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    Annual Report 2004

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    A retail approach based on social values The call in society for sustainability is growing increasingly louder. Corporate social responsibility is no longer a thing of the future. It’s here and now. At SNS REAAL Group social concerns play an important role too. Our social involvement is expressed in a whole range of activities focused on retail. It’s reflected in the accessibility of our services, the transparency of our communication and our ethical consciousness, our broad concern for sustainability but also the way we treat our employees. To work from a base of social values matches our retail mentality perfectly. It fits seamlessly with our daily way of thinking and doing.

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    Annual Report 2004 SNS REAAL Group Concern Communication Investor Relations Croeselaan 1 Telephone +31 30 291 48 76 Telephone +31 30 291 51 02 P.O. Box 8444 Fax +31 30 291 48 49 Fax +31 30 291 51 32 3503 RK Utrecht concerncommunication@snsreaal.nl investorrelations@snsreaal.nl The Netherlands Telephone +31 30 291 52 00 www.snsreaalgroup.com Registered at the Trade Register of the Utrecht Chamber of Commerce under no. 16062627 SNS REAAL GROUP 1 Annual Report 2004

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    Contents SNS REAAL Group in brief 3 Key figures 4 General 5 Management 6 Commercial structure 7 Foreword from the Chairman of the Group Executive Board 10 Report of the Supervisory Board 13 Report of the Group Executive Board 17 2004 headlines 18 Strategy and policy 19 Financial developments 35 Corporate governance 45 Risk management 47 Investment portfolio of REAAL Verzekeringen 54 Funding 56 Socially responsible business practice 59 Personnel and Organisation 61 Outlook 63 2004 Financial statements 65 Consolidated balance sheet 66 Consolidated profit and loss account 67 Consolidated cash flow statement 68 General notes 70 Notes to the consolidated balance sheet 77 Notes to the consolidated profit and loss account 101 Consolidated balance sheet of SNS Bank 110 Consolidated profit and loss account of SNS Bank 111 Consolidated balance sheet of REAAL Verzekeringen 112 Consolidated profit and loss account of REAAL Verzekeringen 114 Company balance sheet of SNS REAAL Groep N.V. 118 Company profit and loss account of SNS Reaal Groep N.V. 119 Notes to the company balance sheet of SNS REAAL Groep N.V. 120 Main Group companies 124 List of other main equity participations 125 Other information 127 Profit appropriation under the articles of association 128 Auditor’s report 128 Additional information 129 Curricula vitae of members of the Supervisory Board 130 Additional responsibilities of Group Executive Board members 131 2 SNS REAAL GROUP Annual Report 2004

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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 – jointly referred to as the ‘retail-plus’ market – via multiple brands and diverse distribution channels. Business principles Strategic goals The SNS REAAL Group employees are: § Sustained value creation § Client oriented § Focus on retail and retail-plus clients § Professional § Outpace market growth § Honest § Managing synergy § Socially committed Commercial goals (2005-2007) Profile § Increase market share in mortgages SNS REAAL Group is an innovative retail banking and (numbers, new production) to 12% (2004: 9.1%) insurance provider with total assets of € 55 billion and § Increase market share in savings more than 5,200 employees (FTEs). It serves its private to 6.3% (2004: 5.7%) and business clients mainly through its main brands of § Increase market share in individual SNS Bank and REAAL Verzekeringen. life insurance policies (new production, regular premium policies) to 15% (2004: 12.6%) SNS Bank serves its clients through its own branch offices, independent intermediaries, the internet and the tele- Financial goals phone. REAAL Verzekeringen markets its products and § Net profit increase of at least services through independent intermediaries. 10% per year (2004: 27.6%) § Return on shareholders’ equity of at In addition to the two main brands, SNS REAAL Group least 12.5% per year after tax (2004: 17.3%) also includes various sales labels that operate in a specific § Maximum efficiency ratio for banking market: ASN Bank, BLG Hypotheken, CVB Bank, Proteq operations of 65% (2004: 59.8%) Direct, SNS Securities and SNS Asset Management. § Maximum operational cost-premium ratio 1 for insurance operations of 16.5% (2004: 16.1%) SNS REAAL Group attaches great value to the principle of socially responsible – or ethical – business practice. Ratings This is demonstrated by the development of sustainable savings, investment and insurance products, conducting SNS Bank S&P Moody’s Fitch specialised social investment research and sponsoring at Short term A-1 P1 F1 national, regional and local levels. Long term A A2 A+ Outlook Stable Positive Stable SNS REAAL Group S&P Moody’s Short term A-2 Long term A- A3 Outlook Stable Stable 1 ) The operating costs (excluding commission income) as a percentage of the gross premium income, with 10% of single premium policies included and single premium profit policies excluded. SNS REAAL GROUP 3 Annual Report 2004

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    Key figures In € millions 2004 2003 2002 2001 2000 Balance sheet Total assets 55,679 53,058 46,342 43,761 40,879 Investments 11,390 11,987 8,461 8,501 8,527 Mortgage loans 35,450 31,997 28,433 24,738 22,909 Other loans 2,648 3,358 4,194 4,238 4,203 Shareholders’ equity 1,961 1,643 1,408 1,571 1,575 Capital base 3,474 3,167 2,692 2,813 2,575 Technical provisions, insurance operations 11,330 11,174 8,253 8,178 7,683 Funds entrusted 18,601 17,560 16,073 14,965 13,997 Debt certificates 17,813 16,169 14,210 12,201 11,072 Results Income banking operations Interest income 589 586 503 436 391 Commission 109 92 96 90 106 Other income 14 17 29 49 52 Total 712 695 628 575 549 Income insurance operations Gross premium income 1,689 1,779 1,501 1,490 1,410 Investment income 749 649 24 392 506 Other income 10 3 4 16 22 Total 2,448 2,431 1,529 1,898 1,938 Total income 4,475 4,472 3,539 3,907 3,639 Total expenses 4,066 4,115 3,436 3,675 3,390 Operating profit before taxation Banking operations 227 190 165 144 157 Insurance operations 188 131 (73) 135 111 Group (6) 36 11 (47) (19) Operating profit before taxation 409 357 103 232 249 Net profit 310 243 84 165 179 Key ratios Return on shareholders’ equity 17.2% 15.9% 5.6% 10.5% 11.8% Efficiency ratio banking operations 59.8% 64.6% 64.7% 71.5% 68.4% Operational cost-premium ratio insurance operations 16.1% 16.4% 17.0% 18.2% 18.7% Capital ratio 6.2% 6.0% 5.8% 6.4% 6.3% Number of employees (FTEs) at year-end 5,230 5,536 5,432 5,860 5,932 4 SNS REAAL GROUP Annual Report 2004

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    General SNS REAAL GROUP 5 Annual Report 2004

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    General Management Supervisory Board of SNS REAAL Group 1 Executive Board of 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, D. Huisman Chief Financial Officer Prof. S.C.J.J. Kortmann H. Muller J.W.M. Simons 2 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. 2 ) Mr. Simons passed away on 5 August 2004. The Group Executive Board. From left to right Messrs. Van den Bos, Latenstein van Voorst, Van Keulen and Hinssen. 6 SNS REAAL GROUP Annual Report 2004

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    General Management / Commercial structure Board of Directors of SNS Bank M.W.J. Hinssen, Chairman C.H. van den Bos, Deputy Chairman B.A.G. Janssen, Deputy Chairman J.A.M. Henneke 1 Th.A.W.M. Janssen 2 M. Menkveld G.T. van Wakeren 1 ) Mr. Henneke retired as a member of the Board of Directors of SNS Bank on 1 January 2005. 2 ) Mr. Janssen accepted a position elsewhere on 1 April 2005. Board of Directors of 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 Commercial structure Witruimte tussen logo en pay-off is de totale hoogte van het ovaal+zwart. SNS REAAL GROUP 7 Annual Report 2004

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    REAAL Verzekeringen insurance offers primary schools and special education schools the possibility to get financial support for cultural educational projects. For example a trip for the whole school to a museum, the budget to stage a musical or provide a series of drama lessons. This ‘added bonus’ is always offered through the financial adviser and demonstrates our involvement in society in a unique way that is highly valued. The schools project is sponsored by SNS REAAL Fund. ‘When we talk with people at schools about our school project they are a little Christel Withaar cautious to start with. They think there must be a catch. So we always explain very Account Manager, carefully that we don’t expect anything in return and that we do it out of involvement. We also mention that REAAL has a background in education. Once that becomes SNS Distribution clear, they get very enthusiastic and come up with the most creative ideas.’ A special gesture ‘In fact I have an educational background, too: I did teacher training school. For that reason these projects really appeal to me. My role in the school project is a behind-the-scenes one. It’s to make sure those intermediaries and financial advisers actually take the opportunity to approach schools with this offer. It’s a different way for them to promote the REAAL Verzekeringen brand. Often our intermediaries already have contacts with schools in the area, so of course it’s very special to be able to make such a gesture!’ Public Primary School Cultural The Koekoek in Utrecht Project: the pupils take part ‘SNS REAAL Fund judges whether the project fulfills the requirements and whether the gift is granted. A new climbing frame is hardly a cultural thing. But usually in various workshops - dance, schools come up with great plans, such as a world party, a talk about a book with theatre, design, painting, a famous children’s author or a theatre project with dance workshops. Schools can really use this kind of support. Normally they never have money for this kind of sport, fashion, prose writing project. Personally I think it’s always lovely to see how positively the school as well and journalism. as the intermediary react to the project. The world of education and insurance are Goal: to provide a cultural extremely different. But here all of a sudden they seem to come together.’ stimulus to the pupils and to broaden the teachers’ expertise. To be involved 8 SNS REAAL GROUP Annual Report 2004

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    and remain so ‘The world of education and insurance are extremely different. But here they seem to come together after all.’

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    General Foreword from the Chairman of the Group Executive Board Well underway to becoming favourite financial retail specialist In 2004, we achieved an excellent net profit of € 310 million. At 17.2%, our return on shareholders’ equity is more than satisfactory, and the efficiency ratios of our banking and insurance operations rank among the best in their sector. We have achieved this in a not too rosy economic climate, with some markets shrinking. We again consolidated our commercial position in 2004, entered into new joint ventures, opened branch offices and introduced innovative products and services to the market. We have thus made an important step in the direction of our goal: to become the favourite financial retail specialist in the Netherlands. With the term ‘retail specialist’ we want to express our deliberate and distinctive strategic choice to: § Serve two target groups: private clients and the smaller business sector in the Netherlands § Offer products in three areas: mortgages, asset creation (savings and investments) and insurance (life, pension and non-life) § Deliver these products in a highly standardised way To this end, we use both direct distribution channels, in other words, our branch offices, the internet and the telephone, and the indirect channel, i.e. business-to-business with intermediaries. We have consciously specialised: all our attention, people and resources are focused on this strategy. Our focus on clients and products should lead to better products and service, improved margin and, ultimately, create satisfied clients who prefer us as their favourite bank and/or insurer. The results in recent years underline the fact that we are going in the right direction in our specialisation. Good progress in 2004 To achieve our outlined target, we took a number of necessary organisational steps in 2004. § More unity and uniformity At the beginning of 2004, we introduced a common logo for the Group, the bank and the insurance company: the kaleidoscope. The names now also make a logical connection: SNS REAAL Group, SNS Bank and REAAL Verzekeringen. The bank and the insurance company have been successful in presenting themselves as alert and innovative: the new, progressive challengers in the market. Synergy gains, a cornerstone of our earlier merger, are now coming through thanks to joint product development, advanced administrative processes and group-wide support through central departments. In 2004, we merged the P&O activities and centralised support services. All these aspects helped to facilitate management and raise group effectiveness and efficiency. 10 SNS REAAL GROUP Annual Report 2004

