclassification between Life and Pensions between Czech. I'll spare the details but therefore we also look, we tend to look at the total. And as Lard was saying, also this year, we have a 22% growth in APE. So we see strong top line growth already happening in markets that as you well know haven't been great.

So the question is how do we achieve this growth? We have been investing for several years now in building a strong multi-distribution platform. Traditionally, we have been very much a tied agent business. So what have we done? We continue to invest in tied agents. We have a tendering program as we call, where we're basing all the international experiences that we have. We've built a best practice, how we professionally run a tied agent sales force and we rolled that out country by country, gap analysis and countries are implementing these best practices, and we see already productivity going up. We've been investing selectively in brokers where we see good brokers in markets we've been investing broker platforms. Turkey is leading the way.

Bancassurance. Bancassurance has been doing well. We have 14 bank partners. One of them obviously being ING. So our focus has not necessarily been on bringing in more banking partners. It has been on leveraging better the existing partners that we have. And examples of that is the customer analytics that we can offer to banks on their database and the active seller concept which we rolled out with our banking partners.

And last but not least, Direct. Direct has been small. We invest in it, not that I believe that the next year it will be very big, but we need to get our toes in the water. We need to get more experience on that. We're traditionally a complex business on the insurance side, so we're now building propositions. For example, the 4-year proposition in Czech and in Spain that we rolled out, it's geared towards women. There's a social media strategy around this, and another example, ING Direct in Spain which have been successful combination of ING Direct Spain with our Insurance operation to sell simple products, particularly on the protection side.

Now the overall result you see on the right-hand side, you see that we've gone from primarily a tied agent type of business. Now we have a very well diversified mix across distribution channels. All channels have grown. Also tied agents have grown but the other ones have grown even faster and therefore you see the mix changing. And this is also a mix that we're comfortable with.

A little bit on ING Bank being a very important bank partner. It's one of the 14, but that's not giving them enough credit because they are obviously our biggest bank partner. We have agreements with ING Bank because of the separation and therefore you see in the markets where ING Bank is active and we are also active, so we will continue to cooperate intensely with ING Bank going forward.

Then, product mix. I already mentioned it. We have been focusing in the areas of life on protection and investment products and it has also significantly changed our profile. We see now that the vast majority of our business, around 85%, is in the area of protection and in the area of investment products, and that's also where we see the attractive margins that we will need for our profitable growth. So we're well on our way with the product shift that we intend to do.

Last but not least, expenses. Where in -- as I was saying earlier, when yields are coming down, we have pension reforms and other external pressure on our numbers. Expense control continues to be very, very important. So despite the top line growth that we've been showing and despite the investments that we've been doing, either in direct or in our multi-distribution and multi-access platform, we managed to bring down our expenses. So far last year, we went around 8% and this year, with the first half, we're again down around 11%. So we're well on our way to continue to have a very tight cost control while trying to grow our top line.

In summary, our goal is profitable growth and capital generation. We believe we can deliver this because of our very strong regional footprint. We believe we can do this because of our multi-distribution platform and our focus on products with attractive margins. We have a custom experience strategy to continuously improve and differentiate ourselves from competition. We will continue our tight cost control, and we believe that the combination of that will lead to profitable growth and capital generation over time.

So thank you for your attention. I hope I managed to bring some of the excitement that I have for the region also over to you. And let me now hand over to Stan Beckers who is the CEO of our investment management business.

Constant Eduard Maria Beckers

Thank you, David.

Lard mentioned in his introduction that he -- or the senior leadership team of the organization has been renewed significantly over the last months, and part of that renewal exercise I joined 2.5 months ago as head of the investment management group. And what did I find when I joined this group? Well, I found a solid, profitable and growing organization. It's solid on the back of a very strong, actually dominant position, in the Benelux, the home markets where we are the dominant provider of retail funds, retail mutual funds, and an equally strong position in some of the CEE markets where, in particular in Poland and in the Czech Republic, again we have a significant market share in retail.

We are a global player in the sense that we generate or we create global product that we distribute internationally. And we operate from a state-of-the-art middle and back office that allows us to leverage our product generation capability. In other words, we can grow without having to scale up our infrastructure. We have a broad distribution mix across channels and across geographical areas which will allow us to continue to grow our third-party business, and we have a long and consistent track record of generating capital and kicking back dividends up to the parent company or the sister company to be.

So let me give you some headline numbers and some salient features of this investment management business. We manage slightly less than EUR 180 billion in assets, and we have slightly less than EUR 40 billion in assets under administration, which is mainly our fiduciary business. Of that EUR 180 billion, roughly 40% is captive through the general account of the insurer, slightly less than 1/3 is Institutional business and slightly more than 1/4 quarter is Retail business. In terms of the asset mix, we are, given our history as an ensuring or given our parent company being an insurance company, we are a fixed income shop, where we have significant expertise in asset liability management, liability driven investments which we are scaling and leveraging across external insurance companies, and we have significant expertise in a number of fixed income products that play very well in the current market environment, such as emerging market debt, credit high-yield. Although our equity component is small, we have a number of significant and highly successful niche equity products such as again high yield contrarian strategies and sustainable equity.

So we have a solid base to operate from but what's the DNA of this organization, what is driving this organization? This slide is pretty much the summary of this DNA and I won't go through every single bullet point here but under the core values, I would like to highlight those that are unique or that set us apart.

We are a focused organization. In other words, we are now the supermarket. We select a number of niche areas that we play in and that we excel in. I've mentioned emerging market debt, sustainable equity, high yield, et cetera. And we are large enough to matter and small enough to care. The client focus that has been the recurring theme across all of the presentation so far and that will continue through the next presentations is actually also a dominant focus of the investment management organization, where we partner with our clients to make sure that we service them well and that we grow with them.

In terms of the value chain, I mentioned that we covered the waterfront in terms of the channels through which we distribute. This is deep retail, wholesale/retail, institutional, insurance companies and pension funds. I mentioned the scalable platform that we have so we don't need to invest more in our infrastructure, we can grow from our infrastructure -- the infrastructure that we currently have, and we are very much focused on growing the third-party business that will be the driver of our success going forward.

Now it's easy to claim that we will grow the third-party business, but why will we grow? We will grow because we have highly successful product. As you can see on this slide, more than 60% of our funds have outperformed their benchmark over the last 1, 3 and actually, 5 years. More than 60% of our funds have outperformed their peers again over the last 1, 3 and actually 4 -- 5 years. We have more than 40% of our funds, have MorningStar ratings -- 4 or 5 star MorningStar ratings which is again significantly higher than the industry average. So our 300 investment professionals which operate from investment centers across the world are actually succeeding through this focused emphasis on selective products to generate product that is well positioned to beat the competition and to grow going forward.

Now this isn't growth for the growth's sake, and we're not necessarily only speaking about growth in AuM, we're mainly focusing on growth in revenue. As you can see here, more than 80% of our revenue currently comes from nonproprietary AuM, slightly less than 20% comes from our general account. And our general account will -- has and will continue to become a less and less important component of our total revenues, whereas within that nonproprietary revenue mix, the revenue that we are generating through third-party distribution, i.e., through non-affiliate organizations is increasing at a dramatic rate. The non-affiliate distribution used to be dominant, it is now a small nondominant component of our total revenues.

