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  • Location: UTRECHT 
  • Founded: 1987-05-25
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    Annual Report 2003 the retail mindset

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    theme of this annual report The retail mindset “A true retailer, more than anyone else, understands the art of listening, observing, analysing. Client-oriented thinking and behaviour, that is what it all starts with. By being alert in identifying signals from the market, we can swiftly perceive the client’s wishes and properly translate these into client-friendly products. This requires not only ‘feeling’, but also realistic research. Our focus is clear in this context: clients determine what they need and not us. Depending on developments in the market, our task is to provide suitable solutions.”

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    SNS REAAL Group Croeselaan 1 P.O. Box 8444 3503 RK Utrecht The Netherlands Telephone: +31 30 291 52 00 Annual report www.snsreaalgroup.com 2003 Concern Communication Telephone: +31 30 291 48 76 Fax: +31 30 291 48 49 concerncommunication@snsreaal.nl Investor Relations Telephone: +31 30 291 51 02 Fax: +31 30 291 51 32 investorrelations@snsreaal.nl Registered at the Trade Register of the Utrecht Chamber of Commerce under no. 16062627 SNS REAAL GROUP 1 annual report 2003

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    Contents 2003 in outline 3 SNS REAAL Group in brief 4 General 5 Management 6 Commercial structure of the SNS REAAL Group 7 Foreword by the Chairman of the Group Executive Board 10 Key figures 12 Report of the Supervisory Board 13 Report of the Group Executive Board 17 Strategy and policy 18 Financial developments 29 Risk management 39 Funding 44 Socially responsible business practice 46 Personnel and organisation policy 50 Outlook 52 2003 Financial statements 53 Consolidated balance sheet 54 Consolidated profit and loss account 55 Consolidated cash flow statement 56 General notes 58 Notes to the consolidated balance sheet 65 Notes to the consolidated profit and loss account 89 Consolidated balance sheet of SNS Bank 98 Consolidated profit and loss account of SNS Bank 99 Consolidated balance sheet of REAAL Verzekeringen 100 Consolidated profit and loss account of REAAL Verzekeringen 102 Consolidated balance sheet of SNS REAAL Invest 106 Consolidated profit and loss account of SNS REAAL Invest 107 Company balance sheet of SNS REAAL Groep N.V. 108 Company profit and loss account of SNS REAAL Groep N.V. 109 Notes to the company balance sheet of SNS REAAL Groep N.V. 110 Main group companies 114 List of other main equity participations 115 Other information 117 Profit appropriation under the articles of association 118 Developments after the balance sheet date 119 Auditor’s report 120 Additional information 121 Biographies of the Supervisory Board members 122 Additional responsibilities of Group Executive Board members 123 Central employees council 123 2 SNS REAAL GROUP annual report 2003

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    2003 in outline Both financially and commercially, the year under review was a successful one for SNS REAAL Group. The net profit increased in 2003 to € 243 million, a rise of 189.3% compared to the previous year. All operating units contributed to this positive profit development. In the year under review, an increase was once again achieved in the market share for the three core product groups of mortgages, savings & investment, and life insurance & pensions. SNS REAAL Group: one enterprise Sustained value creation to the fore It was not immediately obvious to the outside world that SNS REAAL Group aims for sustained value creation in the SNS REAAL Group and the two main brand names, SNS group, with the goal of further growth of the group and Bank and Hooge Huys, form a single entity. During the strengthening the confidence of financiers. Structural year under review, it was decided to emphasise in both value development means that the targeted growth is words and pictures that the organisation is one retail accompanied by profitability. SNS REAAL Group requires bancassurance group. The logo – the kaleidoscope – that a systematic return on shareholders’ equity of 12.5% after SNS Bank introduced with great success at the beginning tax. This requirement applies to the group as a whole and of 2003, will be adopted by the group and the insurance for business units and products independently. During operations in April 2004. Furthermore, Hooge Huys will the financial year, banking and insurance operations have then change its name to REAAL Verzekeringen, so that its provided strategic elaboration to this cost-effective - or family ties are also visible in its name. Both main brand ‘smarter’ - growth, with measures including strict cost names retain their own identity and continue the existing control, refining of investment policy and tighter manage- very close cooperation. In advance of the name change, ment of their sales organisation. the new name is being used in this annual report. Emphasis on retail approach Growth strategy further elaborated SNS REAAL Group focuses on the retail and ‘retail plus’ SNS REAAL Group further elaborated its growth strategy market, i.e. the individual market (retail market) plus during the year under review. REAAL Verzekeringen has small and medium-sized enterprises. Innovative and cost- acquired Zurich’s life operations and its private and small effective products are developed for these target groups. business non-life activities. The Zurich employees have We have selected a retail approach to the market, by pro- already been integrated into the organisation of REAAL viding standardised products, a good price-quality ratio Verzekeringen. In addition, the insurance operations have and effective marketing. This approach applies to all the entered into a partnership agreement with Univé, which is group’s brands and labels, and their distribution channels. going to sell life insurance products of REAAL Verzekerin- In addition to a large number of products and services gen. Agreements have also been entered into with other for the individual market, the range of products for the parties for the sale of life or non-life insurance policies. business target groups on internet has been expanded considerably during the year under review. SNS REAAL During the year under review, SNS Bank started coope- Group has, for some time now, been in the vanguard of ration with various organisations in the context of the providing innovative applications on internet, such as services to the business market. Moreover, Fundcoach i-mode and pocket-pc applications. was acquired. The expansion of the bank’s branch net- work into the Randstad – the metropolitan conurbation in western Netherlands – progressed well during the year under review. Branches have been opened in various large towns and growth centres, en route to a network of 20 to 25 offices in this area. SNS REAAL GROUP 3 annual report 2003

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    SNS REAAL Group in brief Mission SNS REAAL Group wants to be the favourite financial retail specialist in the Netherlands. To achieve this, we offer a coherent package of innovative banking, investment and insurance products. A package that is tuned to the demands of today and tomorrow. In this context, we focus on the Dutch private individual and small and medium-sized business markets, via multiple brands and diverse distribution channels. Business principles Commercial goals The SNS REAAL Group employees are: § Increase market share of mortgages § Client oriented to 10% (2003: 9.7%) § Professional § Increase market share of savings § Honest to 6% (2003: 5.7%) § Socially committed § Increase market share of individual life insurance policies to 10% (2003: 11.1%) Profile SNS REAAL Group is an innovative retail bancassurance Financial goals group with total assets of € 53 billion and almost 6,000 § Net profit increase of at least 10% employees. It serves its private and business clients per year (2003: 189.3%) mainly through its main brands of SNS Bank and REAAL § Return on shareholders’ equity of at Verzekeringen. least 12.5% per year after tax (2003: 15.9%) § Maximum efficiency ratio for bank SNS Bank serves its clients through its own branch of- operations of 65% (2003: 64.6%) fices, independent intermediaries, the internet and the § Maximum cost/premium ratio for telephone. REAAL Verzekeringen markets its products and insurance operations of 27% (2003: 28.8%) services through independent intermediaries. Ratings In addition to the two main brands, SNS REAAL Group also includes various niche labels that operate in a specific SNS Bank Fitch Moody’s S&P market: ASN Bank, BLG Hypotheken, CVB Bank, Proteq Short term F1 P1 A-1 Direct, Reaal Overlijdenszorg, SNS Securities and SNS Long term A+ A2 A Asset Management. Outlook stable positive negative SNS REAAL Group attaches great value to the principle of socially responsible – or ethical – business practice. This is demonstrated, for instance, by the development of SNS REAAL Group Moody’s S&P sustainable savings, investment and insurance products, Short term A-2 conducting specialised social research and sponsoring at Long term A3 A- national, regional and local levels. Outlook stable negative Strategic goals § Sustained value creation § Outpace market growth § Focus on retail and retail-plus clients § Managing synergy 4 SNS REAAL GROUP annual report 2003

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    General SNS REAAL GROUP 5 annual report 2003

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    General Management Supervisory Board SNS REAAL Group1 Group Executive Board SNS REAAL Group Prof. J.L. Bouma, chairman S. van Keulen, chairman H.M. van de Kar, deputy chairman C.H. van den Bos J.V.M. van Heeswijk M.W.J. Hinssen J. den Hoed R.R. Latenstein van Voorst, Chief Financial Officer D. Huisman Prof. S.C.J.J. Kortmann H. Muller J.W.M. Simons 1 ) The present members of the Supervisory Board of SNS Reaal Group also make up the Supervisory Board of SNS Bank and the Supervisory Board of REAAL Verzekeringen. The Group Executive Board. From left to right Messrs. Van den Bos, Van Keulen, Hinssen and Latenstein van Voorst. 6 SNS REAAL GROUP annual report 2003

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    General Management Board of Directors SNS Bank M.W.J. Hinssen, chairman C.H. van den Bos, deputy chairman B.A.G. Janssen, deputy chairman J.A.M. Henneke Th.A.W.M. Janssen M. Menkveld G.T. van Wakeren Board of Directors REAAL Verzekeringen �insurance� C.H. van den Bos, chairman M.W.J. Hinssen, deputy chairman A.F.J. Bakker J. Boven N.J. Jongerius J.H. Wilkes Board of Directors SNS REAAL Invest C.J. Ambachtsheer 1 Commercial structure of SNS REAAL Group SNS REAAL Group SNS Bank REAAL Verzekeringen SNS REAAL Invest ASN Bank REAAL Overlijdenszorg2 CVB Bank BLG Hypotheken Proteq Direct SNS Securities SNS Asset Management Participating interests of SNS Reaal Invest that can be considered part of the core business of the banking or the insurance operations are placed within these organisations. The holdings in other participating interests of SNS REAAL Invest are planned to be further reduced in 2004. 1 ) Mr. Ambachtsheer will end his active career at the end of March 2004. 2 ) The activities of REAAL Overlijdenszorg (funeral insurance) will be transferred to other life insurance operations within SNS REAAL Group during the course of 2004 (see page 27). SNS REAAL GROUP 7 annual report 2003

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    The retail mindset Thinking like a retailer also means: being alert. That Verzekeringen: ‘We therefore put a lot of emphasis on means responding – and being able to respond – rapidly streamlining the organisation. We invest a great deal and accurately to developments in the market. REAAL in knowledge, training, motivation and mutual coo- Verzekeringen and SNS Bank have consistently demon- peration. After all, being alert is not a one-off thing or strated this practically during 2003. something in isolation. It is a continuous process.’ At REAAL Verzekeringen, this alertness has clearly led Responding swiftly to developments in the market is to innovations. By paying close attention and thought- common practice at SNS Bank, also because of ‘com- fully responding to what is going on, it regularly suc- petence centres’. These are compact teams of around ceeded in surprising the Netherlands with something five employees who are jointly responsible for product new. Universal Life is a good example of this. The development in a specific field. The goal: excelling market has clearly picked this up: during 2003, there in mortgages, insurance and investment advice. The was a clear improvement in performance in the area teams focus on creating and maintaining innovative of alertness. As many as 54% of the financial advisors products that are relevant for both existing and new and 40% of the SME clients considered that REAAL clients. An important advantage: the competence cen- Verzekeringen has become more alert. tres act for the entire SNS REAAL Group. Alertness is essential, and not only for product renewal, Member of SNS Bank’s Board of Directors, Gert van but also in the area of advice, service and client relati- Wakeren: ‘The technical infrastructure has made it ons, it is very important to work precisely and decisively. possible at SNS Bank to swiftly switch and offer the pro- Jan Boven, Member of the Board of Directors of REAAL ducts to the clients in rapid succession in 2003. Thanks to our system, we have a clear lead in the market.’ Alert Client focus means that we at SNS REAAL Group are alert and respond swiftly to developments in the market. We are accommodating and easily accessible: traditionally Dutch. The result is that we have products for everyone, which each client perceives as tailor-made. 8 SNS REAAL GROUP annual report 2003

