ING Asigurari de Viata Stadiul de implementare Solvency II

1. ING Asigurari de ViataStadiul de implementare Solvency II Adrian Lupescu Director Departament de Risc

2. Agenda ING implementation Regulatory development Model development Business impacts Governance (& project management) Conclusions Banking - Investments - Life Insurance - Retirement Services

3. Agenda ING implementation Regulatory development Model development Business impacts Governance (& project management) Conclusions Banking - Investments - Life Insurance - Retirement Services 3

4. Enterprise Architecture Business strategy and operation Capital management Business Operational management Investment management Capital management Governance Models ALCO Business process Validation and Audit Risk models (Internal model) Reporting process Disclosures Model controls Market risk Credit risk Insurance risk Operational risk Consol-idation EC/ECAPS Project management Risk models (Standard model) Steering Planning / monitoring Issues Comm-unications MCEV and IFRS4/II MV Balance Sheet Own Funds models Quality assurance Data models Systems Knowledge management • Architectural principles • Financially sound • Compliant • Pragmatic • Modular Results Resources Regulation Regulatory development process Regulations Pillar I: Val & cap requirements Pillar II: Supervisory process Pillar III: Disclosure ING relationship, response and participation Banking - Investments - Life Insurance - Retirement Services

5. Agenda ING implementation Regulatory developments Model development Business impacts Governance (& project management) Conclusions Banking - Investments - Life Insurance - Retirement Services 5

6. Key regulation issues • Recognition of expected profits in Own Funds • Recognition of Deferred Tax Assets in Own Funds • Tier limits in Own Funds are too tight • Hybrid capital instruments treatment in Tier 1 • Treatment of future premiums • Reflection of diversification and taxes in the Risk Margin • The choice of the liability discount curve • Recognition of geographic diversification in required capital from non-EEA entities • Proposed calibrations for capital requirements • The admissibility and maintenance requirements for Internal Models • QIS 5 is an important opportunity to update some of the methodology and calibration issues. Important to adopt realistic parameters and to look at end 2009 and end 2008 to ensure volatility of regulatory balance sheet is properly understood by all stakeholders • We believe that more frequent dialogue is needed between stakeholders (especially between supervisors and insurers associations) in order to ensure the best possible regime in moving forward Banking - Investments - Life Insurance - Retirement Services 6

7. Agenda ING implementation Regulatory development Model development Business impacts Governance (& project management) Conclusions Banking - Investments - Life Insurance - Retirement Services 7

8. Over the next 6 months: a strategic review of the model architecture MV Balance Sheet Capital Requirements IRM Free Surplus Free Surplus Improve, extend or simplify existing models SCR Standard Model SCR Internal Model “Own Funds” IRM, Finance Market, Ins, & other Risk models Extend the work currently being done on MCEV and MVBS Credit Risk models Other liabilities Market Value of Assets Fundamental review of overall approach Start from scratch Technical Provisions (Best estimates liabilities plus MVM’s) IRM CRM &IRM ASSETS LIABILITIES Banking - Investments - Life Insurance - Retirement Services

9. The Group remains committed to the Internal Model, but a robust Standard Model is needed in parallel Internal Model (IM) (EC basis) Existing internal usage and investment Expected lower capital charge than SM DNB & Investor expectations Consistency with MCEV, EC, IFRS4 phase II Standard Model (SM) Complexity - difficult to satisfy ‘use test’ at all levels Need to calculate for reference anyway (pre and post) Strong political criticism of IM’s in wake of crisis, leading to: Higher burden of proof to get IM supervisory approvals IM compromises to satisfy regulators Possibility of add-on’s anyway • Conclusion • Remain committed to IM in principle • Strategically review each IM component: Simplify, Retain, Improve, or Extend • Build a robust SM in parallel (for reference) Banking - Investments - Life Insurance - Retirement Services

10. Internal Model approval pre-application • Objective: Preliminary view by supervisors on likely acceptance of our internal model for Solvency II purposes. Identify/discuss issues, so that these can be addressed before the formal application for model approval. • Letter detailing Internal Model pre-consultation process issued on 12 March 2010. • Required by 1 May : General model documentation, QIS4 & RiSK results • Required by 1 Jun : Governance & implementation plans • Required H2 2010 : Full technical documentation & evidences (eg of Use test); Detailed DNB/Supervisory review • Board level sign off of required for submission packs • DNB as lead supervisor co-ordinates approval of Group Internal Model via the college of supervisors • In practice, processes involving college of supervisors is untested • DNB is both group supervisor and solo supervisor (eg NN) • ING College of Supervisors met on 30 March 2010, with specific session on Solvency II. Follow up 2 day technical workshop planned for 2 June • ….So: • Substantial (less formal) communication needed between local ING BU’s and local supervisors • Substantial co-operation needed between Group, NN and other EU BU’s • DNB has requested monthly S2 progress meetings between DNB officers and ING Project manager

11. Agenda ING implementation Regulatory development Model development Business impacts Governance (& project management) Conclusions Banking - Investments - Life Insurance - Retirement Services 11