So we will continue to manage general account, although it will become less and less important. As Lard has mentioned, we are cooperating closely with our sister company to position ourselves in the corporate DC markets, in particular in the Netherlands, through a proposition that's called PPI. And we will maintain and expand our retail success, in particular through direct distribution, where we have a successful direct distribution platform in Poland and we are rolling out a direct distribution platform in the Netherlands, where currently, by the way, more than 1/3 of our current AuM in the Netherlands in the retail space comes through execution only. So we are not dependent on the bank distribution anymore, any bank distribution for that matter. We are a successful player in direct distribution.

And then we will continue to focus on the third-party growth. By the way, just as an example of our success over the second quarter of this year, the ING fund platform in Luxembourg was amongst the top 10 AuM gatherers over the second quarter. So our fund range is doing quite well. It is selling highly successfully.

And then finally, revenues. As I mentioned in my introduction, we are profitable. We have been profitable. Our operating results are solid. Again, we are on track this year to beat the operating results of last year and the previous year, and we have a long-standing track record of generating dividends back to the parent company, and again, our dividends this year will continue to be upward trending from the historical past.

So as I mentioned in my introduction, this is a solid, profitable, growing company. It's a little gem, and we will make it shine. With this, I think we turn to our coffee break.

Unknown Executive

[indiscernible]

Jan H. M. Hommen

Everybody is desperate for a break.

Unknown Executive

[indiscernible]

Jan H. M. Hommen

Back at 10:30 is the marching orders.

[Break]

Delfin Rueda

Good morning to everyone. So welcome back after the coffee break. If I were to judge by all the questions that I already have during the coffee break, it makes me feel what's going to happen after the final presentations, in the question and answers. So I'm very happy to be here today to give you some indications on how we think about capital. The one thing that I believe, Lard, and the rest of the presenters so far, and David understands, have made very clear, is that we are in a journey. We are in a journey in order to improve our capital generation and earnings capability.

My main objective is to help you understand how we are thinking about our capital framework as preparation for our IPO. Jan has already indicated before, there will be some things I will not be able to be very specific about in terms of our precise capital target. But hopefully, with these guidelines and the questions that will be raised and some others after in the break, would be useful for you.

But before I go into the capital framework, let me basically make some comments on 2 of our main drivers of IFRS profits. These are expenses and investment margin.

Let's start with expenses. We have cut administrative expenses in the Netherlands by approximately 30% since 2007. That is reducing the workforce from 9,500 to less than 6,000 at the end of last year. Headline administrative expenses, as you can see in the chart, has increased in 2011. You have to understand that in 2011, there was some scope changes, in particular, the incorporation of the broker Mandema. That, in itself, explain an increase of expenses of EUR 36 million, but also, some additional expenses coming in terms of our preparation for some of the regulatory changes that are occurring, mainly Solvency II.

Lard has already mentioned the reduction in expenses so far. Following announcement in November, we indicated that we started the plan in order to reduce by approximately EUR 200 million of expenses. So far, we are on track with EUR 65 million delivered by June on an annualized run rate basis. But more importantly is that we have potential for more cost efficiencies, and that is not only in the Netherlands, where we are focusing on the [indiscernible] obtaining a further efficiencies in our individual closed book, also in our group business but also, in our growing business in CRE. David has indicated how already we see the overall expenses decreasing, as well as in Investment Management, where we believe that there is room for further operational leverage.

Now, let's spend a little bit of time talking about our Investment Management. Investment Management -- sorry, the investment margin. The investment margin represent between 25% and 30% of our life and Investment Management operating income, so it's an important component. You can see in the slide that the composition of our balance sheet is very conservative.

In the very top line, as you can see, that, over the last 2.5 years, we have increased the exposure of the government bonds by EUR 10 billion from EUR 31 billion to EUR 41 billion. And that was done, as you know, in order to protect our solvency. Going forward, we expect government bonds to decrease also gradually, also equities and corporate bonds to increase, mortgages and other loans may also increase.

From a capital generation point of view, this increase will certainly be beneficial. From an IFRS perspective, there is more nuisance. It's a bit more difficult to comment on that because the improvement on the investment margin will be driven by the difference between the reinvestment yield or the investment yield of new gas into the company, versus the existing book yield. I will now further -- will go further into the details of the composition of our government bonds within ING Europe general account.

As you can see, not only we have moved into more government bonds, but we also have moved into better quality bonds. At the end of June, 89% of our govt bonds were either AAA or AA, and 62% AAA. My message here is, depending on capital, we have room to increase our average market yield on our investments. Let's move now into the capital framework.

Let me start maybe stating the obvious, we are looking into our capital framework from 3 perspectives. We are looking at it from a regulatory point of view, from an economic point of view, but also, looking at the rating framework. At this moment, the regulatory framework is probably the most onerous and actually, indeed, also the more fluid. There are 4 key capital considerations to take into account. What are the local regulatory requirements?

Our ability to stand stress, the ability to pay our holding costs and certainly, our ability to service our interest charge. Let's look at each of them, as you know, one-by-one. But before we do that, maybe it's helpful to stop and have a look at ING-V. You can see in the top of the chart that we have reduced the financial leverage of ING-V substantially. The net financial leverage reduced by EUR 2 billion from near EUR 7 billion in June 2012, to EUR 4.6 billion in June this year. This will further decrease to a net debt of EUR 3.1 billion pro forma, so this is the EUR 5 billion of gross debt and the EUR 1.8 billion that you see as gas. And that pro forma is excluding the already announced sales in Asia and excluding the U.S. You have the details in the slide for your information.

Before I move into solvency capital, let's have a quick look at the composition of the 30th of June pro forma balance sheet of ING-V. We saw here a high balance sheet of ING-V, the IPO entity. This is pro forma, excluding the entities that have already been announced that will be disposed, but also, the U.S. It does, however, include the companies that are still categorize as held for sale, mainly ING Life Japan and ING Re VA. As you can see, the pro forma shareholder's equity is EUR 4.4 billion. This includes revaluation reserves. If you work to exclude this revaluation reserves of EUR 3.4 billion, the shareholder's equity is around EUR 11 billion. The IFRS equity, you see the breakdown by subsidiaries or group of subsidiaries by region. Certainly, Benelux with EUR 11.6 billion of shareholder's equity is the largest entity, followed by ING Life Japan, CRE and ING Re Japan.

Let's look now at one -- the first of the capital considerations, the solvency regulatory capital. This slide gives you details in terms of the local capital base of the main regulated entities. Also, the level of the Solvency I regulatory ratios, as well as for ING Life Japan, the local capital requirements. As you can see all subsidiaries are adequately capitalized. CRE, of course, is a combination -- is the aggregation of many companies, so some are more higher solvency than others. In the aggregate and also in the individual basis, it is properly capitalized. ING Life Japan, which is held for sale, has a very high solvency ratio from a local point of view. ING Re is also partially held for sale, and is also very well capitalized from a Solvency I perspective. Keep in mind, however, that Solvency ING Re is managed and also regulated on an economic basis. Obviously, given these levels, both ING Life Japan and ING Re Japan are contributing positively to our IGD ratio, which on a pro forma basis was 248% at the end of June.

Helpful to focus now on the largest entity, NN life. As you know, the regulatory regime in the Netherlands is marked-to-market, via the test of adequacy. This basically make sure that adjustments are made in order to have the both assets and liabilities on a market value basis. Therefore, there is no liquidity premium, there is no matching judgment, and the full movement in the market value of the assets immediately impact our solvency. That, of course, introduce volatility. This is probably one of the -- or the most prudent Solvency regime that I'm aware of.