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    General Foreword from the Chairman of the Group Executive Board § More consistency and structure We took significant steps in 2004 to strengthen risk management. We further improved organisational embedding. We use the ‘economic capital’ method in the substantiation of our policy choices. Strict cost control has been a component of our policy for some considerable time now. We see the standardisation of products and processes – without customers perceiving it as impersonal – as essential elements in any successful retail strategy, along with strict cost control. § Improved control and predictability The changes referred to above have resulted in better control over our business operations and more predictable results. SNS REAAL Group is thus also assuming the profile of a genuine retailer: a steadily – largely predictably – growing enter- prise with, at the same time, a low risk profile and a high degree of cost awareness. It all makes for a more conscious and controlled way of managing the company. Naturally, this does not alter the fact that we remain subject to develop- ments in the economic and political sphere, to interest rates and stock market prices. However, our analyses show that SNS REAAL Group is a solid enterprise even under a less favourable economic scenario. Our plans for 2005-2007 The market shares of our core products have grown according to plan in sometimes meagre markets in recent years – some- times even quicker than envisaged in our ambitious plans. We have agreed a comprehensive 2005-2007 Operational Plan for the forthcoming three-year period. This plan comprises a large number of commercial and operational objectives and targets and constituent plans. In addition we have set ourselves two more objectives. § A simple organisational structure A relatively simple organisational structure gives us an edge on our competitors, the major bancassurance companies. An uncomplicated organisation with a crystal clear strategy requires less coordination, and almost by definition leads to more effective communication and quicker decision-making. It also creates calm and focus in the company. The essence of simplicity and clarity must not be underestimated. This is even more so as our society becomes more complex and turbulent. We will focus extra attention on this in the coming planning period. § A distinctive branding and positioning policy A sophisticated branding policy is perhaps the most important condition for a successful implementation of our strat- egy. In retail, brand strength is very decisive in distinguishing competing offers and in influencing client perception and consumer behaviour. The problem is that financial institutions look very much alike in the eyes of their clients. A survey among private and business clients of banks shows that people in the Netherlands are rather indifferent about their financial services pro- vider. Their focus is on sound advice, on costs and on service. Brand perception plays a subordinate role. Our products and brands are not perceived as being trendy or sexy and are not tangible. Nor do they have any taste or smell and they often do not inspire positive thoughts. Nobody gets a ‘feel-good’ boost from their bank or insurance company, let alone from their products. SNS REAAL GROUP 11 Annual Report 2004

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    General Foreword from the Chairman of the Group Executive Board How can we, nevertheless, distinguish ourselves as much as possible? In this context, the quality and the cost of our products and the effectiveness of our marketing are of peripheral importance. The same applies to the quality of our administrative processes and of our ICT. Our publicity efforts and especially our advertising campaigns are certainly distinctive and set a different tone, but are really all about raising awareness of our corporate name. The single most decisive factor for the success of a financial retailer, given the lack of a distinctive brand with a lot of ‘emotional’ appeal and tangibly ‘warm’ products, is the quality of its contacts with clients. Traditionally a company’s staff are its face to the clients, be they consumers or intermediaries. However, there is more to it than that. Staff who behave consistently and reliably make a significant contribution to brand identity. If we claim that our main brands stand for accessibility, transparency and integrity; that we are a friendly company that focuses on what customers want; that we are professional, alert, and no-nonsense, then our staff must put this into practice in a consistent way. They must believe in these values and embody them. This embodiment determines how the client perceives the brand. Challenge The major challenge facing management is to ensure that brand experience is consistent, reliable and recognizable. Every day in every situation. This requires a comprehensive, long-term approach covering training and education together with cultural and communication projects. This is a challenge for everyone at every level in our organisation. And who knows, perhaps our clients will then even get that ‘feel-good’ feeling: ‘At SNS REAAL, they are always friendly and interested (sympathetic and personal). They are also always well prepared (professional). And they always fulfil their promises (reliable).’ The Group Executive Board has a lot of confidence in the future of our company! On behalf of the Executive Board of SNS REAAL Group, Voorzitter Sjoerd van Keulen Chairman 12 SNS REAAL GROUP Annual Report 2004

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    Report of the Supervisory Board SNS REAAL GROUP 13 Annual Report 2004

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    Report of the Supervisory Board 2004 was a very good year for SNS REAAL Group. We exceeded our ambitious budget for the year and took important steps commercially, organisationally and operationally towards achieving the SNS REAAL Group mission to become the favourite bancassurance retail specialist in the Netherlands. We would like to thank the management and staff for making a significant contribution to the success of 2004. Financial statements and stepped down from the Board of Directors of SNS Bank profit appropriation on 1 January 2005. We would like to express our gratitude After the audit by the external auditor, KPMG Account- to Mr. Henneke for the way in which he has carried out ants, and careful preparation by the Audit Committee, his tasks and responsibilities since 1998. The departure the Supervisory Board approved the 2004 financial state- of Mr. Henneke has led to a reallocation of the areas of ments at the meeting of March 2005. As part of the profit activity within the Board of Directors of SNS Bank. appropriation, net profit of € 310 million was booked to shareholders’ equity. Mr. Th. Janssen, member of the Board of Directors of SNS Bank, has announced his intention to continue his career elsewhere after working with us for more than five years. Composition of the Supervisory Board We would like to thank Mr. Janssen, who is leaving on On 5 August 2004, Mr. Simons, who had been a supervi- 1 April, for the way in which he has always committed sory director of SNS REAAL Group since the merger in 1997, himself to SNS Bank. passed away. We sadly miss his expert contribution, his broad vision of matters and strong personal commitment. We are truly and sincerely grateful to John Simons for his Meetings of the Supervisory Board many years of professional and personal commitment The Supervisory Board met nine times during the year and contribution. under review, of which one meeting was in the absence of the Group Executive Board. In this latter meeting, the In March 2004, Messrs. Bouma and Van Heeswijk were composition and the performance of the Board were dis- reappointed for a term of four years. Prior to their reap- cussed, as well as the relationship with the Group Execu- pointment, the Board discussed the issue in the absence tive Board and the quality of information available to the of the two members in question. The Central Employees Board. Council also spoke to both members prior to the reap- pointment and approved their reappointment. The meetings of the Supervisory Board are prepared in a consultative meeting of the Chairman and Deputy Chair- At present the Supervisory Board has seven members (for man of the Supervisory Board, the Chairman of the Group their Curriculum Vitae, please refer to page 130). At the Executive Board and the Chief Financial Officer. beginning of 2005, the job profile for appointments to the Supervisory Board was amended. During the year under review, presentations were held to generate ideas and discussions during the Supervisory Board meetings about social policy, IFRS, ethical business Composition of the Group Executive practice, capitalisation and risk management, among Board and Boards of Directors other things. At two of the meetings, the full Boards of The Group Executive Board and the Boards of Directors of Directors of SNS Bank and REAAL Verzekeringen made SNS Bank and REAAL Verzekeringen remained unchanged detailed presentations to the Board about issues that in 2004, as was the case in 2003. included market developments, changes in the organi- As a result of a longer period of absence due to illness, sation, plans for the forthcoming period and the progress but also because of a difference of opinion, Mr. Henneke of major projects. 14 SNS REAAL GROUP Annual Report 2004

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    Report of the Supervisory Board A risk management report is prepared once every quarter, Board, the Chief Financial Officer, the external auditor and which is presented and discussed in the meeting of the internal accountant. In May 2004, a special meeting of the Board. Audit Committee was entirely dedicated to IFRS. The quarterly, half-yearly and annual figures are discussed The quarterly, half-yearly and annual figures were dis- in detail by the Board. Prior to these discussions, the Audit cussed in detail at the meetings. The audit reports, the Committee presents a report from its findings in the form actuarial report, the management letters and the reports of recommendations to the Board. The external auditor of the Group Audit Department are also fixed agenda items. and the external actuary also attend the discussions of The Audit Committee is of the opinion that management the annual figures. deals properly with action points for the improvement of procedures and processes. With respect to essential The Group Executive Board consulted the Board at length projects, the Audit Committee has requested to be kept about the Group’s capitalisation. The financial position informed by means of regular progress reports. of SNS REAAL Group is more than sufficient for organic growth. Extra capital is required for non-organic growth, Other topics that were discussed include the risk manage- especially as far as the acquisition of larger market play- ment framework, the litigation statement, Basle II, the ers is concerned. With a view to the growth strategy, it engagement letter for the external auditor, the independ- is expedient to be prepared for this. Any decision, if and ence of the external auditor and the external review of the when taken, to attract external shareholders would be a functioning of the Group Audit Department. unique step in the Group’s history. The minutes of the Audit Committee meetings are for- The 2005-2007 Operational Plan was approved in the warded to the Supervisory Board. Information presented December meeting of the Board. The previously initiated by the Audit Committee is a fixed agenda item for the strategy will be pursued with vigour: after all, 2004 was meetings of the Supervisory Board. again proof of the fact that the strategy is working. Corporate governance and the new legislation and regu- The Remuneration, Selection and lations were discussed by the Board. This has led to an Appointments Committee amendment of the Articles of Association, and propos- The Remuneration, Selection and Appointments Com- als for amendments of the different regulations (please mittee was formed in 2004. The Committee consists of refer to the ‘Corporate Governance’ section in this report, Messrs. Van de Kar (Chairman), Bouma, Muller and Kort- page 45). mann. The Committee met for the first time at the end of 2004, followed by a second meeting at the beginning of Approval was given in the meeting of February 2005 to the 2005. In addition to the Committee’s rules and procedures, proposal to move to the decertification of the shares of discussions included the setting up of a system of vari- SNS REAAL Group. The Board of the Foundation (Stichting able remuneration for the Group Executive Board and the Beheer) subsequently agreed. Stichting Beheer is thus the Boards of Directors. Agreements were also reached on the direct and sole shareholder of SNS REAAL Group shares. method for assessing the performance of the members The Group Executive Board is no longer represented in of the Group Executive Board. the Board of Stichting Beheer. Meetings with the Central Employees Council Meetings of the Audit Committee Twice a year, different representatives from the Super- The Audit Committee consists of Messrs. Van Heeswijk visory Board attend the consultative meetings between (Chairman), Den Hoed and Huisman. Mr. Simons was also the Group Executive Board and the Central Employees a member of this Committee. The Audit Committee met Council. The Board is also kept up-to-date about current six times during the year under review. All the meetings developments in the field of staff consultations via the were attended by the Chairman of the Group Executive minutes of these meetings. SNS REAAL GROUP 15 Annual Report 2004

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    Report of the Supervisory Board The Articles of Association of SNS REAAL have been rights concerning the appointment of one third of the amended in line with the new Structural Act. This has members of the Board. strengthened the Central Employees Council’s advisory Utrecht, 9 March 2005 On behalf of the Supervisory Board, J.L. Bouma, Chairman In memoriam J.W.M. Simons On 5 August 2004, John Simons, who had shown great commitment to our organisation, passed away at the age of 69. For more than ten years, from 1978 to 1989, he was Chairman of the Board of Directors of Hooge Huys Verzekeringen. He has been a Supervisory Director of SNS REAAL Group since 1997, the year of the merger between SNS Group and REAAL Group. His broad field of interest and his effort, knowledge and experience meant that he also filled a large number of supervisory and other positions after his retirement. We will remember his professional and personal commitment and contribution. Supervisory Board and Group Executive Board 16 SNS REAAL GROUP Annual Report 2004