12. “In the news” Banking - Investments - Life Insurance - Retirement Services

13. Product strategies:Solvency II is largely aligned with MCVNB requirements Since solvency II is based on MC principles, products favoured will be aligned with those with high MCVNB However use of gov. bond rates to value liabilities, coupled with exclusion of liquidity premium adjustment, will likely mean that long term fixed (illiquid) liabilities will become expensive With profits traditional business can be attractive as asset risks are shared with policyholders (with offset against capital requirements). However valuation of the guarantees and the profit share mechanisms becomes complex, and may offset any advantages Solvency II regulations will reduce allowance for diversification of market risks, but diversification against non market risks remains Pensions business is excluded under Solvency II, meaning that no credit can be taken for PV of future fees/profits. Future regulation of pensions is unclear. Asset side products (eg mortgages & loans) do not look attractive due to inconsistencies in proposed regulations • Fixed long term guarantees need to be minimised • Investment linked products (without guarantees) look attractive • Variable annuities can still be attractive, as long as effective dynamic hedging strategies can be set up • Insurance & investment risks can be diversified, and can be done either at a product level (eg bundled products), or at a company level (balancing sales of different product lines) • Traditional with profit business needs to be carefully designed with low guarantees, and manageable profit share mechanisms • Pensions business will need to be viewed as a very long term investment Banking - Investments - Life Insurance - Retirement Services

14. Agenda ING implementation Regulatory development Model development Business impacts Governance (& project management) Conclusions Banking - Investments - Life Insurance - Retirement Services 14

15. Project organisation (revision) For Information EB, MBI, IOC, F&RC Project Sponsors ALCO, IRM Council, IMC Direction “cc” & As required Executive stakeholder group Project Steering Committee (PSC) Bimonthly meetings Project Manager Other Corp projects: Core Project Working Group (PWG) (approx 20 managers, monthly meetings) Corporate staff departments S2 Core project team (6 FTE’s) Business Line & BU teams Execution Corporate staff departments Corporate staff departments Regional and Local boards, management and ALCO’s Workstream 1 Workstream 1 Weekly meetings Workstream 2 Workstream … Banking - Investments - Life Insurance - Retirement Services 15

16. Corporate needs to work closely with BL & BU’s Corporate responsibilities Legislative lobbying and lead regulator (DNB) relationships SOP’s and principles in terms of methodology Central systems (ECAPS, Gaudi, Vortex, ORM) Group supervision & consolidated reporting requirements Standards, guidelines and templates on local models and systems Training materials, co-ordination & delivery Knowledge sharing Program management BL & BU responsibilities Review of local models (particularly on the liability side valuation models) Controls on source data (liability, asset, general ledger and other KPI data) Appropriate configuration of, and data uploads to corporate systems (eg ECAPS and Gaudi) Local reporting processes and governance Compliance based on final local regulation. (As “transposed” from the European level directives and guidelines) Local supervisory relationships and reporting Production of QIS5 numbers (H2 2010) Training delivery (BL& BU) Regional and local project management Banking - Investments - Life Insurance - Retirement Services

17. Agenda ING implementation Regulatory development Model development Business impacts Governance (& project management) Conclusions Banking - Investments - Life Insurance - Retirement Services 17

18. Gap analysis needs to be substantially completed by mid year Objective: Identify detailed “gaps” between ING current state, and Solvency II requirements Based largely upon detailed “line by line” analysis of requirements identified in CEIOPS Final Advice Covers all workstreams / domains (Regulation, Models, Governance, Business) Co-ordinated approach at corporate (across all functions) and at BL/BU levels Focus is largely on Europe, but non EU will also be included based on materiality Should be substantially done prior to DNB Internal Model approval pre-application (July 2010) Outcome will be identification of both key issues & detailed issues; and a refined delivery strategy & implementation plan We will concurrently develop detailed training materials, and deliver first round of actual training Desire to do mostly in-house to keep costs down, and retain ownership This requires a substantial commitment of internal resources during Q2 20 March 15 May 30 June end Q3 Phase 0 Initiation Phase 3 Detailed Gap (other) Phase 2 Detailed Gap (high priority) Phase 1 Determine S2 requirements Training Banking - Investments - Life Insurance - Retirement Services 18

19. Key risks and issues Group capital management optimisation; structural options still not confirmed Embedding S2/MC approach into the business (products, investments); impact of use test Internal Model approval at local level Managing volatility of MVBS Unpredictability of political barriers/compromises Complexity of international rollout in the context of a decentralised organisation structure, across multiple functional lines Potential to underestimate controls needed for a regulatory system (as compared to an internal system) Internal complacency on 2012 timeline Possibly major systems development requirements (unknown at this stage) Credit risk approach still uncertain Standard model approach still uncertain MCEV, IFRS4 Phase II, and S2 convergence and differences Cost pressures - Corporate level resourcing and BL/BU resourcing Banking - Investments - Life Insurance - Retirement Services

20. Critical success factors • COMMUNICATE WITH THE SUPERVISOR ! Banking - Investments - Life Insurance - Retirement Services

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