Following the French downgrade, our pro forma available capital was EUR 5.1 billion for NN Life, that give us golf solvency ratio of approximately, 190% -- 189%. We do expect NN Life to increase the solvency ratio over time and pay dividends over time. The capital generation of NN Life will come from the investment margin, certainly from the gradually release of the reserve margin, as well as for the optimal management of capital for the individual closed book and Group Life business.

NN Life generated, as you can see, in the first half of the year, significant amount of regulatory capital, increasing approximately by 40 percentage points. That was the mix first, but most importantly, by retained earnings, as well as some improvements in the markets, so credit spreads benefited us during that period of time, as well as some updates in assumptions, particularly mortality.

One further point to highlight is what it has come to be called Solvency 1.5 in the Netherlands. This is the interim solvency measures, which are being considered by the Minister of Finance, and that provides some uncertainty towards our final capital structure. If implemented, that would formalize some requirements in terms of the ability of paying dividends from Dutch life insurance companies. This basically try to reflect some of the market elements, is an anticipation of Solvency II.

Something that we also need to consider as we finalize our target structure is certainly these characteristics of the Dutch market. I've talked about the solvency position of our entities. Now let me tell you about that the capital considerations, which are the ability to withstand stress defense, pay interest and cover the holding expenses.

Let us start with the holding company cash position. Cash capital at the company is needed to provide financial flexibility to cover our fixed cost, which are both expenses and interest costs, and to be able to inject capital into weaker subsidiaries post stress events. We will need to determine the target financial structure for ING-V, more precisely the mix between debt and equity, and that obviously, will be related to our ability to service our interest. One consideration that I can tell you now, and maybe, that's our reference for you, is our intention to keep or aim for a A rating, a A rating going forward. To summarize, to determine our target capital structure, we have looked at regulatory, economic, as well as rating agency requirements.

Let me leave you with the following message. I think we are very pleased with the net reduction of debt in ING-V, that has reduced substantially, it will reduce further after the completion of the announced transactions. [indiscernible] line that NN Life solvency position, which is mark-to-market, and therefore is proven following the French downgrade, is within a proper capitalization level, but arguably, at the low level of our target range. The other individual entities are well capitalized, especially ING Life and ING Re. Also, I have explained that we need to build some holding capital, a cash capital, at ING-V to provide us the flexibility for the separation from ING-V Group.

To conclude, I hope that we have convinced you that we are making good progress in our journey towards our standalone future, we are working hard in order to improve our generation of earnings and capital, and that is done focused on 5 pillars: Reducing expenses, reinvesting in higher-return assets, focusing on our capital generation on both the Life -- individual Life closed book, as well as the Group Life business in Netherlands, restoring profitability in the Dutch Non-life business, as well as growing profitably in central rest of Europe and Investment Management. Overall, I'm pleased with the progress made so far. Obviously, there is more to do.

With that, I will hand over to Dorothee van Vredenburch, who is responsible for change and organization. Thank you.

Dorothee van Vredenburch

Thank you, Delfin. I realize I'm the only thing standing between you and the highlights of this morning, and that's been able to ask your questions, so I will keep it brief.

As you've heard, we're working very hard to improve our company, operationally and financially, to be ready for the standalone future as of next year, the right to play and the opportunity to win. Let me start off by giving you a glimpse of the opportunity to win, what we're doing in terms of customer experience, and then I'll share with you how we are preparing to be ready for an IPO.

As David already said, we are relentlessly focusing on improving our customer experience, and essential to this is the Net Promoter Score program we introduced in 2009. As of last year, this has now been introduced in all of our business units, in all of our markets. We are systematically monitoring the quality of our customer relationships and transactions, and each business units has selected somewhere between 10 and 20 touch points, where they touch with the customer, like in annual statements, like visits, like a claims process, and we've now collected more than 800,000 feedbacks, and not just a grading of the service, but more importantly, the answer to the question, why? Why has he given us this mark?

But research is one thing, doing something with the results is of course the crux. So each business unit management team uses the input from these NPS results to prioritize improvements, to train staff and to respond through personalized dashboards. And as Salvatore [ph] said as well, each business unit also had a multi-disciplinary customer experience program dashboard, and we have introduced the Minimum Standards programs in many of our countries. All this has already led to a number of improvements, such as more user-friendly websites, self-service portals, simplified financial needs analysis tools, more and better email contact and enhanced transparency in our products. And the good news is that customers do actually value this, not just are the scores going up, the retention is improving and we're also receiving a number of awards in many of the countries where we operate.

But it's not just about the numbers. It's also about what I call, the living assets. Some of my colleagues in the board don't really like this term, because it means they are responsible for the dead assets, but what are being my living assets is everything that we have a relationship with. In other words, the staff you don't see on the balance sheet. And how we position our company and connect with our stakeholders, that is living assets. And not just this community, the investment community, but also our customers, our employees and society at large, our license to operate. And I know that they sometimes have conflicting interests, but I believe it's the brand that unites these, and it's all about what that stands for and how you can consistently apply that in everything that we do and say, both internally and externally. As I'm sure you know, we will not be going through life in the future, longer-term, as ING. Beautiful the name is, and you may not know, but it stands for Internationale Nederlanden Group. But sadly, somebody else has already taken that name from us.

So we will be rebranding. We've done extensive research. We have input from more than 20,000 consumers across our markets. We've interviewed agents, brokers, customers and of course, our NPS results. We've also done a competitive analysis. And the conclusions are clear. In the insurance industry, the brands still use price, push distribution and complex products. And this makes consumers regard us and our competitors as a useful necessity at best. They want us to provide them with a bigger picture, they want us to make things easier and simpler, they want clarity and guidance. And nobody has yet been able to demonstrate the fundamental transformation towards customer centricity. So we believe this is a clear opportunity for us to differentiate ourselves and to be truly relevant in the eyes of the consumers, from product-driven to an excellent experience, from trust us to we will help you to trust yourself.

We had a strong heritage in terms of brands, and the good news is therefore that we are not starting from scratch, so do not expect any creative wild ideas in terms of the direction that we're doing. We have a strong history, we have a strong brand awareness, with Internationale Nederlanden and with ING. We intend to stay close to our heritage, but with a new brand appearance and new values behind it. It means that we'll also be embarking on a new journey. It will be through evolution rather than revolution. And our intention is to announce the new brand name before the end of this year, and then to actually have this physical rebranding from the IPO onwards. Again, evolution, not revolution.

Let me close by sharing with you how we are organizing to be ready for the standalone future from next year. Together with ING Group, the selling shareholder, of course, we have established a Steering Committee and a thorough program structure, where value on the one hand, monitor the business improvement programs and on the other hand, monitor the progress of our IPO-readiness work streams.

Where are we now? As Delfin already said, last November, we announced the restructuring of cost saving program. We're on track to realize the cost savings and the FTE reductions. But it's more than that, the new 2-tier structure, which became effective on the 1st of June this year, cut out a full management layer. This has already led to shorter communication lines and less bureaucracy. But changing the culture is not just about changing the structure. We've also had a thorough management assessment of our top 175 roles. In our company, that is board minus 2. And as a result, more than 50%, 5-0, office group of leaders is new in the role. The good news is, they're not new to our company for -- most of them, 90% is internal changes, but they're new to the role, in order to, as Lard already mentioned, to increase the focus, to increase the energy, to get us where we want to go. And we don't stop there in terms of changing the culture. More customer experience means more accountability, better internal communication through technology. We now have customers first as the first agenda item on every single board meeting, and I'm very grateful for Jan Hommen for that one. Thank you, Jan.

