ING Expects E1.1 Billion Hit In 4Q Earnings
December 8, 2011 by Archibald Preuschat
ING Expects E1.1 Billion Hit In 4Q Earnings
— ING takes a charge of up to EUR1.1 billion in the fourth quarter
— Charge is on its US closed block variable annuity business
— Company continuing to prepare IPOs for its insurance businesses
AMSTERDAM — ING Group NV (INGA.AE) said Wednesday that fourth-quarter earnings will take a hit of up to EUR1.1 billion from its U.S. annuities business as the Dutch financial services company continues preparations to spin off its insurance activities.
ING said the charge is needed to cover guaranteed payouts from the annuities as investors who the company expected to withdraw their funds are now more likely to stay put because of the financial crisis. Slumping stock markets caused by the sovereign debt crisis and persistently low interest rates have made ING’s variable annuity policies a more attractive investment than before, ING said.
The company sold 500,000 of its U.S. variable annuity products from 2003 to 2009 before calling a halt to new investment, giving it total funds of $45 billion. The assumptions for the so-called U.S. Closed Block VA business have been updated by the company to take into account a number of changing factors, such as mortality rates, but said its most significant revision was for the number of lapses it expects.
The Amsterdam-based company will provide its U.S. insurance business with contingent funding of around EUR1.1 billion to ensure it still complies with regulations.
Chief Executive Jan Hommen described the move as “annoying,” and stressed that the hefty charge wouldn’t have any material impact on results at ING Bank or on the company’s Europe and Asia insurance businesses.
“Our new management team in the U.S. insurance business is taking decisive steps to address legacy issues, improve results and prepare the business for its standalone future,” he said in a statement.
In 2009 ING was ordered by the European Commission to sell its global insurance arm as a condition for getting approval for state aid it received during the financial crisis. It is preparing a separate flotation for its insurance business in the U.S. and last summer struck a deal to sell the bulk of its Latin American activities.
Hommen told reporters that he wouldn’t rule out selling the U.S. closed block VA business ahead of an initial public offering.
KBC Securities analysts said the EUR900 million to EUR1.1 billion charge was ” a bad surprise,” but that its EUR9 target price “leaves a margin to cover for such negative surprises.” It maintained its accumulate recommendation.
At 1016 GMT, ING shares were down 2.% at EUR6.12, underperforming the broader market, with the benchmark index AEX up 0.7%.
-By Archibald Preuschat, Dow Jones Newswires; +31 20 5715 218; archibald.preuschat@dowjones.com (END) Dow Jones Newswires 12-07-110345ET Copyright (c) 2011 Dow Jones & Company, Inc.