SNS REAAL Groep Jaarverslag 2003

Transcription

Annual
Report 2004
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.
Annual Report 2004
SNS REAAL Group
Concern Communication
Investor Relations
Croeselaan 1
P.O. Box 8444
3503 RK Utrecht
The Netherlands
Telephone +31 30 291 52 00
www.snsreaalgroup.com
Telephone +31 30 291 48 76
Fax +31 30 291 48 49
[email protected]
Telephone +31 30 291 51 02
Fax +31 30 291 51 32
[email protected]
Registered at the Trade Register of the Utrecht Chamber of Commerce under no. 16062627
SNS REAAL GROUP
Annual Report 2004
1
Contents
SNS REAAL Group in brief
Key figures
General
Management
Commercial structure
Foreword from the Chairman of the Group Executive Board
5
6
7
10
Report of the Supervisory Board
13
Report of the Group Executive Board
17
18
19
35
45
47
54
56
59
61
63
2004 headlines
Strategy and policy
Financial developments
Corporate governance
Risk management
Investment portfolio of REAAL Verzekeringen
Funding
Socially responsible business practice
Personnel and Organisation
Outlook
2004 Financial statements
Consolidated balance sheet
Consolidated profit and loss account
Consolidated cash flow statement
General notes
Notes to the consolidated balance sheet
Notes to the consolidated profit and loss account
Consolidated balance sheet of SNS Bank
Consolidated profit and loss account of SNS Bank
Consolidated balance sheet of REAAL Verzekeringen
Consolidated profit and loss account of REAAL Verzekeringen
Company balance sheet of SNS REAAL Groep N.V.
Company profit and loss account of SNS Reaal Groep N.V.
Notes to the company balance sheet of SNS REAAL Groep N.V.
Main Group companies
List of other main equity participations
Other information
Profit appropriation under the articles of association
Auditor’s report
Additional information
Curricula vitae of members of the Supervisory Board
Additional responsibilities of Group Executive Board members
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SNS REAAL GROUP
Annual Report 2004
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130
131
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:
§ Client oriented
§ Professional
§ Honest
§ Socially committed
§
Profile
§
SNS REAAL Group is an innovative retail banking and
insurance provider with total assets of € 55 billion and
more than 5,200 employees (FTEs). It serves its private
and business clients mainly through its main brands of
SNS Bank and REAAL Verzekeringen.
SNS Bank serves its clients through its own branch offices,
independent intermediaries, the internet and the telephone. REAAL Verzekeringen markets its products and
services through independent intermediaries.
§
§
§
Commercial goals (2005-2007)
§
§
SNS REAAL Group attaches great value to the principle
of socially responsible – or ethical – business practice.
This is demonstrated by the development of sustainable
savings, investment and insurance products, conducting
specialised social investment research and sponsoring at
national, regional and local levels.
Increase market share in mortgages
(numbers, new production) to 12%
(2004: 9.1%)
Increase market share in savings
to 6.3%
(2004: 5.7%)
Increase market share in individual
life insurance policies (new production,
regular premium policies) to 15%
(2004: 12.6%)
Financial goals
§
§
In addition to the two main brands, SNS REAAL Group
also includes various sales labels that operate in a specific
market: ASN Bank, BLG Hypotheken, CVB Bank, Proteq
Direct, SNS Securities and SNS Asset Management.
Sustained value creation
Focus on retail and retail-plus clients
Outpace market growth
Managing synergy
§
§
Net profit increase of at least
10% per year
(2004: 27.6%)
Return on shareholders’ equity of at
least 12.5% per year after tax
(2004: 17.3%)
Maximum efficiency ratio for banking
operations of 65%
(2004: 59.8%)
Maximum operational cost-premium ratio 1
for insurance operations of 16.5%
(2004: 16.1%)
Ratings
SNS Bank
S&P
Moody’s
Fitch
Short term
Long term
Outlook
A-1
A
Stable
P1
A2
Positive
F1
A+
Stable
S&P
Moody’s
A-2
AStable
A3
Stable
SNS REAAL Group
Short term
Long term
Outlook
) 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.
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SNS REAAL GROUP
Annual Report 2004
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Key figures
2004
2003
2002
2001
2000
Total assets
55,679
53,058
46,342
43,761
40,879
Investments
Mortgage loans
Other loans
Shareholders’ equity
Capital base
Technical provisions, insurance operations
Funds entrusted
Debt certificates
11,390
35,450
2,648
1,961
3,474
11,330
18,601
17,813
11,987
31,997
3,358
1,643
3,167
11,174
17,560
16,169
8,461
28,433
4,194
1,408
2,692
8,253
16,073
14,210
8,501
24,738
4,238
1,571
2,813
8,178
14,965
12,201
8,527
22,909
4,203
1,575
2,575
7,683
13,997
11,072
Income banking operations
Interest income
Commission
Other income
589
109
14
586
92
17
503
96
29
436
90
49
391
106
52
Total
712
695
628
575
549
Income insurance operations
Gross premium income
Investment income
Other income
1,689
749
10
1,779
649
3
1,501
24
4
1,490
392
16
1,410
506
22
Total
2,448
2,431
1,529
1,898
1,938
Total income
Total expenses
4,475
4,066
4,472
4,115
3,539
3,436
3,907
3,675
3,639
3,390
In € millions
Balance sheet
Results
Operating profit before taxation
Banking operations
Insurance operations
Group
227
188
(6)
190
131
36
165
(73)
11
144
135
(47)
157
111
(19)
409
357
103
232
249
Net profit
310
243
84
165
179
17.2%
59.8%
15.9%
64.6%
5.6%
64.7%
10.5%
71.5%
11.8%
68.4%
16.1%
6.2%
5,230
16.4%
6.0%
5,536
17.0%
5.8%
5,432
18.2%
6.4%
5,860
18.7%
6.3%
5,932
Key ratios
Return on shareholders’ equity
Efficiency ratio banking operations
Operational cost-premium ratio
insurance operations
Capital ratio
Number of employees (FTEs) at year-end
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Annual Report 2004
General
SNS REAAL GROUP
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
H.M. van de Kar, Deputy Chairman
J.V.M. van Heeswijk
J. den Hoed
D. Huisman
Prof. S.C.J.J. Kortmann
H. Muller
J.W.M. Simons 2
S. van Keulen, Chairman
C.H. van den Bos
M.W.J. Hinssen
R.R. Latenstein van Voorst,
Chief Financial Officer
) 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.
1
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.
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Annual Report 2004
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
) 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.
1
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
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.
Christel Withaar
Account Manager,
SNS Distribution
‘When we talk with people at schools about our school project they are a little
cautious to start with. They think there must be a catch. So we always explain very
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
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
The Koekoek in Utrecht
Project: the pupils take part
in various workshops - dance,
theatre, design, painting,
sport, fashion, prose writing
and journalism.
Goal: to provide a cultural
Cultural
‘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
schools come up with great plans, such as a world party, a talk about a book with
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
project. Personally I think it’s always lovely to see how positively the school as well
as the intermediary react to the project. The world of education and insurance are
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
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Annual Report 2004
and remain so
‘The world of education and insurance are extremely
different. But here they seem to come together after all.’
General
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.
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Annual Report 2004
General
§
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 enterprise 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 developments 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 – sometimes 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 strategy. 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 provider. 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
Annual Report 2004
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General
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
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Annual Report 2004
SNS REAAL GROUP
Annual Report 2004
13
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
profit appropriation
After the audit by the external auditor, KPMG Accountants, and careful preparation by the Audit Committee,
the Supervisory Board approved the 2004 financial statements at the meeting of March 2005. As part of the profit
appropriation, net profit of € 310 million was booked to
shareholders’ equity.
Composition of the Supervisory Board
On 5 August 2004, Mr. Simons, who had been a supervisory director of SNS REAAL Group since the merger in 1997,
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
many years of professional and personal commitment
and contribution.
In March 2004, Messrs. Bouma and Van Heeswijk were
reappointed for a term of four years. Prior to their reappointment, the Board discussed the issue in the absence
of the two members in question. The Central Employees
Council also spoke to both members prior to the reappointment and approved their reappointment.
At present the Supervisory Board has seven members (for
their Curriculum Vitae, please refer to page 130). At the
beginning of 2005, the job profile for appointments to
the Supervisory Board was amended.
Composition of the Group Executive
Board and Boards of Directors
The Group Executive Board and the Boards of Directors of
SNS Bank and REAAL Verzekeringen remained unchanged
in 2004, as was the case in 2003.
As a result of a longer period of absence due to illness,
but also because of a difference of opinion, Mr. Henneke
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SNS REAAL GROUP
Annual Report 2004
stepped down from the Board of Directors of SNS Bank
on 1 January 2005. We would like to express our gratitude
to Mr. Henneke for the way in which he has carried out
his tasks and responsibilities since 1998. The departure
of Mr. Henneke has led to a reallocation of the areas of
activity within the Board of Directors of SNS Bank.
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.
We would like to thank Mr. Janssen, who is leaving on
1 April, for the way in which he has always committed
himself to SNS Bank.
Meetings of the Supervisory Board
The Supervisory Board met nine times during the year
under review, of which one meeting was in the absence
of the Group Executive Board. In this latter meeting, the
composition and the performance of the Board were discussed, as well as the relationship with the Group Executive Board and the quality of information available to the
Board.
The meetings of the Supervisory Board are prepared in a
consultative meeting of the Chairman and Deputy Chairman of the Supervisory Board, the Chairman of the Group
Executive Board and the Chief Financial Officer.
During the year under review, presentations were held to
generate ideas and discussions during the Supervisory
Board meetings about social policy, IFRS, ethical business
practice, capitalisation and risk management, among
other things. At two of the meetings, the full Boards of
Directors of SNS Bank and REAAL Verzekeringen made
detailed presentations to the Board about issues that
included market developments, changes in the organisation, plans for the forthcoming period and the progress
of major projects.
A risk management report is prepared once every quarter,
which is presented and discussed in the meeting of the
Board.
Board, the Chief Financial Officer, the external auditor and
internal accountant. In May 2004, a special meeting of the
Audit Committee was entirely dedicated to IFRS.
The quarterly, half-yearly and annual figures are discussed
in detail by the Board. Prior to these discussions, the Audit
Committee presents a report from its findings in the form
of recommendations to the Board. The external auditor
and the external actuary also attend the discussions of
the annual figures.
The quarterly, half-yearly and annual figures were discussed in detail at the meetings. The audit reports, the
actuarial report, the management letters and the reports
of the Group Audit Department are also fixed agenda items.
The Audit Committee is of the opinion that management
deals properly with action points for the improvement
of procedures and processes. With respect to essential
projects, the Audit Committee has requested to be kept
informed by means of regular progress reports.
The Group Executive Board consulted the Board at length
about the Group’s capitalisation. The financial position
of SNS REAAL Group is more than sufficient for organic
growth. Extra capital is required for non-organic growth,
especially as far as the acquisition of larger market players is concerned. With a view to the growth strategy, it
is expedient to be prepared for this. Any decision, if and
when taken, to attract external shareholders would be a
unique step in the Group’s history.
The 2005-2007 Operational Plan was approved in the
December meeting of the Board. The previously initiated
strategy will be pursued with vigour: after all, 2004 was
again proof of the fact that the strategy is working.
Corporate governance and the new legislation and regulations were discussed by the Board. This has led to an
amendment of the Articles of Association, and proposals for amendments of the different regulations (please
refer to the ‘Corporate Governance’ section in this report,
page 45).
Approval was given in the meeting of February 2005 to the
proposal to move to the decertification of the shares of
SNS REAAL Group. The Board of the Foundation (Stichting
Beheer) subsequently agreed. Stichting Beheer is thus the
direct and sole shareholder of SNS REAAL Group shares.
The Group Executive Board is no longer represented in
the Board of Stichting Beheer.
Meetings of the Audit Committee
The Audit Committee consists of Messrs. Van Heeswijk
(Chairman), Den Hoed and Huisman. Mr. Simons was also
a member of this Committee. The Audit Committee met
six times during the year under review. All the meetings
were attended by the Chairman of the Group Executive
Other topics that were discussed include the risk management framework, the litigation statement, Basle II, the
engagement letter for the external auditor, the independence of the external auditor and the external review of the
functioning of the Group Audit Department.
The minutes of the Audit Committee meetings are forwarded to the Supervisory Board. Information presented
by the Audit Committee is a fixed agenda item for the
meetings of the Supervisory Board.