So what is our focus the coming months? We still do have some operational dependencies with ING Group. We've put in place SLAs, and we hope to be able to eradicate those as well. That should be completed by year end. We've also just started our medium-term planning process, challenging the business units and the functions on their plans and costs in order to be ready for a very detailed public scrutiny. And of course, together with the group and with our regulator, we need to determine our capital level and financial targets and prepare the necessary documents.

In conclusion, I believe that we are well on track to earn the right to play, to be ready for standalone future. In terms of the opportunity to win, this is of course an ongoing process, with the relentless focus on cost containment, capital and excellent customer experience.

Thank you very much, I will now hand back over to Jan, who is going to be our moderator for the Q&A.

Question-and-Answer Session

Jan H. M. Hommen

Thank you, Dorothee. I would like to invite everyone to come to the stage. And we are being joined by Doug Caldwell, our CRO. He is the fellow closest to me here. Okay, we're ready to take questions. What I suggest is before you start asking questions, that you wait for the microphone, so that everybody can hear your question as well. Please state your name, your company, and then wait for the microphone. Yes, there are a number of questions over here. Go ahead.

Farquhar Murray - Autonomous Research LLP

Farquhar Murray, Autonomous Research. Just 2 questions, if I may. I mean, probably, all for Delfin, I'm afraid, so sorry about that. Just starting with dividend contributors, I mean, given where the capital position is currently, which actual business units are able to contribute often, and particularly what I'm trying to clarify is the status on NN itself. I mean you suggested you expect dividends in the future. I just wonder, given you're saying equally it's at the low-end at the moment, is it actually immediately able to pay dividends currently? And then secondly, just turning to Japan, which may be a broader question. And obviously, the deadline is coming along on that one. Equally, it made massive progress in terms of other parts of the divestment program. I mean, what are the colors, what is the status, really, on the various options you're looking at the moment, particularly with regards to regulators?

Delfin Rueda

So the third question is about the dividend capacity, particularly from NN Life, and the second was about the Japan disposals. So in relationship to the dividend capacity, I think my colleagues, both stand on the Investment Management has shown what has been the capital contribution from Investment Management so far in terms of dividend capacity. And there is, more or less, you can anticipate that the operating profit or the results of these units are of Investment Management, is basically capital generation. There is also a good capacity of dividend coming from central and eastern Europe, that despite the fact that we are growing, you have also seen that EUR 50 million has been distributed already during the first half of the year. And also, last year, there was a very significant contribution of capital. So we have, outside of the Netherlands, we have a good capacity in terms of dividend distribution. Your question refers more specifically about NN Life. NN Life, indeed, due to the downgrade of France, it is at the lower end in terms of the -- but still within the range of our capital framework. But NN Life, you have to keep in mind that -- has traditionally been a strong contributor in terms of dividends. If I were to look at the last 10 years, NN Life contributed EUR 10 billion net of dividends to the group. As a matter of fact, during the last half of the year, you also show that approximately, EUR 1 billion of regulatory capital was generated in the first half of the year. I have highlighted that there is some volatility and some uncertainty, due to movements in the markets on a quarter-per-quarter basis, but NN Life have the capacity to generate capital, and as a consequence, dividends in the future, in relation -- due to the investment margin and the release of the technical result. Maybe moving into Japan.

Jan H. M. Hommen

Yes, let me deal with Japan. As you can see, we have been extremely active in selling the assets that we have in Asia and have been extremely successful. In fact, we have done more than was required. Basically, we have sold 100% of everything, except Japan. Now in Japan, we have to deal with some regulatory requirements that are quite difficult to meet, both on the local site in Japan, as well as the regulator that we have in the Netherlands. And meeting them has been difficult so far. At least, it has not given us the ability to announce a transaction. We're still working on that, there are some options still that we are working on. I cannot go into details today, but I can assure you that these options are being looked at quite seriously, and I expect that before the end of the year. So maybe before we have our next meeting here, that we have more details that we can give you at that time. But at this moment, I cannot give you more than -- we're still working on it and we are reviewing, and not only reviewing, but working the options that we have quite seriously. We switch left and right. So now we go on the right side, and then we go to the left side again.

Ashik Musaddi - JP Morgan Chase & Co, Research Division

Ashik Musaddi from JPMorgan. A couple of questions. You touched upon re-risking your asset portfolio. I guess it's related to NN Life. So how -- what kind of yield pick up or spread pick up should we expect? And can you give us some time frame on that, how long will it take for you to re-risk a part of the portfolio? And secondly on cost, should we expect the cost of higher inflation or something and, i.e. how much of EUR 200 million should actually flow through the operating earnings directly, which is clearly visible?

Doug Caldwell

So if I understood correctly, your first question was about real estate or in general the investment yield?

Ashik Musaddi - JP Morgan Chase & Co, Research Division

General.

Doug Caldwell

So at the moment, our book yield is approximately 3.7%. Obviously, depending on how gradually we move into some reinvestments into other asset classes and government bonds, there will be some pick up. But I don't think at this point, we're also -- the overall capital structure is not fully defined. You will see some gradual movements but not too significant in the short term. In terms of the cost, the EUR 200 million was pre-inflation, if you like, as you know, reduction of cost. And Delfin indicated that we are very well on track so that the EUR 65 million is on an annualized run rate and we are confident that we will deliver on the EUR 200 million by the end of 2014.

Jan H. M. Hommen

There is also leakage that you may get as a result of inflation or maybe wage increases, maybe, Lard, you can make a comment on that one.

Lard Eilard Friese

Yes. Actually, Dorothee has negotiated a new labor agreement with our staff in the Netherlands, because most of this expense reduction is coming out of the Netherlands. And therefore, the coming years, there's been a central labor agreement agreed that has a 0 line, if you will, of labor costs.

Jan H. M. Hommen

Zero increase. No 0 labor cost, but 0 increase.

Lard Eilard Friese

0 increase. Sorry, 0 increase, not 0 line, sorry.

Jan H. M. Hommen

Dorothee, anything to add?

Dorothee van Vredenburch

No. For the coming 3 years, 0 increase until November 2015.

Jan H. M. Hommen

Okay. Now we go to the left side again. Yes?

William Hawkins - Keefe, Bruyette & Woods Limited, Research Division

William Hawkins, from KBW. First of all, could you just talk a bit more about the leverage structure of the insurance group, and how you see that developing over time? I mean extensively, EUR 3.1 billion of net debt doesn't imply, particularly, high leverage from my point of view, but there's a big difference between the net and the gross debt that you're carrying. And there may be more of an issue with regards to interest cover. So could you just help us understand the leverage issue, and how you want to address that? And then secondly, maybe for obvious reasons, but you haven't sort of touched on the challenge of consumer action in your local markets and what that may be meaning to available capital over time. I know that's a very big topic, but again, that may be something that we should be thinking about crystallizing so if you can help us understand that, that would be good as well.

Jan H. M. Hommen

Delfin, the first.