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    General Foreword by the Chairman of the Group Executive Board To all stakeholders in SNS REAAL Group In 2003, SNS REAAL Group realised a good net result of € 243 million. This represents substantial growth of 189% in comparison to the economically difficult year 2002. We have maintained our efficiency ratios at a relatively low level for the Netherlands. New branches have been opened, innovative products launched and market share gained across the board. In short, our growth strategy is successful, even when economic conditions are less favourable, as in the first half of 2003. SNS REAAL Group: the favourite financial retail specialist The year 2003 was mainly characterised by the refinement of our strategy: we want to be the favourite financial retail specialist in the Netherlands. We have not yet achieved thist, but we are taking steps in that direction. By ‘retail specialist’, we mean that, from a strategic perspective, we concentrate entirely on products for the target group of ‘the consumer in the Netherlands’. That does not just include private individuals, but also means the small and medium-sized enterprises. We call this ‘retail plus’. SNS REAAL Group provides a product range in three fields: mortgages, savings & investments and life insurance & pensions. This means that a conscious decision has also been taken in the area of products, with the aim of specialising, i.e. being the best and providing the best products. A significant spearhead within our strategy is, moreover, the synergy between the business units. The bank and insu- rance operations were jointly able to create significant sales synergy and cost benefits in 2003. Excellent administrative processing, efficient interfaces with intermediaries and innovative internet applications are based on our joint, very efficient service and competence centres. The partnerships that we were able to implement in 2003, such as those with Univé, Office Centre and various orga- nisations involved with services tot the business market, are all based on the strong characteristics mentioned above: innovative products based on integrated operations and advanced ICT. The diverse distribution channels– ranging from our internet services to the intermediaries in partnership with us – without exception made significant contributions to the result. The recently adopted strategy of rapidly opening SNS Bank branches in the Randstad urban conurbation (including Rotterdam, Zoetermeer and Dordrecht) and closing branches outside this region, similarly provided very promising results. We can be proud of the successful acquisition and integration of Zurich Nederland, which was finalised during the course of 2003. This has provided REAAL Verzekeringen with a clearly stronger position in the market for life and non- life insurance. The Zurich employees have been integrated into the organisation of REAAL Verzekeringen. By using the same logo now, not only for the Bank, but also for the insurance operations and the group, and by choosing the name ‘REAAL’ for the insurance operations, we started to emphasise the unity, coherence and financial soundness of our organisation in 2003. SNS REAAL Group’s financial profile is that of a steadily growing, low risk enterprise. Our view of ‘retail’ Retail to us is primarily a vision, a way of thinking and of behaving: the client is the focus of this, as the starting point for our strategy and our product development. We put ourselves in the client’s position. What does he or she want? What not? Back to basics, we say. This means the client with his or her wishes. In our vision, a retail specialist, more than anyone else, understands the art of listening, measuring and analysing. By being alert in detecting signals and trends, we should be able to perceive the wishes of our clients and potential clients and properly translate these into innovative and client-friendly products. This is the task we set ourselves. This involves flexible, up-to-date products, which also expand with the needs and stage in the life of the individual client. We believe we can be the favourite in the eyes of our client group by consistently providing a good price/quality ratio, supplied in a way that is perceived by the consumer as friendly, accessible, with consideration and respect, and with clear rates and reliable recommendations. 10 SNS REAAL GROUP annual report 2003

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    General Foreword by the Chairman of the Group Executive Board Thanks to our high level of information and communications technology, moreover, we are able to provide our products as ‘tailor-made’ items: our clients perceive our products and service as appropriate and personal. Someone once said: ‘a good retail specialist has a passion for people and his things (products).’ SNS REAAL Group and stakeholders SNS REAAL Group is at the centre of society and accepts its social role and responsibilities. Traditionally, we have always done so. Our organisation’s business principles involve being: client-oriented, professional, honest and socially commit- ted. Therefore, even as an unlisted company, SNS REAAL Group will strive to comply with the Tabaksblat committee’s recommendations on Corporate Governance. The awareness of our social responsibilities and the relationship with our business principles are expressed in all aspects of the operational management, such as the personnel policy, the environmental policy and particularly in our products too, as well as in the investment policy of our subsidiaries ASN Bank and SNS Asset Management. Ethical Business Practice is a recently started project, with which we are striving to incorporate these principles struc- turally in our organisation, from top to bottom. We should not only substantiate our view of retailing and our business principles to our direct clients, of course, but also to the independent intermediairies who cooperate with us. We are very happy about these partnerships and we believe in their healthy future. It is not a coincidence that the majority of our insurance production and a large propor- tion of our mortgage production is created through them. We are highly indebted to our employees for their dedicated efforts. We value the enthusiasm with which they support the current development towards being a real retail organisation. This is not achieved by words alone: our profit-sharing scheme ensures that all our employees share in the profit that they have helped to create. That the satisfaction is mutual is shown by the high average score that emerged from the staff satisfaction survey in 2003. Naturally, we would also like to thank our growing group of clients for their confidence in us. On behalf of the Executive Board of SNS REAAL Group, Sjoerd van Keulen Chairman SNS REAAL GROUP 11 annual report 2003

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    General Key figures In € millions 2003 2002 2001 2000 1999 Balance sheet Total assets 53,058 46,342 43,761 40,879 32,527 Investments 11,987 8,461 8,501 8,527 8,028 Mortgage loans 31,997 28,433 24,738 22,909 17,486 Other loans 3,358 4,194 4,238 4,203 3,662 Shareholders’ equity 1,643 1,408 1,571 1,575 1,452 Capital base 3,167 2,692 2,813 2,575 2,113 Technical provisions, insurance operations 11,174 8,253 8,178 7,683 7,032 Funds entrusted 17,560 16,073 14,965 13,997 13,119 Debt certificates 16,169 14,210 12,201 11,072 5,188 RESULTS Income banking operations Interest income 586 503 436 391 348 Commission 64 71 69 89 63 Other income 45 54 70 69 57 Total 695 628 575 549 468 Income insurance operations Gross premium income 1,779 1,501 1,490 1,410 1,249 Investment income 649 24 392 506 517 Other income 3 4 16 22 145 Total 2,431 1,529 1,898 1,938 1,911 Income SNS Reaal Invest Interest income 21 47 36 31 27 Commission 0 5 5 3 2 Other income 74 61 52 41 32 Total 95 113 93 75 61 Total income 4,472 3,539 3,907 3,639 3,209 Total expenses 4,115 3,436 3,675 3,390 2,978 Operating profit before taxation Banking operations 190 165 144 157 140 Insurance operations 131 (73) 135 111 102 SNS Reaal Invest 71 46 20 32 24 Group (35) (35) (67) (51) (35) Operating profit before taxation 357 103 232 249 231 Net profit 243 84 165 179 161 Key ratios Return on shareholders’ equity 15.9% 5.6% 10.5% 11.8% 12.2% Efficiency ratio banking operations 64.6% 64.7% 71.5% 68.4% 68.8% Cost / premium ratio insurance operations 28.8% 27.8% 29.6% 30.8% 31.7% Capital ratio 6.0% 5.8% 6.4% 6.3% 6.5% Number of employees (FTE’s, at the end of the year) 5,536 5,432 5,860 5,932 5,603 12 SNS REAAL GROUP annual report 2003

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    Report of the Supervisory Board SNS REAAL GROUP 13 annual report 2003

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    Report of the Supervisory Board During the first full year of the current composition of the Group Executive Board, several policy measures were taken that brought SNS REAAL Group closer to its goal of becoming a strong, retail bancassurance group. Moreover, we were able to close the financial year with a considerably better result than in 2002. Strategy is now SNS REAAL Group. We are grateful for his 23 years’ During the year under review, the strategic goals were of dedicated effort for our organisation. discussed with the Group Executive Board. Retaining the main thrust of the strategy, the goal of striving for 2003 financial statements and management letter sustained value creation was given more emphasis. This The Supervisory Board adopted the 2003 financial state- means that attention is systematically being paid to pro- ments in its meeting on 15 March 2004. KPMG Accoun- fitable growth across the entire group. tants conducted the audit of the financial statements. Following a careful selection procedure, KPMG was cho- The Group Executive Board has taken several important sen as the sole external auditor at the beginning of 2003. steps towards making it clear that SNS REAAL Group is a The Audit Committee was closely involved in this selection fully integrated strong retail bancassurance group and, procedure. thus, is a single enterprise. The change of the Hooge Huys name to REAAL Verzekeringen and the choice of the ka- The findings of the external auditor, as set out in the leidoscope as a common logo for SNS REAAL Group, SNS 2003 management letter, give the Supervisory Board the Bank and REAAL Verzekeringen were discussed by the confidence that the organisation has its processes well Supervisory Board. The decisions made were well received organised, and has promptly and properly followed up both internally and externally. recommendations for improvement. (Re)appointments Meetings in 2003 In its May 2003 meeting, the Supervisory Board, also at The Supervisory Board met nine times during the year un- the recommendation of the Central Employees Council, der review. Apart from previously mentioned topics, such appointed Mr. J. den Hoed as a Supervisory Board member as strategy, brand policy, the financial statements and the of SNS REAAL Group. In 2001 and 2002, Mr. Den Hoed as- management letter, normal policy memoranda such as sisted the Group Executive Board as external advisor to the capitalisation and funding plan and the investment the Supervisory Board. His knowledge of the organisation plan were dealt with. By means of the risk reports from the combined with extensive management experience mean banking and insurance operations, the Supervisory Board a welcome addition to the Supervisory Board. was frequently informed about interest rate risk, equity risk, currency risk, solvency, net income development and Messrs. Van de Kar and Kortmann were reappointed at funding requirements. this meeting. Prior to this, the customary discussions had been held with the chairman of the Supervisory Board and Presentations were made during the meetings, on topics with the Central Employees Council. including social social policy, synergy and cooperation, and socially responsible business practice. These pre- The members of the Boards of Directors of the Bank and sentations provide the Supervisory Board with a good the Insurance operations have not changed in 2003. In overview of how the organisation is substantively dealing connection with the previously announced strategy for with important issues. SNS REAAL Invest, Mr. Ambachtsheer, chairman of the Board of Directors of SNS REAAL Invest, will end his active In addition, the acquisition of Zurich Nederland and the career in March 2004. Mr. Ambachtsheer has been closely alliance with Univé have been on the agenda, as has the involved with many mergers that have finally led to what sale of some of the interests of SNS REAAL Invest. 14 SNS REAAL GROUP annual report 2003

