ING Groep NV (ING) 2003 Q3 法說會逐字稿

Good afternoon, currently all participants are in a listen only mode, after the presentation there will be an opportunity to ask questions. If any participants has difficulty hearing the conference, please press the "*" key followed by 0 on your pushbutton phone for operators assistance.

I would now like to turn the conference over to Mr. Bill Holding. Please go ahead sir.

Good morning. This is Bill Holding for ING welcoming you to ING's conference call on their figures for the first nine months of 2003. Hosting the call today in Amsterdam will be Cees Maas member of the Executive Board and Chief Financial Officer with Herman Verwilst, Director of Investor Relation and at Atlanta, Tom McLnerney, Chief Executive Officer of ING US Financial Services.

Before turning this over to Cees, let me first say that any forward-looking statements on today's comments are subject to a number of variables including interest rates, foreign exchange rates, and inflation rates, movements on security markets including acuity markets and underlying economic health and changes.

Realization of forward-looking statements could be materially altered by unexpected movements in any or all of these and other variables.

Having said that, good morning, Cees, Tom and Herman.

Good morning, Bill. We all thank Bill for these kind introductory words. Ladies and gentleman on behalf of Tom and myself and Herman welcome to this conference call.

Before giving you the floor, let me sit by the various introductions and say a few words on the first results of the first nine months.

We are pleased with the results of the first nine months, operating profit that you have seen went up by 11%. Expenses were down by 7% and organically should have taken currency movements into your account overall expenses went down by 1%.

Of course, as you have seen the good performance were supported by the strongly improved banking results, operating profit on the banking sides was up 41% to $1.2 billion reason for the strengthening of the interest result, interest in margin, overall interest margin went up. It was supported by lower expenses.

Expenses went down by almost 6% and it was supported on the banking sides by a lower last divisions down to 47% basis points in the first nine months and even 39 basis points in the third quarter.

On the insurance side, there was mixed picture, operating net profits went down by 3% organically, so taken currency elements into affect, it went up by 1% and here again it was a mixed picture, the United States Insurance profits went up by 20%, which was in their own currency which was taken if necessary Tom (inaudible) move about it.

Overall, no life business almost doubled, the results of it. So that was a great performance also are in (inaudible) in particularly in United States went down to close to 0 5 basis points only.

So that was all the good news. I just said that there was a mixed picture we are living in the low interest environment so investment income was down. Dividend income was down.

The results in the Netherlands around the pressure, although the premium growth was 9%, but the results were reflexed and there was a negative development at the US Life Reinsurance business.

We will face it with higher modalities than expected in the third quarter. Life insurance results were supported by the strong results in developing markets, premium went up in local currencies by 9% and pretax profit went up by 12%, so the grain machine, the growth is still there in the developing markets.

Finally, the capital base be improved, our capital coverage and insurance business further at the end of September, the capitalization was 178% of EU regulator require capital and that was up 9% gone compared to the end of last year and yet to date this capital coverage ratio is even 182%. T1 ratio of the bank was strong 7.44 and you know that our target is minimum 7.3%.

Finally, our forecast for the year for the first time this year in 2003 we have given a closed date of outlook as you have read in the press release we have said that provided that financial markets still more deteriorate substantially. By year end we expect operating net profit to increase by 10-15% compared to the full year 2002 operating net profit.

Having said that, I think it is time to give the floor to you. Thank you.

Are you ready for the questions sir.

Yes, go ahead now.

Thank you. Ladies and gentleman, at this time we will begin the questions and answer session. If you have the question, please press star followed by "1" on your press button phone, if you wish to cancel your request, please press "*" followed by "2".

Your questions will be answered in the order they are received if you are using these equipment today. Please lift the handset, before making your selection. One moment please for the first question.

The first question comes from Nick Watkins. Please state your company name followed by your question.

Good afternoon. This is Nick Watkins. I am from media. I am here with three questions, first question is can you please shed some lines of stability as the US Reinsurance business is concerned from the-- Is this one of mortality charge that was seen in Q3 and to expect of that is to recover going forward or is it a fundamental change.

And then second question is a more banking related that one on the banking March and progression in Q3 with a strong-- can you explain a little on the (inaudible) saying in particular is this, this bank being a substantial margin uplift and lastly on the bad debt progression in the quarter seems suggestion being a substantial margin uplift.

Then lastly on the path there's a question. In the quarter seems US and UK in particular in a very strong recovery in listening rates. Is this out of level (inaudible) in these regions and what do you plan on doing in terms of penetration especially in the UK and US?

OK. Thank you. I will answer the questions on the bad loan provisions and on the banking margins and Tom will reply on the reinsurance business in the US.

On the banking margin in the banking operations, of course it was supported by the strong youth group as know in the nine months as whole the interest margins went up by 20 basis points in the Netherlands and the abroad, it went up by outside winners with about 4%.

In the course of itself from - in the Netherlands, there was a flex development as far as the (inaudible) is concerned, the interest margin and outside the Netherlands, the interest margin increased by 12 basis points.

So the overall margin increased by seven basis points. In deed, this has to do with the improved individual margins of course in ING direct, the youth group in ING direct in the United States is pretty steep, the difference between the average GLs of three months interest rate and 10 years interest rate in the third quarter in the United States was 314 basis points and in the Netherlands and in the EMU area it was 199 basis points.

So you are right. This has to do with the shape of the youth group on the one hand and on the other hand of the strong growth of our ING direct firms entrusted.