Delfin Rueda

I'll take the first question obviously, I understand very well your desire in order to have a more clear capital targets in terms of the EUR 3.1 billion, will be higher, will be lower. We cannot, at this point of time, provide you more clarity. I think that there is closure to the IPO. We'll cover that in detail.

Jan H. M. Hommen

Lard, second one.

Lard Eilard Friese

Yes, on the second one, I'd like to say 2 things, more in general, about consumer tech activism, et cetera. We have a very rigorous part process, in which we continuously reevaluate and evaluate the products and the appropriate of our products and the pricing and the goal we set for our customers, so that's one. Secondly, you also may refer to what you -- what the unit linked issue in the Netherlands, and that's probably you referred to. And we've taken action, that's an industry issue. It's been a topic that's been long with the industry for a while already. We've taken our actions to compensate policyholders in appropriate manner. We also did other actions, and so we think we are well addressing the concerns of our policyholders there.

Jan H. M. Hommen

Okay. We go right here up front.

Farooq Hanif - Citigroup Inc, Research Division

It's Farooq Hanif from Citi. Can I ask the same questions that everyone's asking, but a different way. Your current ROE, if you look at forecasts for the group that's there, ING EurAsia's getting quite low, 4% to 5%. And what we're all trying to get at is how much will that growth by? So maybe, can I ask you've given these 5 levers for group profitability, which 2 or 3 of those levers are going to make the biggest impact on your ROE? Hopefully, you can answer that, that's question 1. Question 2, if you look at the equity for the Life business, you've got a regulatory framework, which is EC AAA [ph] curve. And you've got a IFRS framework, which is guaranteed yield or whatever as your discount rate. If you moved to a marked to market of a balance sheet, would the impact be roughly EUR 4 billion, which is I think, on Slide 10 of Delfin's presentation. There's a reconciliation, so would your equity go down by about EUR 4 billion if you move to an EC BAAA's [ph] hike discount rate? And the last question, sorry to ask too many. But last question, you affirmed many times in your presentation to attractive margins in your business. So you want to write business in attractive margins. What does that mean, what are the targets? If you're writing something in Poland, how do you compare that with Dutch [ph]?

Doug Caldwell

You say, Farooq, the same question but in a different format. So probably, I'll try to give you the same answer, but also from a different angle. Certainly, it's too early in order to provide you any profit targets, any advanced consequence coming back to return on equity target would be difficult at this point in time. In relationship of the second question...

Jan H. M. Hommen

Five levers. The 5 levers.

Doug Caldwell

The question on the levers, I think that each of them, we can be contributing in its own trade path. I mean it's always a relative aspect. I mean you have seen the profitability coming from Central/Eastern Europe and Investment Management. We consider that these have growth in order to increase their operating result. Some of our books are maturity, and that is going to free up capital in a substantial manner over time. And certainly, the fact that from a capital generation point of view, the fact that the discount rate of our liabilities being the AAA, that also give us the opportunity of generating investment margin for generating capital substantially. So I think that I would not recap any of them specifically, all are contributing to it.

Jan H. M. Hommen

David, do you want to make a comment on the...

David Knibbe

Yes, I think on margins in CRE, as I was saying, the majority of our sales comes from Life. We've been changing the focus product wise, towards Life and within Life in protection and investment products. Hence, we've also seen new business margin increasing on the Life side. On the average, it's around 3.5% now of margin. And pension, typically, is lower, but the majority is Life.

Farooq Hanif - Citigroup Inc, Research Division

[Indiscernible] target [indiscernible]?

David Knibbe

No, we don't have a target set for this. However, internally, we stir on MCVNB, on MCVNB margin.

Unknown Executive

So we're pricing the market on consistent basis, and included in that, obviously, is the cost of capital, et cetera. And our policies have to write negative [indiscernible] MCVNB.

Farooq Hanif - Citigroup Inc, Research Division

;

The impact of equity is that right 4 billion [indiscernible]?

Doug Caldwell

If -- I guess you're assuming that if we move to IFRS fair value accounting, and the fair value accounting is assuming the AAA, you're referring specifically to NN Life. There are some other considerations because this 5.1 billion also takes into account, not only the test of adequacy, but some have prudential filter. So certainly, on a fair value basis, it will decrease shareholders front substantially. Not sure that the EUR 5.1 billion will be the final outcome. It depends because moving to fair value has other elements, not only the interest rates, it's longevity and other considerations, which are very complex, let's say, question to answer with a simple answer.

Jan H. M. Hommen

Okay?

Gordon Aitken - RBC Capital Markets, LLC, Research Division

It's Gordon Aitken from RBC. A couple of questions on the growth area, as you talked about in the Dutch corporate market. First one is DC. Now the Dutch market is still largely DB, so there is going to be the shift from DB to DC, and just what net inflows do you expect for the market as a whole, and over say, the next 5 years? And secondly, on the buyer opportunity you talked about, I mean there's real lack of supply in that market, but potentially huge demand, and I reckon it's EUR 200 billion of company DB funds, and which may -- well, a large proportion of them will look to buy out. So over the next 10 years, what proportion or what size do you think is going to buy out say, over the next 10 years, and what is your capacity to do that on an annual basis?

Unknown Executive

So first on the DC market, you are absolutely correct, that let's say, the market of the Netherlands is still large DB, but you do see and especially in the insured space, so where you see insurance companies play. You see quite a ramp-up, and in the slides that you can see in your deck, you can see how, actually the percentage moves quite substantially within the insurance solutions space from a defined benefit to defined contribution. We really see employers moving in that direction. The speed at which will be determined by their ability to reach new deals with their labor partners, but it's certainly stirred by things like the accounting changes and the cost of guarantees in the low interest rate environment. And we are actively helping them to get there. So we expect that we need to grow, and therefore, to provide a good flow of income in the coming years, not only from our existing clients where they have replaced the current DB schemes, but also from new clients as we compete with others for that business. When you talk about the buyout market, there's also a chart that shows you the pension funds, and also, the brackets in your deck. I would say on the far left or right side, the far right side, there are the bigger pension funds, like EUR 5 billion, et cetera. To be honest, I think that you're 2 billion [ph] includes those. I would not think that these may come to the market, but those would be, let's say, more difficult. I would focus more on, let's say, the midrange there where you have an EUR 81 billion in total of assets that may actually come to the markets because they want to let you liquidate the funds. We will selectively participate in that, because we do think it's an opportunity. It is something that will come when the coverage ratios of the funds are actually allowing it. And can you could see this morning that the coverage ratios are moving up, so that's coming along. But we will not suffer in terms of pricing. So we will -- we think it's an opportunity, we have all the capabilities to deal with it, but we will keep our strict pricing discipline that we find very important, because it ties up quite some capital and we need to make sure that capital sweats at the right levels. And we have trade-offs there towards Poland or here, so you need to make sure it sweats in the right place.

Jan H. M. Hommen

Okay. We switch to this side? Yes, [indiscernible]. And don't forget people in the back as well, okay.

Anton Kryachok - UBS Investment Bank, Research Division

Anton Kryachok from UBS. Two questions, please from my side. Firstly, sorry to come back again to the February topic of the day, but could you perhaps help us understand what is actually preventing you from finalizing the financial targets for ING-V right now? Is it just a matter of drawing up, bottom up, business funds for individual entities and agreeing them with the group, or are you still waiting for additional regulatory clarity, for example? And the second point, could you please remind us how reliant is National Netherlands on the Corporation with ING Bank in the Netherlands?