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    Report of the Supervisory Board During one meeting, at which the Group Executive Board and SNS REAAL Invest from Ernst & Young to KPMG was was not present, the Supervisory Board discussed topics discussed. The quarterly reports and quarterly schedules including its own performance, the relationship with the of the Internal Audit Department are permanent agenda Group Executive Board, the management information items. The Audit Committee is also regularly informed desired by Supervisory Board members and the profile about the progress of the IFRS project within SNS REAAL of the Supervisory Board. Group. The Audit Committee Contacts with the Central Employees Council The Audit Committee met five times during the year under The Supervisory Board receives the minutes of the con- review. Supervisory directors Van Heeswijk, Huisman and sultative meetings held between the Group Executive Simons are members of the Audit Committee. All the Audit Board and the Central Employees Council. Twice a year, Committee meetings are attended by the chairman of the a delegation from the Supervisory Board attends these Group Executive Board and the Chief Financial Officer, as meetings. well as the external and internal auditors. With thanks to The financial statements, the half-year report and the bud- Both commercially and financially, 2003 was closed with get are discussed in detail at the Audit Committee mee- a good result. The Supervisory Board thanks the manage- tings before being presented to the Supervisory Board ment and staff of SNS REAAL Group for their efforts and with a recommendation for adoption or approval. enthusiasm. Thanks to the sharp increase in profits, the staff will receive a payment for the first time in accordance As previously mentioned, the Audit Committee was closely with the profit-sharing scheme that was introduced in involved in the selection of the external auditor. In this 2002. context, the transition plan for the handover at SNS Bank Utrecht, 15 March 2004 On behalf of the Supervisory Board, J.L. Bouma, chairman SNS REAAL GROUP 15 annual report 2003

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    Report of the Group Executive Board SNS REAAL GROUP 17 annual report 2003

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    Report of the Group Executive Board Strategy and policy SNS REAAL Group wants to develop into the favourite financial retail specialist in the Netherlands: a bancassurance group with a top-3 position for its three core product groups of mortgages, savings & investment, and life insurance & pensions. The top-3 position should be achieved by the profitable growth of the market share. SNS REAAL Group uses a retail product package in its increasing focus on the Dutch individual and small and medium-sized business markets. SNS REAAL Group: one enterprise During the year under review, it was decided to make it Strategic goals clear in both words and pictures that the subsidiaries of SNS REAAL Group constitute one enterprise. The name 1. Sustained value creation ‘Hooge Huys’ will be replaced by ‘REAAL Verzekeringen’ in 2. Outpace market growth April 2004, which logically substantiates the link between 3. Focus on retail and retail-plus clients SNS REAAL Group and both main brand names SNS Bank 4. Managing synergy and REAAL Verzekeringen. SNS REAAL Group and REAAL Verzekeringen, following the example of SNS Bank, are going to use the ‘kalei- Four strategic goals doscope’ as a common eye-catching logo. The kaleidos- The goal of becoming the favourite financial retail spe- cope represents the common values within the group: cialist in the Netherlands, has been translated into four innovative, transparent and accessible. The presentation strategic goals for the period up to 2005. These goals for as one strong bancassurance group increases the brand SNS REAAL Group as a whole also apply for the individual recognition and reinforces the image to both the market group entities. SNS REAAL Group achieved good progress and the clients. on all points during the year under review. 18 SNS REAAL GROUP annual report 2003

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    Report of the Group Executive Board Strategy and policy Goal 1 REAAL Verzekeringen Sustained value creation By focusing on a number of spearheads, REAAL Verzeke- ringen aims towards a structural value development of SNS REAAL Group aims for sustained value creation in its activities. the group as a whole. This is to implement the growth strategy, in order to manage the enterprise properly One of these is the integration of Zurich Nederland, which and to improve the return on investment. is progressing successfully but which placed a heavy bur- den on the organisation. The more than three hundred The ever-increasing competition on the Dutch financial employees of Zurich have already been physically re- market generally leads to tighter margins on the products. located to REAAL Verzekeringen. Furthermore, a lot of SNS Reaal Group – even more than was already the case in attention was directed towards the efficient expansion the past – will use the return on investment as a criterion of the sales organisation. Vitally important is the chain for policy decisions. After all, the capital must be allocated integration with intermediaries, who, to this end, are pro- as effectively as possible, taking its cost and risk/return vided with a direct electronic connection to the systems of considerations into account. This ‘value thinking’ – thin- REAAL Verzekeringen. This underlines the good reputation king in terms of profitability and added value – also forms that the insurance operations have established during the the framework for the other strategic goals. ‘Outpacing course of the years, with high quality and rapid admini- market growth’, for example, has an important pre-requi- strative processing of policies. Cost control has been a site that this must involve profitable growth. priority at REAAL Verzekeringen for many years now. The In specific terms this means, for all activities, that a syste- investment policy has been tightened up, which includes matic return on shareholders’ equity (RSE) of 12.5% after the reduction of the interest in equities and more active tax is required. This requirement applies to the group as management on the basis of the duration. a whole and for the business units and products individu- ally. ‘Profitable growth’ is a central theme for all business units in 2004. SNS Bank SNS Bank has – under the name ‘smarter growth’ – pro- Development of the mortage portfolio vided elaboration to the group strategy by putting more emphasis on profitable growth, careful risk management of SNS Bank and strict cost control. This is how healthy commercial € millions and financial growth is safeguarded. ������ As an extension to this, it was decided to manage the ������ branch organisation more centrally and more tightly. The ‘Private Banking’ business line will be merged with the ������ ‘Private Customers’ business line. The ‘Business Relations’ business line is going to focus more on the Entrepreneur ������ desks, which serve the small businesses using a retail approach. Furthermore, the five regional business insu- ������ rance offices were organisationally combined to form SNS Assurantiën (Assurance) in mid-2003. Finally, the credit ����� risk management, currently performed locally, will soon be centralised in the area of analysis and administration. � These measures lead to an efficient organisation and therefore to lower costs. A tight risk policy and proper ���� ���� ���� ���� ���� evaluation of credit risks are essential, especially during With guarantee Without guarantee a fragile economy. SNS REAAL GROUP 19 annual report 2003

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    Report of the Group Executive Board Strategy and policy The market in 2003 Interest rates stay low With the background of the weak economy and the low inflation, both in the US and in the European Union, monetary policy eased during the first half of the year. The European Central Bank lowered the interest rate (refinancing operations) by a total of 75 basis points to 2.0%. After an initial dip, capital market rates returned to their historically low level. At the beginning of 2003, share prices dropped sharply worldwide, because of the impending war in Iraq. The upward trend after the start of the war was subsequently reinforced by the economic recovery, particularly in the US. Over 2003 as a whole, the Dow Jones 30 index rose by 25.3%, whereas the Dutch AEX index only booked a profit of 4.6% and ended up at 338. Despite the low interest rates, many chose the safety of saving rather than investment. Refinancing of mortgages popular The housing market suffered remarkably little from the weak economy: during 2003, the average house price rose by 2.7%. The housing market remained tight, because there were still too few new homes becoming availa- ble, particularly in the middle segment. Many homeowners used the low mortgage rates to refinance their relatively expensive mortgage loan. This con- stituted around half of the new mortgage production during the year under review. The interest in investment- linked mortgages dipped under the influence of developments on the stock exchange. Old age provision under pressure The abolishing of the basic allowance for annuity premiums, followed by the abolition of the premium savings scheme and the limitation of contractual savings did not go unnoticed in the insurance market. There was a shrinking market for the third successive year. The three components of old age provisions are under pressure: the AOW (General Old Age Pension), the top-up pension schemes and the individual facilities. The responsibility for an adequate pension is increasingly being placed with individuals, who receive less and less benefit from tax facilities. Goal 2 curve of previous years for the core products, despite the Outpace market growth weak economy. Because the targeted market shares have been achieved sooner than expected, the commercial SNS REAAL Group aims to outpace market growth. The goals for the coming years have been increased. group manifests itself as product leader, which means that there are continually innovative products being SNS Bank developed and delivered to the market. In addition, Successful products growth is stimulated by strengthening the distribution During the year under review, SNS REAAL Group achieved a channels, which includes the expansion of the branch net mortgage production of € 5.9 billion, which resulted in network in the Randstad and entering into alliances. a market share of 9.7% measured in numbers of mortgages. Strong growth is also achieved by non-organic growth, SNS Bank’s mortgage portfolio increased by 13.2% to € 29.9 in the form of acquisitions. Alliances and acquisitions billion. In particular, the SNS Plafondrente (ceiling interest are an important part of the SNS REAAL Group’s growth rate) is a very successful product, which has a dampening strategy. effect when interest rates are rising. The SNS REAAL Group’s mortgage portfolio grew to € 32.0 billion. With the desired growth in mind, ambitious sales plans have been drawn up for the 2002 to 2005 period. The year The total savings deposits - including interest accrued under review was also successful in maintaining the growth - increased by 8.2% to € 10.4 billion in the year under review. 20 SNS REAAL GROUP annual report 2003

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    Report of the Group Executive Board Strategy and policy Internet savings comprise an increasingly larger part of REAAL Verzekeringen this: 33%. € 996 million has been deposited in the SNS Successful products Zakelijk Internet Sparen (business market internet sa- The new input of regular-premium individual life insu- vings) that was introduced in 2003. rance policies increased during the year under review The capital placed with SNS Beleggingsfondsen (invest- by 22.9% to € 86 million. In view of the shrinkage in the ment funds) rose by 19.6% to € 1,513 million. The new in- life-insurance market, the market share with the new crease amounted to € 184 million, while the investment production of REAAL Verzekeringen (excluding Zurich income was € 64 million. All the funds – investing in cash Nederland) rose to 10.1%. Including Zurich, the produc- equivalents, bonds and/or equities – showed positive tion achieved was € 96 million and the market share 11.1%. returns. The life portfolio – excluding Zurich – increased by 9.8% to € 715 million. Strengthening distribution The branch network of SNS Bank is expanding into the The single premium production increased by 21.2% to Randstad. Branches had already been opened in Amster- € 635 million, mainly due to immediate annuities, with dam, The Hague and Utrecht during 2002. During the the market share – excluding Zurich – remaining virtually year under review, Alkmaar, Dordrecht, Rotterdam and unchanged at 8.3% (2002: 8.4%). Including Zurich, the Zoetermeer were added. Branches will be opened in many market share rose to 8.9%. growth centres in the Randstad area during 2004 and in subsequent years, which will increase the number of of- During the year under review, the non-life insurance port- fices in the Randstad to 20 to 25 ultimately. However, in folio initially dipped sharply – especially for motor vehicles its entirety, the network of SNS Bank is not increasing; and fire – because the introduction of the terrorism clause the goal is aimed at a redistribution in order to realise a led to a large number of cancellations. Recovery started balanced national coverage. later in the year. During the year under review, SNS Bank entered into a partnership with Office Centre: an office supplies who- REAAL Verzekeringen sells mortgages, mainly under the lesaler aimed at small and medium-sized business. SNS labels of a large number of partners, in combination with Bank is the first bank to offer products for the business life insurance policies. The mortgage portfolio of the insu- market by means of a shop formula. There where also rance operations, including management for third parties, partnerships commenced with two organisations that amounts to € 5.6 billion. provide a coherent package of financial, legal and ad- ministrative facilities for individual entrepreneurs and Strengthening distribution flexworkers, often known as ‘self-employed with no staff’. During the year under review, REAAL Verzekeringen ente- SNS Bank supplies the financial products for this package, red into a partnership with Univé. Univé’s 150 sales outlets tailor-made for the associated target group. will sell life insurance products of REAAL Verzekeringen. Investment advising SNS VermogensPrisma (asset prism) is an advice concept that assists the staff at the SNS Bank’s branches with advising clients about their investments. On the basis of the client’s investment profile and his or her investment goals, portfolios of SNS Bank investment funds are composed. The continuous monitoring of the portfolio’s de- velopment is a characteristic element of SNS VermogensPrisma. SNS Fundcoach recently became part of SNS Bank. At Fundcoach – an ‘investment fund supermarket’ – clients can compose their investment portfolio themselves by selecting from more than 300 leading domestic and foreign investment funds. They can compare the securities on profitability, risk and rating, and maintain their portfolio themselves, online. During the year under review, SNS Fundcoach organised a few dozen well-attended evening courses for clients and potential clients. SNS REAAL GROUP 21 annual report 2003