The bad debts in the United States and the United Kingdom, you are right, this has progressed substantially that has to do first of all with the turnover improvement of the portfolio in particular in the United States and secondly, it has to do of course as you compare it with last year with the fact of last year, we had provision in - there was provision necessary for Argentina, which in particular in the second and third quarter, there was some releases small ones, very small ones, but nevertheless was some releases from that and in the first nine months, of course for the last year we had to make higher provisions for Argentina.

So, this is the main result. But underlying there is indeed as it is correctly as same as there is a strong improvement in the quality of the loan portfolio. Tom, it is before to you for the reinsurance business in US.

Thank you Kist. The poor performance in reinsurance business in the third quarter was attributable to higher claims particularly in the later half of September that was about adverse claim trend resulted in 48 million of higher claims, but that included 12 million increase in the third quarter for IBNR results.

We also put in a new system and as a result of that we increased the premium accrued by 12 million and so we think that was one time as well. The early preliminary look at October claims is that back to a more normal expected target, so we do think that was attributable to the higher claim volume particularly in the second half of September.

Thank you.

The next question comes from Mr. Nick Burn, please state your company name followed by your question.

Hello this is Nick Burn at, JP Morgan. Couple of questions, again on the U.S. insurance side, I wonder if you could just give us a some (inaudible) from available music business in your supplementary part you detailed the course of development invariable in your season is a very volatile piece, given the positive development in the equity market and the positive back comment, I was surprised to see that there was such a sharp decline going from Q2 of this year to Q3 where you posted a profit of only 60 million in that line

And the second question is on the investment mix in the U.S. as well. Because the question really is how sustainable is fixed upon yield that you are showing on the overall mix of assets, if I look at your (inaudible) portfolio for example, you talk about continued pre payment risk in our business but if you look at what's happened in the mortgage market, the pre payment market has actually dried up since July.

And I worry that the yields could suffer quite substantially going forward, I wonder if you could get some comments on your mortgage pack exposure and how you are seeing with expansion risk in our portfolios as well.

And then just as aside on the last point, the third question is on ING direct and given again the changes that we have seen in the prepayment market in the U.S. I wonder if you could shed some color on how you are dealing with potential expansion risk, given the continued concerns you've seen from Fannie Mae and Freddie Macover recent weeks and potential concerns over mortgage banks right down that we saw from some of your competitors in that recent reportings.

Tom? Are you there?

I will take the first two invariable annuity and the investment mix. In terms of invariable annuity overall you can see from the in the supplement from the sales perspective we are seeing pick up from the management sales in the last two quarters.

In terms of the earnings, Nick, as you know, we suspended the mean reverse and in the second quarter of 2003 and so therefore our long run assumption is after the (inaudible) growth should be 9%.

So in each quarter how we are doing against that 9% will have an impact in terms of deck locking if it is better than that run rate we will have a possible unlocking and as it worse than expected a negative unlocking.

You mentioned the second quarter of 2003 versus third quarter of 2003 keep in mind that in the second quarter of 2003 because the market in the second quarter went up above that 9% long term run rate we had positive unlocking in the order of around 55-58 million.

In the third quarter the markets were pretty much on their long run, run rate which is pretty close to towards minimal back impact in the third quarter to the basic difference between the second quarter in 2003 and the third quarter of 2003 was really the positive unlocking that we had in the second quarter.

OK, Tom, --

In terms of-

To sum it, we can state 16-20 million sales roughly as an underlying run rate but you should be achieving in a normal course during the VI business.

I don't want to give a forward looking, on that, but I would say certainly the 60 million in the third quarter we will fletch it a minimal amount of that change and therefore I think it was more of a normalize certainly then until the second quarter.

OK.

Sorry go ahead, Tom.

I think there were some general questions on the investment mix in the yield, certainly we saw in the third quarter in terms of run rate, some improvement versus the second quarter, obviously we continue to move clearing rates down, we are certainly looking at mortgage backed securities position, you know, we have a long experience in those securities and obviously we have been managing both for in the last few quarters and years, drop in a interest rate, we certainly have experience in the Life, so we will look to manage our overall position therefore we will comfortable with our mortgage back securities positions at this point.

OK, thanks Tom. On ING directly you were saying, to be honest that don't may be innocent question, but -- real problem as we see it now in the mortgage back securities (inaudible) prepayment so but it means financing you have to refinance so we can lower costthen before so, it is matter of little bit pressure as such on the margin at the same time, the overall (inaudible) in the third quarter steepens in the United States, so we don't see really see real problem there in the United States as far as our MBS portfolio is concerned.

So, the question very clear, what was concerning these given thatthe prepayment you will be financing in the U.S. virtually stopped to expand something like 60% from July, then the danger I have given you 50% invested in mortgage bank, the duration of your assets is being extended quite considerably and I was concerned about the costs that you might have to incur to reduce maturation back to master liabilities on ING Direct and whether we will see that coming through in the margin and whether you can try to give us some fill for how the margin is being impacted from that some point.

As you know, as far as investment policy in the United States is concerned, we are on the conservative side relatively speaking so, we invest little bit maximum of 50% for longer than one year. We do not invest for longer than five years in United States, so we are more front loaded to the low end of the (inaudible) than we can do in some other countries.

The adaptation of the (inaudible) is not that difficult in United States and we do not see really - first of all the original problem and cost involved in shifts longer yield growth are very low if not actual.

Thank you so much.

The next question comes from Mr. Duncan Russell. Please state your company name followed by your question.

Duncan Russell from Fox-Pitt Kelton. My first question is on again on the mortgage backed securities, and interested basis point contribution from prepayment penalty - increment in the third quarter.