Doug Caldwell

I'll take the first question on what is impending [ph] us to finalize the target. I [indiscernible] said that. What I have said is that it is too early to communicate to you what our capital target is. No doubt, there is still some uncertainties, because we have Solvency 1.5, we have Solvency II. We haven't finalized their disposal in Japan. So all those elements do not play a role. So there is certain elements that are still fluid. And also, it's a question on the right timing in order to provide you more and more content. So that does not mean that we have a more clear view on how to approach that. So I hope that you can understand as it happens with the IPO in the U.S. that it is now too early in order to provide that view.

Jan H. M. Hommen

And on the second -- [indiscernible] in the back.

Unknown Executive

So the collaboration between the insurance company and National Netherlands and the Bank of Netherlands is very good. It's very good. It's been there for a long time. We have good partnership. They distribution, basically, the complete product line of National Netherlands especially in the retail space, so that relationship is good. It's solid, it's an arms length basis, and we have arrangements in place to ensure that, that arrangement can continue over time.

Jan H. M. Hommen

Okay. Michael? Right here.

Michael van Wegen - BofA Merrill Lynch, Research Division

Michael van Wegen from Bank of America Merrill Lynch. First question for you Delfin, I guess. Could you break down the sort of 40% increase in IGD in the Netherlands in the first 6 months into what was earnings, what was market impacts, and what was the assumption changes? And I think you said that it was, the assumption change was related to mortality. That, to me, is a little bit surprising that, that was positive because the way mortality tables have developed. The other questions, I guess, are more for Lard. On the individual Life business in the Netherlands, the closed book, you talked a lot about that one a lot, but you don't mention really capital management on that one. It's more focused about, if I understood well, on cost savings. What is possible in terms of capital management on that book, and to what extent is that realistic near term given the issue with [indiscernible] on that book? And the other question is on group pensions in the Netherlands. You indicated that you focused selectively on the mid market. And I guess, more on smaller market. You've been away from that mid-market for quite some time, has been dominated by Aegon and Delta Lloyd. How easy is it to come back in that segment without using pricing?

Jan H. M. Hommen

Delfin?

Doug Caldwell

So to your first question on the 40 percentage points improvement in solvency at NN Life in the first half of the year, basically, round the figures is 1/3, 1/3, 1/3. And I think that maybe Doug can comment on the mortality, the changing assumptions for mortality.

Doug Caldwell

That's a good question. I think at the last year, at year end, we have fully reflected the latest longevity tables that was called the CVS [ph] tables in the Netherlands. We officially adopt the exact CVS [ph] 2012 for longevity assumptions, and therefore, that impacts our solvency on a marked-to-market basis. What happened, this first half of last year, was on the, for lack of a better word, the base mortality not the trend. So there's 2 parts to our mortality assumption, one is how we'll experience the development retirement in terms of life expectancy, that were fully under CVS. There's also, where are we versus population mortality? And to make it, to keep it very simple, we had to make an adjustment, we had different experience, and we go through normal processes in this. And that was the assumption that changed in the first half.

Unknown Executive

Just along the, on the questions on the business side, take these in the Netherlands, the Individual Life first. We have a large book, 3.6 million policies, 23.8 billion liabilities. We've brought those books together. Why? Because we want to make sure that we run the expenses down there to make sure that we have a very efficient and continuously efficient as the book runs off organization there. It's been quite an integration because basically, it's been an integration for insurance companies to create this. And we have taken the first steps to reduce these expenses that I showed on the slide, and we will continue that path. On the point of future possible opportunities with that, we're currently very much focused at first, driving the expenses down, because that's the most important thing for that business. The second thing is about the group life market. This was about the buyout pensions that you referred to, so the liquidating pension funds that want to find insurance solutions for the liabilities. We have participated in that space. The last year 1.5 years though, we felt, in a number of cases where we participated, that the price levels were not meeting our hurdles. And as I said, we do not let our discipline on this go. Our capital needs to sweat, and it needs to make the returns. So we've taken a decision that's according to our [indiscernible]. That's a choice. And we will continue to do that also moving forward. Now, can we get in, can we still get in, et cetera, at expensive price? Of course, we can. We are a credible player, we are a large player. We have decades of experience in this business, actuarial firms and other firms that are advising clients on this know us very well. So we think that we have enough to be able to participate when we can, when it's good for clients to participate, but also when it meets our hurdles.

Jan H. M. Hommen

Okay. We'll go in the back, yes?

William Elderkin - Societe Generale Cross Asset Research

William Elderkin from Goldman Sachs. A couple of question, just touching back on that longevity point, to the longevity assumptions inside both your IFRS accounts and also the [indiscernible] accounts. Are they up there with the most conservative that we can see within the Dutch industry? Secondly, in terms of the capital generation within NN Life, I guess, your answer to the previous question, it was about 13 percentage points organic capital build over the first half. Can we annualize that number? And also, how much does that number go up by with the lower discount rate now in place? And then finally, in respect to the Eastern European business must be north [ph] of change in terms of the broader regulatory disco landscape there. Do your current run rate earnings reflect the risks that, that may present to the business?

Jan H. M. Hommen

Longevity. . .

Unknown Executive

Yes, so I think there were 2 question. The first is how is longevity assumption reflected in our solvency, which is marked to market. And any of our other marked-to-market calculations that we do, we're up-to-date with what's called, the CVS table. There's 2 main tables, in the Netherlands that companies usually use one of both or some small variation. They both give approximately the same result now for different reasons. But we use the last one just come out. I think that's fully, for lack of a better word, I think used the word, most conservative of peers, I think it is. I don't think there's anyone using a stronger table. And I think it's a quite strong table. In terms of the IFRS, there, it's a blend. So it depends on when the contract has come in over time. It goes into the IFRS accounts and the reserves at the table at the time, including renewals. Renewals come in at the new table, so it is a blend of longevity assumption of the IFRS accounts. We, of course, test that with things like reserve adequacy testing to make sure that we remain robust on an IFRS basis overall.

Jan H. M. Hommen

Delfin, capital?

Delfin Rueda

Yes. The result -- the possibility or not of extrapolating the first half of the year for capital generation of NN Life. I think that would be too much. We talked about EUR 1 billion of capital generated on the first half, on the first half. We're not going to provide you with guidance on that respect on NN Life. But I think I already mentioned to you the composition between the factors that has affected the NN Life over that period of time. The main drivers of the capital generation of NN Life, as I mentioned, is indeed the investment margin, the release of the reserve margin, as well as the free-up capital as the individual and group life, it reduces over time.

Jan H. M. Hommen

Run rates, any more on run rates?

Lard Eilard Friese

[indiscernible] I think you're referring to the Polish benchmark forum that has been announced. That is not reflected in our numbers, because the government has announced its intention. It still needs to go through parliament, and then it will possibly, turn into legislation. Then we will see the impact of what it will be on our earnings. I can tell you that last year, our first earnings were around EUR 42 million, so that's basically the range that could be at stake. I think it's also important to know for our Polish business, that more than half of our profit comes out of Life. And if you look at our, let's say, our value creation in our APE, we already see that also last year, 80%, 85% of our new business and our margin already comes out of the Life business. So I think that's on Poland. In general, the other pension reform we suffered through quite a few. We had the bench reform in Hungary which is obviously fully reflected. Slovakia did some reforms. Poland's already, before this one, had several reforms. All of those are reflected in our numbers. And last but not the least, I think it's good to mention that within pension, this is the mandatory piece, already today, even less than 15% of our APE actually comes out of this. So the majority is Life, but then also within pensions, the majority actually is third pillar pension fund, which is less prone to reforms by governments.