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    The retail mindset Products nowadays must satisfy increasingly strict Cornelie van Bergenhenegouwen, Social Strategy Manager social and other quality requirements. A transparent of REAAL Verzekeringen: ‘The consumer must understand way of working is, therefore, also absolutely essen- what he or she is buying. Therefore, as an insurer, we tial. For REAAL Verzekeringen, this is translated into a attach great value to thorough product training courses, close relationship with the intermediaries, among other a proper training programme and workshops. In addition, things. After all, the intermediaries play a key role in the of course, we also ensure that our products are clear. We presentation of our products. All the more reason, the- do everything in our power to make our communication refore, to treat them with care. and descriptions as accessible as possible. For example, consider the simplification of the pension summaries. This care, of course, already commences in the selec- Moreover, something that is of paramount importance: tion process: each intermediary is screened by REAAL we are honest about the structure of costs. Thus, at the Verzekeringen for financial security, expertise, integrity, beginning of 2003, we consciously decided – in the con- transparency and serious attention to the duty of care. text of the gross/net debate – to present the information in such a way that the client knows exactly what costs he Even after this screening, however, a lot of time and or she pays and what remains from payments, with invest- energy is invested in the relationship with the interme- ment funds too. From a commercial point of view, this was diary. After all, if our staff and intermediaries promote less interesting, but we considered it important – in the the products from REAAL Verzekeringen properly, our client’s interest – to do it this way anyway. Nowadays, this clients can count on perfectly tailored products. way of working has become the norm for the sector.’ Clarity The call for transparency is currently one of the most prominent signals coming from the market. The – increasingly critical – client wants to know, in advance, exactly what he or she is paying for. Above all, he or she wants all the associated costs and conditions to be presented in advance, rather than be confronted with them afterwards or in the interim. 22 SNS REAAL GROUP annual report 2003

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  • Page 26

    Report of the Group Executive Board Strategy and policy The intention of both parties is also to place the life port- There are many opportunities, particularly in the invest- folio with REAAL Verzekeringen. As in 2003, agreements ment field, as SNS REAAL Group has a wide range of first have also been entered into with other parties for the sale class investment funds and SNS Bank has established an of life and non-life insurance policies. In addition, REAAL excellent reputation in the field of investing via internet. Verzekeringen has had partnership agreements running In 2003, a lot of attention was paid to proper implemen- with several major market players for some time now, both tation of the banks duty of care with respect to the inves- for mortgages and insurance. ting clients, also from the perspective of the organisation. Partly for this reason, the investment recommendations Non-organic growth from the advisors in the branches only include investment In mid-2003, REAAL Verzekeringen substantiated its funds (see the ‘Investment advising’ box op page 21). growth strategy by the acquisition of Zurich Nederland. Zurich’s life activities and its private and business non-life Internet: strong growth continues activities were integrated into REAAL Verzekeringen in a Banking and investing via internet are at a high level. SNS relatively short time. As a result, the size of REAAL Ver- Bank has been picked as the best internet broker among zekeringen increased by around 15%, while the Life and the general banks for the fourth year in succession. The Non-Life market positions were considerably reinforced. bank underlines its innovative character with its spear- The Zurich employees have already been integrated into head position with the i-mode and pocket-pc applicati- the various subsidiaries of REAAL Verzekeringen. A sub- ons for banking and investing. Not only retail clients, but stantial contribution to the profit is expected from Zurich also business clients can conduct ever-increasing types of from 2004 onwards. banking transactions via the internet facilities provided. At the end of 2003, 40% of both target groups banked via internet. Every day, 50,000 clients log in, and the number Goal 3 of clients banking via internet is growing by more than a Focus on retail and retail-plus clients thousand every week. The target groups of SNS REAAL Group are the private Call centre: sales via the telephone rise sharply market (retail market) and the segments of the busi- The call centre provides telephone contact with the client. ness market that are closely linked to this, such as Questions from clients and potential clients are answered, small and medium-sized enterprises. The combination and there are direct sales of mortgages, consumer credit of these private and business target groups is known and insurance policies. During the year under review, con- as ‘retail-plus’. tinuous travel insurance and personal accident insurance have been added to the policies available. Business pro- Both the banking and insurance operations offer the client ducts are also being sold in increasing numbers. groups a clear range of products, focused on mortgages, savings & investment, and life insurance & pensions. At Intermediaries: new opportunities SNS Bank, sales take place via a number of cooperating A major proportion of SNS Bank’s mortgage production distribution channels, including branches, intermediaries, is sold through independent intermediaries, but this internet and direct selling (multi-channel distribution). Du- channel still offers lots of opportunities in the area of ring the year under review, the distribution was tightened investments and insurance. In partnership with the other up. The various sales channels will more intensively utilise brands within the group, SNS Bank is developing plans the opportunities in the field of savings and investment. and products to take advantage of this. CVB Bank and BLG REAAL Verzekeringen sells via independent intermediaries Hypotheken work almost exclusively via intermediaries and has also streamlined its sales organisation. (See also the ‘Specialised brands’ box op page 27). SNS Bank Business Relations: retail approach Branches: more advice about investments The ‘Business Relations’ business line of SNS Bank provi- During the year under review, it was decided to further des services to small and medium-sized enterprises, and expand the investment advisory services at the branches. to associations and institutions. In line with the tighte- 24 SNS REAAL GROUP annual report 2003

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    Report of the Group Executive Board Strategy and policy Business Relations: standard products, suitable for internet The products that ‘Business Relations’ brought to market during the year under review, are characterised by cla- rity, standardisation and suitability for internet. SNS Zakelijk Internet Sparen (Business internet saving), for example, is an innovative product on which, in ad- dition to the usual interest, an additional premium is given for loyally retained savings. Since its introduction, it has grown rapidly to almost € 1 billion. SNS Omzetkrediet (turnover credit) relates the credit limit to the annual turnover on the SNS Zakenrekening (business account), so that the decision about the credit facilities can be taken swiftly. The interest is calculated on the outstanding debit balance. Overdrafts beyond the agreed credit limits and credit control are automated. During the year under review, several thousand turnover-credit facilities were granted. The SNS Zakelijk Internet Bankieren (business internet banking) has had new features added under the name ‘Xtra’, which are also very useful for large enterprises. This product is equally suitable for I-mode applications. During the year under review, SNS Zaak op Maat (tailor-made business) was introduced: a complete package of products with standard and optional elements for small and medium-sized enterprises. Internet banking, for in- stance, is a standard element, whereas internet saving, turnover credit and business insurance are optional. This internet-oriented product provides a strong foundation for the further implementation and elaboration of the services for the SME market segment. The majority of products mentioned are sold via several distribution channels: via the business units at the bran- ches, via direct mail and via the call centre, which also has a separate unit for this, the SNS Zakenlijn (business line). Many entrepreneurs take the initiative themselves, either requesting products via the bank’s website, or immediately enter into an agreement. Furthermore, anyone who goes into Office Centre can take the product away immediately. ning of the policy, the focus is more on the ‘Enterprise with both life and non-life insurance. In order to achieve desks’, which are located in 14 larger branch offices. The its ambitious sales targets, the REAAL Verzekeringen sales ‘Enterprise desks’ specialise in providing services to small organisation has been redesigned. The services to the companies, with characteristics such as a retail approach, intermediaries will be strengthened by means of speci- offering ‘factory-tailored’ products, and making as much alised sales channels. During the year under review, all use of the internet as possible. After all, this target au- channels achieved production growth, often in the tens dience is well able to do things independently: many have of percents. a personal computer with internet access, so that they can do their banking 7 days a week, 24 hours a day. During Non-life insurance policies have long been considered as the year under review, various innovative products have ‘supporting’ insurance to the sale of life insurance and been specially developed for this category of business mortgages. Partly as a result of acquiring the portfolio (see the ‘Business Relations’ box above). from Zurich, REAAL Verzekeringen’s interest in the non- Besides the ‘Enterprise desks’, ‘Business Relations’ also life insurance market has clearly increased. This activity has a number of ‘Business & Institution’ units, which is now considered as core business. mainly focus on providing advice and tailor-made soluti- ons for medium-sized companies. Intermediary Sales services the major groups of interme- diaries, who carry a wide range of products. The growth REAAL Verzekeringen amounted to 16%, in a market that was shrinking by 10%. REAAL Verzekeringen only uses independent intermedi- The Desk Account Management department set up du- aries for its sales. Via the intermediaries, the insurance ring the year under review strengthens the relationship operations focus on the retail and the wholesale markets, of the account managers with the intermediaries, with SNS REAAL GROUP 25 annual report 2003

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    Report of the Group Executive Board Strategy and policy personal visits supplemented by providing telephone sup- Goal 4 port. Some 30% of the production of REAAL Verzekeringen Managing synergy is sold through this sales channel. The strategy aims to benefit from synergy. The basic Special Distribution has target groups that include principle ‘one enterprise, one policy and one control mortgage advisory chains and major intermediaries. The centre’ has been quickly implemented. The Group Exe- products are sold under the group’s own brand or the cutive Board and the Boards of Directors of SNS Bank label of an allied partner. This includes, for example, the and REAAL Verzekeringen have been located in Utrecht, previously-mentioned partnership with Univé. In 2003, together with a large number of central staff and other Special Distribution doubled its turnover, so that 35% of departments. During the year under review, the de- the sales are now made via this channel. centralised financial departments were merged into a single support centre. The same logos and related SNS Bank, as an important sales channel, is specially names within SNS REAAL Group emphasise that the served by the SNS Verzekeringen-department; the group entities together constitute a single bancassu- production rose by 25% during the year under review. rance group. In the meantime, 20% of the new production of REAAL Verzekeringen is sold via SNS Bank, which means that, as The product development is centralised in three compe- a result of synergy, SNS REAAL Group has become one of tence centres: for mortgages, savings & investment, and the most successful bancassurance groups. life insurance & pensions. They ensure the rapid deve- lopment of innovative and profitable products. Standar- The Pensioenbedrijf (pension operations) sells semi- disation plays an increasingly important role in this con- group and group pensions both via 150 intermediaries text. For a retail bancassurance group, a high quality of that specialise in pensions and via actuarial advisors. Du- product development and product marketing is of major ring the year under review, 15% growth was achieved. The significance. legislative changes that have followed each other in rapid The administrative processing of the products sold is succession have had a major effect on pension schemes. concentrated into four service centres: funds transfers, The pension operations are able to rapidly provide product mortgages, securities and insurance. The basic princi- solutions (see also page 46). ple is ‘one product range, one system, one location.’ This uniformity of processes and systems provides a clear lead The Volmachtbedrijf (underwriting agency business), in the market. partly as a result of the acquisition of the SME package of non-life insurance policies from Zurich, is focusing The link between product development and administra- more on the business market and is expecting growth in tive processing is the sales via the distribution channels. this segment. The range of products has been brought Synergy benefits can still be achieved in this area, for up-to-date across the whole line. instance by selling as many core and other products as possible through as many channels as possible. During the year under review, various steps have been taken in Seven innovative universal life insurance policies REAAL Verzekeringen introduced a coherent package of seven innovative universal life insurance policies at the end of 2003. Each insurance policy is geared to a specific ‘phase’ in the client’s life and the need for capital growth that is linked to it. For example, there are three targeted types of insurance-linked mortgages, two pension or pension gap insurance policies and two savings insurance policies for children in full-time education or future hobbies. Investments are made in SNS Bank’s investment funds. What is special is that the client only insures what is needed and is only charged for what is used. This means that the premiums and costs can be kept low. The package is, therefore, interesting for client, intermediary and insurer. 26 SNS REAAL GROUP annual report 2003