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    Report of the Group Executive Board SNS REAAL GROUP 17 Annual Report 2004

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    Report of the Group Executive Board 2004 headlines Financially and commercially, SNS REAAL Group has closed an excellent year. Net profit increased by 27.6% to € 310 million. In view of the results, we will vigorously pursue our strategy to develop into the ‘favourite bancassurance retail specialist’ by means of product leadership for our core products. We achieved a lot in that context in 2004, and our plans for 2005 and beyond are no less ambitious. Financial into a shared internal department and the P&O depart- § Net profit increased by 27.6% to € 310 million. ments have been merged at Group level. The number of § Return on shareholders’ equity rose from 15.9% to staff of the Group was reduced by some 300 (FTEs). 17.2%. § Risk management has been strengthened further, both § SNS Bank’s efficiency ratio improved strongly from in terms of organisation and implementation. 64.6% to 59.8%. § SNS Bank’s branch network in the Randstad has been § The operational cost-premium ratio of REAAL Verzeker- further expanded with offices in Haarlem, Nieuwegein ingen improved from 16.4% to 16.1%. and Spijkenisse. § Innovative products were developed throughout the Commercial year, with several receiving nominations (see boxes § Mortgages: the market share increased from 8.4% in on page 26). 2001 to 9.1% at year-end 2004. The mortgage portfolio § The portfolios of Zurich Nederland, Univé and REAAL more than doubled in the five years to end 2004. Overlijdenszorg have been almost fully integrated. § Savings: the market share remained steady at 5.7% § Synergy increased strongly in sales: more and more between 2001 and year-end 2004. Savings increased jointly developed products are being sold via an by more than 50% in five years. increasing number of sales channels. § Individual life insurance: the market share of new pro- § A lot of attention has been – and is – devoted to prepa- duction regular premium policies increased from 6.5% rations for and the implementation of new legislation in 2001 to 12.6% at the end of 2004. and regulations, such as IFRS, Basle II, Corporate Gov- ernance, the Financial Services Act and the so-called Activities in 2004 Witteveen Act. § A common logo has been introduced: a kaleidoscope. § SNS Bank has centralised the management of the sales In addition, after changing the name of the insurance organisation for both the private and commercial busi- operations, the names SNS REAAL Group, SNS Bank ness lines. and REAAL Verzekeringen are now also logically con- § Joint venture agreements have been concluded with nected. various new partners, including Route Mobiel. § As part of the ongoing cost monitoring and efficiency projects, facilities and services have been centralised SNS REAAL Group: some plans for 2005 § We will strengthen further our positioning as the favourite bancassurance retail specialist § We will continue to expand the branch network in the Randstad § Asset creation will receive an extra impulse, both the ‘advised’ and ‘do-it-yourself’ services § The ‘Enterprise Desk’ formula will be marketed more aggressively § We will expand our internet applications further § The top-200 intermediaries will be given more emphatic attention § We plan to strenghen our position among buyers’ cooperatives § The underwriting agency business will be expanded 18 SNS REAAL GROUP Annual Report 2004

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    Report of the Group Executive Board Strategy and policy SNS REAAL Group is developing into the favourite bancassurance retail specialist in the Netherlands. As far as financial products are concerned, we are concentrating on our core products in the mortgages, asset creation (savings and investments) and insurance (life, pension and non-life) categories. We want to be product leader in these product groups, which means that we are striving for a top-3 position in the market. With respect to target groups, we are focusing on the private consumer (the retail market) and the small and medium-sized sector, jointly referred to as the ‘retail-plus’ market. Strategic goals ...and minuses Several years ago, SNS REAAL Group agreed four strate- We also have points that are not so strong, and we are gic goals that have to lead towards achieving the aim of working hard at improving them. In contrast to REAAL becoming the favourite bancassurance retail specialist. Verzekeringen, SNS Bank still has no nationwide pres- In view of the positive commercial and financial results ence. This is quickly being rectified with the expansion achieved in 2003 and 2004, the strategy is being pursued of the branch network in the Randstad. To us, this area with exra vigour. has enormous potential as growth market. The SNS Bank and REAAL Verzekeringen brands are widely recognised, but brand awareness could be better. Inten- Strategic goals: sive campaigns are going to address this. We can certainly make more of a name for ourselves in the commercial 1. Sustained value creation sector with our Enterprise Desk formula. The core product 2. Focus on retail and retail-plus clients group ‘asset creation’ also needs momentum. 3. Outpace market growth SNS REAAL Group can independently finance both organic 4. Managing synergy growth and small acquisitions. Alternative financing con- structions have been set up for large acquisitions. Plusses... SNS REAAL Group is capable of successfully implement- Goal 1 ing the strategy, by taking advantage of our company’s Sustained value creation strengths. Our relatively compact organisation makes it possible for us to respond effectively to market changes. The main objective of SNS REAAL Group is to strive We have demonstrated that we can actually utilise synergy towards structural value development of the group as advantages. We have developed innovative products and a whole. This is to implement the growth strategy, in market them via several distribution channels. In addition order to manage the enterprise properly and to improve to good and up-to-date products, we have excellent proc- the return on investment. The achievement of the other esses, which our clients and intermediaries also experi- three strategic objectives contributes to this directly ence as such. or indirectly. Cost control and risk management are continuous points of attention for all divisions of the SNS REAAL Group has shown that it can grow in a com- group. In the context of concentrating efforts on core petitive market. Financially, our business is strong, with activities, SNS REAAL Invest has now almost completely a positive development in profit and returns and healthy been wound down. efficiency ratios. Higher return SNS REAAL Group employs professional and motivated Capital is a scarce means of production and should, there- people, also reflected in the positive results of the staff fore, be used as effectively as possible. This implies that satisfaction surveys. policy decisions have to take account of the expected SNS REAAL GROUP 19 Annual Report 2004

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    Report of the Group Executive Board Strategy and policy returns and the cost and risk elements of the different taken at process and organisational level – for instance, alternatives. Particularly in the financial market, where by setting up the Credit Committee. This approach will fierce competition means increasingly tighter margins on be pursued with vigour in 2005. the products, it is vital to choose activities with the highest possible added value and profitability, with manageable Pricing policy: managing the margin risks. This approach – ‘value thinking’ – will achieve the When determining the price of a product, account is sustained value creation envisaged for SNS REAAL Group. taken of its costs, associated risks and capital require- ment. Choices are based on the calculated margin, with In practice, SNS REAAL Group requires a structural return the margin being constantly monitored during the prod- of 12.5% after tax on the invested capital for all activities uct’s ‘maturity’. and products. In 2004, the return on shareholders’ equity of SNS REAAL Group rose to 17.2%. Winding down of SNS REAAL Invest As a retail specialist, SNS REAAL Group concentrates on The ‘economic capital’ method is used for making sound a number of core products. Scarce capital is invested as policy choices with respect to the desired structural value much as possible in these products. As a result, it was development, with the activities being adjusted to take decided in 2002 to completely wind down SNS REAAL account of the corresponding risks. The entire Group now Invest. applies this method. Calculations show that the avail- able capital exceeds the ‘economic capital’ or, the capital In 2004, the disposal of participating interests of Invest required when adjustments have been made for all the was continued with force. The 100% interests in TMF, Abfin, risks. In other words, we are more than sufficiently capi- Leaseco and TransNed Lease, as well as the minority inter- talised. est in InfraDesign, were sold. Some 90% of the portfolio of Invest has now been sold. Ongoing cost control Continuous monitoring and control of costs is essential, The winding down of SNS REAAL Invest also means that especially for a retail specialist. The group, the bank and the Group’s risk profile is reduced, and that the financing the insurance operator have all devoted a lot of attention structure within the Group is strengthened. These fac- to this, with the consequence that costs only declined in tors are important for the ratings of SNS REAAL Group 2004. Efficiency measures have led to a drop in the number and SNS Bank. of staff (on FTE basis) of some 300, representing 5% of the total number of staff. Value creation in a broad perspective We ascribe a broader definition to the ‘sustained value Risk management strengthened creation’ concept than merely seeing it in economic com- In 2004 we paid close attention to further strengthening ponents. We also consider investing in society and in staff risk management at the group, bank and insurance opera- as creating added value. It is not for nothing that ‘social tions, with respect to both the organisational embedding commitment’ is one of our business principles. Our roots and the policy tools (for further details, please refer to the in society and the development of our staff are essential ‘Risk management’ section, page 47). We plan to continue building blocks for the company’s further value devel- this in 2005. opment (also see the sections on ‘Socially responsible business practice’ on page 59 and ‘Personnel and Organi- The relatively high value of the ‘value adjustments to loans sation’ on page 61). and advances’ item, in combination with the uncertain economic prospects for 2005, demand that we continue our prudent credit policy and where necessary even Goal 2 tighten it further. Focus on retail and retail-plus clients REAAL Verzekeringen worked well in 2004 to further SNS REAAL Group is developing into the favourite strengthen risk management. The necessary steps were bancassurance retail specialist in the Netherlands. 20 SNS REAAL GROUP Annual Report 2004

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    Report of the Group Executive Board Strategy and policy On the basis of client wishes, we develop innovative SNS Bank products with a balanced price-quality ratio, and we have sophisticated administrative processes for large SNS Bank sells its products via the branches, interme- numbers of transactions. We make financial affairs diaries, the internet and the telephone, with clients easy and accessible, offering numerous ‘do-it-yourself’ choosing the desired type of distribution channel for products and – where required – advice by reliable and the service in question. The branch office network sympathetic staff. forms the basis of the distribution network, given the importance of ‘physical client contact’. The practice Promoting retail thinking shows that a branch office has a positive effect on the The financial retail-plus market is increasingly begin- other distribution channels: it strengthens the relation- ning to resemble supermarkets and department stores. ship with the neighbouring intermediary, and internet These are markets where for some time now people have clients relatively often appear to be ‘clustered’ around grown used to responding swiftly to the changing needs a branch office. For do-it-yourself products, which of clients, frequent changes in the product range, fickle require no advice, SNS Bank encourages the use of customers, as well as operating with large turnovers and the internet. small margins. The financial world is going in the same direction: competition is getting tougher, margins are Branch office network: towards a nationwide presence getting tighter at both banks and insurance companies, In view of the almost literally central role of a branch office, clients more readily change bank or intermediary, and it is important to achieve proper nationwide presence. increasingly open a savings account or take out insurance Traditionally, SNS Bank has relatively few branches in over the internet. the Randstad. The branch office network has therefore been developed at a rapid pace in this area since 2002. In We are learning from the experiences of other retail 2004, branches were opened in Haarlem, Nieuwegein and companies. They – and we – also see ‘retail’ as a state of Spijkenisse. The number of branch offices in the Rand- mind, an attitude towards the client. One of our central stad thus increased to 15, well on the way towards the themes for the coming years will be to put an even greater envisaged network of 20 to 25 offices in the Randstad. emphasis on ‘retail thinking’. Every member of staff of Incidentally, from a nationwide perspective, the number SNS REAAL Group must be convinced of the importance of branch offices of SNS Bank – 176 at year-end 2004 – is of ‘putting themselves in the client’s position’. Our train- declining. The basic principle is the aim of increasing the ing and education programmes are geared towards retail quality of the network. thinking. After all, in a world in which financial products strongly resemble each other, it is the staff that make Centralised management the difference. In 2004, we further centralised branch office manage- ment, significantly reduced the number of districts and Financial Services Act: major consequences integrated the former ‘Private Banking’ business line The Financial Services Act, introduced in 2005, has major into the ‘Individuals’ business line, in other words the consequences for the financial world. The Act is aimed retail business. This improved management has led to at protecting the interests of the consumers of financial cost reductions. services, as well as the interests of the financial services providers. It imposes strict requirements with regard to The ‘Business Market’ business line is managed centrally, product transparency, the professionalism and know-how as is the ‘Individuals’ business line. The analysis and of the advisors and intermediaries, and their duty to look administration of the credit risk management has also after the client. The Act is less drastic for the banking and been centralised, which has brought a further improve- insurance operations, which already comply with numer- ment in the quality of credit assessment. ous legal requirements, than it is for intermediaries. Since both the bank and insurance operations make great use of Impulse for asset creation intermediaries, we are supporting them with professional It was acknowledged in 2004 that the development of the information and training programmes. core product group ‘asset creation’ was lagging behind SNS REAAL GROUP 21 Annual Report 2004

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    Thinking ‘We do not want to remain part of the problem; we want to be part of the solution.’