Jan H. M. Hommen

Okay. Somebody here in the front already [indiscernible] a little time?

Unknown Analyst

It's Mark [indiscernible] from Investec. First question is what happens to your solvency or your capital if interest rates go up 100 bps across the board. In other words, have you hedged everything out? Second, is you've talked a lot about getting expenses down. What I don't get a feeling for is how expense sufficient you are versus the competition, say in the Netherlands or some of these other countries. So I just wondered how much upside is there? You talked about EUR 200 million like it's a magic number. Could you remagic the number to get to be the most efficient in the market? And is that your aspiration? And the third one is cash. Cash is a word that I see more than any other word in analyst reports and I think I saw it once in your presentation. I just wondered, what is your thinking on cash in terms of how you structure your Life products, or how you're thinking about your business in general?

Jan H. M. Hommen

Solvency, Doug?

Doug Caldwell

Interest rate risk, our interest rates and solvency. I think we focus our interest rate risk management on economic, so kind of an economic balance sheet, like a swap curve, for instance. That also, by the way, currently in the Netherlands, also keeps our solvency ratio quite stable from an interest rate risk. I think if interest rates go up 100 basis points in the Netherlands, it's 10% or 15% movement to the solvency ratio. So we're actually quite well matched from a solvency -- I mean from an interest rates risk standpoint. It's been a principle we've avoid quite for a long time.

Unknown Analyst

So 10% to 15%, so the ratio moves by 10% to 15?%.

Doug Caldwell

If the interest rates go up, we may actually lose, because we're matched and because there's a UFR in the Netherlands, forward rate that changes along into the curve for the calculations. If rates go up, our solvency ratio may go 100 basis points. Our solvency ratio may get down about 10% or 15%. And if rates go down, it may go up by about 20%, 25%. But in our marked-to-market framework, to be honest, we're 100 for a EUR 60 billion portfolio, and very long-term viabilities is quite closely matched.

Jan H. M. Hommen

Anything to add, Delfin?

Delfin Rueda

Sorry...

Jan H. M. Hommen

Do you want to add to this?

Delfin Rueda

No. I think it is -- if the movement in interest rates are not the main sensitivity, for us, it's more the movement in credit spreads.

Jan H. M. Hommen

On efficiency may be?

Unknown Analyst

I mean what is the sensitivity?

Jan-Willem Vink

I think we can talk about credit spreads, or spreads mean a lot of things. Right now, the biggest sensitivity, if you saw our asset side is it's primarily government. But we have a lot of government bonds. So but even if those, we have a fixed liability discount curve by our regulator. You either swap our EC BAAA, which is now only 4 countries. Whatever that moves, your assets, even if they're safe assets, might not move exactly in the same way. So that, when you again, when you got a duration of the liabilities of 16, that's quite levered. So all the Dutch companies are doing, within probably everyone in Europe as we move to Solvency II. Solvency II, luckily, is putting in a better framework for lowering this and managing the spread volatility than the Dutch regulator has so far, included in their framework. So it's not -- it can be from risky assets, but it can also be, as much as anything, just from a mismatch, a timing mismatch, even on very safe assets.

Jan H. M. Hommen

[indiscernible] Relative to competition?

Lard Eilard Friese

Efficiency, relative to competition. As we said, we focus a lot on efficiency and expense reductions, because we feel that we have things to do there. We think that this will be a contributor to improving the overall return of the company, and we're doing that in a number of ways. So we drive -- we focus on expense reductions in the individual close block, we focus on expense reductions in technology. We focus on expense reductions in overhead staff. And to your point, the magic number of EUR 200 million is a target that we set ourselves, a pretext before 2014. And we are currently working on additional, on additional and continuous expense reduction programs thereafter. So do we want -- do we think we have a way to go there? Yes, we can. There is -- we think have a lot to do there.

Unknown Analyst

But how long [indiscernible] at the moment...

Lard Eilard Friese

We can talk about most or less or whatever. The one thing I know is it needs to improve and that's what we're doing. So we want to be really, a very efficient company.

Jan H. M. Hommen

Let me help you a little, bit, Lard. You haven't really reached your max yet?

Jan-Willem Vink

No. There's work to do.

Jan H. M. Hommen

Okay. So there's a lot of opportunity to further reduce, and it has to do is looking at your produce, looking at your processes, looking at your systems, and looking at your IT, so there's still a lot of procurement, there's still an opportunity, so there's still many things on the cost side, that we haven't touched yet. David, do you want to make a comment on your competitive position in [indiscernible].

David Knibbe

I think we look a lot of this on legal entity basis we can compare. We look relatively well compared to competitions certainly after the expense savings that we've been doing. Having said that, when you have continuous margin pressure, which we expect and with yields coming in, defense from reform as we talked about, we will continuously tightly manage our expenses while trying to grow top line. And we believe that we can keep our expenses well under control and grow our top line, that will greatly contribute.

Jan H. M. Hommen

Let's not forget, because you have expenses as well.

Unknown Executive

I do have expenses. Our cost income ratio currently is around 72%. I think the industry average is somewhere between 70% and 65%, so there is room to improve.

Jan H. M. Hommen

Then cash. Who wants to talk about cash?

Unknown Executive

I think we have emphasized in our presentation cash several times. We're managing the company for generation of regulatory capital or cash, that is our main driver. So it's not IFRS profit, it's not the growth. It's certainly generation, regulatory cost capital.

Unknown Analyst

And you'll share that with the markets, so you'll present all numbers in that way so we can see that cash is being generated [indiscernible].

Unknown Executive

No. We'll see when we are closer to IPO and after the IPO, how we present the numbers. But certainly, if this is important metric for us to manage the business, we'll have to be -- present it externally.

Jan H. M. Hommen

Okay. I think there were questions here. Yes?

Benoit Petrarque - Kepler Cheuvreux, Research Division

It's Benoit Petrarque from Kepler Cheuvreux. The first question is on the Dutch Group. Could you give us a feel on the average guaranteed rate in the Netherlands on the Dutch book, on the Life? Number 2 is on the leverage ratio, the difference net grows. I think you have about EUR 1.8 billion cash now sitting on ING-V. What will be the amount of cash to make you want to keep that ING-V level, also, looking at your dividend outlook and holding expenses? And then on capital, could you just give us a feeling about, like the impact of Solvency I and the potential to move the swap curve, where the IGD ratio in the Netherlands will kind of end up at the end of this year under pro forma basis?

Jan H. M. Hommen

Delfin?