And the second question is on VA and mutual fund business, can you give a comment on the Spitzer investigation? And then on the Life insurance reserve charge, can you detail the total months of life insurance that, the problem with it and whether there is reserve charge relates to one-year deterioration or is it sort of capitalized figure?

Will take that first question, the mortgage back securities. The prepayments were minimal so there is very minimal impact from that.

On the question around the Spitzer investigation in that we have like most prominent financial service fronts received several formal requests for information from the various regulators and were providing those responses in cooperating toy with them on any followup that they have and the third question and the reinsurance, the total amount of the reserves, I do not have that information and he will get back to with that.

OK and just going back to a bit of investigation, can you perhaps get some cut on how much of you VA and mutual funds have an international fund option and what restrictions you have on moving funds in those two businesses.

Well I can tell you that the total US mutual fund business is about 13 billion of euros, I do not have the specific break down of the international funds.

We are - our general policy is discourage inappropriate market timing and we certainly continue to review our policies and procedures there and to make improvement as warranted for example, we have on the international funds implemented fair value, market evaluations for the international funds.

Is mid market timing prohibited in the perspective for this virtual mutual funds and VAs?

Why I refer you specifically to those prospectus is by our general policy in those prospectus is to discourage inappropriate market timing.

Just one final question, on the variable annuity business what proportion of inflows are granted at fixed bucket in the third quarter and what difference does this have in the margin.

We have as I said in the September symposium, we have been limiting in the VA the fixed bucket we have reduced our offerings there to the six month total cost averaging and then the longer duration success fixed account and I believe our-- the amounts going to the fixed buckets are in the 15% range.

OK.

The next question comes from Mr. Tom Bennett, please state your company name followed by your question.

Hello, its Tom Bennett from MP (inaudible). Can I start with the securities trading result in Q3. My numbers that came in its 33 million negative after two quarters which is comfortably over 100 million positive. Actually you could help us to understand how that happened.

Yes, we, hello Tom, that was the main reason just like in Q3 to three on the minus 33 applies to ING Vysya bank that he has included for the first time, we have consolidated this and it was a loss in the third quarter that one, second, it was in fact largely caused by a negative impact of reclassification of the portfolio from trading to investments. So this is basically in partly an accounting issue.

We are made of (inaudible), would you expect to be providing for diagnosis for yourself on the basis of making a profit in Q4?

I remember that Bill started by saying something that any forward-looking statements, really usually say something like that.

Can we just pick up some backward looking numbers then? ING direct has come up with $60 million in Q3 up to 24 on Q2 and 7 in Q1. Is it possible to give us with the basic parameters net interest income is the cause of the business is on?

Yes, I can.

When do you are going to separate time to direct off from the main bank?

Whatever you do separate ING direct from the bank.

Yes, in reporting terms.

In reporting terms. Yes we have shared that we are going to include all the figures of ING direct starting in 2004 so that means including all the costing ratios and all those sort of things.

We are not disclosing yet individual figures on ING direct of individual countries because we still feel for competitive reasons that it is not the best way going forward, but we might converge to that in either in the starting summer in 2004, may be in 2005.

But the summary behind for ING direct must be, you committed to us in the past?

Yes. What I would do in the first quarter, this 62 if I split it over individual lines of businesses than income was 280, operating expenses 210, results before risks was 72, risk was 16, result after risk was 56 and an allocated group overhead including capital charges and that is a positive 6. So they made 62 result before taxes.

Fine, thank you.

I will have it.

Lastly, can I just revisit the reinsurance question? We were asked about the possibility of the reassurance operation and we did not get an answer and we are asked about the scale of the funds and where this adjustment occurred and we did not get an answer.

We were told that 12 million of it was IBNR, which implies in just two weeks a very substantial alteration and stated experience. How can we just trust in very strange to see that much so shortly?

Tom?

Bennett, yes, on that I do have the reinsurance reserve number, it is about 2 billion euros and I said we did increase based on the claim experience of September we did increase the IBNR by 12 million. The claims in September, I mean August they are within the broad range of our activity in September until obviously at the unusually high end and as I said in October the preliminary numbers look like there are back to a more normal trend.

My one thought was that if you get this volatility one month just have such a small impact on IBNR seems unusually optimistic.

That would be typical that you know in a month where you had an unusual claim activity look at the IBNR in some cases you will have to move it down because sometimes there is some lumpiness in the claims, we looking at it felt that I referred him based on those levels to increase the IBNR by 12 million.

and the question about the profitability or the reinsurance business is not making no sense.

Tom McInerney

If you look at the time of the supplement, you can see the trans over the last seven quarters in the reinsurance business obviously in the third quarter we did have a 32 million loss because of the average September in increasing the IBNR and also I think I had mentioned that we did put in a new system which had a result of the negative 12 million towards the premium.

The four supplements issued today, which one we are talking about.

Tom McInerney

This could be the US supplement.

I see OK, all right thank you very much.

Tom McInerney

Just to get back to an earlier question in the variable amenities the amount of international funds it is less than 10%.

OK. Thank you, Tom.

The next question comes from Mr. Nick Holmes, please state your company name followed by your question.

Hello Nick Holmes from Berman Brothers, I had a couple of questions about new business profit margins, which I know you have not disclosed as such, but from the prosperity with the Dutch like business, you said that the higher sales due - the sales was new or you say that the due sales was individual single premium product, now you did have a product very similar to this which was a leafleted which you just continue today in April which I think damaged your Dutch profit margins quite a lot, now just wondered whether you could comment whether the pricing on this product that you refer to is a lot higher and went have the same damage.