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    When it comes to thinking and acting sustainably, ASN Bank has a great reputation. In the Netherlands the bank has grown to become an authority on the subject. Jeroen Jansen, as deputy director of ASN Bank, is jointly responsible for determining the course of sustainability that the bank charters. But what exactly are the criteria that ASN Bank sets itself and how does it adhere to them? ‘Above all – and let there be no doubt about this – we want to achieve a good Jeroen Jansen financial return for our customers. We are a professional profitable bank. The Deputy Director, big difference is we don’t want to achieve that at any price. For that reason, when ASN Bank selecting companies to invest in we pay attention not just to the financial results but also to the way they treat the environment, their social policy, their human rights and child labour policy. On those grounds certain companies are ruled out. Think for example of involvement in the arms trade or companies that breach fundamental human rights.’ In 2004 ASN Bank introduced ASN Ideaalsparen - ASN Ideal Savings. Own analysts It’s a savings product that offers ‘To select companies we have our own department of sustainability analysts. a high rate of interest plus the They work for SNS REAAL Group as a whole and over the years have built up a certainty that the money will be unique wealth of experience. Our analysts obtain information from the companies themselves, and to get as complete a picture as possible they also use other sources invested in companies that of information, such as reports by international research bureaus, from the media, treat people, animals and the and data from various social organisations. Finally we assign each company a environment with respect. Jeroen sustainability profile, which is elaborated further when necessary. Whether a company gets the green light is then finally decided by the selection committee Jansen: ‘We also work closely of ASN Bank.’ together with organisations such as the Dutch charities Mensen in Market leader Nood, Novib and the Worldwide ‘Our standards are rather high, I dare say perhaps the highest in the Netherlands. Fund for Nature. We support all This reflects not only idealism, but also our conviction that sustainable business is the most sensible form of business. It might sound a bit pompous, but almost kinds of projects. Why? Because everyone dabbles in ethical business. By setting standards higher, we are able to we want to be part of the solution be market leader in sustainable banking by a long margin. What’s more, if people and not a part of the problem.’ decide to save or invest sustainably, they want to see it confirmed in clear choices. ASN Bank makes those choices. Another important thing is that we’re happy to make good use of our position within SNS REAAL Group. Within the group we are the sustainable retail brand. Which means we can pump up our sustainability efforts to the full!’ and acting sustainably SNS REAAL GROUP 23 Annual Report 2004

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    Report of the Group Executive Board Strategy and policy the objectives. One of the action points for 2005 and exclusively. The approximately 2,500 independent inter- beyond, therefore, is to provide an extra impulse for sav- mediaries with whom we have a business relationship ings and investments. This is a market that is both grow- sell not only mortgages, but also savings and investment ing and changing. The economic situation and cutbacks products and, increasingly, insurance policies. SNS Bank on social security benefits are prompting people to set is working on using the opportunities offered by this dis- aside more money, out of necessity or to build up a per- tribution channel more intensively, both for the private sonal pension. In addition, there is a move from savings and business market. to less risky forms of investing. And inheritance – the flow of assets to younger generations – is playing an increas- ingly important role. Business Market: the financial retailer for small and medium-sized Apart from a varied range of savings and investment prod- enterprises �SME� ucts, SNS Bank also offers a wide choice of good quality The ‘Business Market’ line is developing into the financial investments (see box below). As a retail specialist, the retailer for the SME sector and for government bodies, bank can offer excellent services in particular to a grow- institutions, associations and foundations. The services ing number of investors with relatively small portfolios provided for the business market can therefore be com- with its ‘do-it-yourself’ investment concepts or supervised pared to the way in which SNS Bank approaches the pri- investment versions. vate market. Internet: continued strong growth The Business Market approach has three service formu- Right from the start, SNS Bank has encouraged ‘do-it- lae: a ‘do-it-yourself’ service provided through snsbank.nl yourself’ banking, saving and investing. The number of and the telephone (the ‘SNS Zakenlijn’ or business line), users and the number of transactions per user continue to the Enterprise desk which provides assisted advice, and grow. The use of modern means of communication fits in the Business & Institutions units, which offer full-service with our philosophy of a retail specialist. The quality of our professional advice. products is reflected in the rates that clients give us. Soon, it will also be possible to take out a number of (simple) Enterprise desk insurance policies fully electronically via the internet. Larger SNS Bank branches have Enterprise desks set up to serve small businesses in particular but also selfemployed Intermediaries: grabbing opportunities people without employees. These are ideal customers for SNS Bank makes extensive use of intermediaries. The sales our business retail products and the ‘do-it-yourself’ and labels CVB Bank and BLG Hypotheken use intermediaries ‘assisted advice’ formulae. Investing: something for everyone Do-it-yourself With advice Asset management SNS Vermogens- SNS Effecten SNS Vermogens- SNS Managed SNS Effectenlijn SNS Fundcoach Prisma Adviesdesk beheer Account SNS Effectenlijn SNS Fundcoach is SNS VermogensPrisma The Effecten Vermogensbeheer The SNS Managed [Equity Line], for the an ‘investment funds is an advisory concept Adviesdesk [securities [asset management] Account is avail- active ‘do-it-yourself’ supermarket’ that that staff use when advisory desk] promotes ‘personal’ able for assets of at investors, for years helps investors to put advising clients about advises investors in management of least € 20.000. The now rated best together themselves their asset creation. putting together their individual portfolios client can monitor internet broker among a sound investment individual portfolios. (minimum € 250.000). his portfolio on commercial banks. portfolio. internet, including the transactions that the assets manager has performed. 24 SNS REAAL GROUP Annual Report 2004

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    Report of the Group Executive Board Strategy and policy Sales labels SNS Bank has a range of different sales labels operating in a specialised market segment. Two of these – ASN Bank and SNS Asset Management – are dealt with in the section on ‘Socially responsible business practice’, because of their focus on sustainability (see page 59). 2004 was a very successful year for CVB Bank – THE intermediary bank in the Netherlands. No fewer than 65 new intermediaries established ties with CVB Bank, thus bringing the total number of intermediaries to 380. The CVB Bank formula is becoming an increasingly interesting option for intermediaries (see also ‘synergy’ on page 31). Thanks also to the successful CVB Rentedemper [interest damper], the mortgage production increased by 40%, with the portfolio increasing to € 2.8 billion. The funds entrusted increased by 10% to € 1.2 billion. The analysis of current accounts by ‘Independer’ (an independent research organisation that monitors develop- ments in financial services in the Netherlands) led to second place being awarded to CVB Bank, with readiness to assist clients and the speed of the service scoring particularly high. The ‘switch service’ introduced by the banks is leading to an increasing number of clients for CVB Bank. With a record market share of 2.5%, BLG Hypotheken, which sells its mortgages via intermediaries, can pride itself on a particularly successful 50th anniversary. Despite a shrinking mortgage market, turnover increased by 31% to € 1.8 billion. The portfolio thus increased to more than € 7.2 billion. BLG ended in third place in the annual survey of intermediaries, ‘Imago Blauwdruk Hypotheekverstrekkers’. More intermediaries than average have a good feeling about BLG. The quick service, the efficient administration, the thorough organisation and prudence are highly valued. Clients are also satisfied: BLG reached the third place on the Independer ‘consumer monitor’. SNS Securities is a securities broker. ‘Sales teams’ serve the domestic and international institutional clients with specialised fixed-income products and advice with respect to Dutch Small & Midcap shares. In addition, SNS Securities is active in the field of share trading, corporate finance and asset management. During 2004, a difficult year for the equity markets, SNS Securities posted a strong performance in both the results and the positioning of its Small & Midcap strategy. Starmine and AQ-rating classified the research product of SNS Securities as the best in 2004. Moreover, AQ also indicated that three of the four best individual analysts were working at SNS Securities. This forms the basis for further expansion in the Small & Midcap segment. Business & Institution units third-party cash account for managed funds – is another The ‘Business & Institution’ units, concentrated at five service we offer that has great expansion potential. locations in the country, focus on providing professional advice to medium-sized companies and to the previously Personal tailor-made package mentioned large or larger organisations. The services The products for the SME sector are tailored to the needs mainly comprise complex loans, payments, cash man- of entrepreneurs and are innovative, clear, standardised, agement and insurance matters. carefully tailored to each other and suited to internet use. For example, the successful ‘SNS Zaak op Maat’ [tailor- SNS Arrangementendesk made business] offers a comprehensive package of prod- The newly established SNS Arrangementendesk, which is ucts and services, including more opportunities for inter- part of the Business Market line, puts together tailor-made net banking, internet savings, sales credit and a business product packages for targeted professional groups who insurance package. Entrepreneurs can – independently or access the service through one single access point that with advice – put together their own tailor-made package. operates at a national level. The Derdengeldrekening – the Zakelijk Internet Bankieren [business internet banking] is SNS REAAL GROUP 25 Annual Report 2004

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    Report of the Group Executive Board Strategy and policy sector and government bodies, associations, institutions SNS Bedrijfshypotheek receives nomination and foundations. The SNS Bedrijfshypotheek was one of the five nominees for the best mortgage product of 2005. This prize is awarded annually by the Institute for REAAL Verzekeringen International Research. The SNS Bedrijfshypotheek responds to the wish of entrepreneurs for greater REAAL Verzekeringen counts on independent interme- choice of mortgages. The SNS Bedrijfshypotheek diaries almost exclusively for its sales. It uses this distri- with capital sum insurance is a combination of bution channel to sell life and non-life insurance policies a business mortgage offered by SNS Bank and a to private individuals and the business market. REAAL mortgage insurance offered by REAAL. Synergy Verzekeringen focuses on the top-200 intermediaries and innovative product development, therefore, and the group of approximately 1000 intermediaries go hand-in-hand. below. Along with life insurance and pensions, non-life insurance is also part of the core business. booming: currently 60 to 70% of our business customers Numerous integration activities use it. Zakelijk Internet Sparen [business internet saving] In 2004, a lot of energy went into the integration of the life, has proven at least as successful, followed by Zakelijk private and small businesses non-life portfolios of Zurich Internet Supersparen [business internet super-saving]. Nederland. The staff had already been transferred to the There is also a lot of interest in the new SNS Bedrijfshy- organisation of REAAL Verzekeringen in 2003. The acquisi- potheek met Kapitaalverzekering [capital sum insurance tion of Zurich has not caused any decline in the number of business mortgage], which is derived from a successful intermediaries or their production. Moreover, the addition product for the retail market (see box). of the portfolios has led to a substantial improvement in the underwriting agency business. Extending the Enterprise Desk formula The Business Market line has succeeded in maintaining The life portfolio of Univé was also integrated in 2004 and the growth curve of recent years and as a result its share we established a successful collaboration in life products of the relevant business market segment is now between with the sales organisation of Univé. 6 and 7%. One of the priorities is to continue this success and further extend it by raising the profile of the unique As announced in the previous annual report, REAAL Over- Enterprise Desk formula (including ‘do-it-yourself’). This lijdenszorg [funeral insurance] was integrated with REAAL means that investments are being made in the brand Verzekeringen (the intermediary segment) and Proteq recognition of SNS Bank as business partner for the SME Direct (the direct segment). Pensioen Optimaal Hypotheek declared Non-life: core business best Dutch ‘mortgage product for 2005’ In 2004, non-life insurance was emphatically presented as a core business of REAAL, with the acquisition of the non- BLG Hypotheken introduced this innovative life portfolios of Zurich having a stimulating effect. The product – optimum pension mortgage – for the range of non-life policies has been expanded and renewed. senior citizens’ market. It enables retired home- For example, we introduced new motor vehicle insurance owners to use the surplus value of their homes in a rates, the home package and an all-in-one insurance pack- prudent way as extra income, or as freely disposal age. Growth is expected at Proteq Direct (the provincial capital. The product is a combination of a mortgage portfolio) and in the underwriting agency business. and a guaranteed immediate annuity that serves to pay the higher mortgage burden. The balance Intermediaries: threats, but also opportunities is liquid. In February 2005, the Pensioen Optimaal Intermediaries are currently experiencing hard times. A Hypotheek was declared best Dutch ‘mortgage significant portion of the market has shown little growth product for 2005’. in recent years, and pressure on margins is increasing. 26 SNS REAAL GROUP Annual Report 2004

