S&P Affirms ING’s Ratings; Removed from CreditWatch; Outlook Negative

December 8, 2010

Standard & Poor’s Ratings Services has affirmed its long-term counterparty credit and insurer financial strength ratings on various operating insurance subsidiaries of ING Groep N.V. (ING) and its ‘A-/A-2’ counterparty credit ratings on Netherlands-based insurance holding company ING Verzekeringen N.V. (INGV).

S&P has also removed the ratings from CreditWatch with negative implications where they had been placed on Nov. 10, 2010, following ING’s third-quarter 2010 results announcement. However, S&P said that the “outlook on INGV and various insurance subsidiaries is negative.”

The rating affirmation reflects our expectation that ING “will exercise its flexibility to manage the impact on capital adequacy and leverage resulting from risks relating to legacy variable annuity (VA) business. We also have greater confidence in INGV’s ability to improve its future earnings prospects to levels more consistent with the ratings and with reduced volatility,” said the report.

Credit analyst Mark Button added: “The ratings on INGV and the consolidated insurance operations–collectively ING’s insurance operations–reflect the insurance group’s strong local competitive positions across a number of markets, highly diverse profile, and flexibility to manage capital adequacy and liquidity across the ING group.

“These positive factors are partially offset by continued pressure on capital adequacy and leverage because of investment risk exposures. Earnings also remain constrained by both the difficult operating environment and initiatives to reduce asset risk.”

The impact of the ING group’s restructuring on its insurance operations remains uncertain. S&P said it considers ING’s insurance operations “not strategically important” under our group rating methodology; under the restructuring plan ING agreed with the European Commission, it took the strategic decision to divest its insurance operations before the end of 2013.

“The negative outlook on INGV and certain operating insurance subsidiaries reflects our view of the significant execution risks associated with the divestment of ING’s insurance operations,” S&P said. The underlying businesses could suffer strategic and operational disruption and, in our view, ING’s U.S. insurance operations have a higher risk profile. We may lower the ratings on INGV if:
— We see evidence that the performance of ING’s insurance business is being impaired by the uncertainty surrounding its divestment; or
— Capital adequacy falls more than one category below the rating level, which could result from risks relating to ING’s legacy VA business.

The outlook on INGV could be revised to stable if:
— ING successfully executes the planned IPOs, reducing INGV’s exposure to the higher risk profile of its U.S. insurance operations, without impairing the strength of its balance sheet;
— ING’s insurance operations demonstrate a high level of resilience in underlying performance as measured by growth in new sales, stability in client balances, and strong progress toward the 10 percent return on equity target based on growth in the operating result; and
— Capital adequacy is rebuilt to levels commensurate with the ratings, financial leverage is managed down below 35 percent, and fixed charge cover improves to around 5x (compared with 38 percent and 3.6x, respectively, on a pro forma basis at third quarter 2010).

Source: Standard & Poor’s

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