The Remuneration, Selection and
Appointments Committee
The Remuneration, Selection and Appointments Committee was formed in 2004. The Committee consists of
Messrs. Van de Kar (Chairman), Bouma, Muller and Kortmann. The Committee met for the first time at the end of
2004, followed by a second meeting at the beginning of
2005. In addition to the Committee’s rules and procedures,
discussions included the setting up of a system of variable remuneration for the Group Executive Board and the
Boards of Directors. Agreements were also reached on the
method for assessing the performance of the members
of the Group Executive Board.
Meetings with the Central Employees Council
Twice a year, different representatives from the Supervisory Board attend the consultative meetings between
the Group Executive Board and the Central Employees
Council. The Board is also kept up-to-date about current
developments in the field of staff consultations via the
minutes of these meetings.
SNS REAAL GROUP
Annual Report 2004
15
The Articles of Association of SNS REAAL have been
amended in line with the new Structural Act. This has
strengthened the Central Employees Council’s advisory
rights concerning the appointment of one third of the
members of the Board.
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
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Annual Report 2004
SNS REAAL GROUP
Annual Report 2004
17
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
§
§
§
§
Net profit increased by 27.6% to € 310 million.
Return on shareholders’ equity rose from 15.9% to
17.2%.
SNS Bank’s efficiency ratio improved strongly from
64.6% to 59.8%.
The operational cost-premium ratio of REAAL Verzekeringen improved from 16.4% to 16.1%.
§
§
§
Commercial
§
§
§
Mortgages: the market share increased from 8.4% in
2001 to 9.1% at year-end 2004. The mortgage portfolio
more than doubled in the five years to end 2004.
Savings: the market share remained steady at 5.7%
between 2001 and year-end 2004. Savings increased
by more than 50% in five years.
Individual life insurance: the market share of new production regular premium policies increased from 6.5%
in 2001 to 12.6% at the end of 2004.
§
§
§
Activities in 2004
§
§
A common logo has been introduced: a kaleidoscope.
In addition, after changing the name of the insurance
operations, the names SNS REAAL Group, SNS Bank
and REAAL Verzekeringen are now also logically connected.
As part of the ongoing cost monitoring and efficiency
projects, facilities and services have been centralised
§
§
into a shared internal department and the P&O departments have been merged at Group level. The number of
staff of the Group was reduced by some 300 (FTEs).
Risk management has been strengthened further, both
in terms of organisation and implementation.
SNS Bank’s branch network in the Randstad has been
further expanded with offices in Haarlem, Nieuwegein
and Spijkenisse.
Innovative products were developed throughout the
year, with several receiving nominations (see boxes
on page 26).
The portfolios of Zurich Nederland, Univé and REAAL
Overlijdenszorg have been almost fully integrated.
Synergy increased strongly in sales: more and more
jointly developed products are being sold via an
increasing number of sales channels.
A lot of attention has been – and is – devoted to preparations for and the implementation of new legislation
and regulations, such as IFRS, Basle II, Corporate Governance, the Financial Services Act and the so-called
Witteveen Act.
SNS Bank has centralised the management of the sales
organisation for both the private and commercial business lines.
Joint venture agreements have been concluded with
various new partners, including Route Mobiel.
SNS REAAL Group: some plans for 2005
§
§
§
§
§
§
§
§
18
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
SNS REAAL GROUP
Annual Report 2004
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 strategic goals that have to lead towards achieving the aim of
becoming the favourite bancassurance retail specialist.
In view of the positive commercial and financial results
achieved in 2003 and 2004, the strategy is being pursued
with exra vigour.
We also have points that are not so strong, and we are
working hard at improving them. In contrast to REAAL
Verzekeringen, SNS Bank still has no nationwide presence. This is quickly being rectified with the expansion
of the branch network in the Randstad. To us, this area
has enormous potential as growth market.
The SNS Bank and REAAL Verzekeringen brands are widely
recognised, but brand awareness could be better. Intensive campaigns are going to address this. We can certainly
make more of a name for ourselves in the commercial
sector with our Enterprise Desk formula. The core product
group ‘asset creation’ also needs momentum.
SNS REAAL Group can independently finance both organic
growth and small acquisitions. Alternative financing constructions have been set up for large acquisitions.
Strategic goals:
1.
2.
3.
4.
Managing synergy
Plusses...
SNS REAAL Group is capable of successfully implementing the strategy, by taking advantage of our company’s
strengths. Our relatively compact organisation makes it
possible for us to respond effectively to market changes.
We have demonstrated that we can actually utilise synergy
advantages. We have developed innovative products and
market them via several distribution channels. In addition
to good and up-to-date products, we have excellent processes, which our clients and intermediaries also experience as such.
SNS REAAL Group has shown that it can grow in a competitive market. Financially, our business is strong, with
a positive development in profit and returns and healthy
efficiency ratios.
SNS REAAL Group employs professional and motivated
people, also reflected in the positive results of the staff
satisfaction surveys.
Goal 1
The main objective of SNS REAAL Group is to strive
towards structural value development of the group as
a whole. This is to implement the growth strategy, in
order to manage the enterprise properly and to improve
the return on investment. The achievement of the other
three strategic objectives contributes to this directly
or indirectly. Cost control and risk management are
continuous points of attention for all divisions of the
group. In the context of concentrating efforts on core
activities, SNS REAAL Invest has now almost completely
been wound down.
Higher return
Capital is a scarce means of production and should, therefore, be used as effectively as possible. This implies that
policy decisions have to take account of the expected
SNS REAAL GROUP
Annual Report 2004
19
Strategy and policy
returns and the cost and risk elements of the different
alternatives. Particularly in the financial market, where
fierce competition means increasingly tighter margins on
the products, it is vital to choose activities with the highest
possible added value and profitability, with manageable
risks. This approach – ‘value thinking’ – will achieve the
sustained value creation envisaged for SNS REAAL Group.
In practice, SNS REAAL Group requires a structural return
of 12.5% after tax on the invested capital for all activities
and products. In 2004, the return on shareholders’ equity
of SNS REAAL Group rose to 17.2%.
The ‘economic capital’ method is used for making sound
policy choices with respect to the desired structural value
development, with the activities being adjusted to take
account of the corresponding risks. The entire Group now
applies this method. Calculations show that the available capital exceeds the ‘economic capital’ or, the capital
required when adjustments have been made for all the
risks. In other words, we are more than sufficiently capitalised.
Ongoing cost control
Continuous monitoring and control of costs is essential,
especially for a retail specialist. The group, the bank and
the insurance operator have all devoted a lot of attention
to this, with the consequence that costs only declined in
2004. Efficiency measures have led to a drop in the number
of staff (on FTE basis) of some 300, representing 5% of
the total number of staff.
Risk management strengthened
In 2004 we paid close attention to further strengthening
risk management at the group, bank and insurance operations, with respect to both the organisational embedding
and the policy tools (for further details, please refer to the
‘Risk management’ section, page 47). We plan to continue
this in 2005.
20
taken at process and organisational level – for instance,
by setting up the Credit Committee. This approach will
be pursued with vigour in 2005.
Pricing policy: managing the margin
When determining the price of a product, account is
taken of its costs, associated risks and capital requirement. Choices are based on the calculated margin, with
the margin being constantly monitored during the product’s ‘maturity’.
Winding down of SNS REAAL Invest
As a retail specialist, SNS REAAL Group concentrates on
a number of core products. Scarce capital is invested as
much as possible in these products. As a result, it was
decided in 2002 to completely wind down SNS REAAL
Invest.
In 2004, the disposal of participating interests of Invest
was continued with force. The 100% interests in TMF, Abfin,
Leaseco and TransNed Lease, as well as the minority interest in InfraDesign, were sold. Some 90% of the portfolio
of Invest has now been sold.
The winding down of SNS REAAL Invest also means that
the Group’s risk profile is reduced, and that the financing
structure within the Group is strengthened. These factors are important for the ratings of SNS REAAL Group
and SNS Bank.
Value creation in a broad perspective
We ascribe a broader definition to the ‘sustained value
creation’ concept than merely seeing it in economic components. We also consider investing in society and in staff
as creating added value. It is not for nothing that ‘social
commitment’ is one of our business principles. Our roots
in society and the development of our staff are essential
building blocks for the company’s further value development (also see the sections on ‘Socially responsible
business practice’ on page 59 and ‘Personnel and Organisation’ on page 61).
The relatively high value of the ‘value adjustments to loans
and advances’ item, in combination with the uncertain
economic prospects for 2005, demand that we continue
our prudent credit policy and where necessary even
tighten it further.
REAAL Verzekeringen worked well in 2004 to further
strengthen risk management. The necessary steps were
SNS REAAL Group is developing into the favourite
bancassurance retail specialist in the Netherlands.
SNS REAAL GROUP
Annual Report 2004
Goal 2
Strategy and policy
On the basis of client wishes, we develop innovative
products with a balanced price-quality ratio, and we
have sophisticated administrative processes for large
numbers of transactions. We make financial affairs
easy and accessible, offering numerous ‘do-it-yourself’
products and – where required – advice by reliable and
sympathetic staff.
Promoting retail thinking
The financial retail-plus market is increasingly beginning to resemble supermarkets and department stores.
These are markets where for some time now people have
grown used to responding swiftly to the changing needs
of clients, frequent changes in the product range, fickle
customers, as well as operating with large turnovers and
small margins. The financial world is going in the same
direction: competition is getting tougher, margins are
getting tighter at both banks and insurance companies,
clients more readily change bank or intermediary, and
increasingly open a savings account or take out insurance
over the internet.
We are learning from the experiences of other retail
companies. They – and we – also see ‘retail’ as a state of
mind, an attitude towards the client. One of our central
themes for the coming years will be to put an even greater
emphasis on ‘retail thinking’. Every member of staff of
SNS REAAL Group must be convinced of the importance
of ‘putting themselves in the client’s position’. Our training and education programmes are geared towards retail
thinking. After all, in a world in which financial products
strongly resemble each other, it is the staff that make
the difference.
Financial Services Act: major consequences
The Financial Services Act, introduced in 2005, has major
consequences for the financial world. The Act is aimed
at protecting the interests of the consumers of financial
services, as well as the interests of the financial services
providers. It imposes strict requirements with regard to
product transparency, the professionalism and know-how
of the advisors and intermediaries, and their duty to look
after the client. The Act is less drastic for the banking and
insurance operations, which already comply with numerous legal requirements, than it is for intermediaries. Since
both the bank and insurance operations make great use of
intermediaries, we are supporting them with professional
information and training programmes.
SNS Bank
SNS Bank sells its products via the branches, intermediaries, the internet and the telephone, with clients
choosing the desired type of distribution channel for
the service in question. The branch office network
forms the basis of the distribution network, given the
importance of ‘physical client contact’. The practice
shows that a branch office has a positive effect on the
other distribution channels: it strengthens the relationship with the neighbouring intermediary, and internet
clients relatively often appear to be ‘clustered’ around
a branch office. For do-it-yourself products, which
require no advice, SNS Bank encourages the use of
the internet.
Branch office network: towards a nationwide presence
In view of the almost literally central role of a branch office,
it is important to achieve proper nationwide presence.
Traditionally, SNS Bank has relatively few branches in
the Randstad. The branch office network has therefore
been developed at a rapid pace in this area since 2002. In
2004, branches were opened in Haarlem, Nieuwegein and
Spijkenisse. The number of branch offices in the Randstad thus increased to 15, well on the way towards the
envisaged network of 20 to 25 offices in the Randstad.
Incidentally, from a nationwide perspective, the number
of branch offices of SNS Bank – 176 at year-end 2004 – is
declining. The basic principle is the aim of increasing the
quality of the network.
Centralised management
In 2004, we further centralised branch office management, significantly reduced the number of districts and
integrated the former ‘Private Banking’ business line
into the ‘Individuals’ business line, in other words the
retail business. This improved management has led to
cost reductions.
The ‘Business Market’ business line is managed centrally,
as is the ‘Individuals’ business line. The analysis and
administration of the credit risk management has also
been centralised, which has brought a further improvement in the quality of credit assessment.
Impulse for asset creation
It was acknowledged in 2004 that the development of the
core product group ‘asset creation’ was lagging behind
SNS REAAL GROUP
Annual Report 2004
21
Thinking
‘We do not want to remain part of the problem;
we want to be part of the solution.’
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?
Jeroen Jansen
Deputy Director,
ASN Bank
In 2004 ASN Bank introduced ASN
Ideaalsparen - ASN Ideal Savings.