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    Report of the Group Executive Board Strategy and policy Specialised brands Besides the two main brand names SNS Bank and REAAL Verzekeringen, SNS REAAL Group also has a number of niche labels active in a (specialised) market segment. BLG Hypotheken (mortgages) BLG Hypotheken, which sells mortgages through intermediaries, saw its turnover increase in 2003 by 37% to al- most € 1.5 billion. Partly as a result of this, the portfolio grew by € 650 million to more than € 6.2 billion. In the an- nual survey of intermediaries ‘Imago Blauwdruk Hypotheekverstrekkers’ (Blueprint image of mortgage lenders), BLG once again scored highly, ranked sixth among more than 70 mortgage lenders. The intermediaries that do business with BLG rate the mortgage bank highly for flexibility, rapid service and meticulousness. CVB Bank The banking formula, which CVB Bank – ‘the intermediary bank of the Netherlands’ – provides to intermediaries, enjoyed increasing interest. More than 50 new intermediaries joined in during the year under review, which brou- ght the number of affiliated intermediaries up to 330. The savings deposits increased during the financial year by 19% to more than € 1 billion and the mortgage production grew by 25% to € 0.5 billion. ASN Bank The mission of ASN Bank - ‘for the world of tomorrow’ - is to allow as much money as possible to work for a sustai- nable society. During the year under review, the number of clients grew by 18,000 to more than 200,000, with the funds entrusted amounting to some € 2 billion. The market share in the field of sustainable banking is more than 30% (See also the section on ‘Socially responsible business practice’). SNS Asset Management SNS Asset Management is the Group’s portfolio manager with a distinctive specialisation in the field of sustai- nable and ethical investment. During the year under review, the assets under management increased by 31.7% to € 10.9 billion. The interest in sustainable investment is still increasing, as is shown, for example, by the growth of the institutional ‘best in class’ SeNSe Fund to almost € 100 million (See also the section: ‘Socially responsible business practice’). SNS Securities SNS Securities is a brokerage firm, which executes transactions on the domestic and international stock exchan- ges for clients and SNS REAAL Group. At the end of 2003, SNS Securities acted as market maker in 28 listed companies and, jointly with SNS Bank, 29 investment funds. There were two initial public offerings of investment funds during the year under review. Proteq Direct Decisions about the new strategy, name and proposition were taken during the year under review. Under the name ‘Proteq Direct’, this operating unit is the direct writer of the insurance operations. In addition, the company continues to focus on ‘affinity’ groups and the ‘Dier & Zorg’-(animal & care) insurance. REAAL Overlijdenszorg (funeral insurance) The activities of REAAL Overlijdenszorg will be transferred to other life insurance operations within SNS REAAL Group during the course of 2004, partly as a result of the re-labelling of Hooge Huys as REAAL Verzekeringen. The salaried-agents organisation will be wound down. The intermediaries’ portfolio will be taken over by REAAL Verzekeringen, and the direct sales portfolio by Proteq Direct. The integrated operating units will continue to focus particularly on the funerals market – but now under the label of REAAL Verzekeringen and Proteq Direct. As already mentioned, SNS Bank has been selling funeral insurance since September 2003. SNS REAAL GROUP 27 annual report 2003

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    Report of the Group Executive Board Strategy and policy this direction. For example, a housing costs insurance Rekening (asset management account) is an actively ma- policy has been developed, which protects against the naged investment portfolio containing investment funds consequences of incapacity for work and involuntary from both SNS Beleggingsfondsen and third parties. The unemployment. This insurance, which can be sold both management is provided by Optimix Vermogensbeheer in combination with a new mortgage and separately, is (portfolio management company). This former Zurich distributed by REAAL Verzekeringen and all the banking product is now also sold by REAAL Verzekeringen. brands. In addition, the branch organisation of SNS Bank started selling funeral insurance in the second half of the At the end of the year under review, REAAL Verzekeringen year under review. There is also the new ‘Woonpakket te- presented a cluster of seven new universal life products gen koopsom’ (Home package for a lump sum premium) (see box op page 26). These (investment) insurance poli- being sold by SNS Bank. cies are directly linked to the core products of SNS REAAL Group. These products are therefore also very suitable for External parties are also involved in the development of sale via the banking channel. advanced products. The Hooge Huys Vermogensbeheer 28 SNS REAAL GROUP annual report 2003

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    Report of the Group Executive Board Financial developments During the year under review, SNS REAAL Group’s net profit increased by 189.3% to € 243 million (2002: € 84 million). All the operating units - SNS Bank, REAAL Verzekeringen and SNS REAAL Invest – enjoyed positive profit development. The insurance operations in particular realised a sharp this increase relates to the income from investments that, increase in profit, because there were relatively few in- at € 0.7 billion, was almost eight times the amount in 2002. vestment losses on the equity portfolio, which had an The premium income also rose – from € 1.5 billion to € 1.8 adverse effect on the 2002 result. billion. Zurich contributed € 176 million to this income growth. SNS REAAL Group’s total income increased by 26.4% to EUR 4.5 billion (2002: € 3.5 billion). About two-thirds of The total expenses of SNS REAAL Group increased by 19.8% to € 4.1 billion (2002: € 3.4 billion). This was cau- sed by higher technical insurance expenses, which are Composition of net profit 2003 �2002� related to the increase in premium income. The impact �investment losses excluded� of Zurich on the total expenses amounted to € 274 million. The changes in value of receivables decreased, almost entirely as a result of the lower addition to this item by 32� �41� SNS REAAL Invest. 24� Result of SNS Bank �18� SNS Bank’s net profit in the year under review increased by 17.3% to € 129 million (2002: € 110 million). 44� �41� SNS Bank’s total income increased by 10.7% to reach € 695 million (2002: € 628 million). This was caused by a sharply higher net interest income, which grew from € 503 million to € 586 million (+16.5%). The commission income dipped, mainly as a result of declining securities SNS REAAL Invest commission. The other income was lower, also a result of SNS Bank the poor equity market performance. There was also the REAAL Verzekeringen effect of the trading activities of SNS Financial Markets (investment losses excluded) being wound down during 2003. Result of SNS REAAL Group In € millions 2003 2002 Change Income 4,472 3,539 26% Expenses 4,115 3,436 20% Operating profit before taxation 357 103 247% Taxes 97 13 646% Net profit before third-party interest 260 90 189% Third-party interests 17 6 183% Net profit 243 84 189% SNS REAAL GROUP 29 annual report 2003

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    Report of the Group Executive Board Financial developments SNS Bank’s total expenses increased by 9.1% to € 505 mil- gross premiums of the non-life operations increased to lion (2002: € 463 million). This increase was almost entirely € 293 million. The income from investments rose strongly caused by personnel costs, which rose by 18.7% to € 279 from € 24 million to € 649 million, of which € 453 million million. This was mainly related to non-recurring espenses, was for the insurer’s own account and € 196 million for such as higher pension charges, the hiring of temporary the account and risk of policyholders. staff and the forming of a reorganisation provision in the context of the ‘smarter growth’ project. The number of Zurich’s contribution to the net profit in 2003 was posi- employees increased to a limited extent by 2.6%. The va- tive. Its total income amounted to € 279 million and its lue adjustments to loans and advances decreased slightly total expenses were € 274 million. After tax, and before to € 56 million as a result of the continuing unfavourable amortisation of ‘VOBA’ (‘value of business acquired’), a economic conditions. The other operating costs dropped net profit of € 10 million remained. 0.6% to € 170 million. At REAAL Verzekeringen, the total expenses rose by 43.6% Result of REAAL Verzekeringen to € 2.3 billion (2002: € 1.6 billion), mainly due to the incre- REAAL Verzekeringen turned the loss of € 46 million (2002) ase in the technical insurance expenses, which increased into a net profit of € 86 million during the year under re- from € 1.3 billion to € 1.9 billion (52.3%). Excluding the view. The figures of the insurance operations include tecnical expenses of insurance operations for account Zurich Nederland for nine months. and risk of policyholders, the total expenses increased to € 1.8 billion (+24.6%). The personnel costs increased The total income of REAAL Verzekeringen increased by by 24.8% to € 146 million, mainly due to the arrival of the 59.0% to € 2.4 billion (2002: € 1.5 billion). The foundation employees from Zurich. The other operating expenses for the growth of the gross premium income to € 1.8 bil- – mainly consisting of commission to intermediaries – also lion was not only recurring life premiums (+18.8%) and rose, specifically to € 177 million 20.4%). Excluding Zurich, single premiums (+19.3%), but also non-life premiums the other operating expenses showed an increase of 4.1% (+15.8%). Both the life and the non-life operations also to € 153 million. received an impetus from the acquisition of Zurich. The Result of SNS Bank In € millions 2003 2002 Change Net interest income 586 503 17% Commission 64 71 (10%) Other income 45 54 (17%) Total income 695 628 11% Staff costs 279 235 19% Other operating expenses 170 171 (1%) Total operating expenses 449 406 11% Value adjustments to loans and advances 56 57 (2%) Total expenses 505 463 9% Operating profit before taxation 190 165 15% Taxes 61 55 11% Net profit 129 110 17% 30 SNS REAAL GROUP annual report 2003

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    Report of the Group Executive Board Financial developments Net profit SNS REAAL Group Net profit SNS Bank € millions € millions ��� ��� ��� ��� ��� ��� �� �� ��� �� �� �� � � ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� Net profit Net profit Result of REAAL Verzekeringen In € millions 2003 2002 Change Gross premium income, life insurance policies 1,486 1,248 19% Gross premium income, non-life insurance policies 293 253 16% Total premium income 1,779 1,501 19% Investment income 649 24 -- Other income 3 4 (25%) Total income 2,431 1,529 59% Technical expenses, insurance operations 1,934 1,270 52% Staff costs 146 117 25% Other operating expenses 177 148 20% Total operating expenses 323 265 22% Other costs 43 67 (36%) Total expenses 2,300 1,602 44% Operating profit before taxation 131 (73) -- Taxes 45 (28) -- Net profit including third-party interests 86 (45) -- Third-party interests 0 1 (100%) Net profit excluding third-party interests 86 (46) -- SNS REAAL GROUP 31 annual report 2003