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    Report of the Group Executive Board Strategy and policy The Financial Services Act sets stringent conditions for retirement (VUT) and pre-pension schemes are being dis- insurance companies and intermediaries to comply with. continued. It offers consumers better protection and it makes the market more transparent. A higher level of knowledge The Witteveen Act stipulates that pension funds must is expected and last but not least: intermediaries are offer employees greater scope to decide their own pen- expected to go along with developments in internet and sion requirements. This has far-reaching consequences for chain integration. products, processes and the training of staff. The existing, usually long-term, policies need to be adapted financially Professional intermediaries in particular have a lot to gain and legally to meet the requirements of the new rules. from the proposed situation. As a professional insurance company, it is our aim to forge and maintain close links These changes and adaptations – also those of the Finan- with all the top-200 and the next tier of arond 1000 inter- cial Services Act – require a lot of time, effort and money. mediaries. It is disappointing that the government does not fully rec- ognise the complexity of the matter and was late in issuing The activities of REAAL Verzekeringen are closely targeted implementation guidelines. to these groups: § REAAL Verzekeringen offers made-to-measure one-year Sales organisation: growth all round training courses for intermediaries and their staff (see Verkoop Intermediair [intermediary sales], which offers a box). wide range of services to a large group of intermediaries, § Back office processes are one of the traditional achieved production growth of 50% in 2004 by specifically strengths of REAAL Verzekeringen. targeting top-level clients, such as buyers’ cooperatives. § The Speciale Distributie and Volmachtbedrijf sales The account managers, who visit the intermediaries, pro- channels are ideally matched to these target groups. vide advice on opportunities presented by new develop- ments, for example in the pensions market. New rules put pressure on implementation Recent years have seen the introduction of numerous leg- Speciale Distributie [special distribution] specifically islative and regulatory requirements, that have had major focuses on major intermediaries and mortgage chains consequences for the products of insurance companies with their own products or those of a collaborative part- and intermediaries and the way they work. The economy ner, such as Univé. After doubling in 2003, turnover grew is faltering and the social security system is facing major further in 2004. Additional growth is expected in the life cutbacks. Healthcare costs are on the increase, a new and non-life segment in coming years, also thanks to the disability insurance (WAO) scheme is underway, and early new distribution partners that came on board in 2004. The REAAL Business School and the REAAL College The REAAL Business School offers a practice-oriented management course developed for directors and managers of large intermediaries and for independent intermediaries with at least five members of staff. The one-year course at MBA-level has a pragmatic set-up, an individual focus, and contributes to the improvement of the professional organisation and the personal development of entrepreneurs. Participants are given step-by-step supervision in drawing up a sound business plan. The first group of 15 entrepreneurs completed the course in September 2004. They found particularly useful the combination of theory and practice, the dialogue with other participants and the personal coaching. A second group started the course in mid-September 2004. The REAAL College focuses on staff employed by intermediaries. Interest in this practice-oriented course is increasing strongly. Needless to say, the course programme has been adapted to take account of the Financial Services Act. SNS REAAL GROUP 27 Annual Report 2004

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    Report of the Group Executive Board Strategy and policy Route Mobiel It appeared out of the blue, the new rival of the ANWB and the Wegenwacht [roadside break- down service]: Route Mobiel. In only a few months’ time, almost a hundred thousand members joined the new breakdown service, which is cheaper and quicker. As shareholder in Route Mobiel, Proteq Direct has a vested interest in the sale of breakdown insurance as well as related non-life products, such as motor vehicle and travel insurance. Not even four months passed between the drawing board and the start-up of Route Mobiel; in other words it was quick and innovative! SNS Distributie takes care of the REAAL insurance (GroepsIndividueelPensioenplan), which intermediaries products sold by SNS Bank under its own label. Syn- can offer themselves through InSupport. Furthermore, ergy benefits are reflected in the significant increase in it is now possible for intermediaries to put together the results, particularly in life products. CVB Bank and BLG pension terms and conditions themselves. Hypotheken have also started selling these products. SNS Bank is selling more insurance policies than ever before, In 2004 we also introduced a simpler and unambiguous and continuous growth is foreseen, especially when SNS annual pension statement; the first version of which was Bank also starts offering simple non-life insurance poli- enthusiastically received. The new annual statement is in cies via its internet site. line with the wishes and demands of the Dutch Association of Insurers, which have to produce a standard national At the Volmachtbedrijf, the launch of a non-life insurance communication format for pensions. package for the SME sector gave a new impulse in 2004. Much energy was also put into the relationship with exist- The pension market was cautious in 2004 as a result of ing and new intermediaries, and into bringing systems the Witteveen Act. Despite this our pension operations and processes up to standard and in line with the new achieved a 20% increase in net profit in 2004. Expectations legislation and regulations. All contracts will comply with are that the pension market will recover again, because Financial Services Act and PVK/DNB regulations by the end the effects of the increase in the retirement age, restric- of 2005 at the latest. Reporting between the underwrit- tions imposed on the VUT early retirement scheme and ing client and the underwriting contractor will change the changeover to average-pay schemes will lead to an from a quarterly to a monthly basis. In this respect, REAAL increasing demand for individual pension provisions. Verzekeringen is taking the lead in the market. We expect this sales channel to develop strongly. Proteq Direct, after a strategic change of direction, revealed itself as a modern direct insurance writer with The Pensioenbedrijf [pension operations] sells group and a new logo, an eye-catching advertising campaign, a semi-group pensions, both through 150 intermediaries renewed car insurance product and – towards the end that specialise in pensions and through actuarial con- of the year – collaboration with Route Mobiel (see box). sultancy firms. Collaboration with professional pension Proteq Direct offers straight forward non-life insurance providers was further stepped up and this has produced policies – including the well-known ‘Dier & Zorg’ [animal a number of major new clients. care] insurance – single premium products and funeral insurance. Sales through internet is its main thrust, along To a great extent, 2004 was dominated by adjustments with additional affinity marketing whereby it sells branded to the existing portfolio in line with new legislation (Wit- insurance policies to third parties. In 2004, the motor vehi- teveen Act and the Equal Opportunities Act) and the suc- cle and the ‘Dier & Zorg’ insurance policies in particular cessful introduction of the ZekerheidsPensioen. Thanks were popular. to this product, REAAL now has a traditional pension scheme to complement its defined contribution scheme 28 SNS REAAL GROUP Annual Report 2004

  • Page 31

    Report of the Group Executive Board Strategy and policy Goal 3 Development of the mortgage portfolio Outpace market growth of SNS Bank SNS REAAL Group wants to grow more rapidly than € millions the market, and do this profitably. Organic growth is ������ achieved by developing and selling innovative products through an excellent distribution network. Alliances ������ are entered into with that same purpose in mind. Apart ������ from organic growth, SNS REAAL Group also aims to achieve non-organic growth in the form of acquisi- ������ tions. ������ Successful growth strategy The success of the chosen strategy is illustrated by the ������ fact that the core products have succeeded in continuing their growth curve for several years, making us product ����� leader. The market share of insurance operations has � doubled in four years. Savings & Investments is show- ���� ���� ���� ���� ���� ing slight but steady growth. Following strong growth in preceding years, mortgages declined marginally in 2004. With guarantee Without guarantee Business services and non-life insurance performed well. We are assuming continued growth in market share for all the commercial objectives for the forthcoming planning Market share mortgages period up to the end of 2007 (see page 3). Financing larger acquisitions ��� SNS REAAL Group has sufficient shareholders’ equity to finance organic growth, as well as smaller acquisitions. To ��� finance significant expansion in the form of larger acqui- sitions, we would require additional capital which might �� come, for example, from one or more external financial players taking a participating interest in SNS REAAL Group. �� During the year under review we began exploring various possibilities to ensure that additional capital is available �� if and when attractive acquisition opportunities present themselves. �� �� SNS Bank ���� ���� ���� ���� Mortgages: stable trend Market share (in numbers, new production) The mortgage market as a whole stabilised in 2004. The net mortgage production of SNS Bank amounted to € 3.6 bil- lion, resulting in a market share of 9.1% (2003: 9.7%). figures do not include securitised mortgages, which amount to € 5.5 billion. The Bank’s total mortgage portfolio increased by 11.9% to € 33.5 billion. The portfolio of SNS REAAL Group – i.e., The stabilisation in the mortgage market reflects the including the insurer – increased to € 35.5 billion. These minimal increase in disposable family income and grad- SNS REAAL GROUP 29 Annual Report 2004

  • Page 32

    Report of the Group Executive Board Strategy and policy ual decline in the trend of refinancing at lower interest cial internet savings now account for 44% of the savings rates. The housing market also calmed down; house prices deposits at SNS Bank. SNS Bank’s share in the savings increased by only a few percent on average. market was stable at 5.7%. The savings market has been a very competitive market for some time now with lean It is expected that the mortgage market will not grow margins, despite the apparently low interest on savings. or grow very little in 2005 either. The hesitant economic recovery, the small forecast increase in interest rates and, Assets under management of SNS Beleggingsfond- for many, the negative rather than positive development sen, spread over fifteen investment funds, increased in disposable income play an important role in this. by 15.7% from € 1,513 million to € 1,750 million. The new inflow amounted to € 167 million. All the money market, The increase in the number of foreign competitors on this bond and real estate funds showed positive returns, as market will contribute to price competition, with pressure did almost all the equities funds. The funds with high US on the margins. exposure suffered because of the weak dollar. The inde- pendent investment fund tracker Morningstar gave a high These developments do not change the fact that SNS Bank rating for the entire range of funds. assumes a further increase in its market share. We base this assumption on our retail formula, innovative prod- The Amsterdam stock exchange closed the year at 348, ucts, the rapid and accurate administrative processes, the some 3% higher than at year-end 2003. In their pursuit of sales-oriented distribution channels and further penetra- increasing returns, many clients chose ‘hybrid’ products in tion in the Randstad. 2004, which combine a fully or largely protected principal investment with the chance of a (hopefully higher) return Savings & investments: a growth market on investment. SNS Bank has responded to this success- Under the influence of uncertain economic times and the fully with a range of innovative products, sold under their disappointing investment climate, the savings market in own sales labels and through REAAL Verzekeringen. Many the Netherlands has grown substantially in recent years. clients took the opportunity to spread their investment Savings at SNS Bank – including interest accrued – in- across investment funds, in many cases in the context creased by 8.3% to € 11.3 billion. Private and commer- of an ‘investment plan’ based on their own profile. As indicated previously, SNS Bank has set itself the goal to grow substantially in the savings & investments market Market share savings (see page 24). �� REAAL Verzekeringen Life insurance: increased market share in shrinking market �� The production of new regular-premium private life insur- ance policies increased by 2.6% to € 117 million in 2004. Since the life insurance market shrank, as it did in 2003, �� the market share of REAAL Verzekeringen again increased strongly from 11.2% to 12.6%. The back office experienced no problems with processing the growth in production. �� Expectations are that this market will not grow or hardly grow at all in 2005, and that the market will only increase �� again in the following years. We assume that the success- ful sales curve can be maintained, with resulting further ���� ���� ���� ���� growth in the market share. Market share 30 SNS REAAL GROUP Annual Report 2004