It’s a savings product that offers
a high rate of interest plus the
certainty that the money will be
invested in companies that
treat people, animals and the
environment with respect. Jeroen
Jansen: ‘We also work closely
‘Above all – and let there be no doubt about this – we want to achieve a good
financial return for our customers. We are a professional profitable bank. The
big difference is we don’t want to achieve that at any price. For that reason, when
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.’
Own analysts
‘To select companies we have our own department of sustainability analysts.
They work for SNS REAAL Group as a whole and over the years have built up a
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
of information, such as reports by international research bureaus, from the media,
and data from various social organisations. Finally we assign each company a
sustainability profile, which is elaborated further when necessary. Whether a
company gets the green light is then finally decided by the selection committee
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.
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
everyone dabbles in ethical business. By setting standards higher, we are able to
be market leader in sustainable banking by a long margin. What’s more, if people
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!’
Fund for Nature. We support all
kinds of projects. Why? Because
we want to be part of the solution
and not a part of the problem.’
and acting sustainably
SNS REAAL GROUP
Annual Report 2004
23
Strategy and policy
the objectives. One of the action points for 2005 and
beyond, therefore, is to provide an extra impulse for savings and investments. This is a market that is both growing and changing. The economic situation and cutbacks
on social security benefits are prompting people to set
aside more money, out of necessity or to build up a personal pension. In addition, there is a move from savings
to less risky forms of investing. And inheritance – the flow
of assets to younger generations – is playing an increasingly important role.
Apart from a varied range of savings and investment products, SNS Bank also offers a wide choice of good quality
investments (see box below). As a retail specialist, the
bank can offer excellent services in particular to a growing number of investors with relatively small portfolios
with its ‘do-it-yourself’ investment concepts or supervised
investment versions.
Internet: continued strong growth
Right from the start, SNS Bank has encouraged ‘do-ityourself’ banking, saving and investing. The number of
users and the number of transactions per user continue to
grow. The use of modern means of communication fits in
with our philosophy of a retail specialist. The quality of our
products is reflected in the rates that clients give us. Soon,
it will also be possible to take out a number of (simple)
insurance policies fully electronically via the internet.
Intermediaries: grabbing opportunities
SNS Bank makes extensive use of intermediaries. The sales
labels CVB Bank and BLG Hypotheken use intermediaries
exclusively. The approximately 2,500 independent intermediaries with whom we have a business relationship
sell not only mortgages, but also savings and investment
products and, increasingly, insurance policies. SNS Bank
is working on using the opportunities offered by this distribution channel more intensively, both for the private
and business market.
Business Market:
the financial retailer for small and medium-sized
enterprises (SME)
The ‘Business Market’ line is developing into the financial
retailer for the SME sector and for government bodies,
institutions, associations and foundations. The services
provided for the business market can therefore be compared to the way in which SNS Bank approaches the private market.
The Business Market approach has three service formulae: a ‘do-it-yourself’ service provided through snsbank.nl
and the telephone (the ‘SNS Zakenlijn’ or business line),
the Enterprise desk which provides assisted advice, and
the Business & Institutions units, which offer full-service
professional advice.
Enterprise desk
Larger SNS Bank branches have Enterprise desks set up to
serve small businesses in particular but also selfemployed
people without employees. These are ideal customers for
our business retail products and the ‘do-it-yourself’ and
‘assisted advice’ formulae.
Investing: something for everyone
Do-it-yourself
24
SNS Effectenlijn
SNS Fundcoach
SNS Effectenlijn
[Equity Line], for the
active ‘do-it-yourself’
investors, for years
now rated best
internet broker among
commercial banks.
SNS Fundcoach is
an ‘investment funds
supermarket’ that
helps investors to put
together themselves
a sound investment
portfolio.
SNS REAAL GROUP
Annual Report 2004
With advice
SNS VermogensPrisma
SNS Effecten
Adviesdesk
SNS VermogensPrisma The Effecten
is an advisory concept Adviesdesk [securities
advisory desk]
that staff use when
advising clients about advises investors in
putting together their
their asset creation.
individual portfolios.
Asset management
SNS Vermogensbeheer
SNS Managed
Account
Vermogensbeheer
[asset management]
promotes ‘personal’
management of
individual portfolios
(minimum € 250.000).
The SNS Managed
Account is available for assets of at
least € 20.000. The
client can monitor
his portfolio on
internet, including the
transactions that the
assets manager has
performed.
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 developments 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
The ‘Business & Institution’ units, concentrated at five
locations in the country, focus on providing professional
advice to medium-sized companies and to the previously
mentioned large or larger organisations. The services
mainly comprise complex loans, payments, cash management and insurance matters.
SNS Arrangementendesk
The newly established SNS Arrangementendesk, which is
part of the Business Market line, puts together tailor-made
product packages for targeted professional groups who
access the service through one single access point that
operates at a national level. The Derdengeldrekening – the
third-party cash account for managed funds – is another
service we offer that has great expansion potential.
Personal tailor-made package
The products for the SME sector are tailored to the needs
of entrepreneurs and are innovative, clear, standardised,
carefully tailored to each other and suited to internet use.
For example, the successful ‘SNS Zaak op Maat’ [tailormade business] offers a comprehensive package of products and services, including more opportunities for internet banking, internet savings, sales credit and a business
insurance package. Entrepreneurs can – independently or
with advice – put together their own tailor-made package.
Zakelijk Internet Bankieren [business internet banking] is
SNS REAAL GROUP
Annual Report 2004
25
Strategy and policy
SNS Bedrijfshypotheek receives nomination
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
International Research. The SNS Bedrijfshypotheek
responds to the wish of entrepreneurs for greater
choice of mortgages. The SNS Bedrijfshypotheek
with capital sum insurance is a combination of
a business mortgage offered by SNS Bank and a
mortgage insurance offered by REAAL. Synergy
and innovative product development, therefore,
go hand-in-hand.
booming: currently 60 to 70% of our business customers
use it. Zakelijk Internet Sparen [business internet saving]
has proven at least as successful, followed by Zakelijk
Internet Supersparen [business internet super-saving].
There is also a lot of interest in the new SNS Bedrijfshypotheek met Kapitaalverzekering [capital sum insurance
business mortgage], which is derived from a successful
product for the retail market (see box).
Extending the Enterprise Desk formula
The Business Market line has succeeded in maintaining
the growth curve of recent years and as a result its share
of the relevant business market segment is now between
6 and 7%. One of the priorities is to continue this success
and further extend it by raising the profile of the unique
Enterprise Desk formula (including ‘do-it-yourself’). This
means that investments are being made in the brand
recognition of SNS Bank as business partner for the SME
Pensioen Optimaal Hypotheek declared
best Dutch ‘mortgage product for 2005’
BLG Hypotheken introduced this innovative
product – optimum pension mortgage – for the
senior citizens’ market. It enables retired homeowners to use the surplus value of their homes in a
prudent way as extra income, or as freely disposal
capital. The product is a combination of a mortgage
and a guaranteed immediate annuity that serves
to pay the higher mortgage burden. The balance
is liquid. In February 2005, the Pensioen Optimaal
Hypotheek was declared best Dutch ‘mortgage
product for 2005’.
26
SNS REAAL GROUP
Annual Report 2004
sector and government bodies, associations, institutions
and foundations.
REAAL Verzekeringen
REAAL Verzekeringen counts on independent intermediaries almost exclusively for its sales. It uses this distribution channel to sell life and non-life insurance policies
to private individuals and the business market. REAAL
Verzekeringen focuses on the top-200 intermediaries
and the group of approximately 1000 intermediaries
below. Along with life insurance and pensions, non-life
insurance is also part of the core business.
Numerous integration activities
In 2004, a lot of energy went into the integration of the life,
private and small businesses non-life portfolios of Zurich
Nederland. The staff had already been transferred to the
organisation of REAAL Verzekeringen in 2003. The acquisition of Zurich has not caused any decline in the number of
intermediaries or their production. Moreover, the addition
of the portfolios has led to a substantial improvement in
the underwriting agency business.
The life portfolio of Univé was also integrated in 2004 and
we established a successful collaboration in life products
with the sales organisation of Univé.
As announced in the previous annual report, REAAL Overlijdenszorg [funeral insurance] was integrated with REAAL
Verzekeringen (the intermediary segment) and Proteq
Direct (the direct segment).
Non-life: core business
In 2004, non-life insurance was emphatically presented as
a core business of REAAL, with the acquisition of the nonlife portfolios of Zurich having a stimulating effect. The
range of non-life policies has been expanded and renewed.
For example, we introduced new motor vehicle insurance
rates, the home package and an all-in-one insurance package. Growth is expected at Proteq Direct (the provincial
portfolio) and in the underwriting agency business.
Intermediaries: threats, but also opportunities
Intermediaries are currently experiencing hard times. A
significant portion of the market has shown little growth
in recent years, and pressure on margins is increasing.
Strategy and policy
The Financial Services Act sets stringent conditions for
insurance companies and intermediaries to comply with.
It offers consumers better protection and it makes the
market more transparent. A higher level of knowledge
is expected and last but not least: intermediaries are
expected to go along with developments in internet and
chain integration.
Professional intermediaries in particular have a lot to gain
from the proposed situation. As a professional insurance
company, it is our aim to forge and maintain close links
with all the top-200 and the next tier of arond 1000 intermediaries.
The activities of REAAL Verzekeringen are closely targeted
to these groups:
§ REAAL Verzekeringen offers made-to-measure one-year
training courses for intermediaries and their staff (see
box).
§ Back office processes are one of the traditional
strengths of REAAL Verzekeringen.
§ The Speciale Distributie and Volmachtbedrijf sales
channels are ideally matched to these target groups.
New rules put pressure on implementation
Recent years have seen the introduction of numerous legislative and regulatory requirements, that have had major
consequences for the products of insurance companies
and intermediaries and the way they work. The economy
is faltering and the social security system is facing major
cutbacks. Healthcare costs are on the increase, a new
disability insurance (WAO) scheme is underway, and early
retirement (VUT) and pre-pension schemes are being discontinued.
The Witteveen Act stipulates that pension funds must
offer employees greater scope to decide their own pension requirements. This has far-reaching consequences for
products, processes and the training of staff. The existing,
usually long-term, policies need to be adapted financially
and legally to meet the requirements of the new rules.
These changes and adaptations – also those of the Financial Services Act – require a lot of time, effort and money.
It is disappointing that the government does not fully recognise the complexity of the matter and was late in issuing
implementation guidelines.
Sales organisation: growth all round
Verkoop Intermediair [intermediary sales], which offers a
wide range of services to a large group of intermediaries,
achieved production growth of 50% in 2004 by specifically
targeting top-level clients, such as buyers’ cooperatives.
The account managers, who visit the intermediaries, provide advice on opportunities presented by new developments, for example in the pensions market.
Speciale Distributie [special distribution] specifically
focuses on major intermediaries and mortgage chains
with their own products or those of a collaborative partner, such as Univé. After doubling in 2003, turnover grew
further in 2004. Additional growth is expected in the life
and non-life segment in coming years, also thanks to the
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
Annual Report 2004
27
Strategy and policy
Route Mobiel
It appeared out of the blue, the new rival of the ANWB and the Wegenwacht [roadside breakdown 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
products sold by SNS Bank under its own label. Synergy benefits are reflected in the significant increase in
results, particularly in life products. CVB Bank and BLG
Hypotheken have also started selling these products. SNS
Bank is selling more insurance policies than ever before,
and continuous growth is foreseen, especially when SNS
Bank also starts offering simple non-life insurance policies via its internet site.
At the Volmachtbedrijf, the launch of a non-life insurance
package for the SME sector gave a new impulse in 2004.
Much energy was also put into the relationship with existing and new intermediaries, and into bringing systems
and processes up to standard and in line with the new
legislation and regulations. All contracts will comply with
Financial Services Act and PVK/DNB regulations by the end
of 2005 at the latest. Reporting between the underwriting client and the underwriting contractor will change
from a quarterly to a monthly basis. In this respect, REAAL
Verzekeringen is taking the lead in the market. We expect
this sales channel to develop strongly.
The Pensioenbedrijf [pension operations] sells group and
semi-group pensions, both through 150 intermediaries
that specialise in pensions and through actuarial consultancy firms. Collaboration with professional pension
providers was further stepped up and this has produced
a number of major new clients.
To a great extent, 2004 was dominated by adjustments
to the existing portfolio in line with new legislation (Witteveen Act and the Equal Opportunities Act) and the successful introduction of the ZekerheidsPensioen. Thanks
to this product, REAAL now has a traditional pension
scheme to complement its defined contribution scheme
28
SNS REAAL GROUP
Annual Report 2004
(GroepsIndividueelPensioenplan), which intermediaries
can offer themselves through InSupport. Furthermore,
it is now possible for intermediaries to put together the
pension terms and conditions themselves.