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    The retail mindset The name BankBundel (bank bundle) itself sets exactly bundle, and any extras are offered - with attractive dis- the right tone: with this product, SNS Bank want to esta- counts - in a book of special-offer coupons. For example, blish the association with today’s mobile telephone’s a second Wereldpas, a second SNS Credit card, Personal ‘belbundels’ (Dutch for talk time and/or text bundles). service and special offers from other brands. The package comprises the SNS Privérekening (pri- vate current account), SNS Internet Bankieren (internet A lot of attention has also been paid to the banking), SNS Internet Sparen (internet saving), the BankBundel’s appearance. Senior advisor in Marketing SNS Credit card, the SNS Wereldpas (international bank Communications, Ewa Skotnicki: ’You can’t touch or card) and telephone banking services. smell bank products – unlike pears at a greengrocers – but we can do our best to make them as tangible as pos- The package’s attractiveness lies in a combination of sible. That is certainly the case with the ‘BankBundel’. aspects. To begin with, it contains everything a client The client can open up the ‘BankBundel’ and immedi- needs to organise his or her funds transfers. Moreover, ately commence banking with it. The middle has room the `standard’ offering is extraordinarily attractive. For for a keyboard, with a manual with CD-ROM to the left example, the SNS Privérekening provides various uni- (especially to assist people who have cold feet to get que facilities, such as the service of the three accounts started). There is a mouse pad to the right. Furthermore, on one bankcard, the remaining balance saving faci- all the product components have been made ‘tangible’ lity ‘Restsparen’, and the text alert ‘SMS-alert’ service. and inserted into the bundle. Moreover, the choice of Furthermore, the internet banking is extremely user- materials and design gives the ‘BankBundel’ a cool cha- friendly. All the important bankcards are included in the risma. Almost everybody wants to have one.’ The offer The ‘BankBundel’. This is the name under which, SNS Bank launched a single bundled package containing all its banking services at the beginning of 2004. Nothing remarkably new in itself. But even so, the way in which the package is provided is all the more eye-catching. 32 SNS REAAL GROUP annual report 2003

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    Report of the Group Executive Board Financial developments Net profit REAAL Verzekeringen Net profit SNS REAAL Invest € millions € millions ��� ��� �� �� �� �� �� �� �� �� � � ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� Net profit Net profit Result of SNS REAAL Invest SNS REAAL Invest realised a net profit of € 71 million, an result was affected by the sale of participating interests increase by 51.1% compared to 2002 (€ 47 million). The to external parties. Result of SNS REAAL Invest In € millions 2003 2002 Change Net interest income 21 47 (55%) Commission 0 5 (100%) Other income 74 61 21% Total income 95 113 (16%) Staff costs 11 23 (52%) Other operating expenses 8 21 (62%) Total operating expenses 19 44 (57%) Value adjustments to loans and advances 5 23 (78%) Total expenses 24 67 (64%) Operating profit before taxation 71 46 54% Taxes 0 (2) -- Net profit including third-party interests 71 48 48% Third-party interests 0 1 (100%) Net profit excluding third-party interests 71 47 51% 34 SNS REAAL GROUP annual report 2003

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    Report of the Group Executive Board Financial developments The difference between the net profit of SNS REAAL Group Composition of income 2003 �2002� (€ 243 million) and that of SNS Bank, REAAL Verzekeringen SNS REAAL Group �exclusive investment losses� and SNS REAAL Invest combined (€ 286 million) mainly arises from expenses for the holding company organisa- 4� tion, financing costs, eliminations of intergroup results �6� and third-party interests. 40� Efficiency ratios �42� The efficiency ratio of SNS Bank showed a slight impro- vement from 64.7% to 64.6%. The income and expenses 40� �49� mainly increased at the same rate. This ratio satisfies the long-term financial goal of a 65% maximum. 16� �3� The cost/premium ratio of REAAL Verzekeringen rose from 27.8% to 28.8%, due to the acquisition of Zurich. Gross premium income Composition and growth of the balance sheet Investment income Total assets of SNS REAAL Group increased by 14.5% to Interest income € 53.1 billion (2002: € 46.3 billion). Zurich has been con- Commission income and other income solidated in the 2003 figures since the acquisition date. Mortgage loans increased as a result of considerable pro- duction by 12.5% to € 32.0 billion (2002: € 28.4 billion). The market share increased accordingly. SNS Bank’s credit to the shareholders’ equity (See also page 118, concerning provisions amount to 0.68% of the risk-weighted assets the profit appropriation). The third-party interest – in- (2002: 0.60%). cluding the SNS ParticipatieCertificaten (participation certificates issued by SNS Bank) among other things, rose Investments increased by 41.7% to € 12.0 billion (2002: € 8.5 billion), partly as a result of the acquisition of Zurich Development gross premium income (€ 1.9 billion). In addition, a change in investment policy REAAL Verzekeringen caused a shift from equities to fixed-interest securities. € millions Under the liabilities, the technical provisions for insurance ����� operations increased by 35.4% to € 11.2 billion (2002: € 8.3 ����� billion), partly as a result of the addition of the Zurich ����� portfolio (€ 2,0 billion) mentioned previously. Savings in- ����� creased by 8.2% to € 10.4 billion (2002: € 9.6 billion). Other funds entrusted also showed an increase from € 6.5 bil- ����� lion to € 7.2 billion (+10.9%). The ‘Debt certificates’ item, ����� which mainly includes the EMTN loans issued by SNS Bank, ��� increased during the year under review by 13.8% to € 16.2 ��� billion (2002: € 14.2 billion). ��� Capital base and solvency ��� SNS REAAL Group’s capital base increased by 17.6% to � € 3.2 billion (2002: € 2.7 billion). The largest component ���� ���� ���� ���� ���� of this – shareholders’ equity and subordinated debt – in- creased by 16.7% and 23.4% to € 1.6 billion and € 1.2 billion Non-life Life Total respectively. The entire net profit of 2003 has been added SNS REAAL GROUP 35 annual report 2003

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    Report of the Group Executive Board Financial developments by 7.6% to € 298 million. The Fund for general banking Composition of investments 2003 �2002� risks remained unchanged at € 70 million. REAAL Verzekeringen The return on the shareholders’ equity (RSE) of SNS Reaal 1� Group increased from 5.6% to 15.9%. This exceeds the �1� long-term financial goal of 12.5%. The capital ratio - the 6� capital base as a percentage of the total assets - also �16� increased from 5.8% to 6.0%. 23� �29� Shareholders’ equity of SNS Bank grew by 9.1% from € 1.3 3� billion to € 1.4 billion. Against the profit addition of € 112 �3� million and the issuing of the third tranche of SNS Par- 67� ticipatieCertificaten (€ 57 million) there was a dividend �51� payment of € 53 million to SNS REAAL Group. The return on the shareholders’ equity (RSE) of SNS Bank increased Mortgages from 9.0% to 9.3%. Real estate Bonds and private loans The solvency ratio (BIS ratio) increased from 11.6% to Equity 11.9%, because the capital base grew relatively stronger Other than the risk-weighted assets. The statutory minimum le- vel for the BIS ratio is 8%; SNS Bank uses an internal lower limit of 11%. The Tier 1 ratio (standard for the core capital) remained virtually unchanged at 8.3% (2002: 8.4%) (see the diagram ‘Development in the solvency ratios of SNS REAAL Verzekeringen saw its shareholders’ equity increase Bank’, page 37). by 22.5% from € 586 million to € 718 million. This increase was, on the one hand, mainly a result of the retained ear- nings (€ 86 million) and a capital injection (€ 100 million) in the context of the acquisition of Zurich, and a dividend Efficiency ratio SNS Bank payment to SNS REAAL Group (€ 40 million) on the other. REAAL Verzekeringen’s return on shareholders’ equity amounted to 13.3%. ��� ��� The solvency of the life insurance operations improved during the year under review from 188% to 195%, whereas ��� the solvency of the non-life operations deteriorated from ��� 430% to 359%, mainly as a result of the acquisition of the Zurich non-life operations. The total solvency dip- ��� ped slightly, from 184% to 177%, but is still well above ��� the external and internal solvency requirements (see the ��� diagram ‘Development in the solvency of REAAL Verze- keringen’ on page 37. The kink in the ratios results from ��� the acquisition of Zurich at the end of March 2003. For ��� the solvency available, the solvency requirement and the ��� surplus, see the financial statements, page 88). ���� ���� ���� ���� ���� Similarly to SNS Bank and REAAL Verzekeringen, SNS REAAL Efficiency ratio Invest paid a dividend to SNS REAAL Group, amounting to € 94.5 million in this instance. 36 SNS REAAL GROUP annual report 2003

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    Report of the Group Executive Board Financial developments Capital base SNS REAAL Group Cost�premium ratio REAAL Verzekeringen € millions ����� ���� ��� ����� ���� ��� ����� ���� ��� ����� ���� ����� ���� ��� ����� ���� ��� ��� ���� ��� ��� ���� � ���� ��� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� Shareholders’ equity Capital ratio Cost/premium ratio Subordinated debt Fund for general banking risks Third-party interest Development in the solvency ratios of Development in the solvency of SNS Bank �2003� REAAL Verzekeringen �2003� € millions ����� ��� ����� ��� ����� ��� ����� ��� ���� ��� ���� ��� ���� ��� ���� ��� ������ ������ ������ ������ ������ ������ ������ ������ ������ ������ ������ ������ ������ ������ ������ ������ ������ ������ ������ ������ ������ ������ ������ ������ ������ ������ Tier 1 ratio BIS ratio Legally required solvency Solvency SNS REAAL GROUP 37 annual report 2003

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    Report of the Group Executive Board Financial developments Implementing IFRS �International Financial Reporting Standards� Commencing with the 2005 financial year, SNS REAAL Group will present its annual reports in accordance with the International Financial Reporting Standards (IFRS). This means that the information on 2005 will be prepared in full compliance with the new guidelines. The comparable figures for 2004 will be drawn up according to both the current and the IFRS guidelines in order to enable a proper comparison with other years. The most significant changes for SNS REAAL Group arise from the guidelines for financial instruments, IAS 32 and 39, and the Exposure Draft for insurance, ED 5. The most important changes for banking activities in the applica- tion of IFRS concern the elaboration and setting up of hedge accounting. SNS REAAL Group intends to apply hedge accounting where possible for the derivatives that are concluded in the context of the banking operations. For the insurance activities, application of IFRS will mean that the presented size of the result and the shareholders’ equity will be more heavily affected than previously by movements in the market value of the investments. However, fellow companies in the insurance sector also take these effects into account. SNS REAAL Group presents the securitised mortgages off-balance. In the context of the current developments of the IFRS standards and the treatment of ‘special purpose vehicles’, in anticipation of its IFRS implementation, SNS REAAL Group has decided to expand the notes to the securitised mortgages with effect from the 2003 financial statements. 38 SNS REAAL GROUP annual report 2003