  • Page 33

    Report of the Group Executive Board Strategy and policy Single-premium policies: Mortgages: stable development market share declines in competitive market The mortgage portfolio of REAAL Verzekeringen remained The production of single-premium policies at REAAL stable in 2004 under the influence of the market develop- Verzekeringen declined by 17.0% to € 594 million. In this ments described earlier. Mortgages were sold under the highly competitive market with small margins, the market brands of a large number of partners, in combination with share slipped from 8.8% to 8.5%. life insurance policies. One of these partners is SNS Bank. The portfolio of the insurance operations – including man- Considerable growth is expected on the market for 2005 agement for third parties – amounts to € 2.0 billion. A slight in connection with the expiry of a large number of single- increase in market share is envisaged in coming years. premium policies. Following on from that, the market for immediate annuities will also grow strongly. We actively pursue the strategy of extending policies that expire with Goal 4 us as single-premium policies, and expect to achieve a Managing synergy small increase in market share in coming years. One of the most important objectives at the founding of Non-life insurance: strong growth in premium income SNS REAAL Group was to create synergy advantages by Gross premium income at private and commercial non-life means of intensive cooperation between banking and operations together increased 8.2% to € 317 million. Market insurance operations. A lot has been achieved in this share thus increased to 2.9% (this percentage is higher in field in recent years. A single management centre was the markets relevant to REAAL, which, for instance, is not set up in Utrecht, together with the Executive Board of active in large business non-life insurance). The non-life SNS REAAL Group and the Boards of Directors of SNS operations received a boost in 2004 from the strengthen- Bank and REAAL Verzekeringen. Unity in name and logo ing of the Volmachtbedrijf and the repositioning of Proteq has been achieved. A large number of internal depart- Direct (see page 28). Thanks to the new business stream, ments and their staff were merged and are also now we expect a doubling of premium income for the period accommodated in Utrecht. A single Facility and Service up to the end of 2007. department was formed in this way in 2004. The forma- tion of a single Personnel and Organisation department will follow in 2005. Market share individual life insurance Synergy in product development Product innovation is vital for a retail-plus specialist. Product development is concentrated in three specialist ��� departments (or ‘competence centres’) for mortgages, asset creation (savings and investments) and insurance ��� (life, pensions and non-life). Their task is to introduce innovative and profitable products, which can be sold by ��� all the sales channels of SNS REAAL Group. �� A lot was achieved in 2004 in the field of product develop- �� ment. SNS Bank now only sells REAAL insurance policies under its own label, both separately and in combination �� with mortgages and investment products. Non-life insur- ance policies will be added soon to the offering on the �� internet site. REAAL Verzekeringen sells SNS mortgages, �� in addition to those of other partners. The investment funds of SNS Bank and ASN Bank form the basis of the ���� ���� ���� ���� investment-linked insurance policies of REAAL. CVB Bank Market share (regular premiums, new production) and BLG Hypotheken will soon also be selling REAAL SNS REAAL GROUP 31 Annual Report 2004

  • Page 34

    For several years now, SNS Bank has taken a special and extremely practical approach to the concept of accessibility. In consultation with the Dutch Federation for the Blind and Visually Impaired, the website has been made accessible to the visually handicapped. The bank continues to work on improving internet access further and to this end is collaborating with the Foundation Bartimeus Accessibility and the Technical University of Twente. Another goal is to raise awareness of the issue among small and medium-sized enterprises. ‘Accessibility often might appear to be another man’s problem, but when it comes Angelique Overbeek to internet it’s a key issue. You know it’s easy to make something difficult but it’s Web Manager, Formula much more difficult to make something easy. Before you know it, people are giving up because it’s too complicated. As a result you run the risk of no longer reaching a Management Department large portion of the population. And I’m not just talking about handicapped people, but everyone who uses internet! That’s why we at SNS Bank are making a conscious effort to ensure that we are accessible for all our customers.’ Website adjustments ‘As web manager, one of my tasks is to make the website user-friendly for specific target groups. We started with the visually impaired. When our website was built, it wasn’t such a hot issue. We knew little about the various guidelines for the visually handicapped. Then we signed a memo of intent with the Federation for the Blind and Visually Impaired and we decided to go back and re-do the website all over again. What do you need to watch out for? Tables, for example. A visually impaired In the Netherlands there are person works at his screen with a reading ruler that displays the text in Braille. If more than 600,000 visually you create a normal table, a visually impaired person can no longer decipher the handicapped people, 1.6 million content. For that reason we have adjusted the HTML codes of the tables on our site so that the visually impaired can now take in the content of the table.’ hard of hearing and 700,000 with arm or hand limitations. Future plans Access ‘In the future we want to root all the knowledge we’ve built up more firmly in our organisation and also in other units of SNS REAAL Group. All the ICT developers and content managers will soon get a course on internet accessibility, developed by the Accessibility Foundation. Together with the foundation, we’ve also decided to do an awareness campaign on the topic among small and medium-sized enterprises. To sum up, concern for internet accessibility is now an integral part of the way we work. It is no longer an option; it’s something we take for granted.’ 32 SNS REAAL GROUP Annual Report 2004

  • Page 35

    for all ‘It’s easy to make something difficult but much more difficult to make something easy.’

  • Page 36

    Report of the Group Executive Board Strategy and policy Verzekeringen life insurance products, which, in turn, type of product, it will end up at one of the four service gets its banking products from CVB Bank. Hybrid SNS centres: for payment services, mortgages, securities and Bank savings products – SNS Varivastsparen, SNS Garan- insurance. We consider the quality of the administrative tiesparen, SNS Spaarmix – have also been marketed by processes of paramount importance. We see a high-qual- the insurance operations and other brands under their ity back office as an absolutely essential precondition for own labels. a financial retail specialist. Some of our products for the business market are derived Synergy in name and logo from products that are successful in the retail market. The unity of SNS REAAL Group, SNS Bank and REAAL Examples include SNS Zakelijk Internet Sparen and the Verzekeringen has taken shape in word and image. The ‘Supersparen’ variant. The SNS Bedrijfshypotheek with re-branding of ‘Hooge Huys’ to REAAL Verzekeringen capital sum insurance was introduced recently: a com- took place during the first half of 2004. In addition, the bination of the business mortgage and the Doorgroei Group, banking operations and insurance operations now Hypotheekverzekering of REAAL. For entrepreneurs, all share the kaleidoscope as a logo. To our target groups REAAL has introduced the Zekerheidspensioen, and it we present the image of being a single financial retail spe- offers a tailor-made package of non-life insurance poli- cialist. The general public was subsequently introduced to cies for SME. REAAL Verzekeringen by means of an eye-catching adver- tising campaign. If you live in the Netherlands, there is a Synergy in processes 99% chance that you have noticed this campaign. The name or the sales route of products make no differ- ence to the administrative processes. Depending on the 34 SNS REAAL GROUP Annual Report 2004

  • Page 37

    Report of the Group Executive Board Financial developments Net profit of SNS REAAL Group rose 27.6% to € 310 million in 2004 (2003: € 243 million). The banking and insurance operations showed a substantial increase in profit. SNS Bank achieved an increase in profit of 38.4% to € 155 million. Net profit at REAAL Verzekeringen increased by 64.0% to € 141 million. SNS REAAL Group The total income of SNS Bank rose 2.4% to € 712 million. Net profit rose 27.6% to € 310 million, reflecting an Net interest income at SNS Bank rose 0.5% to € 589 mil- increase in the various income components and a drop lion. This slight increase reflects a change in recognition in the technical expenses for insurance operations and of interest on bad debts. In addition, interest income from the operating costs.1 This continues the picture of recent a number of specific investments is now accounted for in years, with increasing income accompanied by slightly net terms. Excluding these changes, net interest income declining operational costs. rose by € 25 million (+4.2%). As a result of the winding down of SNS REAAL Invest, SNS REAAL Group’s total net Composition of net profit 2004 �2003� interest income fell 1.4% to € 505 million. Commission income grew 18.5% to € 109 million. 42� Total income of REAAL Verzekeringen rose 0.7% to �32� € 2,448 million. Gross premium income fell 5.1% reflecting the transfer of the SNS REAAL Group pension contract to 11� the SNS REAAL Group pension fund, and lower production �26� of single-premium policies. Without the transfer of this pension contract, gross premium income for life regular 47� �42� premiums would have risen 1.2% to € 778 million. Operating costs declined, mainly because of 7.4% lower staff costs, due to lower staffing levels and a release of the pension provision as a result of the introduction of an average-pay scheme for pensions. The increase in SNS REAAL Invest other management costs was partly caused by one-time SNS Bank expenses. REAAL Verzekeringen Result of SNS REAAL Group € millions 2004 2003 Change Income 4,475 4,472 0% Expenses 4,066 4,115 (1%) Operating profit before taxation 409 357 15% Taxes 81 97 (16%) Net profit excluding third-party interests 328 260 26% Third-party interests 18 17 6% Net profit 310 243 28% 1 ) These costs comprise staff costs and other operating costs, excluding the acquisition costs of the insurance operations. SNS REAAL GROUP 35 Annual Report 2004

  • Page 38

    Report of the Group Executive Board Financial developments Net profit of SNS REAAL Group Net profit of SNS Bank € million € million ��� ��� ��� ��� ��� ��� ��� ��� ��� ��� �� �� ��� �� �� �� � � ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� Net profit Net profit Result of SNS Bank € millions 2004 2003 Change Net interest income 589 586 1% Commission 109 92 18% Other income 14 17 (18%) Total income 712 695 2% Staff costs 238 279 (15%) Other operating expenses 188 170 11% Total operating expenses 426 449 (5%) Value adjustments to loans and advances 62 53 17% Value adjustments to fixed financial assets (3) 3 -- Total expenses 485 505 (4%) Operating profit before taxation 227 190 19% Taxes 54 61 (11%) Net profit before payment of SNS ParticipatieCertificaten 173 129 34% Payout on SNS ParticipatieCertificaten 18 17 6% Net profit 155 112 38% 36 SNS REAAL GROUP Annual Report 2004