In 2004 we also introduced a simpler and unambiguous
annual pension statement; the first version of which was
enthusiastically received. The new annual statement is in
line with the wishes and demands of the Dutch Association
of Insurers, which have to produce a standard national
communication format for pensions.
The pension market was cautious in 2004 as a result of
the Witteveen Act. Despite this our pension operations
achieved a 20% increase in net profit in 2004. Expectations
are that the pension market will recover again, because
the effects of the increase in the retirement age, restrictions imposed on the VUT early retirement scheme and
the changeover to average-pay schemes will lead to an
increasing demand for individual pension provisions.
Proteq Direct, after a strategic change of direction,
revealed itself as a modern direct insurance writer with
a new logo, an eye-catching advertising campaign, a
renewed car insurance product and – towards the end
of the year – collaboration with Route Mobiel (see box).
Proteq Direct offers straight forward non-life insurance
policies – including the well-known ‘Dier & Zorg’ [animal
care] insurance – single premium products and funeral
insurance. Sales through internet is its main thrust, along
with additional affinity marketing whereby it sells branded
insurance policies to third parties. In 2004, the motor vehicle and the ‘Dier & Zorg’ insurance policies in particular
were popular.
Strategy and policy
Goal 3
SNS REAAL Group wants to grow more rapidly than
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 acquisitions.
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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 showing slight but steady growth. Following strong growth in
preceding years, mortgages declined marginally in 2004.
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
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 acquisitions, 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
The mortgage market as a whole stabilised in 2004. The net
mortgage production of SNS Bank amounted to € 3.6 billion, resulting in a market share of 9.1% (2003: 9.7%).
The Bank’s total mortgage portfolio increased by 11.9%
to € 33.5 billion. The portfolio of SNS REAAL Group – i.e.,
including the insurer – increased to € 35.5 billion. These
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figures do not include securitised mortgages, which
amount to € 5.5 billion.
The stabilisation in the mortgage market reflects the
minimal increase in disposable family income and grad-
SNS REAAL GROUP
Annual Report 2004
29
Strategy and policy
ual decline in the trend of refinancing at lower interest
rates. The housing market also calmed down; house prices
increased by only a few percent on average.
It is expected that the mortgage market will not grow
or grow very little in 2005 either. The hesitant economic
recovery, the small forecast increase in interest rates and,
for many, the negative rather than positive development
in disposable income play an important role in this.
The increase in the number of foreign competitors on this
market will contribute to price competition, with pressure
on the margins.
These developments do not change the fact that SNS Bank
assumes a further increase in its market share. We base
this assumption on our retail formula, innovative products, the rapid and accurate administrative processes, the
sales-oriented distribution channels and further penetration in the Randstad.
Savings & investments: a growth market
Under the influence of uncertain economic times and the
disappointing investment climate, the savings market in
the Netherlands has grown substantially in recent years.
Savings at SNS Bank – including interest accrued – increased by 8.3% to € 11.3 billion. Private and commer-
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Assets under management of SNS Beleggingsfondsen, spread over fifteen investment funds, increased
by 15.7% from € 1,513 million to € 1,750 million. The new
inflow amounted to € 167 million. All the money market,
bond and real estate funds showed positive returns, as
did almost all the equities funds. The funds with high US
exposure suffered because of the weak dollar. The independent investment fund tracker Morningstar gave a high
rating for the entire range of funds.
The Amsterdam stock exchange closed the year at 348,
some 3% higher than at year-end 2003. In their pursuit of
increasing returns, many clients chose ‘hybrid’ products in
2004, which combine a fully or largely protected principal
investment with the chance of a (hopefully higher) return
on investment. SNS Bank has responded to this successfully with a range of innovative products, sold under their
own sales labels and through REAAL Verzekeringen. Many
clients took the opportunity to spread their investment
across investment funds, in many cases in the context
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
(see page 24).
REAAL Verzekeringen
Life insurance: increased market share in shrinking market
The production of new regular-premium private life insurance 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.
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30
cial internet savings now account for 44% of the savings
deposits at SNS Bank. SNS Bank’s share in the savings
market was stable at 5.7%. The savings market has been
a very competitive market for some time now with lean
margins, despite the apparently low interest on savings.
SNS REAAL GROUP
Annual Report 2004
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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 successful sales curve can be maintained, with resulting further
growth in the market share.
Strategy and policy
Single-premium policies:
market share declines in competitive market
The production of single-premium policies at REAAL
Verzekeringen declined by 17.0% to € 594 million. In this
highly competitive market with small margins, the market
share slipped from 8.8% to 8.5%.
Considerable growth is expected on the market for 2005
in connection with the expiry of a large number of singlepremium 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
us as single-premium policies, and expect to achieve a
small increase in market share in coming years.
Non-life insurance: strong growth in premium income
Gross premium income at private and commercial non-life
operations together increased 8.2% to € 317 million. Market
share thus increased to 2.9% (this percentage is higher in
the markets relevant to REAAL, which, for instance, is not
active in large business non-life insurance). The non-life
operations received a boost in 2004 from the strengthening of the Volmachtbedrijf and the repositioning of Proteq
Direct (see page 28). Thanks to the new business stream,
we expect a doubling of premium income for the period
up to the end of 2007.
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Goal 4
Managing synergy
One of the most important objectives at the founding of
SNS REAAL Group was to create synergy advantages by
means of intensive cooperation between banking and
insurance operations. A lot has been achieved in this
field in recent years. A single management centre was
set up in Utrecht, together with the Executive Board of
SNS REAAL Group and the Boards of Directors of SNS
Bank and REAAL Verzekeringen. Unity in name and logo
has been achieved. A large number of internal departments and their staff were merged and are also now
accommodated in Utrecht. A single Facility and Service
department was formed in this way in 2004. The formation of a single Personnel and Organisation department
will follow in 2005.
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.
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Mortgages: stable development
The mortgage portfolio of REAAL Verzekeringen remained
stable in 2004 under the influence of the market developments described earlier. Mortgages were sold under the
brands of a large number of partners, in combination with
life insurance policies. One of these partners is SNS Bank.
The portfolio of the insurance operations – including management for third parties – amounts to € 2.0 billion. A slight
increase in market share is envisaged in coming years.
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A lot was achieved in 2004 in the field of product development. SNS Bank now only sells REAAL insurance policies
under its own label, both separately and in combination
with mortgages and investment products. Non-life insurance 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
and BLG Hypotheken will soon also be selling REAAL
SNS REAAL GROUP
Annual Report 2004
31
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.
Angelique Overbeek
Web Manager, Formula
Management Department
‘Accessibility often might appear to be another man’s problem, but when it comes
to internet it’s a key issue. You know it’s easy to make something difficult but it’s
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
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
In the Netherlands there are
more than 600,000 visually
handicapped people, 1.6 million
hard of hearing and 700,000
‘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
person works at his screen with a reading ruler that displays the text in Braille. If
you create a normal table, a visually impaired person can no longer decipher the
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.’
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
for all
‘It’s easy to make something difficult but
much more difficult to make something easy.’
Strategy and policy
Verzekeringen life insurance products, which, in turn,
gets its banking products from CVB Bank. Hybrid SNS
Bank savings products – SNS Varivastsparen, SNS Garantiesparen, SNS Spaarmix – have also been marketed by
the insurance operations and other brands under their
own labels.
type of product, it will end up at one of the four service
centres: for payment services, mortgages, securities and
insurance. We consider the quality of the administrative
processes of paramount importance. We see a high-quality back office as an absolutely essential precondition for
a financial retail specialist.
Some of our products for the business market are derived
from products that are successful in the retail market.
Examples include SNS Zakelijk Internet Sparen and the
‘Supersparen’ variant. The SNS Bedrijfshypotheek with
capital sum insurance was introduced recently: a combination of the business mortgage and the Doorgroei
Hypotheekverzekering of REAAL. For entrepreneurs,
REAAL has introduced the Zekerheidspensioen, and it
offers a tailor-made package of non-life insurance policies for SME.
Synergy in name and logo
The unity of SNS REAAL Group, SNS Bank and REAAL
Verzekeringen has taken shape in word and image. The
re-branding of ‘Hooge Huys’ to REAAL Verzekeringen
took place during the first half of 2004. In addition, the
Group, banking operations and insurance operations now
all share the kaleidoscope as a logo. To our target groups
we present the image of being a single financial retail specialist. The general public was subsequently introduced to
REAAL Verzekeringen by means of an eye-catching advertising campaign. If you live in the Netherlands, there is a
99% chance that you have noticed this campaign.
Synergy in processes
The name or the sales route of products make no difference to the administrative processes. Depending on the
34
SNS REAAL GROUP
Annual Report 2004
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
Net profit rose 27.6% to € 310 million, reflecting an
increase in the various income components and a drop
in the technical expenses for insurance operations and
the operating costs.1 This continues the picture of recent
years, with increasing income accompanied by slightly
declining operational costs.
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The total income of SNS Bank rose 2.4% to € 712 million.
Net interest income at SNS Bank rose 0.5% to € 589 million. This slight increase reflects a change in recognition
of interest on bad debts. In addition, interest income from
a number of specific investments is now accounted for in
net terms. Excluding these changes, net interest income
rose by € 25 million (+4.2%). As a result of the winding
down of SNS REAAL Invest, SNS REAAL Group’s total net
interest income fell 1.4% to € 505 million. Commission
income grew 18.5% to € 109 million.
Total income of REAAL Verzekeringen rose 0.7% to
€ 2,448 million. Gross premium income fell 5.1% reflecting
the transfer of the SNS REAAL Group pension contract to
the SNS REAAL Group pension fund, and lower production
of single-premium policies. Without the transfer of this
pension contract, gross premium income for life regular
premiums would have risen 1.2% to € 778 million.
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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
other management costs was partly caused by one-time
expenses.
Result of SNS REAAL Group
€ millions
Income
Expenses
2004
2003
Change
4,475
4,066
4,472
4,115
0%
(1%)
Taxes
409
81
357
97
15%
(16%)
Net profit excluding third-party interests
Third-party interests
328
18
260
17
26%
6%
Net profit
310
243
28%
) These costs comprise staff costs and other operating costs, excluding the acquisition costs of the insurance operations.
1
SNS REAAL GROUP
Annual Report 2004
35
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Result of SNS Bank
€ millions
36
2004
2003
Change
Net interest income
Commission
Other income
589
109
14
586
92
17
1%
18%
(18%)
Total income
712
695
2%
Staff costs
Other operating expenses
238
188
279
170
(15%)
11%
Total operating expenses
Value adjustments to loans and advances
Value adjustments to fixed financial assets
426
62
(3)
449
53
3
(5%)
17%
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Total expenses
485
505
(4%)
Taxes
227
54
190
61
19%
(11%)
Net profit before payment of
SNS ParticipatieCertificaten
Payout on SNS ParticipatieCertificaten
173
18
129
17
34%
6%
Net profit
155
112
38%
SNS REAAL GROUP
Annual Report 2004
The profit contribution from SNS REAAL Invest, almost
completely wound down at year-end 2004, was € 38 million. Participating interests sold in 2004 contributed
€ 32 million to net profit.
Total extraordinary items of SNS REAAL Group amounted
to € 53 million, reflecting the divested participating
interests of SNS REAAL Invest mentioned earlier and the
release due to the change of the pension scheme to average pay. Excluding extraordinary items, net profit came
to € 257 million (2003: € 205 million). This profit increase
of 25.4% is at the same level as the increase including the
extraordinary items.
Total assets rose 4.9% from € 53.1 billion to € 55.7 billion.
This increase is entirely due to mortgage loans, which
increased to € 35.5 billion (+10.8%) as a result of substantial production. Currently, mortgages totalling € 5.5 billion at SNS Bank are securitised. ‘Other loans’ declined
to € 2.7 billion (-21.1%). The ‘investments’ item declined
to € 11.4 billion. This was caused by the transfer of € 856
million in investments from REAAL Verzekeringen to the
pension fund of SNS REAAL Group and by the reclassification of the discounts on zero bonds.
Under liabilities, savings increased by 8.3% to € 11.3 billion. Other funds entrusted also increased to € 7.3 billion
(+2.5%). The ‘debt certificates’ item, which predominantly
comprises EMTN loans of SNS Bank, rose 10.2% to € 17.8
billion as a result of several successful issues – including
in Australia and France. The technical provisions of the
insurance operations increased by 1.4% to € 11.3 billion.