Secondly, looking at Taiwan you mentioned a 50 million Euro reserves below interest rate. I wondered what impact this will have on new business profit, you comment that is being upset by claim experiences I wonder if you are changing any of your assumption in respect to profit margin in Taiwan.

OK, thank you,Nick. First on the single premium policies in the what have you done with the pricing we have indeed adjusted our pricing. As you know we only gives you exact figures on the margin and rate of return in the half annual basis, so that you will see that in to disclose our annual figures.

To face the following we have adjusted the prices in four steps in June, July, August and September and we now at the end of September are back on the adequate pricing methods of the speech so with actual basis of the original 10% internal rate of returns.

You will not see that in full in our second half in that figures because our figures are lagging in one quarter behind so in fact half annual and margin figures are running from second and third quarter and therefore the impact of the lowering of the prices is not fully visible then.

But you will see an improvement in the embedded value on the one hand but not yet it full, but we have done that. By the way, the internal pricing of that product was probably never came to the 10%, I think it would be more in the range of 6.5 to 8.5% roughly for that single product and the overall general rate of return of new production of (inaudible) business cannot be close to required 10% so that product never a real price win as such, but we have adjusted the prices to the level I just described.

Then in Taiwan, the 50 million, yes of course that is reflected in the pricing of the product at 50 million additional reserves of course. Are we going to change our assumptions or whether be increased or decreased it to (inaudible) too early to note.

The only thing I can tell you is that at the end of last year, the long term interest rate, the risky rate was about 2.5%, that interest rate came down to a level slightly below 2% at 1.95 and in the meantime here today, yesterday the interest rate was up to a level of about 2.8% so that it is slightly above the assumptions. (inaudible) assumption the actual interest rate at last year.

But that would lead to a change in assumption, I do not know yet that depends, we have decided to review that at the end of the year taking end of November price levels into account or sorry, interest level into account then looking forward and then to see if there is an impact on the new general reserve.

My expectation to tell you is that if we have to change this reserving, it will be marginal and it will not be a big change. You know that the 50 million that we have increased on reserving (inaudible) in the next ten years provided no changes in underlying assumption, so for the next 10 years, each year we will add 50 million to the provision in the third quarter for the first nine months, this has impacted of PNL by 38 million.

Again we have not reviewed it yet, if we do so I do not know what the outcome is, again and the impact will not be so substantial but that will be significant, thank you.

Sorry, I could just followup on that so you indicated that the effect is neutral at the moment because the interest rate addition is neutralized by better claims and expenses, but why you suggest thing that you would add this interest rate adjustment in the future years which could perhaps not be of that by that claim in expenses or I am not quite sure what you meant by that.

I do not think I said it, the only thing I say is that if we have added in the first nine months, 38 million to the provision, if I look at the underlying numbers then I see that the resulted 38 million, yes, there is indeed a strong profit increase in Taiwan and if I look at the actuals 1990 for the first nine months was 90.6 and 0.6 profit before tax and it was 94.5 in the first three months of last year.

So that only 4 million were added to 30 million to the provision yet in need and is compensated for its own - the business is doing well. In Taiwan there is a local increase in premium -- local currency of 13.3% so that is all going well. I have not said anything about future claims or whatsoever but the business issues is going well, profitability is growing well and he has as you correctly say almost absorbed in the first nine months in the addition of provision for low interest rates.

OK, thank you very much indeed.

The next question comes from Mr. Ebo Derick (ph), please state you company name followed by your question.

Hello, Ebo Derick from Deutshe Asset Management (ph), I have some questions on the banking reserves on the division in the geographies. I see that the improvement is made especially in the Netherlands and in Latin America.

In the Netherlands, the profit that you are making we can assume is easily more from where in (inaudible) of improvement firstly and on secondly how is it possible that you can make more than 1 billion of profit out of the Netherlands if one of your competitors ABN Amro is making such poor returns and also in Latin America this is the improvement in the third quarter is 160 million, which seems very large to me and on the link to that would it be possible to give disclosure more less like ABN Amro in the future, I expect a yes, but I can only ask it and can you give you view on the interest rates for what you expect in the next year?

Thank you well we give disclosure of our earnings and risk of deficit returning capital and economic capital as you know on the basis of our management committee and not so much in the region of distribution.

The region of distribution is a legal obligation that we has to fulfill and so that the different -- we try to disclose this as good as we can the way we manage our business and I said that let me say a few words on the Netherlands.

Well the Dutch retail business is doing very well in the Netherlands Postbank, ING bank Netherlands interest income improved strongly and commission income went up, so cost were down on the banking side so that was all good risk cost were relatively favorable, so in the Netherlands we are doing well, the retail business as well as wholesale as you can see from one of the slides that the re-look the risk adjusted return on capital is far above the hurdle in the 20s and the 30s even on the wholesale business in the Netherlands the retail business was extremely high, Postbank is about 100% risk adjusted return on economic capital, so we are doing well there.

The question why we are doing so well outside the Netherlands compared to ABN Amro is in fact the question that should ask ABN Amro and not me, but we have improved substantially in our risk cost as you seen in the United States, but again I said a minutes ago in 2002, we had to provide for loan losses for Argentina. They cleaned up the rest of the portfolios substantially, so we are doing pretty well in the America also.