  • Page 39

    Report of the Group Executive Board Financial developments The profit contribution from SNS REAAL Invest, almost million in investments from REAAL Verzekeringen to the completely wound down at year-end 2004, was € 38 mil- pension fund of SNS REAAL Group and by the reclassifica- lion. Participating interests sold in 2004 contributed tion of the discounts on zero bonds. € 32 million to net profit. Under liabilities, savings increased by 8.3% to € 11.3 bil- Total extraordinary items of SNS REAAL Group amounted lion. Other funds entrusted also increased to € 7.3 billion to € 53 million, reflecting the divested participating (+2.5%). The ‘debt certificates’ item, which predominantly interests of SNS REAAL Invest mentioned earlier and the comprises EMTN loans of SNS Bank, rose 10.2% to € 17.8 release due to the change of the pension scheme to aver- billion as a result of several successful issues – including age pay. Excluding extraordinary items, net profit came in Australia and France. The technical provisions of the to € 257 million (2003: € 205 million). This profit increase insurance operations increased by 1.4% to € 11.3 billion. of 25.4% is at the same level as the increase including the Without the transfer to the new pension fund, the increase extraordinary items. would have risen by a substantially higher € 856 million to € 12.2 billion. Total assets rose 4.9% from € 53.1 billion to € 55.7 billion. This increase is entirely due to mortgage loans, which SNS REAAL Group has a solid financial position: its capital increased to € 35.5 billion (+10.8%) as a result of substan- base increased 9.7% to € 3.5 billion. This is entirely due tial production. Currently, mortgages totalling € 5.5 bil- to the increase in shareholders’ equity, which rose 19.4% lion at SNS Bank are securitised. ‘Other loans’ declined to € 2.0 billion mainly as a result of the profit addition. to € 2.7 billion (-21.1%). The ‘investments’ item declined The remaining components – the subordinated debts, to € 11.4 billion. This was caused by the transfer of € 856 the Fund for general banking risks and third-party inter- Result of REAAL Verzekeringen € millions 2004 2003 Change Gross premium income, Life insurance policies 1,372 1,486 (8%) Gross premium income, Non-life insurance policies 317 293 8% Total premium income 1,689 1,779 (5%) Investment income 749 649 15% Other income 10 3 233% Total income 2,448 2,431 1% Technical expenses, insurance operations 1,876 1,934 (3%) Staff costs 139 146 (5%) Other operating expenses 179 177 1% Total operating expenses 318 323 (2%) Other expenses 66 43 53% Total expenses 2,260 2,300 (2%) Operating profit before taxation 188 131 44% Taxes 47 45 4% Net profit 141 86 64% SNS REAAL GROUP 37 Annual Report 2004

  • Page 40

    Report of the Group Executive Board Financial developments Net profit of REAAL Verzekeringen Net profit of SNS REAAL Invest € million € million ��� �� ��� �� ��� ��� �� �� �� �� �� �� �� �� � �� ��� �� ��� ��� � ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� Net profit Net profit ests – changed little or not at all. The SNS ParticipatieCer- holders, the profit contributed to SNS REAAL Group was tificaten issued by the banking operations in previous € 155 million. This represents an increase of 38.4% compared years are included in the ‘third-party interests’ item; no to the profit contribution of € 112 million in 2003. issues took place in 2004. Despite the uncertain economy, the banking operations Return on shareholders’ equity (RSE) increased from achieved a growth in income, while expenses were strictly 15.9% to 17.2%. The return is well above the long-term monitored. Total income rose to € 712 million (+2.4%). Net target of 12.5%. Our capital ratio – the capital base as interest income increased slightly to € 589 million (+0.5%). a percentage of the total assets – also increased from This slight increase is influenced by the change in recogni- 6.0% to 6.2%. tion of interest on bad debts. In addition, interest income from a number of specific investments is accounted for in net terms. Excluding this change, net interest income SNS Bank rose € 25 million (+4.2%). Due to the increased sales of The net profit of SNS Bank came to € 173 million. REAAL insurance products and increased management After deducting the amount paid to participation certificate fees, commission income rose to € 109 million (+18.5%). Result of SNS REAAL Invest € millions 2004 2003 Change Total income 53 95 (44%) Total expenses 20 24 (17%) Operating profit before taxation 33 71 (54%) Taxes (5) 0 -- Net profit 38 71 (46%) 38 SNS REAAL GROUP Annual Report 2004

  • Page 41

    Report of the Group Executive Board Financial developments The strict cost control policy paid off in a drop in total Composition of income 2004 expenses to € 485 million (-4.0%). Staff costs dropped SNS REAAL Group �2003� by 14.7% to € 238 million, because the number of staff declined by 264 FTEs and the hiring of temporary staff 4� was curtailed. Account was taken under ‘staff costs’ of �4� the introduction of the average-pay scheme for pensions (positive effect: € 17.9 million). Other management costs 38� declined 13.6% to € 159 million, partly due to additions to �40� the provisions for reorganisation and legal proceedings. 40� Value adjustments to loans and advances and financial �40� fixed assets increased 5.4% to € 59 million. The level remained high because economic recovery again failed 18� to materialise in 2004. In relation to the risk-weighted �16� assets, value adjustments declined slightly to 0.30%. The efficiency ratio improved substantially. The improved Gross premium income income, combined with lower expenses, led to an improve- Investment income ment from 64.6% (2003) to 59.8% (2004). Excluding the Interest income release from the pension provision the ratio is 62.4%. Both Commission and other income ratios, including and excluding the release, are well below the long-term target of 65%. The capital base increased by 4.2% to € 2.5 billion. This hand, gross life premium income declined to € 1,372 mil- was almost entirely due to the increase in shareholders’ lion (-7.7%), mainly because of the transfer of the pen- equity, which increased by 7.1% to € 1.6 billion as a result sion contract to the SNS REAAL Group pension fund. On of the 2004 profit addition. The return on shareholders’ the other hand, non-life gross premium income rose to equity improved strongly from 9.3% to 11.5%. The solvency ratio (BIS ratio) decreased slightly from Gross premium income insurance operations 11.9% to 11.7%. Even after securitisation of a portion of the mortgage portfolio, risk-weighted assets increased € million more substantially than the qualifying capital. The ratio ���� is actually well above the internal lower limit of 11% and ���� far above the statutory minimum of 8%. The Tier-1 ratio, ���� that is the ratio between the risk-weighted assets and the core (Tier-1) capital, improved from 8.3% to 8.6% thanks ���� to the profit contribution and securitisation. ���� ��� REAAL Verzekeringen ��� Net profit increased substantially by 64.0% to € 141 million, ��� primarily because of improved investment income and a strong insurance performance, both at group pension ��� operations and non-life operations. In a shrinking market, � partly due to restrictions on fiscal facilities, total income ���� ���� ���� ���� ���� increased to € 2,448 million (+0.7%). Total gross premium income decreased to € 1,689 million (-5.1%). On the one Non-life Life Total SNS REAAL GROUP 39 Annual Report 2004

  • Page 42

    Listen ‘No matter how good you think you know the customer, he always reacts slightly differently to how you anticipated.’

  • Page 43

    Like many other large companies, SNS REAAL Group makes intensive use of market research. By listening carefully to the wishes and needs of the customer, and at the same time following market developments carefully, we are in a position to develop new products. There are many ways of achieving product innovation, but a new development at SNS REAAL Group is the involvement of special customer panels. In this way we hope to respond even more quickly to what our customers want right now. to customers ‘Innovation is a priority at SNS REAAL Group. We pay very close attention to what Olaf van Gurp customers want and try to tailor our service as well as possible to that. You know when trends are fleeting, you have to pounce at exactly the right moment. For that Market Researcher reason in 2004 we started to think innovatively in a structured way.’ Winning concepts ‘First we map out the latest developments, together with other trend watchers. Then we try to generate new ideas for new products with our marketers and product managers. We start off freely and broadly and then start being selective. At a certain point we’ve narrowed it down to a small number of concepts to be developed further – winning concepts. We present our best ideas to our customers but also to other consumers. We don’t use regular panels, by the way. We work with new groups each time. Based on the results of the research we decide which concept we think has the best chances and which new product to In 2004 SNS REAAL Group started develop further.’ ‘thinking innovatively in a structural way’ and launched a Customer at the centre pilot project of proposals for the ‘In the whole process, the customer’s opinion is central and that’s also what retail and business markets. makes it so special. We translate relatively quickly a market need into a new product. Thorough research is an important part of it, because no matter how well you think From now on the plan is to follow you know the customer, he always reacts just slightly differently to how you trends and create innovative anticipated.’ products in a structured way the whole year through. SNS REAAL GROUP 41 Annual Report 2004

  • Page 44

    Report of the Group Executive Board Financial developments Efficiency ratio SNS Bank Operational cost-premium ratio REAAL Verzekeringen ��� ��� ��� ��� ��� ��� ��� ��� ��� ��� ��� ��� ���� ���� ���� ���� ���� ��� Efficiency ratio ���� ���� ���� ���� ���� Operational cost-premium ratio € 317 million (+8.2%). Gross regular life premium income increased by 1.2% to € 778 million; single premium income Capital base SNS REAAL Groep declined by 17.0% to € 594 million. € million ����� Income from investments increased to € 749 million ����� (+15.4%), of which € 623 million was for own account (+37.5%) and € 126 million for the account and risk of ����� policyholders. The real estate and share portfolios, in ����� particular, performed well, while the fixed-income port- folio also showed a positive return. ����� ����� Total expenses fell 1.7% to € 2,260 million, mainly because ����� technical insurance expenses decreased by 3.0% to € 1,876 million. The drop in operating expenses was prima- ��� rily due to the decline of 4.8% in staff costs to € 139 million. ��� The number of staff declined by 87 FTEs. Staff costs ben- efited from the positive effect of the release of € 14.2 mil- � lion from the introduction of the average-pay pension ���� ���� ���� ���� ���� scheme. The ‘other operating expenses’ item, including Shareholders’ equity acquisition costs of € 133 million, increased by 1.1% to Subordinated debt € 179 million. Excluding acquisition costs, the increase Fund for general banking risks was 17.9%, partly because of one-time marketing and Third-party interest advertising costs associated with the re-branding to REAAL Verzekeringen. 42 SNS REAAL GROUP Annual Report 2004

  • Page 45

    Report of the Group Executive Board Financial developments Split between the life and non-life insurance operations, net profit amounts to € 105 million (+47.9%) and € 36 mil- Capital ratio lion (+140.0%) respectively. These profit figures show that our investment in the non-life operations is bearing fruit. �� The loss ratio in 2004 is very low at 51.8% (2003: 58.6%). The operational cost-premium ratio is 16.1%, an improve- �� ment compared to the 16.4% for 2003. The long-term tar- get is a maximum ratio of 16.5%. �� The capital base increased 10.4% to € 945 million, due to the increase in shareholders’ equity by 12.8% to € 810 mil- lion, mainly as a result of the 2004 profit addition. RSE �� increased from 13.3% to 18.7%, well above the long-term target of 12.5%. �� Total solvency improved further from 177% to 182% in 2004. The solvency of the life operations increased from ���� ���� ���� ���� ���� 195% to 202%, while at the non-life operations solvency Capital ratio declined from 359% to 243% following an extra dividend payment. These rates more than satisfy the internal and external solvency requirements. SNS REAAL GROUP 43 Annual Report 2004