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    Report of the Group Executive Board Risk management SNS REAAL Group, as a financial retail specialist, has a low risk profile and attaches great importance to systematic and proper risk management. During the year under review, SNS REAAL Group has further determined and refined its risk policy. This policy provides a uniform risk framework for the entire group. It contains policy procedures and requirements for each risk category, for the organisation of the risk management, for the relevant committees, and for the management tools. Resources are allocated on the basis of the income/risk ratio of the separate activities and the aggregated risk profile of the group as a whole. Goal of risk policy Investment risk As a bancassurance group for the retail-plus market, SNS Within SNS REAAL Group, the price risk on equity posi- REAAL Group assumes a number of risks for its clients. tions arises mainly at REAAL Verzekeringen, which has Within the strategic framework, risk management actively risk-diversification measures for managing counterparty focuses on a low risk profile for SNS REAAL Group. This risks in the investment portfolio. The portfolio is spread is achieved along the lines of the following main princi- evenly across companies, sectors and regions. The relative ples: size of the portfolio is carefully determined with the aid § Correct interaction with clients and other stakehol- of techniques such as stochastic scenario analyses. The ders; scope is linked to the solvency level. If necessary, the risk § Proper process control and monitoring procedures; profile is modified. § Aiming for high quality portfolios; § Limiting the mismatch in the balance sheet; In January 2003, part of the equity price risk was hedged, § Having overall insight on the basis of correct, timely bearing in mind the declining solvency of REAAL Verzeke- and complete risk information. ringen at the end of 2002, and the intention of proceeding Organisation of risk management The Group Executive Board – and in particular the Chief Development in the profitability of the investment Financial Officer - is responsible for the risk management portfolio of REAAL Verzekeringen �2003� of SNS REAAL Group. At SNS Bank and REAAL Verzekeringen, Index the Boards of Directors are responsible. Specialist com- ��� mittees and central staff departments assist the Group Executive Board and Boards of Directors. ��� ��� Interest rate risk ��� SNS Reaal Group is systematically exposed to limited ��� interest rate risk inherent in its business activities. This ��� risk arises from the difference between the term of loans provided and investments on one hand, and that of bor- �� rowings and other liabilities on the other. The interest �� rate risks of these positions are monitored with the aid �� of gapping and duration analysis, value-at-risk and the �� analysis of stress scenarios. The Group Executive Board ������� ������� ������� ������� ������� ������� ������� ������� ������� �������� �������� ��������� has issued a system of limits and frameworks within which the interest rate risk must remain. The banking operations apply a limited interest rate risk profile. Equity Real estate Fixed-interest Total SNS REAAL GROUP 39 annual report 2003

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    The retail mindset Not only private, but also business clients can handle Bankieren’ (business internet banking) is the most increasingly more of their banking with SNS Bank via extensive business product for internet banking, inclu- internet. At the end of 2003, 40% of both target groups ding mobile banking for businessmen! Further success banked via internet. In addition, during 2003, SNS Bank was achieved with the introduction of ‘SNS Zaak op Maat’ developed various I-mode and Pocket PC applications. (tailor-made business package): with this, the entrepre- The Business Services department made itself more neur puts together his or her ideal package from a range conspicuous by announcing special innovations. These of unique, innovative products. A strong foundation for products have the common characteristics of being the further substantiation and elaboration of the busi- clear, the client can implement the standard in one go, ness services for the SME market segment. and they are easily accessible via internet. According to Senior advisor in Marketing communicati- With ‘SNS Zakelijk Internet Sparen’ – the first business ons, Anoek Grondhuis, SNS Bank consciously set course internet savings product – in addition to the usual in a new direction during 2003: ‘SNS Bank was usually interest, an extra premium is paid on ‘loyal’ savings still perceived as a bank for private clients. In 2003, we deposits. The result: growth of the deposits to almost investigated how we could put the bank on the map € 1 billion. With the ‘SNS Omzetkrediet’ (turnover loan), in the business market. Breaking the old moulds was the credit limit is linked to the annual turnover on the important for doing this. Businessmen often perceive ‘SNS Zakenrekening’ (business account). Decisions on their banking affairs as a ‘necessary evil’. They prefer to lending, therefore, can be taken swiftly - via telephone concentrate on their profession. We offer them useful or internet, and without intervention by an account building blocks that they can subsequently use in an manager. For 2003 this meant: several thousands of accessible way - via direct channels and also via the turnover loans granted. Furthermore, ‘Zakelijk Internet account manager.’ Innovation Banking and investing via internet are at an extremely high level at SNS Bank. The number of internet clients is growing by more than a thousand every week! Furthermore, internet seems to be a springboard for other innovative services and products. 40 SNS REAAL GROUP annual report 2003

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    Report of the Group Executive Board Risk management with the acquisition of Zurich Nederland. At the beginning organisation of the lending process and set up a specific of March, the solvency of the life insurance operations credit committee. was further protected, so that the required solvency of REAAL Verzekeringen was never in danger. The major Liquidity risk price fluctuations did, of course, affect the development SNS REAAL Group pays ample attention to the manage- in value of the investment portfolio (see diagram on the ment of liquidity risk so that the group has sufficient reser- preceding page). ves at its disposal and is always able to meet its financial obligations. The procedures are also geared towards In the context of the 2004 Investment plan, during the year stress situations in the money and capital markets. under review, studies were conducted on the optimum mix between interest rate risk, credit risk and equity price risk SNS Bank is the largest borrower within the group. In for the insurance operations. recent years, a lot of work has been done to achieve a broad investor base, with an extensive range of financing Currency risk instruments and unhindered access to the international Because SNS REAAL Group focuses on the Dutch mar- money and capital markets. The dependence on other ket, the sensitivity to foreign currency rates is limited. At commercial banks was substantially reduced, and greater SNS Bank, all relevant currency risks are hedged. In the emphasis was put on liquid assets. During the year under investment portfolio of REAAL Verzekeringen, three quar- review, SNS Bank was successful in maintaining a combi- ters of the currency risk on the US dollar and the yen are nation of good access to financial markets with a stable strategically hedged. and low credit spread. SNS Bank has had a successful year with respect to the funding. This is particularly shown by Trading risk the record volume of privately issued EMTN paper (see As a result of the divestment of proprietary trading activi- further under the ‘Funding’ section, page 44). ties, SNS REAAL Group runs virtually no trading risk. SNS Bank only faces a limited trading risk, which is calculated Insurance risk on a daily basis and managed by means of a system of The insurance portfolio has a low risk profile. The portfolio limits. The applied framework of value-at-risk and stress contains a well-diversified portfolio of mainly life insu- limits for extreme situations also performed to satisfac- rance and a non-life portfolio focused on the retail market tion during the past year. The number of deviations was and small businesses. Unwanted risks are reinsured exter- in line with the expectations for such models. nally as far as possible. REAAL Verzekeringen has a system of tight procedures and criteria for product development, Credit risk acceptance, forming reserves and pricing. The banking operations have a low credit risk profile. The The reinsurance policy is aimed at hedging larger insu- loan portfolio consists of about 90% mortgage loans, a rance risks. The risks are only placed with leading rein- limited portfolio of consumer loans and a relatively small surance companies with substantial financial resources. and well-spread portfolio of loans to small and medium- Moreover, a balanced diversification is aimed for, and sized enterprises. During the year under review, further long-term relationships are maintained with reinsurers. progress was made with setting up internal models for There were no disasters during the year under review. The credit risk management. In this context, improved sco- portfolios of REAAL Verzekeringen remained protected, ring models were tested for mortgages, consumer loans despite the difficult conditions on the reinsurance market. and retail (business relations), which were implemented The terrorism risk is reinsured with the Dutch reinsurance across the board in the bank at the start of 2004. To further company for terrorism risk (Nederlandse Herverzeke- eliminate counterparty risk on ALM transactions, credit ringsmaatschappij voor Terrorismeschaden - NHT). risk positions are hedged. Operational risk During the financial year, REAAL Verzekeringen has tigh- During 2003, the infrastructure for Operational Risk Ma- tened up the criteria for providing and authorising credit nagement was further developed. The Balansbeheer & facilities to intermediaries, improved the administrative Risk Management (balance sheet and risk management) 42 SNS REAAL GROUP annual report 2003

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    Report of the Group Executive Board Risk management department takes care of drawing up policy, develop- Integrity policy ment of methods and techniques, and the supervision As a major provider of services in the financial sector, SNS of implementation. The coordinating Operational Risk REAAL Group attaches great value to its integrity, its pro- Management Committee monitors the progress. fessionalism and its solid reputation. The pursuit of these values is laid down in the ‘Compli- The method for ‘Risk Self Assessment’ has been introdu- ance statement’ (see the box below). In order to drive ced in 2003. This means that the business units identify, the mission and integrity policy, SNS REAAL Group has prioritise and assess their own individual operational risks formulated business principles that are the starting point in a uniform and structured manner and take measures for the policy and the day-to-day ‘thinking and working’. as necessary. SNS REAAL Group and its staff are: § Client-oriented Price risk § Professional The product premiums and rates of SNS REAAL Group § Honest are determined on the basis of the theoretical rates and § Socially committed include a fee for the risks taken, the use of shareholders’ equity and loan capital and operating expenses. Examples The integrity policy of SNS REAAL Group, moreover, con- of risks include the credit risk in a loan, the mortality risk tains rules and procedures that are based on the group’s in a life insurance policy or the market risk in an invest- own business principles, legislation and regulations, and ment product. The structure of the shareholders’ equity codes of conduct in the banking and insurance sectors. and the financing also affect the theoretical pricing. The basic principle is that directors, management and staff do not just act in accordance with these rules and Basle II procedures, but also act in the spirit of them. The capital that banks are required to hold as a buffer The ‘Compliance Handleiding Hoger Kader’ (compliance against unexpected losses is based on the 1988 Basle ca- manual for senior managers) provides a summary of im- pital accord. Work is being done on a new Basle II capital portant standards that apply for the group’s staff. Besi- accord, which is expected to take effect in 2006. SNS Bank des various specific points of attention and standards, it is actively preparing for these renewed regulations by contains several general codes of conduct. setting up internal models for credit risk management, The ‘Algemene Gedragscode Integriteit’ (general integrity the implementation of a group-wide Operational Risk code of conduct) includes general rules of conduct for Management framework, the tightening up of integrated all staff members concerning exercising due care with Risk Management Policy and the development of a system information, serving clients properly, acting in compli- for economic capital calculations. From calculations made ance with regulations and internal instructions, avoiding on the basis of models released by Basle together with criminally derived money, avoiding account constructions results of internal calculations, it appears that the new that are not permitted, and preventing conflicts of busi- accord does, indeed, do justice to the low risk profile of ness and private interests. SNS Bank. The Compliance department provides advice about these rules and procedures and supervises their compliance. Compliance statement SNS REAAL Group SNS REAAL Group strives to provide high-quality service. This is only possible if SNS REAAL Group and its employ- ees act with complete integrity. This does not only mean acting in accordance with legal constraints, but also treating clients with respect and maintaining the reputation of SNS REAAL Group as a reliable partner. SNS REAAL GROUP 43 annual report 2003