Without the transfer to the new pension fund, the increase
would have risen by a substantially higher € 856 million
to € 12.2 billion.
SNS REAAL Group has a solid financial position: its capital
base increased 9.7% to € 3.5 billion. This is entirely due
to the increase in shareholders’ equity, which rose 19.4%
to € 2.0 billion mainly as a result of the profit addition.
The remaining components – the subordinated debts,
the Fund for general banking risks and third-party inter-
Result of REAAL Verzekeringen
€ millions
2004
2003
Change
Gross premium income, Life insurance policies
Gross premium income, Non-life insurance policies
1,372
317
1,486
293
(8%)
8%
Total premium income
1,689
1,779
(5%)
Investment income
Other income
Total income
749
10
2,448
649
3
2,431
Technical expenses, insurance operations
1,876
1,934
(3%)
Staff costs
Other operating expenses
139
179
146
177
(5%)
1%
Total operating expenses
Other expenses
318
66
323
43
(2%)
53%
2,260
2,300
(2%)
Taxes
188
47
131
45
44%
4%
Net profit
141
86
64%
Total expenses
15%
233%
1%
SNS REAAL GROUP
Annual Report 2004
37
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ests – changed little or not at all. The SNS ParticipatieCertificaten issued by the banking operations in previous
years are included in the ‘third-party interests’ item; no
issues took place in 2004.
Return on shareholders’ equity (RSE) increased from
15.9% to 17.2%. The return is well above the long-term
target of 12.5%. Our capital ratio – the capital base as
a percentage of the total assets – also increased from
6.0% to 6.2%.
SNS Bank
The net profit of SNS Bank came to € 173 million.
After deducting the amount paid to participation certificate
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holders, the profit contributed to SNS REAAL Group was
€ 155 million. This represents an increase of 38.4% compared
to the profit contribution of € 112 million in 2003.
Despite the uncertain economy, the banking operations
achieved a growth in income, while expenses were strictly
monitored. Total income rose to € 712 million (+2.4%). Net
interest income increased slightly to € 589 million (+0.5%).
This slight increase is influenced by the change in recognition 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
rose € 25 million (+4.2%). Due to the increased sales of
REAAL insurance products and increased management
fees, commission income rose to € 109 million (+18.5%).
Result of SNS REAAL Invest
€ millions
38
2004
2003
Change
Total income
Total expenses
53
20
95
24
(44%)
(17%)
Taxes
33
(5)
71
0
(54%)
--
Net profit
38
71
(46%)
SNS REAAL GROUP
Annual Report 2004
The strict cost control policy paid off in a drop in total
expenses to € 485 million (-4.0%). Staff costs dropped
by 14.7% to € 238 million, because the number of staff
declined by 264 FTEs and the hiring of temporary staff
was curtailed. Account was taken under ‘staff costs’ of
the introduction of the average-pay scheme for pensions
(positive effect: € 17.9 million). Other management costs
declined 13.6% to € 159 million, partly due to additions to
the provisions for reorganisation and legal proceedings.
Value adjustments to loans and advances and financial
fixed assets increased 5.4% to € 59 million. The level
remained high because economic recovery again failed
to materialise in 2004. In relation to the risk-weighted
assets, value adjustments declined slightly to 0.30%.
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The efficiency ratio improved substantially. The improved
income, combined with lower expenses, led to an improvement from 64.6% (2003) to 59.8% (2004). Excluding the
release from the pension provision the ratio is 62.4%. Both
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
was almost entirely due to the increase in shareholders’
equity, which increased by 7.1% to € 1.6 billion as a result
of the 2004 profit addition. The return on shareholders’
equity improved strongly from 9.3% to 11.5%.
The solvency ratio (BIS ratio) decreased slightly from
11.9% to 11.7%. Even after securitisation of a portion of
the mortgage portfolio, risk-weighted assets increased
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.
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hand, gross life premium income declined to € 1,372 million (-7.7%), mainly because of the transfer of the pension contract to the SNS REAAL Group pension fund. On
the other hand, non-life gross premium income rose to
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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
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SNS REAAL GROUP
Annual Report 2004
39
Listen
‘No matter how good you think you know the customer,
he always reacts slightly differently to how you anticipated.’
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
Olaf van Gurp
Market Researcher
‘Innovation is a priority at SNS REAAL Group. We pay very close attention to what
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
reason in 2004 we started to think innovatively in a structured way.’
Winning concepts
In 2004 SNS REAAL Group started
‘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
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
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
you know the customer, he always reacts just slightly differently to how you
anticipated.’
retail and business markets.
From now on the plan is to follow
trends and create innovative
products in a structured way the
whole year through.
SNS REAAL GROUP
Annual Report 2004
41
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€ 317 million (+8.2%). Gross regular life premium income
increased by 1.2% to € 778 million; single premium income
declined by 17.0% to € 594 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 portfolio also showed a positive return.
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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 primarily due to the decline of 4.8% in staff costs to € 139 million.
The number of staff declined by 87 FTEs. Staff costs benefited from the positive effect of the release of € 14.2 million from the introduction of the average-pay pension
scheme. The ‘other operating expenses’ item, including
acquisition costs of € 133 million, increased by 1.1% to
€ 179 million. Excluding acquisition costs, the increase
was 17.9%, partly because of one-time marketing and
advertising costs associated with the re-branding to
REAAL Verzekeringen.
42
SNS REAAL GROUP
Annual Report 2004
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Split between the life and non-life insurance operations,
net profit amounts to € 105 million (+47.9%) and € 36 million (+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 improvement compared to the 16.4% for 2003. The long-term target 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 million, 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
declined from 359% to 243% following an extra dividend
payment. These rates more than satisfy the internal and
external solvency requirements.
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SNS REAAL GROUP
Annual Report 2004
43
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 International 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 composition 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 effective interest rate.
§ Investments
- Investments in fixed-income securities. The bulk of the investment portfolio falls under the category ‘available for sale’ and is stated at fair value. In addition, some bonds are classified as ‘held to maturity’, with a corresponding 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-recurring 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 investment. 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 oneoff 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
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
taken to ensure that SNS REAAL Group complies with the
main outlines and the spirit of the Code:
§ The Articles of Association of SNS REAAL Group have
been amended.
§ All the required steps have been taken to move to
the decertification of the shares issued by SNS REAAL
Group.
§ Members of the Group Executive Board have stepped
down from the board of the Stichting Beheer SNS
REAAL.
§ A remuneration, selection and appointments committee
has been set up, in addition to the audit committee.
§ The regulations of the Group Executive Board and the
Supervisory Board have been updated.
§ A whistleblower protection scheme has been
approved.
The Supervisory Board is responsible for monitoring and
supervising the policy pursued by the Group Executive
Board and supports the latter with counsel and advice.
At least once a year, the Group Executive Board submits
a written report to the Supervisory Board outlining the
strategic policy, the general and financial risks and the
management and control system. This has now also been
formalised in the Articles of Association. These reports
are discussed in the meeting of the Supervisory Board. A
supervisory director can serve on the Supervisory Board
for a maximum of three terms of four years. The Articles
of Association as amended on 24 March 2004 stipulate
that the sitting supervisory directors can be reappointed
twice more for a term of four years. The Chairman of the
Supervisory Board is not a former executive director of the
company. The remuneration of the supervisory directors
is not linked to the company’s performance. The Board of
the Stichting that holds all the shares in SNS REAAL Groep
N.V. consists of the members of the Supervisory Board.
The Group Executive Board
SNS REAAL Group is managed by the Group Executive
Board, under the supervision of the Supervisory Board.
None of the Board members hold supervisory directorships at listed companies. There is no share option
scheme. The members of the Group Executive Board and
the Supervisory Board are bound by the ‘Regeling PrivéBeleggingstransacties SNS REAAL Groep’ [Regulation
on Private Investment Transactions] and the ‘Reglement
Bezit en Transacties Effecten SNS REAAL Groep’ [Regulation on Securities Ownership and Transactions], which
satisfy the requirements of the Code. As far as the terms
of service are concerned, SNS REAAL Group has decided
to deviate from the Code. No maximum term of service or
successive term of service applies to the current members
of the Board. When new members are appointed to the
Board, it will be considered whether it is expedient to
appoint them for a maximum term of service.
Articles of Association
The Articles of Association were amended in March and
December 2004. The second amendment particularly concerns the new statutory two-tier rules as amended on 1
October 2004. One of the reasons for the first amendment
was to incorporate elements of the Code in the Articles
of Association. For example, the following were then
included in the Articles of Association:
§ The power vested in the General Meeting of Shareholders to approve decisions by the Group Executive
Board concerning an important change to the identity
or character of the enterprise;
§ The power vested in the General Meeting of Shareholders to adopt the remuneration policy concerning
members of the Group Executive Board; and
SNS REAAL GROUP
Annual Report 2004
45
§
The restriction of the term of service of supervisory
directors to three four-year terms.
Decertification of shares
46
Audit committee and remuneration,
selection and appointments committee
An audit committee was set up in 2001. In 2004, the Supervisory Board also set up a remuneration, selection and
appointments committee, and drafted regulations for
this committee. The Code has also led to changes in the
regulations of the audit committee. These regulations will
be published on the website.
Traditionally, SNS REAAL Group has had a management
structure whereby the shares are held by a Stichting
Administratiekantoor, a trust, the Board of which consists
of the members of the Supervisory Board. All depositary
receipts for the shares are held by Stichting Beheer SNS
REAAL. Partly with a view to possible future third-party
participation in its share capital, SNS REAAL Group
believes that the certification of its shares is no longer
in keeping with the spirit of our times as reflected by the
Code, among other things. All the necessary decisions
have been taken with respect to deregistering the depositary receipts. It has also been agreed that the Stichting
Administratiekantoor SNS REAAL will cease to exist after
the shares have been decertified.
The Group Executive Board and the Supervisory Board
have always worked on the basis of carefully drafted regulations. Additions were made to these regulations on
the basis of the Code, which in many cases involved the
written documentation of situations that already existed
in practice. These regulations will be published on the
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,
Stichting Beheer SNS REAAL, consisted of the members of
the Group Executive Board and the Supervisory Board. The
Group Executive Board has concluded that, after decertification, its membership of the Board of the Stichting could
hamper the functioning of the Stichting in its capacity as
shareholder as envisaged by the Code. The members of
the Group Executive Board have therefore stepped down
from the Board of the trust. The Articles of Association were
amended accordingly to reflect this.
The Group Executive Board and the Supervisory Board
approved and adopted a procedure for dealing with suspected abuse or breaches. The scheme defines steps to take
in reporting suspected abuse or breaches by staff of SNS
REAAL Group and the protection of the legal position of
the person who reported the incident in question. The procedure nominates the P&O Director of SNS REAAL Group
as confidential advisor or fiduciary. An Abuses Committee
[Commissie Misstanden] will also be set up. The scheme
will be published on the website of SNS REAAL Group.
SNS REAAL GROUP
Annual Report 2004
Regulations of the Group Executive
Board and the Supervisory 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
market, SNS REAAL Group assumes a number of risks for
its clients. Within the strategic framework, risk management actively focuses on a low risk profile for SNS REAAL
Group. This is achieved along the lines of the following
main principles:
§ Correct behaviour towards clients and other stakeholders
§ Proper process control and monitoring procedures
§ Aiming for a high quality of the portfolios
§ Limiting the mismatch in the balance sheet
§ Having comprehensive insight on the basis of accurate,
timely and complete risk information
The Group Executive Board is ultimately responsible for
risk management. Within the Group Executive Board, the
Chief Financial Officer, who is also the Chief Risk Officer,
has risk management in his portfolio. The risk management organisation (see organisation chart) of SNS REAAL
Group is set up to manage the most important risks effectively and efficiently.
The Group Executive Board has been serving as the Group
Asset/Liability & Risk Management Committee. The Committee is responsible for the set-up of the group-wide
risk management organisation and translates the Group’s
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
ALM Committee
Credit Committee
Pricing Committee
Risk Committee
ALM Committee
Credit Committee
Pricing Committee
Policy and
implementation
main brands
SNS REAAL GROUP
Annual Report 2004
47
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.
Saskia van Dijk
Communications Adviser,
REAAL Verzekeringen
‘The arrival of the Financial Services Act is a good thing. We are convinced that the
new rules will lead to better quality in our sector and greater transparency. The
act also fits in with the values we live by, reliability, alertness, social involvement
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
intermediaries valuable support
in getting to grips with the new
financial legislation. What
differentiates REAAL from other
insurers is its approach, which is
not about sitting in the director’s
chair and doing all the work.