We have down scaled as you know right size whatever you want to call it, our whole sale activities and as a consequence of retail earnings are going up, so that is all due to the measures we have that we have taken and therefore we feel pretty satisfied about what has happened in the bank in the first nine months.

May I, fine, somewhat further, do you made in the third quarter 160 million in Latin America, which is huge and in the Netherlands Postbank is mostly - if I haven't - I miss read it well as savings bank and everyone is complaining about liability margins. So, it seems to me somewhat strange that you are making your best quarter in the third quarter of 2003, your best quarter ever in the Netherlands.

If I look at a third quarter in Latin America, I see growth is over 26, but let me look at the operation line that you are probably looking at. I feel first quarter 36 million and I have the same figure here. Yes, result before tax 36 and in the second quarter a 48, so I don't see what you mean by 160, I don't get that number, maybe compared to last year, let me check in the 2002, no maybe 11 million, so I can't find the big swing that you are just referring to.

Looking in the first three months, 814 million in Latin America at the banking side and had a loss of 22 for the first time in nine months in 2002 and that is when is because of the high provision level in Argentina. I mean that is what I explained to you before. On the saving side, well maybe everyone can complain about the savings margins, I don't to be honest, we have an Postbank in savings in institute that are very stable and the amount of savings and we do the same here as we do in ING Direct or in fact, the other way around.

We assume that a large part of the savings and in fact in the Maryland State that is over 60 in fact close to 70%. It is therefore longer than years. So, when you adjust savings money along the slope of the U curve, it seems the U curve in everywhere is pretty good in the Netherlands is highs in the United States, but is nevertheless show a 1.65% or so means that the adjust we make, we make nice and decent margin on our savings institute co- PostBank.

Thank you.

Thank you.

The next question comes from Mr. Ross Boya (ph). Please state your company name, followed by your question.

Good afternoon or good morning. This is Ross Boya from Westebit (ph). Actually, one question on risk situation from your sheet number 24 field stats especially Americas risk cost have gone down considerably.

On the other hand, one can see from the numbers 73 out of the appendix that while provision loans have increased for 700 billions, provisions have only increased by 100 million, so our loan courage has gone down considerably, perhaps you could shed a little bit of light on the facts behind those figures.

Second question is, we see a quite sharp increase in our interest expenses on insurance side and perhaps could you elaborate a little bit on this, as why this increase is so strong in this quarter.

Thank you. On the first question, combining slide #22 and #73 of the appendix, this is a technical issue, we have added for the first time into the provision loans, ING Direct into it, so as you know, what we do in ING Direct, we have taken, shows a dynamic provisions, so we take a 20 basis points and we have increased that due to the conservatism, 20 basis point of the risk rated assets in ING Direct and added to the loaners provision and as a sort of a technical measure, we allocate or create non-performing loan, so we create provision loans, so to speak, otherwise, it is not possible, it's not allowed to do that and we have added them for the first time to the provision loans that basically the only reason we ended sort of provisioning in percentage of region is going down because ING Direct is very low in terms of, I mean, that this the very low percentage, so it is a technical reason and a technical reason only that this is going down.

Your second question was on the strong increase in the interest margin.

No, on the other interest expenses on the insurance side.

Other interest expenses on the insurance side. They roughly have not changed. In the first nine months they were 951 and they were 932 in the first nine months of 2002, so, what is your question here.

If I look at it almost on a quarterly basis, they used to be more in the range of, let me have a quick check, 261 in the second quarter, 273 in the first quarter, so is this very normal seasonal, in fact because towards last year it was substantially up.

OK, I have to find out, but what I think that has happened is that sub-ordinated loans went up compared to 2002, I think that is what happened and we have to pay more rates, some other additional amount, but I have to find it out, I have not looked at it in a quarterly basis to be honest, to be given it, and I have looked at it, I have seen it, but I don't know exactly what the background is.

OK.

The next question comes from Mr. Matt Pickering. Please state your company name followed by your question.

Hello, it is Matt Pickering from Institutional Capital Calling. Good Morning, I had just a couple of quick questions. I was hoping you might be able to provide us with the duration and movement and duration of the Dutch Bank, ING Direct, and the insurance business on the investment asset side.

Secondly, I was hoping that Tom might be able to remind me, what kind of hedges specifically, the kind of instruments and the kind of methodology behind that, that is used to deal with extension and contraction risk for the more of his legislative portfolio and how marking to market tingling prior those hedges are accounted for under Dutch Gap and then I also have a strategic question on the cost base of the US life business, but I will wait till we get to that first part place.

OK, thank you. As far as duration is concerned, I think it has been changed lot over the last quarter. Of course, we have different durations in different markets.

It depends on the liability side of course in the Dutch Environment, average duration is about six-and-a-half years and we are pretty much very close to match to the liabilities, in the but (inaudible) correct in United States, I think is more between 5 and 6 years, a little bit lower I think, but one should probably know that on the insurance side. So, it differs from market to market. The same applies to ING Direct.

This was always also to market to market, in different markets as I just told you, in the United States, we have a maximum of 50% invested longer than a year and in a more mature markets like in Germany and like in Spain, and in France, we are close to 60:40 sort duration therefore, differs from country to country.

As I speak about the Unites States, it is roughly I think, 4.6, 4.7, and 4.8, and that is pretty stable. I think that what Kirsten gave you an overview of a sheet last year with the durations. On the duration of the banking operations, I think the bon(ph) portfolio is roughly the same here as on the insurance side, has a duration roughly of between 6 and 6.5 a years. OK, but there are hardly any changes in this.

OK and that is the changes from a sequential basis, is that you are trying to mean.