  • Page 46

    Report of the Group Executive Board Financial developments Reporting according to IFRS starting in 2005 As of the 2005 financial year, SNS REAAL Group will report its consolidated figures in accordance with the Interna- tional Financial Reporting Standards (IFRS), in the version approved by the European Commission. The IFRS rules for financial instruments (IAS 32 and 39) and insurance contracts (IFRS 4) officially apply with effect from 1 January 2005. Although earlier implementation is allowed, SNS REAAL Group has decided to present the comparative figures for 2004 on IAS 32 and 39 and IFRS 4, in the 2005 financial statements according to the current principles. In addition, the most important developments will be shown according to IFRS, using our own internal figures. The most important effects of IFRS on the figures concern the following: § Loans and advances. - Securitisations. Under IFRS, the securitised mortgage portfolio will be included in the consolidated figures of SNS REAAL Group. This will lead to an increase in balance sheet total by approximately € 6 billion. - Credit provision. The IFRS rules concerning impairment have an influence on credit provision. The composi- tion of the credit provision is different under IFRS than under current principles. This difference is due entirely to the provision – new under IFRS – for loans and advances on which there is no indication yet of impairment, also known as the ‘IBNR provision’. - Amortised cost. Valuation based on amortised cost differs from the current principle based on nominal value. For the mortgage portfolio, for instance, it means that the return on mortgages is stated on the basis of effec- tive interest rate. § Investments - Investments in fixed-income securities. The bulk of the investment portfolio falls under the category ‘avail- able for sale’ and is stated at fair value. In addition, some bonds are classified as ‘held to maturity’, with a cor- responding valuation principle based on cost. The changes in the fair value of the bonds can lead to a certain degree of volatility in shareholders’ equity. - Swap results. According to Dutch Gaap principles, results from the sale of bond investments and loans where another bond or loan is bought back are accounted for in the balance sheet as swap results. These are taken up in the profit and loss account for the average duration of the investment portfolio. This is no longer allowed under IFRS. The achieved result is taken immediately to the profit and loss account. This will have a non-recur- ring positive effect on the shareholders’ equity of SNS REAAL Group. § Real estate. Under IFRS, the real estate of the insurance operations in own use is no longer presented as invest- ment. SNS REAAL Group will state both real estate in own use and investment real estate at fair value. In future, the real estate in own use of the insurance operations will be depreciated. § Derivatives and hedge accounting. All derivatives are stated at fair value on the balance sheet. SNS REAAL Group will apply both ‘fair-value hedge accounting’ and ‘cash-flow hedge accounting’. § Pensions. The treatment of pensions according to IAS 19 will have a non-recurring negative effect on the IFRS shareholders’ equity. § The Fund for General Banking Risks. This Fund is no longer allowed under IFRS. Its elimination will lead to a one- off release to shareholders’ equity at SNS REAAL Group. On balance, the transition to IFRS on 1 January 2005 has clear benefits for the shareholders’ equity. As far as the profit and loss account is concerned, volatility will increase, which we can reduce considerably by means of fair value and cash flow hedge accounting. 44 SNS REAAL GROUP Annual Report 2004

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    Report of the Group Executive Board Corporate governance The Dutch corporate governance code was agreed on 9 December 2003 by the Tabaksblat Committee. The Code applies exclusively to listed companies. Although the shares issued by SNS REAAL Group are not listed, the Group Executive Board and the Supervisory Board nevertheless want to present information in this and future annual reports about compliance with the Code’s principles and best-practice provisions that are aimed at the management and supervisory board. From its sense of social responsibility, SNS REAAL Group endeavours to comply with the main principles of the Code. The general picture Supervisory Board Since the Code was passed, various actions have been The Supervisory Board is responsible for monitoring and taken to ensure that SNS REAAL Group complies with the supervising the policy pursued by the Group Executive main outlines and the spirit of the Code: Board and supports the latter with counsel and advice. § The Articles of Association of SNS REAAL Group have At least once a year, the Group Executive Board submits been amended. a written report to the Supervisory Board outlining the § All the required steps have been taken to move to strategic policy, the general and financial risks and the the decertification of the shares issued by SNS REAAL management and control system. This has now also been Group. formalised in the Articles of Association. These reports § Members of the Group Executive Board have stepped are discussed in the meeting of the Supervisory Board. A down from the board of the Stichting Beheer SNS supervisory director can serve on the Supervisory Board REAAL. for a maximum of three terms of four years. The Articles § A remuneration, selection and appointments committee of Association as amended on 24 March 2004 stipulate has been set up, in addition to the audit committee. that the sitting supervisory directors can be reappointed § The regulations of the Group Executive Board and the twice more for a term of four years. The Chairman of the Supervisory Board have been updated. Supervisory Board is not a former executive director of the § A whistleblower protection scheme has been company. The remuneration of the supervisory directors approved. is not linked to the company’s performance. The Board of the Stichting that holds all the shares in SNS REAAL Groep The Group Executive Board N.V. consists of the members of the Supervisory Board. SNS REAAL Group is managed by the Group Executive Board, under the supervision of the Supervisory Board. Articles of Association None of the Board members hold supervisory direc- The Articles of Association were amended in March and torships at listed companies. There is no share option December 2004. The second amendment particularly con- scheme. The members of the Group Executive Board and cerns the new statutory two-tier rules as amended on 1 the Supervisory Board are bound by the ‘Regeling Privé- October 2004. One of the reasons for the first amendment Beleggingstransacties SNS REAAL Groep’ [Regulation was to incorporate elements of the Code in the Articles on Private Investment Transactions] and the ‘Reglement of Association. For example, the following were then Bezit en Transacties Effecten SNS REAAL Groep’ [Regula- included in the Articles of Association: tion on Securities Ownership and Transactions], which § The power vested in the General Meeting of Share- satisfy the requirements of the Code. As far as the terms holders to approve decisions by the Group Executive of service are concerned, SNS REAAL Group has decided Board concerning an important change to the identity to deviate from the Code. No maximum term of service or or character of the enterprise; successive term of service applies to the current members § The power vested in the General Meeting of Share- of the Board. When new members are appointed to the holders to adopt the remuneration policy concerning Board, it will be considered whether it is expedient to members of the Group Executive Board; and appoint them for a maximum term of service. SNS REAAL GROUP 45 Annual Report 2004

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    Report of the Group Executive Board Corporate governance § The restriction of the term of service of supervisory Audit committee and remuneration, directors to three four-year terms. selection and appointments committee An audit committee was set up in 2001. In 2004, the Super- Decertification of shares visory Board also set up a remuneration, selection and Traditionally, SNS REAAL Group has had a management appointments committee, and drafted regulations for structure whereby the shares are held by a Stichting this committee. The Code has also led to changes in the Administratiekantoor, a trust, the Board of which consists regulations of the audit committee. These regulations will of the members of the Supervisory Board. All depositary be published on the website. receipts for the shares are held by Stichting Beheer SNS REAAL. Partly with a view to possible future third-party Regulations of the Group Executive participation in its share capital, SNS REAAL Group Board and the Supervisory Board believes that the certification of its shares is no longer The Group Executive Board and the Supervisory Board in keeping with the spirit of our times as reflected by the have always worked on the basis of carefully drafted reg- Code, among other things. All the necessary decisions ulations. Additions were made to these regulations on have been taken with respect to deregistering the deposi- the basis of the Code, which in many cases involved the tary receipts. It has also been agreed that the Stichting written documentation of situations that already existed Administratiekantoor SNS REAAL will cease to exist after in practice. These regulations will be published on the the shares have been decertified. website of SNS REAAL Group. The Board of Stichting Beheer SNS REAAL Whistleblower protection scheme For years, the Board of the holder of the depositary receipts, The Group Executive Board and the Supervisory Board Stichting Beheer SNS REAAL, consisted of the members of approved and adopted a procedure for dealing with sus- the Group Executive Board and the Supervisory Board. The pected abuse or breaches. The scheme defines steps to take Group Executive Board has concluded that, after decertifi- in reporting suspected abuse or breaches by staff of SNS cation, its membership of the Board of the Stichting could REAAL Group and the protection of the legal position of hamper the functioning of the Stichting in its capacity as the person who reported the incident in question. The pro- shareholder as envisaged by the Code. The members of cedure nominates the P&O Director of SNS REAAL Group the Group Executive Board have therefore stepped down as confidential advisor or fiduciary. An Abuses Committee from the Board of the trust. The Articles of Association were [Commissie Misstanden] will also be set up. The scheme amended accordingly to reflect this. will be published on the website of SNS REAAL Group. 46 SNS REAAL GROUP Annual Report 2004

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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. In 2004, SNS REAAL Group 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 risk management, for the relevant consultative structures, and for the management tools. Resources are allocated on the basis of the income/risk ratio of the separate activities and the aggregate risk profile of the Group as a whole. Goal of risk policy Risk management organisation As a bancassurance group for the retail and retail-plus The Group Executive Board is ultimately responsible for market, SNS REAAL Group assumes a number of risks for risk management. Within the Group Executive Board, the its clients. Within the strategic framework, risk manage- Chief Financial Officer, who is also the Chief Risk Officer, ment actively focuses on a low risk profile for SNS REAAL has risk management in his portfolio. The risk manage- Group. This is achieved along the lines of the following ment organisation (see organisation chart) of SNS REAAL main principles: Group is set up to manage the most important risks effec- § Correct behaviour towards clients and other stakehold- tively and efficiently. ers § Proper process control and monitoring procedures The Group Executive Board has been serving as the Group § Aiming for a high quality of the portfolios Asset/Liability & Risk Management Committee. The Com- § Limiting the mismatch in the balance sheet mittee is responsible for the set-up of the group-wide § Having comprehensive insight on the basis of accurate, risk management organisation and translates the Group’s timely and complete risk information risk appetite into standards and limits for different risks Risk management organisation Supervisory Board Audit Committee Strategy Group Executive Board Asset/Liability & Risk Management Department SNS Bank REAAL Verzekeringen Group policy Group Asset/Liability & Risk Management Committee Operational Risk Management Committee Financial Services Act Committee Compliance Committee Risk Committee Risk Committee ALM Committee ALM Committee Policy and Credit Committee Credit Committee implementation Pricing Committee Pricing Committee main brands SNS REAAL GROUP 47 Annual Report 2004

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    The introduction of the Financial Services Act was an important moment for REAAL Verzekeringen. It gave a very positive impulse to service quality in the insurance sector. At an early stage, REAAL Verzekeringen anticipated the consequences of the new act on the organisation. And with time in hand, it started early on to support intermediaries in dealing with the new regulations. ‘The arrival of the Financial Services Act is a good thing. We are convinced that the Saskia van Dijk new rules will lead to better quality in our sector and greater transparency. The Communications Adviser, act also fits in with the values we live by, reliability, alertness, social involvement REAAL Verzekeringen and transparency. So by taking the right approach to this new law, we can present ourselves as a really reliable insurer that supports intermediaries by offering practical solutions.’ Peparatory work ‘In the spring of 2004 we started getting to grips with the new regulations. At the time there was talk of introducing the act on January 1st 2005, but the date was subsequently postponed. That’s actually not such a bad thing as we’ve been able to do an enormous amount of preparatory work. We find it’s getting increasingly difficult to generate much attention for the topic among the intermediaries. They’ve already heard and read so much on the subject.’ REAAL Verzekeringen offers Back-up material intermediaries valuable support in getting to grips with the new ‘We offer intermediaries practical support materials. In addition we see ourselves as knowledge providers. We make sure that intermediaries have in house the financial legislation. What materials they need to get up to speed themselves, materials such as updated differentiates REAAL from other brochures, revised product information, a new complaints form, a know-your- client profile, specific training courses and all sorts of other practical materials. The insurers is its approach, which is account manager at REAAL Verzekeringen naturally also plays an important role not about sitting in the director’s in the activities surrounding the new legislation. He or she is the port of call for chair and doing all the work. intermediaries’ questions. In short, financial advisers can count on us completely, as a knowledge centre and as a sounding board.’ It’s all about offering people the means to help themselves. In this respect REAAL acts as a knowledge provider in a role in which the account manager too plays an important part. Working 48 SNS REAAL GROUP Annual Report 2004

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