It’s all about offering people
Back-up material
‘We offer intermediaries practical support materials. In addition we see ourselves
as knowledge providers. We make sure that intermediaries have in house the
materials they need to get up to speed themselves, materials such as updated
brochures, revised product information, a new complaints form, a know-yourclient profile, specific training courses and all sorts of other practical materials. The
account manager at REAAL Verzekeringen naturally also plays an important role
in the activities surrounding the new legislation. He or she is the port of call for
intermediaries’ questions. In short, financial advisers can count on us completely,
as a knowledge centre and as a sounding board.’
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.
48
SNS REAAL GROUP
Annual Report 2004
Working
transparently
‘Financial advisers can depend on us completely:
as a knowledge centre and as a sounding board.’
Risk management
within which the different entities can operate. During
2004, the ‘economic capital’ model took on a prominent
role in this.
For a number of risk areas, the approach does not have to
differ for SNS Bank and REAAL Verzekeringen. With a view
to uniformity and simplicity, therefore, it was decided to
accommodate policy formulation centrally and, as such,
for the whole Group. It concerns the risk areas integrity,
responsible care and operational risk, which are dealt with
by the Compliance Committee, the Financial Services Act
Committee and the Operational Risk Management Committee respectively.
The most important risks for the banking and insurance
operations are managed in special committees. This concerns the interest rate risk that is managed by the ALM
Committees of SNS Bank and REAAL Verzekeringen, and
the credit risks that are managed in the Credit Committees.
In addition, both SNS Bank and REAAL Verzekeringen have
an overall Risk Committee, which monitors the coherence
and coordination, and manages behaviour-related risks,
duty to care and operational risk management at functional level. Correct pricing towards clients and a balanced
choice between volume and margin are essential for the
long-term value development of SNS REAAL Group. The
Pricing Committees are responsible for this.
The committees are staffed with aim of bringing together
knowledge and decision-making powers. Accordingly,
Group Executive Directors and staff from financing, risk
management, fiscal-legal matters and sales participate
in the committees. The mission and competences of the
different committees were evaluated, tightened up and
confirmed by the Group Executive Board in 2004.
Interest rate risk
Interest rate risk arises from the difference between the
term of loans issued and investments made on the one
hand, and that of contracted borrowing and liabilities on
the other. The interest rate risks of these positions are
monitored with the aid of gapping and duration analysis,
value-at-risk and the analysis of stress scenarios. The Group
Executive Board has issued a system of limits and frameworks within which interest rate risk must remain. Interest
rate risk has an important position in the low-risk profile
of the Group. This risk represents approximately one third
of the total risk at Group level. On the basis of the current
50
SNS REAAL GROUP
Annual Report 2004
interest rate position, the banking operations will benefit
from an interest rate drop, while the insurance operations
will benefit from an increase.
Investment risk
The investment risk within SNS REAAL Group is concentrated in REAAL Verzekeringen. Stochastic scenario
analyses are used to determine a strategic mix for the
investment portfolios. The risk profile of this mix satisfies
preconditions with respect to solvency, the score in Standard & Poor’s rating model and investment income. As far
as maturity is concerned, the investment portfolios are
matched with the liabilities within a predetermined bandwidth, and are carefully spread across regions, sectors
and companies. REAAL Verzekeringen applies a system
of risk-spreading measures for managing counterparty
risks in the investment portfolios (see ‘The investment
portfolio of REAAL Verzekeringen’ on page 54).
Currency risk
Because SNS REAAL Group focuses on the Dutch market,
sensitivity to foreign currency rates is limited. At SNS
Bank, all relevant currency risks are hedged. For REAAL
Verzekeringen, currency risks on fixed-income securities
are fully hedged. In the equity investment portfolio, three
quarters of the currency risk on the US dollar and the yen
are strategically hedged. Currency risk is not material for
the Group as a whole.
Trading risk
SNS Bank only faces a limited trading risk, which is calculated on a daily basis and managed by means of a system of limits. The applied framework of value-at-risk and
stress limits for extreme situations for managing its trading activities also performed to satisfaction in 2004. The
number of deviations was in line with the expectations
for such models.
Credit risk
The banking operations have a low credit risk profile. The
portfolio contains about 90% mortgage loans, besides a
limited portfolio of consumer loans and a relatively small
and well-spread portfolio of loans to small and mediumsized enterprises.
During the year under review, further progress was made
in developing internal models for credit risk management.
For instance, improved scoring models were implemented
Risk management
Programmes for risk management and managing on the basis of value
A number of major projects in the field of risk management and managing on the basis of value were accelerated
and started up in 2004. These concern Basle II, Economic Capital and RAROC, the Risk Management Policy and
the ‘in control’ programme. The programmes were initiated because of the increasingly stringent regulations
governing prudential supervision and reporting. SNS REAAL Group believes that these programmes will also
improve the quality of the risk management.
Basle II
The capital that banks are required to hold as a buffer against unexpected losses is still based on the 1988 Basle
capital accord. The new Basle II capital accord was presented in June 2004 and is expected to take effect at the
end of 2006. The new capital accord proposes to introduce more risk-sensitive capital requirements. These allow
banks – under strict conditions – to use internal risk analysis systems for calculating their minimum capital requirement. SNS Bank is actively preparing for these renewed regulations by setting up internal models for credit risk
management, implementing a group-wide Operational Risk Management framework, through the development
of a system for economic capital calculations and the setting-up of a detailed reporting system for internal and
external reporting. From calculations made on the basis of models released by Basle, and results of internal calculations, it appears that the new accord does, indeed, do justice to the low risk profile of SNS Bank.
Economic Capital / RAROC
Using the ‘economic capital’ concept, an analysis is made of whether an institution has sufficient capital to
cover all the risks to which it is exposed. This is referred to as the capital management process. During the past
year, this process has become part of the area of responsibility of the ALM Committees. With the aid of RAROC
(Risk-adjusted return on capital), the risk-adjusted return on the economic capital can be calculated for each
product group or business line. Thus RAROC forms an important input for the strategic portfolio management.
This measuring and management instrument makes a vital contribution to a healthy and robust value creation
for SNS REAAL Group.
‘In control’ programme
As a non-listed company, SNS REAAL Group is not immediately required to comply with the provisions of Tabaksblat.
However, this code contains useful elements to make being ‘in control’ transparent for the company’s stakeholders.
In addition, it makes the line management at all levels in the organisation aware of the importance of managing
risks. SNS REAAL Group is preparing to issue a transparent and substantiated ‘in control’ statement. To this end,
a programme was set up at the end of 2004 with three aims: firstly, to implement a structure for showing that the
line is ‘in control’; secondly, to undertake possible improvement actions; and, thirdly, to produce an ‘in control’
statement.
for mortgages, consumer loans and retail business during 2004. To further eliminate counterparty risk on ALM
transactions, credit risk positions are hedged.
During the financial year, REAAL Verzekeringen has
tightened the criteria for granting and authorising credit
facilities to intermediaries, improved the administrative
organisation of the lending process and set up a special
credit committee.
Liquidity risk
SNS REAAL Group focuses ample attention on the management of liquidity risk so that the Group has sufficient reserves
at its disposal and always remains able to meet its financial
obligations. The procedures are also geared towards stress
situations on the money and capital markets.
SNS Bank is the largest borrower within the group (see
section on ‘Funding’ on page 56). SNS Bank is striving for
SNS REAAL GROUP
Annual Report 2004
51
Risk management
a broad investor base, with an extensive range of financing
instruments and unhindered access to the international
money and capital markets. In 2004, greater emphasis was
placed on liquidity and assets.
The previously agreed method for ‘Risk Self-Assessment’
was continued in 2004. This means that business units
identify, assess and prioritise their own individual operational risks in a uniform and structured manner.
In 2004, SNS Bank combined good access to the financial
markets with a stable and low credit spread. Maturity of
funding was extended in 2004, as a result of which the
maturity of the assets and liabilities are better geared to
each other. In this context, the organisation benefited from
the historically low level of credit spreads.
Price risk
Insurance risk
The insurance portfolio has a low-risk profile. The portfolio contains a well-spread portfolio of mainly life insurance
policies and a non-life portfolio focused on the retail market and small enterprises. REAAL Verzekeringen reduces
insurance risks with a system of tight procedures and
criteria for product development, acceptance, forming
reserves and pricing. Inappropriate risks, or risks that
exceed predetermined limits are reinsured, insofar as they
are actually accepted.
The risks are only placed with leading reinsurance companies with good creditworthiness. Moreover, a balanced
spread is aimed for, and long-term relationships are maintained with reinsurers.
There were no disasters in the Netherlands in 2004. The
terrorism risk is reinsured with the Dutch reinsurance
company for terrorism risk.
Operational risk
The infrastructure for operational risk management was
further developed during 2004. The Assets/Liabilities &
Risk Management department takes care of preparing
policy making, developing methods and techniques, and
supervising implementation. The coordinating Operational Risk Management Committee monitors progress
(see organisation chart).
The rates and prices of SNS REAAL Groep are agreed on the
basis of theoretical rates. These include a fee for expected
risks, the cost of shareholders’ equity and loan capital
and management expenses. Examples of risks include
the credit risk in a loan, the death risk in a life insurance
policy or the market risk in an investment product. The
structure of the shareholders’ equity and the funding also
affect the theoretical pricing. The actual pricing towards
clients is determined on the basis of the advice of the
Pricing Committees, with account being taken of market
conditions, in addition to the theoretical price.
Behaviour-related risk
In 2004, behaviour-related risk was included in the Risk
Management Policy of SNS REAAL Group. Behaviourrelated risk is divided into two categories: duty of care
risk and integrity risk.
§
Duty of care risk
Duty of care risk includes present or future threats to
the equity, the result, the reputation or the continuity of
SNS REAAL Group as a whole, as a result of inadequate
compliance by managers or staff of SNS REAAL Group
with the prevailing legislation and regulations in the
field of the duty to care for customers. Examples of such
statutory requirements include acting in the interest of
customers and the transparency of the financial services
or products on offer.
The coordinating Financial Services Act Committee (see
diagram), on which the responsible members of the Group
Executive Board and the Boards of Directors, as well as
the Legal Affairs Director, have a seat, deals with and discusses all the important issues with respect to the duty
Compliance statement of SNS REAAL Group
SNS REAAL Group strives to provide high-quality service. This is only possible if SNS REAAL Group and its employees
act with complete integrity. This does not only mean acting in accordance with legal constraints, but also treating
customers with respect and maintaining the reputation of SNS REAAL Group as a trusted partner.
52
SNS REAAL GROUP
Annual Report 2004
Risk management
to care (or related to it), and agrees actions that have to
be implemented by the business divisions.
§
Integrity risk
Integrity risk can be described as the risk of damage, loss
or other negative consequences for managers or staff of
SNS REAAL Group or SNS REAAL Group itself, such as penalties imposed by regulators, damage to the reputation
or misuse of SNS REAAL Group by clients or third parties
as a result of inadequate compliance with legislation and
integrity regulations. Examples of such statutory requirements concern the integrity of staff, the integrity of the
operational management of SNS REAAL Group, fighting
money laundering and avoiding conflicts of interest.
The Compliance Committee (see organisation chart), on
which the holders of the Compliance portfolios in the
Group Executive Board and the Boards of Directors have
a seat, deals with and discusses all the important issues
in the field of compliance and integrity or related issues.
SNS REAAL Group values its integrity, professionalism
and solid reputation very highly. The pursuit of these
values is laid down in the ‘Compliance statement’ (see
the box).
In order to drive the mission and integrity policy, SNS
REAAL Group has formulated business principles that are
the starting point for the policy and the day-to-day ‘thinking and doing’ (see page 3).
The integrity policy of SNS REAAL Group contains rules
and procedures that are based on the Group’s own principles, legislation and regulations, and codes of conduct
in the banking and insurance sectors. The basic principle
is that directors, management and staff do not just act
in accordance with these rules and procedures, but also
act in the spirit of them.
The ‘Compliance Handleiding Hoger Kader’ [compliance manual for senior managers] provides a summary
of important integrity standards that apply to the Group’s
staff and is intended for senior management. In addition, the ‘Algemene Gedragscode Integriteit’ [general
integrity code of conduct] includes rules of conduct for
all staff members concerning the responsible treatment
of information, serving clients properly, acting in compliance with regulations and internal instructions, avoiding
money from criminal sources, avoiding account constructions that are not permitted, and preventing conflicts of
business and private interests.