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    Report of the Group Executive Board Funding SNS Bank is an active player on international capital markets. The bank has access to a € 20 billion Euro Medium-Term Note programme (EMTN), under which public and privately placed loans are issued. At the end of the year under review, the outstanding amount came to € 14.4 billion. SNS Bank also has a € 4 billion Euro Commercial Paper programme (ECP). In addition, the bank is active in the field of the interbank money market, derivatives, ‘Treuhand’ and securitisation of mortgage portfolios. The funding policy of SNS Bank is aimed at diversification SNS Bank Fitch Moody’s S&P of type of funding instrument, region and type of investor. The aim is to optimally time public issues and to set the Short term F1 P1 A-1 maturity according to investor demand at that time. The Long term A+ A2 A funding activities for all the business units of SNS REAAL Outlook stable positive negative Group are managed by SNS Financial Markets. SNS REAAL Group has a € 1 billion EMTN programme at its deposal. At the end of the year under review, the out- SNS REAAL Group Moody’s S&P standing amount came to € 675 billion. In addition to this, the group funds itself through short-term privately placed Short term A-2 loans and deposits. Long term A3 A- Outlook stable negative During 2002, credit spreads of ‘financials’ increased as a result of the loss of confidence of investors in several well- known names. During the course of 2003, this trend was reversed, partly due to increasing confidence in a recovery Benchmark Loans at SNS Bank of the economy. The ‘financials’ in particular benefited SNS Bank has for some years now applied the policy of from this, resulting in a decrease of credit spreads. seeking a balance between the banks funding require- ments and the demand from investors, when issuing Ratings bonds. The strategy centres on having a number of pu- During the financial year, Moody’s converted its ‘stable blic benchmark loans outstanding, of € 500 million or outlook’ for SNS Bank into a ‘positive outlook’. In the ra- more, in different maturities. These bonds are actively ting report of August 2003, Moody’s stated: ‘SNS Reaal traded, which enables investors to switch between ma- Group, of which the bank is one operating company, has turity within the credit curve of SNS Bank. During the year spent a lot of time implementing its re-focused strategy under review, the 5.625% June 2012 loan was issued for an over the last few years, including improvement of effi- initial amount of € 500 million. Later in the year, the USD ciency. The fruits of these efforts are starting to appear, 500 million FRN 2008 loan was increased in two steps of and that is why the outlook on the bank’s A2/C+ ratings $ 250 million to $ 1 billion. Many of these bonds were sold was changed to positive from stable in June 2003.’ to investors in Asia. Earlier in the reporting year, S&P changed the ‘stable out- look’ for SNS Bank and SNS REAAL Group into a ‘negative outlook’. The reason for this was the level of the ‘double leverage’ within the group. This was reduced from 125% during the year under review to a more acceptable level of 115%. 44 SNS REAAL GROUP annual report 2003

  • Page 47

    Report of the Group Executive Board Funding Outstanding Benchmark Loans at SNS Bank SNS Credit spreads Spread to swaps € 750 million 4.75 % September 2004 �� € 500 million FRN February 2005 € 1.000 million FRN September 2006 �� € 1.000 million 6.00 % October 2007 �� $ 1.000 million FRN June 2008 �� € 1.000 million 6.125% April 2010 € 500 million 5.625% June 2012 �� �� �� Within the bank’s own rating category, the benchmark lo- �� ans showed excellent performance in 2003 (see the graph � alongside). The graph also shows that the credit spreads ������� ������� ������� ������� ������� ������� ������� ������� ������� �������� �������� ��������� of SNS Bank have developed very stably (the twist in the ‘Ibox Financials - single A’ results from a rearrangement of the index). Ibox Financials - single A SNS 6,125% apr ’10 SNS 5,625% jun ’12 SNS 6% okt ’07 Tier 1 issue In July 2003, SNS Bank successfully issued a € 200 million public Tier 1 transaction. This issue in the form of a Per- petual non-call 10 structure is the bank’s first public Tier loans in the Netherlands. During the year under review, 1 transaction. The coupon is equal to 5.75% until July 2013, two transactions, each amounting to € 1.25 billion, were and after that date will amount to 3M Euribor + 2.75%. The done as part of this programme. At the financial year-end, transaction contributes to the further reinforcement of the outstanding amount of securitised mortgages was a the bank’s BIS ratio and its Tier 1 ratio. little over € 5 billion (see page 69 et seq of the financial statements for a full overview). Securitisation forms an Securitised mortgages: € 5 billion integrated part of the organisation’s funding strategy. SNS Bank’s Hermes programme rates among the most ac- The securitised mortgages are presented off-balance (See tive securitisation programmes for residential mortgage also the box ’Implementing IFRS’, page 38). SNS REAAL GROUP 45 annual report 2003

  • Page 48

    Report of the Group Executive Board Socially responsible business practice ‘Socially committed’ is one of SNS REAAL Group’s four main business principles. At the end of 2003, a systematic approach to the policy of ‘socially responsible business practice’ (SRBP) was formulated. The long-term ambition level was determined. The commitment of all staff to SRBP has increased. The social commitment is also given more expression at national level. The investment policy includes consistent application of SRBP criteria. SNS REAAL Group’s first sustainability report will appear in 2005. The importance that the group attaches to SRBP is already visible in many ways today. Sustainable products and services Social dialogue SNS REAAL Group always bears the environmental aspects ASN Bank organised the Ethical Investment Day (Dag van in mind when developing its new products and services. het Ethisch Beleggen) for the fifth time, the theme being In addition, the group sells products specifically charac- ‘Emotive entrepreneurship‘ (Bewogen ondernemerschap). terised by their sustainability via several labels. Examples The guest speaker was Wouter Bos, leader of the PvdA include the Aandelenfonds (equity fund) and the SNS (labour) parliamentary party. This day always attracts a lot Duurzaam Aandelenfonds (sustainable equity fund), of attention, as does the Annual Meeting of Shareholders which exclusively invest in enterprises that satisfy strict of the ASN Investment Funds. criteria concerning the environment and social policies. Sustainable investment funds are increasingly being used The attention paid to transparency and duty of care in- in investment-linked mortgages and investment-linked creased heavily during 2003. Elaboration was provided to insurance policies. improve protection of consumers’ interests, from both the government and self-regulation. REAAL Verzekeringen The entire range of products from ASN Bank is associated devoted a conference to the Financial Services Act (Wet with a sustainable society, from sustainable saving, in financiële dienstverlening), which is expected to make its which a proportion of the interest goes to benefit soci- presence felt throughout the insurance world, especially ally responsible projects, to sustainable investment. For at intermediaries. example, during the year under review, the Waddendepo- sito was introduced, from which the interest is donated Equally within the framework of transparency and duty to the Waddenvereniging (association for the protection of care, REAAL Verzekeringen strives to clarify what the of the Wadden Sea). During the year under review, ASN returns on the various products are for the clients, in- Bank published a sustainability report on the basis of the cluding the returns of investment funds. The issue of GRI guidelines (Global Reporting Initiative of the UN en- whether or not to reveal the cost breakdowns is known vironmental programme). in the market as the ‘gross/net discussion’. The supervi- sory bodies have insisted that the market becomes more SNS Asset Management, specialist in the field of sustaina- cost transparent. ble and ethical investment, screened the most important US companies on sustainability during 2003. SNS Asset REAAL Verzekeringen is also going to expand the annual Management now has a European and US ‘Sustainable Uni- pension summaries in 2004, as an answer to the need to verse’ (list of securities), compiled using its own research. communicate more simply and clearly about pensions. A Sustainable Universe will be compiled for the Far East In addition, as one of the first, REAAL Verzekeringen has during 2004, in collaboration with a local research partner. introduced gender-neutral rates in line with the Equal The application of the sustainability principles in fixed-in- Opportunities Act (Wet gelijke behandeling) and has in- come portfolios is being further expanded and refined. corporated the prohibition of deferred financing in the It is anticipated that, in 2004, SNS Asset Management will products for defined contribution schemes - in accor- be GIPS compliant for all asset management activities dance with section 7a of the Pension and Savings Funds (GIPS = Global Investment Performance Standards). Guarantee Act (Pensioen- en spaarfondsenwet). 46 SNS REAAL GROUP annual report 2003

  • Page 49

    Report of the Group Executive Board Socially responsible business practice SNS REAAL Fund § Energy Stichting SNS REAAL Fonds provides financial support to Guidelines are provided by the covenants concluded projects of general social interest, which otherwise would by the Ministry of Economic Affairs with the Dutch As- never get off the ground properly. The focus for this is sociation of Insurers (Verbond van Verzekeraars) and on ‘culture and education’, ‘emancipation’ and ‘nature the Netherlands Bankers’ Association (Nederlandse and environment’. In the year under review, together with Vereniging van Banken). In addition, SNS REAAL Group funds related to the group, SNS REAAL Fund assisted such is moving in phases towards using energy of which 25% projects with around € 3 million. is derived from sustainable energy sources. Conventio- nal screens are being replaced by ‘flat panels’, which Inter-company Environmental Care reduce the energy consumption and heat problems. Environmental programme: rigorous goals Where possible, energy saving techniques are used for As a financial service provider, SNS REAAL Group’s impact the interior and exterior lighting of offices. Technical on the environment is relatively limited. This does detract developments are applied that lead to climate control from the fact that it works actively to keep that impact to with less energy consumption. a minimum. The Environmental programme of SNS REAAL § Paper Group provides goals, for several years in succession, A financial services provider traditionally uses a lot with respect to energy, water, paper and waste, and, for of paper. The goal is to reduce this flow of paper. For example, the distance commuted by car. The achievement efficiency reasons too, more and more business units of the goals, which, naturally, are based on environmental are transferring to digital work processes that greatly legislation and regulations, is continually monitored. The reduce the use of paper. The paper complies with all use of sustainability criteria in the purchasing of products environmental requirements. Commencing in the year and services, and the granting of contracts, is becoming under review, all documents that are not required to an increasingly important element of environmental care be kept on paper by law – 50,000 kilos of paper a year at SNS REAAL Group. – are no longer transferred to microfilm, but saved di- § Waste gitally instead, which makes a difference to the flow The business waste is mainly in the nature of office of chemical waste. waste. The policy focuses on waste prevention and § Mobility waste separation. Prevention concerns making the SNS REAAL Group aims to reduce use of cars and the staff aware of the importance of reducing waste. All number of kilometres driven. Meetings are increasin- the group’s sites are reasonably compliant in the se- gly held via videoconferencing, with staff at the three paration of their waste. major locations in Utrecht, Alkmaar and Den Bosch. § Sustainable accommodation This limits both travelling time and costs, and provides Work on the construction and refurbishment of offices a positive contribution to the environment. is done using the principles of ‘sustainable accommo- § Catering dation’. At various sites, a flexible office environment is The main brands of SNS REAAL Group have signed the used, which reduces the number of working places. New ‘biological catering’ declaration of intent from the Mini- furniture also makes it possible to create more working stry of Agriculture, Nature Management and Fisheries. places in the same space, while still retaining the safety, During the year under review, the goal of purchasing health and welfare standards for that area. at least 5% biological products was, with 9.6%, more than amply met. SNS REAAL GROUP 47 annual report 2003

  • Page 50

    The retail mindset Product manager Kees van Leeuwen, started together charged for what is used. This means that the premiums with a team from the Marketing, Actuarial and Insurance and costs can be kept low. Theory department, by mapping desired improvements onto the then usual investment-linked insurance poli- The new line of Universal Life insurance policies was cies. The results of this study laid the foundations for a tested in 2003 by various agents. According to Kees significant product innovation in 2003: a renewed con- van Leeuwen, this provided a further refinement for cept for Universal Life insurance policies. the concept: ’We held several meetings with a group of intermediaries and account managers. Based on their The renewed Universal Life is REAAL Verzekeringen’s comments, important decisions were taken and the response to two important desires in the market: per- final refinements were made. The national introduction sonally tailored products and clear, competitive prices. then proceeded very successfully: the market respon- The package consists of seven insurance policies that ded favourably. The client perceives the product as tailor- are each designed for a specific phase in the client’s life made, the intermediary sees it as very clear and both are and the corresponding need of that time for asset buil- enthusiastic about the competitive pricing. Moreover, at ding and risk coverage. REAAL Verzekeringen, we now have all the tools that will Thanks to the - contemporary - ‘the user pays’ principle, enable us to provide even more variations in the near the client only insures what is necessary and is only future, in a relatively simple manner.’ Quality An extensive external and internal study at REAAL Verzekeringen led to the introduction of a high-quality new package of Universal Life insurance policies. Interesting for clients, intermediaries and insurer. 48 SNS REAAL GROUP annual report 2003

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