Doug Caldwell

We'll start then with the last 2 questions. So starting from the last -- the movement. If we were to do a movement from AAA to swaps, at the moment, it would be quite neutral in relationship to our available capital at this point of time, both [indiscernible] curves are very close to each other. So the criteria, in order to do the movement, is not so much what is the impact in your available capital, but the risk that you reduce or moving to swaps, for example, of further changes in the composition of the basket. It has indication for your asset ability management on your investment portfolio. Keep in mind that approximately 30% of our invested assets in the general account are invested in people, as you know, good members [ph]. So that means that we have currently with the AAA [indiscernible] to our hedge. So there are implications also for hedging. So this is a possibility that is open to us at any time. So we currently are with the AAA curve. We can shift it to swap when and it is convenient, and we are considering it as we speak. The other question was about the gross debt and net debt. In the pro forma, we talked about EUR 5 billion gross and EUR 1.9 billion of cash, including the pro forma proceeds coming from Korea. So going forward, I think that, that was what you were looking for in terms of how they would evolve. I think that leads to our final disclosure to you in our capital targets and that would wait until closer to the IPO, if I may refer you to.

Benoit Petrarque - Kepler Cheuvreux, Research Division

The Dutch book?

Unknown Executive

The Dutch book, 3.6.

Jan H. M. Hommen

Okay. Yes?

Marcus Rivaldi - Morgan Stanley, Research Division

It's Marcus Rivaldi from Morgan Stanley. Three questions, please. First of all, just some clarifications. On the gross debt, could you mark to market that, please, because I think you have EUR 700 million of debt mature yesterday. So can you tell me exactly how you changed the mix with maybe the internal debt to offset that? Secondly, you talked about Q2, Q4, next year IPO, so that means we should expecting Q4 this year, Q1, maybe externalization of some of your debt? And of that, do you think it's going to be very much hybrid dominated or do you think you'll be issuing senior debt as well? And then finally, you talked about a new range rating. Isn't that the legal entity ING-V or is that a sort of group star or rating?

Delfin Rueda

So I think 3 questions and I'm always trying to remember when the questions like that are raised. So the first question, I think it was about the maturity of EUR 700 million. So actually, it was not only EUR 700 million of external debt. There were also some internal group debt maturing yesterday, and basically, this has been financed through a breach loan with the group. And eventually, this will be as part of the original structure and with the proceeds of Korea and other things that will be dealt with. Then you asked about what is the expectations in terms of debt issuance or conversion from group into external debt. Certainly, this is a very important consideration prior to the IPO, and that will lead that to your third question. Indeed, there are going to be a certain or a high proportion that need to be in hybrid equity, as you know, supporting the capital. But what amount and when that would be issued, you would know as we feel appropriate to announce.

William Elderkin - Societe Generale Cross Asset Research

Just the rating for [indiscernible]

Delfin Rueda

The rating is set for ING-V. So the reported company, of course, as you know, the other subsidiaries are used to also have a good rating.

Jan H. M. Hommen

Okay. Yes?

Francois Boissin - Exane BNP Paribas, Research Division

Francois Boissin from Exane BNP Paribas. Just 2 questions. The first one is, how about just cover the IPO, I mean, are you happy with listing the whole Eurasian operations or just will consider trade sales opportunities by the IPO? And the second question is with regards the offering of doing a spinoff, can you elaborate a bit on how you see things, what kind of timing you will do in that.

Jan H. M. Hommen

Okay, I will take that one. Scope, we follow always a very standardized process, and there's all the divestment program that we have done. We always have the base case in IPO, simply because that's the most demanding in preparation. We also look at alternative bill of rights [ph], as we call them, and we always look at is there a possibility for trade sale, and we'll review that if we see that as a real opportunity as well. Most of the time, we time that in a very organized way in such a way that you prepare first the IPO, and at certain point, you check is there a possibility for a trade sale and was that a more attractive one, yes? So the timing of that is important here. Spinoff or not spinoff, yes, that's a question of the capital needs at the time, a question of the complexity of the transaction at a time, regulatory requirements in the markets at the time that you do that. In principle, I would say, we look at -- and I mentioned it earlier, we look at IPO as the best case, but we also will evaluate the spinoff or partial spinoff, and the circumstances at that time will determine that. One element that I forgot to mention here is, of course, we will certainly look at the creation of shareholder value in this whole exercise as well. It's an important element in the decision-making, of course.

Unknown Analyst

[indiscernible] in 2014, your [indiscernible] can you do something beyond this [indiscernible]

Jan H. M. Hommen

Okay, the -- otherwise, people in the back cannot hear this.

Unknown Analyst

Yes, sorry about that. It was just a follow-up question on the deadline. Basically, 2014 sounds like a new time frame. So basically, would you consider going beyond 2014 in case conditions are not adequate?

Jan H. M. Hommen

Well, of course, the conditions will determine whether you can go to the markets. So there's always the -- provided we have made that we plan to be ready. If we'll have the worst, what we can do, the preparation that we can make, we will be ready for it in 2014. Yes? And more on this side? No more questions on this side? Then we'll go to the back because -- yes, sorry. Go ahead.

David T. Andrich - Morgan Stanley, Research Division

David Andrich from Morgan Stanley. Two quick questions for myself. I'm just wondering if there was any update in terms of the time frame for solvency 1.5 if there anything [ph] for the news on that. and could you just give us a bit more color on the distribution agreement in ING bank and the U.K. insurance business as well?

Jan H. M. Hommen

Delfin?

Delfin Rueda

I can cover the first one in distribution [indiscernible]. And so the intention is for solvency 1.5 to be in place as of 1st of January, 2014. And I cannot say much more into that because it's not within our control. Of course, it is a very intensive dialogue between Minister of Finance, DNB and the industry and what steps will be taking is to be seen.

Unknown Executive

[indiscernible] On distribution, what we have, and after the intention of separation was announced, we have long-term agreements with the bank. Some of them are getting closer to renewal date and we have agreed that we will go to long-term agreements, which we should finalize pre-IPO. So the attention is have tenure agreements. Some already have this, for example, in Belgium. That's already in place. Some of that is what we want to finalize pre-IPO.

Jan H. M. Hommen

Okay. I don't see -- no more hands going up. Yes, you have one in the front.

Unknown Analyst

Sorry, just one quick follow-up on David's question. If matters on actual solvency 2 become accelerated, so the company has become desperate to have one framework, which may happen. Will the DNB reconsider or is 1.5 definitely going ahead?

Jan H. M. Hommen

We'll take that question back to the DNB. Anyone? Sorry.

Unknown Analyst

Just out of curiosity, have you actually decided on the brand?

Dorothy Hillenius

Yes, we have.

Unknown Analyst

Is it possible, in the older days, when we used to come here, we used to have this competition, which was basically work out the share price of ING at the end of the year. Would it be possible to have a competition? You've got a nice positive whatever at the end, so would it be possible to have a competition, the person is closest by letters, or whatever, to the brand?

Unknown Executive

I will think about that, but I already gave you quite a few hints. This is not going to be some fantasy, proper entrants type grammy. So I suspect the bottle may have to be shared by a large number of people, but I have to...

Unknown Analyst

In that case, may you reconsider the brand, please? I like [indiscernible]. Is that possible? Is that a nice idea? That's a wonderful idea.

Unknown Executive

We'll organize it [indiscernible]

Unknown Analyst

Or an alternative name, perhaps?

Unknown Executive

Alternative name, yes, that's fine.

Unknown Analyst

That's just an alternative.

Jan H. M. Hommen

Okay, no more comments, no more questions. Then I'd like to thank you for your presence here. There's lunch being served, and I believe that we plan to have regular meetings so that you have regular updates on the progress we are making over time. And then we can also answer probably some of your questions that you have. So thanks, again, and we invite you for lunch here.

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