Yes.

OK, Thank you.

On the hedges of more (inaudible) securities come.

Yes, I think you said case is to just to confirm on the duration in the US insurance portfolios around 4.5. In terms of heading for mortgage back securities, we do a variety of scenario testing and obviously have all settings strategies of different securities including derivatives. In terms of the use of derivatives that had interest rate raise, we use a full ray of slabs and slabs and cap floors in forward.

In terms of the accounting on the Dutch Gap to the movements and the value of those.

I believe they off balance each.

OK, thank you.

Can you repeat this, excuse me.

It is our half balance sheet on the Dutch Gap.

Yes I think half balance in the Dutch Gap

Yes, I think the off balance in the Dutch gap, almost certainty, then I will come back on it.

OK, but so then we should see some language in the 20th.

Certainly.

OK. I do have one last quick question. I don't think there is much to extend upon. Tom, can you comment it all, you know after when your competitors held a strategy day in Florida and kind of what you are seeing in the US life market from a strategic competitive position.

For example, when your competitors decided to have one of their distributors talk about the importance of credit ratings for the bank wholesale channel and given all the work you are doing obviously to try to compete and also get the pricing you want, so you might just be able to stand a minute or two kind of expanding on review of the market and a kind of your comfort level where ING is comfortably positioned. Thank you.

Before I would say couple of things, first in relationship to credit ratings, we think they are important and as you know, ING is AA rated, which is a strong rating and we think this allows us to compete very effectively.

Overall, you know, we are seeing some momentum in terms of the variable annuity business, our retirement service business has had quite good momentum in terms of sales and so forth up 40% or so. In the individual life side, we are certainly seeing a pickup in universal life or general count size life products, which we are pleased with and you know between the second and third quarter, though our life sales went up 24%, we are like the rest of the industry continuing to see a fall off in variable life sales, but my view would be you know, overtime, whether you are taking of variable life or variable annuities, that the volume in the market place really goes up and down with the equity markets and so, I think you are beginning to see some evidence, particularly in the variable annuity side that sales are starting to pick up with the improvement in the overall equity market.

OK. Thank you very much gentlemen.

Thank you.

The next question comes from the Mr. Traver Taltick (ph). Please state your company name, followed by your question.

Yes, good afternoon. Just a quick question on the variable annuities premiums in the United States. Could you please remind us, you are doing pretty well on the premium side, could you just remind us whether you are in fact selling these products with any sort of guarantee attached to them and if so, could you give us a little bit more detail on the kind of guarantees that attach to these products at the moment. Thank you.

In the variable annuity business, we have full ray of products including providing guaranteed minimum death benefits as well as living benefits. All of which, we had, we have a dynamic edging program, we have had that in place since 2000, so for the last three years and obviously we believe that works quite effectively.

Maybe just a follow-on question if you don't mind. Could you just give us an idea of the average charge for these living benefits specifically in basis points.

Well, they vary quite significantly. There is a broad range and that also reflects these specific type of products and the specific type of guarantee benefit and obviously the cost that we charge include the cost of the hedges, but I would say, in general, you are looking at in the order of 60 to 75 basis points, obviously, it varies so that the general range is depending on the type of auction we talk about.

Thank you very much.

The next question comes from the Mr Sesaernito (ph). Please stae your company name followed by your question?

Hello this is (inaudible) I have a couple of questions. The first question relates to the Dutch life insurance business. And I am just wondering what the earning power of that business is.

If you factor in while you mentioning about higher pension cost because, what I am trying to do is extract real estate, realize gains and equity realize gains and then find out what is going on in such short gap results in the press release you did mention that you have higher employee pension cost and that is why business so.

Page 62 talked about that , that would be helpful and then certain questions just related to the US life insurance supplement shows that some other product areas particularly the sixth annuity and the retirement services seems to have a nice expansion and margin in the third quarter.

And if we go back to the comments you made a US analyst said in September. I am just wondering how much is the improvement in your product price you have achieved and shown up in those results versus how much more you think you can achieve. in terms of improving a formal result in third quarter.

OK. Thank you that last business you should powders and the cost, let me make it clear, that the Dutch life insurance business goes confront to this year with higher cost and substantial higher cost due to three reasons in fact relatively high over flow of collectively will agreement from previous years.

We had high growth rate in the early 2000, 2001 and 2002 and that (inaudible) high increases in wage cost that is one the test come down and is coming down, we have a wage freeze agreement for 2004 as you know so that this warm.

Second we have higher pension cost, we hope that this is not a total warm but it is goes on higher pension cost, and second thing that life business we were confronted in particular with group wise so that with back logs we are trying to sort that, we also do 2003 and the only 2004.

After that we all set, we and we expect, that the cost base can clubbed out to go down, so that worm side is part of cost basis concern.

We have another I must say that we hereafter that is in 2004 mid onwards the technical results from on the life versus life versus business should improve. That is one.

Second on the interest rate results on the investment results there was some negatives also because we took as you know so many measures so we give the equity portfolio with 2 billion and more because the difference has come as the equity from the Dutch saw it as we strengthen equity base of this insurance outside the United States.

We transport real estate portfolio more in the bale in from the insurance sight about to shows us to the banking side so that there was some more of income also and we should show some hybrid capital so higher cost of services there so that's all impacted the investment return by a little bit over 100 million and that means relatively speaking there will be a lower return of the Dutch which by the way is on average very high, but, that lowered the return on existing portfolio in the Merrill Lynch.