SNS REAAL GROUP
Annual Report 2004
53
REAAL Verzekeringen manages an investment portfolio of approximately € 9 billion for its
own account and risk. The bulk of this – more than 90% – is in fixed-income investments.
REAAL Verzekeringen faces a limited interest rate risk only and works constantly to further
limit the risk.
Interest rate risk
Fixed-income portfolio
By virtue of its business activities, REAAL Verzekeringen
faces limited interest rate risk. This risk arises from the difference between the term of loans issued and investments
made on the one hand, and that of contracted borrowing
and liabilities on the other. Interest rate risk is monitored
with the aid of duration analyses, stochastic and stress
scenarios analyses. REAAL Verzekeringen has issued a
system of frameworks and limits within which interest
rate risk must remain.
The fixed-income portfolio of REAAL Verzekeringen
primarily contains securities and loans denominated in
euros. Where REAAL Verzekeringen faces risks, most of
the currency risk is hedged. The policy initiated in 2003
to invest more in ‘credits’ was further developed in 2004,
which boosted returns on the fixed-income portfolios as
these bonds have a higher yield reflecting slightly higher
risk.
To limit interest rate risk, in 2004 REAAL Verzekeringen
continued its policy to better align the investment portfolio with the nature of its liabilities. This has led, among
other things, to a further lengthening of the fixed-income
portfolio.
Asset mix
An ALM study carried out in 2004 led to a formulation of
preconditions and targets with respect to solvency, investment income and the interest rate sensitivity of shareholders’ equity. REAAL Verzekeringen wants to continue to
meeting the requirements for the solid A-rating it pursues.
As such, account was taken of the criteria that regulators
and rating agencies apply when assessing the financial
resilience of REAAL Verzekeringen.
In the ALM study, the relative size of the different investment portfolios – the asset mix – was carefully determined with the aid of stochastic analyses, among other
things, with investments and liabilities being considered
in their mutual relationship (see box below).
REAAL Verzekeringen applies risk-spreading measures to
manage counterparty risks in its investment portfolios.
This has ensured that these portfolios are carefully spread
across regions, sectors and companies.
Equity portfolio
The equity portfolio of REAAL Verzekeringen partly consists of portfolios with index funds in the European, American and Far Eastern regions, with most of the currency
risks being hedged. This achieves an equity portfolio with
a worldwide spread without the corresponding exposure
to currency risks. In addition to these index funds, REAAL
Verzekeringen has some positions in individual equity
funds, including strategic interests.
Real estate portfolio
The real estate portfolio of REAAL Verzekeringen partly
consists of real estate funds and partly of direct real estate
investments in the Netherlands. The real estate funds
concern listed European shares of real estate companies
and/or investment companies in real estate.
The asset mix of REAAL Verzekeringen at the beginning and end of 2004
Asset category
Fixed income
Equities
Real estate
54
SNS REAAL GROUP
Annual Report 2004
1 Jan 2004
91.8%
3.8%
4.4%
31 Dec 2004
91.6%
3.8%
4.6%
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The declining capital market interest rates and cautious
recovery of the stock markets contributed to a positive
total return of more than 8% on the investment portfolio in
2004. The adjoining diagram illustrates the development
of the value of each asset category and of the investment
portfolio as a whole, whereby 1 January 2004 = 100.
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Returns
SNS REAAL GROUP
Annual Report 2004
55
Funding
SNS Bank is an active player in international capital markets. The funding strategy of the bank
is based on diversification of funding instrument, investor type, geography and maturity. This
strategy has provided SNS Bank with good access to international capital markets and enables
the organisation to finance its growth at competitive levels.
Expanding the diversification strategy
SNS Bank has several funding programmes. It has at its
disposal a € 20 billion Euro Medium Term Note programme
(EMTN), under which it issues public and privately placed
bonds. SNS Bank also makes use of a € 4 billion Euro Commercial Paper programme (ECP).
In 2004 SNS Bank established an Australian A$ 3 billion
MTN programme and used this programme to tap the
Australian investor base by issuing a A$ 325 million 3-years
floating rate note and a A$ 225 million 5-years bond with
a coupon of 5.75%.
Furthermore, the bank set up a € 4 billion French CP programme, providing access to this highly liquid regulated
market. Both funding programmes add substantial value
to the bank’s diversification strategy.
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Outstanding SNS Bank
benchmark bond loans
€ 500
€ 1.000
€ 1.000
$ 1.000
€ 1.000
€ 800
€ 500
€ 900
million
million
million
million
million
million
million
million
For a number of years now, SNS Bank has applied the
policy of finding the right balance between the bank’s
funding requirements and demand from investors for SNS
Bank’s funding instruments. All public deals are marketed
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56
SNS REAAL GROUP
Annual Report 2004
Feb 2005
Sep 2006
Oct 2007
Jun 2008
Apr 2010
Oct 2011
Jun 2012
Feb 2014
Benchmark bonds
��
��
FRN
FRN
6.00%
FRN
6.125%
FRN
5.625%
4.625%
Funding
according to a book-building procedure and the bank has
several bonds outstanding in ‘benchmark size’. In 2004
SNS Bank issued a € 900 million fixed rate transaction
maturing in 2014 and a € 800 million floating rate transaction maturing in 2011. These bonds complement the
credit curve for SNS Bank’s benchmark bonds, which gives
investors the opportunity to switch duration within the
credit curve of SNS Bank. These bonds of which there is
more than € 500 million outstanding, are actively traded
and have benefited from a strong liquidity. SNS Bank has
become one of the benchmark issuers in Europe for singleA rated financial issuers.
Credit spread benefited from
favourable market conditions
Over the course of 2004 SNS Bank’s credit spreads have
improved consistently. One of the reasons for this has been
the declining interest rate environment, which has led to
spread compression. Furthermore the credit spreads have
benefited from an increasing appetite for credit issued by
financials with a retail business profile. Within the bank’s
own rating category, the benchmark bonds of SNS Bank
have consistently outperformed the iBoxx index (see the
graph below), just as in previous years.
Continued securitisation of mortgage loans
In March 2004, the bank originated its first synthetic
securitisation under the name Provide Lowlands I. In this
transaction launched under KFW’s Provide platform, the
bank bought protection against € 1 billion of its residential mortgage portfolio. In June the bank launched its
eighth Hermes transaction for a portfolio of € 1.25 billion of mortgages. The Hermes programme ranks among
the top three most active securitisation programmes for
residential mortgage loans in the Netherlands. Securitisation forms an integrated part of the funding activities of
the bank. For an overview of outstanding securitisations
see page 82 of the financial statements.
In the course of 2004 credit spreads for Dutch Residential
Mortgage Backed Securities improved significantly for
all rating classes as a result of increased demand from
institutional investors.
Ratings
During the year under review, S&P converted its ‘negative outlook’ for SNS Bank into a ‘stable outlook’. In its
publication of October 12, 2004, S&P stated: ‘The outlook
revision reflects the reduction in SNS REAAL’s double leverage ratio, and the improved financial performance of
the group’s insurance operations. It also recognizes the
continued solid financial performance of SNS Bank.’ In
May 2004 Moody’s confirmed its ratings and the positive
outlook for SNS Bank. In its research report, dated May
2004, Moody’s states: ‘The positive outlook on the A2/
C+ ratings takes account of the trend towards increased
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SNS REAAL GROUP
Annual Report 2004
57
Funding
efficiency and a more focused strategy.’ The long term
rating by Fitch Ratings enjoy a stable outlook and has
been one notch higher than the long term rating by S&P
and Moody’s since its inception in 1999.
SNS Bank
Short term
Long term
Outlook
SNS REAAL Group
Short term
Long term
Outlook
58
SNS REAAL GROUP
Annual Report 2004
S&P
Moody’s
Fitch
A-1
P1
A
A2
Stable Positive
F1
A+
Stable
S&P
Moody’s
A-2
AStable
A3
Stable
Capital market activities SNS REAAL Group
The activities of SNS REAAL Group in capital markets are
limited. It has at its disposal a € 1 billion MTN Programme,
under which € 269 million was in issue at year-end 2004.
Furthermore, it makes use of privately placed loans and
Deposits.
SNS REAAL Group attaches great value to ‘social commitment’. This is illustrated by the fact
that it is one of the four business principles. ‘Social commitment’ is nothing new to the
company: SNS REAAL Group originated from a merger process involving dozens of banks and
savings banks and insurance companies, all firmly rooted in society. We have been active in
the field of corporate social responsibility for years now, and are now going to be even more
focused in carrying out what we are doing and are going to do. The first sustainability report of
SNS REAAL Group will appear in 2005 and will go into more detail on what is outlined below.
‘Social commitment’ as principle
As a bancassurance retail specialist, SNS REAAL Group
is close to its clients. That means that we are constantly
giving account of social developments and their consequences for our target groups. At a time where there is a
lot of pressure on disposable income, pension provisions
and healthcare, we consider it our duty to assist clients
in finding possible solutions.
Our aim is for customers to recognise our social commitment and our staff have an important contribution
to make in this context. In our education and training
courses – and immediately in our induction programme
for new staff – we focus explicitly on putting our social
orientation into practice.
Sixth Day of Ethical Investment
Our solid social commitment is also expressed in the ‘Day
of Ethical Investment’, which ASN Bank organised for the
sixth time. Child labour was the central theme on this day.
The guest speakers included a professor in child labour,
the director of the International Labour Organisation,
the directors of Ikea Netherlands and the National India
Committee. As usual, the Day attracted a lot of attention
from the media and public.
ASN Bank: sustainable banking
ASN Bank, the bank for sustainable banking, invests the
entrusted funds in projects and enterprises that specifically take account of human and animal welfare, nature
and the environment. This ‘people, planet, profit’ idea
appeals to many, as borne out by the thousands of customers it attracts every year. Managed assets increased
by € 350 million in 2004. More than a third of this went
to ASN Beleggingsfondsen, in particular the ASN Groenprojectenfonds [green projects fund] and the ASN Novib
Fonds. ASN Bank’s investment funds grew by more than
20% to € 680, which increased the segment market share
in sustainable investment funds to more than 35%. SNS
Bank and REAAL Verzekeringen also actively sell the funds
of ASN Bank. That sustainability and profitability go handin-hand is confirmed by a study carried out by ’Money’
magazine, in which the ASN funds scored as the best
performing Dutch group of funds.
In the field of savings, ASN Bank introduced the ASN
(Milieu) Sparen and the ASN Garantiebeleggen as hybrid
savings and investment products in 2004. ASN Bank has
issued a sustainability report for several years now.
Developing sustainable products
SNS REAAL Groep develops products for its own brands
that are focused on sustainability. Examples include the
ASN Aandelenfonds [equity fund] and the SNS Duurzaam
Aandelenfonds [sustainable equity fund]. Both funds
invest exclusively in enterprises that satisfy stringent
criteria in the field of the environment and social policy.
Many clients choose sustainable funds in combination
with their investment-based mortgage or insurance.
Social commitment is also expressed in the way in which
SNS Bank designed its website. That took place in close
consultation with organisations representing visually disabled people, so that the site could be better accessible
to them. Another example is the ‘pin-delaying mechanism’
installed in our cash dispensers, which adapts the dispenser to the speed of the user, which is ideal for elderly
people and those with a disability.
SNS Asset Management
SNS Asset Management is an internationally recognised
specialist in sustainable asset management. It is a driving force in the ongoing development of the sustainability concept. The aim is to focus attention on Europe. A
joint venture has been set up with the Japanese research
SNS REAAL GROUP
Annual Report 2004
59
agency ‘Good Bankers’ for the Asian markets. A similar
joint venture arrangement is being developed for the
American markets.
In addition to institutional mandates, SNS Asset Management also takes care of the portfolios of ASN Beleggingsfondsen and SNS Beleggingsfondsen and is responsible
for the sustainability research for the OrangeSenseFund.
The bulk of SNS REAAL Group’s own investment portfolio
concerns fixed-income securities, particularly European
government bonds. Investments in equities and ‘credits’
are made on the basis of the sustainability criteria of SNS
Asset Management. SNS REAAL Group intends to give
substance to these ethical investments, both for its own
investments and for investment funds, by using the voting
rights at the General Meetings of Shareholders.
After completing verification in 2004, SNS Asset Management can claim to be ‘GIPS compliant’. GIPS stands for
‘Global Investment Performance Standards’. The assets
under management amount to more than € 12 billion.