Going forward so from the new production we have to price for that return of course, but the target of the pricing is still what it was before and that's for the way we go forward and making our budget for 2004 and that there is total return of Dutch product mix of 10% in terms of rate of return, so that doesn't change.

Thank you. In terms of the question of the U.S. Life business, just to repeat, I think you asked about the favorable third quarter versus second quarter for just annuity and the retirement services businesses I would say for both of those the better third quarter versus second quarter results were first because we had lower better related losses in the third quarter it is a big quarter and so that reflected in the earnings about in addition as I think you pointed out when you asked the question we have seen a stabilization off this spread and let's spread compression we are calling what I said in September at the symposium we did have some deck unlocking on the fixed side because of the lower spreads in the second quarter with the spreads stabilizing we did not have that in the third quarter so that clearly benefited both the fixed and the retirement service business as well. And then specifically related to the retirement service business beyond the benefits of the credit losses and the spreads we are also seeing you know generally an approval given we have had this performance in terms of the volume of sales both asset accumulation pay off products as well the stable value.

OK and then just a follow up back up case on your comments about the Dutch Life business I wonder what the split of the contribution to the Dutch Life earnings power is from the traditional products versus your unit linked products. We had if you have a rough sort of contribution makes it 50,50 or 70, 30 that kind of impression.

Well, roughly speaking I don't know the figure you are wishing, roughly speaking 70% traditional and 30% general link well we see as in the Netherlands are like in a very legitimate increase is going out, and we tried to encourage a little bit, because it shifts the risk of course to the investor and to the client away from our risk but this is in the present environment the client is in fact asking for protection because we are trying to ask for more traditional products and we would like to shift risk a bit more to the clients and try to encourage pricing unit linked products, but traditionally its about 70-30 traditional versus unit linked in the Netherlands.

Right thanks.

We have a follow up question from Mr. Tom Bennett, please go ahead sir.

Hello, couple of things. Firstly, the cost reduction program is being conducted in the European area. How much curious I think it is coming up quite nicely on banking side, but how much further is basically.

Tom McInerney

This is the only question you have from. Let me tell. I think we have lot of question substantially. In the Netherlands we have reduced third party staff so contractors substantially, which is structural we have lowered the average head count of, was about 6% in the Netherlands, 1400 people lower compared to nine months ago. Of course, we were head by higher collective labor agreement so wage cost in the banking side also and high expansion cost also.

But the overall cost in the Netherlands are going down by 3.6% and that is, there is structural service, because on wage cost we expect the further moderation as just having in Netherlands.

Outside the Netherlands in the bank side, we have substantial lower bonus accruals and that's not the much of because you don't make more money, because that we have reduced particular and scaled down those activity for high bonuses are being paid in the banking side.

Our investment banking business generally speaking so to say, so that, that is helpful so and we have as you know, reduced also staff that was the banking staff also.

Without excluding anti-direct, we have outside the Netherlands decreased, lowered our average head down by 1700 full time equipment. So that substantially. That substantial that is the personal expense, other expenses in a Netherlands there were slightly up, due to higher cost of payment transfers in software depreciation etc. But outside the Netherlands, it was a strong decrease of about 9%.

Respective positions of course mainly taken in the last year. But very stringent cost control on IT expense is lower EDP expenses lower office equipment; lower professional services all those sort of thing. So yes, I expected those are structural decreases also on the main personal expenses.

I just wonder as looking at what Michael doing, the norm salary expenses over of the bank. And but we have a figure of some 2.53 billion to the 9 months. If you look at Q3 on Q3, what we saw improvement we were seeing before, there is no improvement at all. I wonder why that might be, have we taken some additional provisions in Q3 this year. So I am stepping out from that last (inaudible)

Tom McInerney

Yes we did, I mean in Q3, we took 37 million provisions on the banking side preferably structuring our wholesale business outside the Netherlands.

And lastly, can I just revisit to Taiwan issue, the 50 million a year for 10 years seems like an awful amount of provisioning to do. Do you have a big block of high interest rate guarantee having to fund?

Tom McInerney

Yes, we do. Let me make it very clear. I mean 3 years ago, 4 years ago, when we bought the Etna business, the interest rate in Taiwan, I don't remember correctly, and I do of course was about 7%. Two years, ago the interest rate was about 4% but 4.5. Last year as I said the interest rate was little bit over 2%.

So in three years time, the interest rate came down almost 5 to the basis points. So, yes we have a big block of business, sure for that. When we did the acquisition, we took a lot of provisions in the opening balance, if I remember very well that there was a big discussion during the with the process and I remember, also of course, while the interest rate was about 7.5%, I think as we took the point the longer term interest rate of 6%, and there is hell lot of difference, where we took 6% and 6.5% or 7%.

So, yes we were pretty conservative, already taken provision in the opening balance sheet when we took over the - and therefore there is no reserves (Ph), the acquisition, which revolved off immediately, as you know and under Dutch GAP. So, yes we were conservative.

And after that the interest rate came down sharply in Taiwan, to be honest we do not expect of a long-term low interest rate environment in Taiwan. Growth prospective was firm, 4%, 4.5% growth respective for 2004-2005, and is of course inconsistent to believe that if we have close rates in those areas of 4.5% and 5% that would coincide, that go hand in hand with an interest rate of 2.5% long term, I mean that's really realistic to assume

Therefore, we assume, that long-term interest rate will pick up, I don't say back again 6% or 7%. But in the 5% range, it will certainly do, well if you assume that than indeed the short fall in provision is no more than about a $500 million and again we have assumed that we will provide that for in ten years.

The average liability in Taiwan are longer than ten years so far, but we are back 16 or 17 years, what we have done for conservative reasons to catch up in 10 years to $50 million year to year. That's what we assume it's liked to be.

So this is - the book was effectively written down to a 6% guarantee by making provisions of a kind requisition and you are funding the 60 million represent space on an interest short fall on new cash on all policies. Is that correct?

Yes, roughly speaking, that is a correct statement.

And the current policies about down to 2%-2.5% guarantees?

I miss that.

Sorry. On current policies you are down to 2% or 2.5% guarantees.

No, no. Current guarantees are, better look at one thing actually here, I think at 4% in Taiwan today, if I remember correctly.

Surprising. When you have 13%, is this is correct

No, no, I miss that. Sorry Tom, I was absolutely wrong. The present guarantee is 2.5%.

All right. OK.

That is roughly slightly below the today's risk we rate in Taiwan.

So current account products are making money, probably. Thanks very much.

We have the follow-up question from Mr. Nick Martin. Please go ahead sir.

Yes, three following questions. Firstly, did I hear you correctly said that (inaudible).

Sorry, I --- you --- I can't hear you.

Sorry, can you hear me now. Is that correct that you said you transferred some capital from the Netherlands business, your estimates is one of the reasons that the investment return has fallen in the next phase. Can you tell us how much capital you transferred and what the business.

Yes, and that was one of the reasons and the investment returns of $4 millions, lets say. Can you tell us how much cash returns and what the year end impact on that has been the positive impact on the US, obviously and the corresponding next to the impact on the Netherlands.

And the second question, is the there is this another $37 million provision for the whole sale banking in this quarter. I think it was $128 million in the last year and can you tell us what the expected benefits from this investments and when the pay back is going to come through or are these whole process, the cost of extracting the $350 million of whole sale synergies as out line previously and is that increase in the cost of extracting those synergies?

Well to be honest, Nick I, the good news is heard about 25% of your question. The bad news is, I missed 75%, but let me, I think, I roughly understood what you asked. The impact of the capital fusion from the Netherlands to in the United States, was about a billion and the net impact of that on the net (inaudible) was about minus 10 million per year and that's roughly, I think, that was your first question.

The second question, for as I understood, it was, that what is the pay back period or that I say the return on investment of the $37 million longest provision. Also, the provisions was structuring provision on the whole sale side.

To be honest, I can not give you the answer yet because although we have internally decided what we are going to do, we have more informed all the people in the world on where those instruction got there place and for I can also not disclose what the pay back, respectively the effect of our earnings will be from next year, but we will tell you in our next quarter.

That this are new restructuring provisions to try and generate new synergies. Is that right?

No, the $37 million that we took in the third quarter are new restructuring provisions and they are not so much taken to get new synergies out but more to scale down certain activities that we feel are not viable in the longer term.

Thank you.

Ladies and gentlemen, if you would like to ask a question, please press star followed by "1" on your touch tone phone at any time. As a remainder, (inaudible) equipment today, please lift the handset, before making your selections.

Tom McInerney

Lady, may I ask you to have the final question for some, the weekend almost starts and .

Of course, sir. We have the following question from Mr. Raynor Asdot (ph). Please state your company name followed by your question, sir.

To the real estate portfolio, you mention in your text that you have negative revaluation effect on equity and real estate. So, could you give us split between equity and real estate impacting short of equities. That's the first question. The second one, could you give us an idea of your hidden games in the real estate portfolio and the third question is, concerning real estate property from the insurance side to the banking side, if I understood you correctly, is it wrong to interpret this as a redistribution from policy holders to share holders.

Tom McInerney

As far as your first question is concerned, the real estate, what you have called hidden reserves. I wouldn't call it as hidden reserves, cause if they were hidden reserves. I won't call them reserves and if they are hidden then I disclose them now. So in all the hidden the unrealized capital gains in our real estate port folio is 1.8 billion before tax and roughly 1 billion after tax. So, that was the unrealized capital gains in our real estate before they are sold. These are now from our own reserves well the hidden reserves given that market prices remain the same. Then on your question of shift from policy holders to share holders I must say I don't see that point be only shifted capital from one business unit into another business unit but that doesn't mean an improved leverage on in insurance side in the US. And I am used to point a little bit why - this has been the case, that's beyond I would say the answer is no.

Yes, may be to give you some background here Ellison and (inaudible) that the in prominent banking activities separated more strictly. So if you buy worth premiums paper your policyholder's equities as fixed income and real estate to certain degree they belong to the policyholders and it is not so easy to shift them away to for example the banking unit. So, I wonder a little bit?

May be I am bit - let me say the shift from the Netherlands to the United States was within ING insurance and we have nothing to do with the bank. So, --

Within ING Insurance, OK

Within ING Insurance but at the same time, I told you that before we have shifted 1 billion of the real estate portfolios from the insurance to the bank. But it is a different one. It is a different billing.

Here the 1 billion real estate portfolio on the insurance side was part of this capital base of ING Insurance and so we shifted it from the share holder of ING Insurance indeed which is ING Groep which is the share holder to the capital base of ING bank which is the same channel of ING Groep and so this was the share holder and it remains the share holder.

OK. Thank you

Well, ladies and gentlemen then this concludes the conference call. I thank you very much for your attendance for your participation in particular and hope to see you next time. Thank you very much on behalf of (inaudible) and Tom also thank you.

Ladies and gentlemen this concludes the ING conference call. Thank you for participating. You may now disconnect.