At the end of 2004, SNS REAAL Group joined the ‘Enhanced
Analytics Initiative’, a group of seven institutional investors
in the Netherlands, the UK and France. It was agreed that
they would commit 5% of their commission flow in 2005
to brokers who also pay attention to non-financial and
intangible investment criteria in their company analyses.
Stimulating such distinctive research fits in well with the
sustainable activities of the asset management group.
SNS REAAL Fund
The SNS REAAL Fund supports projects and activities with
a broad public interest. It involves many hundreds of big
60
SNS REAAL GROUP
Annual Report 2004
and small projects at local, regional and national level.
The areas of particular interest are ‘culture & education’,
‘emancipation’ and ‘nature & the environment’. An example of a major national project is the ‘Prix de Rome’, the
most important Dutch prize for encouraging young talented artists. Including a number of other smaller funds,
the Group donates approximately € 3 million to public
projects every year.
In-house focus on sustainability
In mid-2004, the support services of SNS Bank and
REAAL Verzekeringen were merged into shared Facility and Service operations for SNS REAAL Group. More
than ever before, ‘sustainability’ will become the guiding
principle for policy and will be translated into specific
objectives.
One of them is for 20% of all purchases in 2005 to fall
under the category ‘sustainable’, which means that suppliers and their products and services will have to satisfy
strict sustainability criteria. ‘Purchase ethics’ – rules
concerning social behaviour, integrity and the same
information being available to suppliers – form part of
our purchasing policy.
SNS REAAL Group has an Environmental programme,
which includes goals for several years in succession relating to reducing the negative effects of business operations on the environment. It includes more restrictions
on the use of energy, water and paper, and a reduction
in waste and CO2 emissions. Objectives have also been
agreed upon with respect to using organic products and
sustainable office supplies. The sustainability report will
focus in greater detail on these objectives and the results
achieved so far.
In 2004, we conducted a second staff satisfaction survey eighteen months after the first
one. At almost 70%, the response rate was significantly higher than the first time. General
satisfaction scores 7.4; this is a fraction lower than last time, but higher than the average
score Dutch employees give for their working conditions.
One of the best companies to work for
The introduction of the kaleidoscope as joint logo, plus
the connection between the names of the Group and both
main brands, have contributed towards SNS REAAL Group
getting better exposure in the labour market. Our organisation has been on its way up in a range of league tables
of ‘best companies to work for’. SNS REAAL Group has
built up a good name both among potential employees
and Intermediar’s best employer survey, which is based on
primary and secondary employment terms and conditions.
This positive perception is reflected in the aforementioned
in-house survey.
Again profit-sharing of 3.5%
In 2002, we introduced a profit-sharing scheme that kicks
in with net profit growth of 10%. In 2004, this level of profit
growth was achieved – just as in 2003 – and the maximum
of 3.5% of gross annual salary was paid out.
Sick leave reduced further
Returning to work after a period of sick leave is the joint
responsibility of the employee in question and the line
manager. Curtailing absenteeism is a goal of management policy. This has resulted in absenteeism falling for
a number of years now, and falling even further to 4.4%
for the entire Group in 2004 (2003: 5.0%). This rate is well
below the national average.
SNS REAAL Group has one occupational health and safety
service for the entire organisation. As part of the health and
safety agreement, we’ve been conducting more research
into the effects of working with computer screens. As part
of the policy against undesirable social behaviour, a confidential advisory committee was set up.
Collective Labour Agreement (CAO)
for 2004-2005 not yet settled
SNS REAAL Group agrees a CAO for all its staff. The previous CAO, which expired on 1 June 2004, has not yet been
succeeded by a new one. Negotiations are positive, but the
issue of wages being paid during the second year of sick-
ness is a stumbling block. Negotiations will be resumed
as soon as the government, employers and trade unions
have reached agreement on this issue in the interpretation of the Social Accord.
A three-year Social Plan
A Social Plan has been agreed with the trade unions for
2004 to the end of 2006. This Plan applies to employees
who lose their job as a result of a reorganisation. They
are carefully supported and supervised in finding another
suitable internal or external position. In 2004, for instance,
this applied to a number of staff of the support services of
SNS Bank and REAAL Verzekeringen, which were merged
at Group level. It was decided in 2004 to merge the Personnel and Organisation departments; this decision will
be implemented in 2005.
Towards a single Pension Fund
A lot happened in the pensions field in 2004. As agreed
in the previous CAO, the pension scheme was converted
from a final-pay to an average-pay scheme on 1 January
2004. In addition, after a transition period of five years, all
staff will pay a personal contribution of 5% of pensionable
earnings. The pension fund of SNS Bank and the pension
insurance of REAAL Verzekeringen were merged into the
Stichting Pensioenfonds SNS REAAL Groep with retrospective effect from 1 January 2004.
Generous investment in training
We pay a lot of attention to the development of our staff,
based on the principle that development is in the public
interest and the joint responsibility of employees and
the company. SNS REAAL Group invests around 3.0% of
the total wage and salary bill in staff training and education.
Management Development and
Leadership Development
The ambitions of SNS REAAL Group cannot be achieved
without properly qualified and motivated employees.
The Group therefore wants to create a working environ-
SNS REAAL GROUP
Annual Report 2004
61
ment that offers employees opportunities to grow and be
promoted. To this end, programmes are developed at all
levels and tailored to developments inside and outside
our Group.
At the end of 2004, the Management Development policy
was evaluated on the basis of interviews with staff, line
management and participants in the management development programme. The need for personnel planning
appeared to be the most important area for attention,
followed by staff development. We want to strengthen
both these areas in 2005 and to reflect that we plan to
adjust our Management Development programme.
As part of the Group growth strategy, Management
Development focuses on personnel planning and staff
succession issues, so that the right people are prepared
in good time for positions expected to become vacant in
the short and longer term. Horizontal appointments form
an important part of this strategy. It is our explicit goal
to fill three quarters of the vacancies in higher management positions with internal candidates in the long term.
In contrast to the previous year, we did not succeed in
doing this in 2004.
Our pursuit of synergy means that increasingly we are
looking to exchange talented members of staff between
the different business divisions within SNS REAAL Group.
This strengthens the coherence and mutual familiarity
among the business divisions and creates broad support
for the Group’s values and standards. This is particularly
the case with generalist at the start of their career as it
62
SNS REAAL GROUP
Annual Report 2004
gives them the space and time to get to know the company across the board and in all its facets.
SNS REAAL Group has also set up a Leadership Development Programme to offer staff with management abilities
the opportunity to grow towards a leadership or specialist
position. The five planned programmes are tailored to the
personal learning objectives of individual participants and
the wishes of the organisation. They contribute towards
the results-oriented and enterprising culture we are striving for.
Of the five programmes, set up in cooperation with specialist training and education institutions, three are currently
running. These are the Talent Development Programme
(TOP), the Young Executive Programme (YEP) and – in
cooperation with the Business School of the University of
Tilburg – the Management Programme (MP). TOP are YEP
are general management courses with a broad orientation
for young talented staff; MP was set up for managers and
potential managers of the fourth echelon.
Performance and Competency
Assessment (PCA)
PCA was introduced as the appraisal system for all staff in
2003. Each year, line manager and member of staff assess
the achievement of agreed objectives (performance) and
the development of skills (competency). PCA is a tool for
promoting staff development and result-oriented working practice. The PCA interview can lead to a personal
development plan, of which the aforementioned training
opportunities form a part.
Outlook
The financial and commercial results we have achieved in recent years justify the conclusion
that our strategy is a success. We will continue with our development towards becoming the
favourite bancassurance retail specialist in the Netherlands as far as our three core products
are concerned. We will continue to pursue growth, both organically and non-organically.
Continuing along this positive line, we have agreed ambitious commercial objectives and
market share targets for the coming years.
External conditions are not entirely favourable. A recovery
has been forecast for the Dutch economy but it appears to
be slow in coming. The purchasing power of families – our
target group par excellence – is increasing very little, if at
all. New legislation and regulations in the field of financial
services, consumer protection, and pension schemes have
far-reaching, but not fully calculable, consequences for
our clients and our organisation.
In 2005, we will start preparing our financial reporting in
accordance with IFRS, the International Financial Report-
ing Standards. It is expected that these standards will
lead to greater fluctuations in results and shareholders’
equity. Incidentally, adequate measures have been taken
to manage and/or reduce this volatility.
With a view to the aforementioned external factors, and
given the recent introduction of IFRS, we are not prepared to issue a profit forecast for 2005 at the moment.
We expect to make a profit forecast for the whole of 2005
at the presentation of the half-year figures for 2005.
S. van Keulen
C.H. van den Bos
M.W.J. Hinssen
R.R. Latenstein van Voorst
SNS REAAL GROUP
Annual Report 2004
63
64
SNS REAAL GROUP
Annual Report 2004
SNS REAAL GROUP
Annual Report 2004
65
Consolidated balance sheet
Before profit appropriation and in € millions
31 December 2004
31 December 2003
Assets
Intangible fixed assets 1
Tangible fixed assets 2
Participating interests 3
Investments 4
Mortgage loans 5
Other loans 6
Banks 7
Liquid assets 8
Other assets 9
Accrued assets 10
10
106
306
11,390
35,450
2,648
3,124
753
667
1,225
15
119
478
11,987
31,997
3,358
2,410
420
1,059
1,215
Total assets
55,679
53,058
Shareholders’ equity 11
Third-party interests 12
1,961
298
1,643
298
Group equity
Subordinated debts 13
Fund for general banking risks 14
2,259
1,145
70
1,941
1,156
70
Capital base
3,474
3,167
General provisions 15
Technical provisions, insurance operations 16
Savings 17
Other funds entrusted, banking operations 18
Debt certificates 19
Banks 20
Other liabilities 21
Accrued liabilities 22
140
11,330
11,263
7,338
17,813
2,372
1,034
915
308
11,174
10,404
7,156
16,169
2,344
1,055
1,281
Total liabilities
55,679
53,058
Liabilities
The numbers mentioned with the balance sheet items refer to the notes starting on page 77.
66
SNS REAAL GROUP
Annual Report 2004
Consolidated profit and loss account
In € millions
2004
2003
Income
Gross premium income 23
Investment income 24
Interest income, banking operations 25
Commission 26
Other income 27
1,689
815
1,788
109
74
1,779
723
1,794
92
84
Total income
4,475
4,472
Technical expenses, insurance operations 28
Interest charges, banking operations 29
Other interest charges 30
Staff costs 31
Other operating expenses 32
Value adjustments to loans and advances and financial fixed assets 33
Other expenses 34
1,876
1,283
41
426
366
71
3
1,934
1,282
29
460
347
61
2
Total expenses
4,066
4,115
409
357
81
97
328
260
18
17
310
243
Expenses
Taxes 35
Group profit
Third-party interests 36
Net profit
The numbers mentioned with profit and loss account items refer to the notes starting on page 101.
SNS REAAL GROUP
Annual Report 2004
67
Consolidated cash flow statement
In € millions
2004
2003
Cash f low from operational activities
Net profit
Adjustments for:
- Depreciation
- Value adjustments to loans and advances
- Change in general provisions
- Other changes in accrued and deferred items
310
43
71
(169)
(3)
Cash flow from business operations
Change in mortgage loans
Change in other loans
Change in banks (not payable on demand)
Change in technical provisions, insurance operations
Change in savings
Change in other funds entrusted, banking operations
Other changes relating to operational activities
Total cash flow from operational activities
68
SNS REAAL GROUP
Annual Report 2004
243
45
61
(43)
97
(58)
160
252
403
(3,453)
710
(515)
156
858
183
(59)
(3,564)
836
(375)
2,921
786
701
(28)
(2,120)
1,277
(1,868)
1,680
Consolidated cash flow statement
In € millions
2004
2003
Cash f low from investment activities
Investments and purchases:
- Investment portfolios
- Other participating interests
- Tangible fixed assets
- Intangible fixed assets
8,147
160
32
5
7,905
530
50
13
(8,344)
Divestments, redemptions and disposals:
- Investment portfolios
- Participating interests
8,501
250
10
2
(8,498)
5,200
472
3
--
8,763
5,675
Change in investments on behalf of policyholders
321
(869)
Total cash flow from investment activities
740
(3,692)
Cash f low from financing activities
Income from subordinated loans
Redemptions of subordinated loans
Income from debt certificates
Redemptions of debt certificates
Total cash flow from financing activities
Change in liquid assets
-(12)
10,611
(8,967)
235
(16)
13,709
(11,750)
1,632
2,178
504
166
SNS REAAL GROUP
Annual Report 2004
69
General notes
Principles for the consolidated balance sheet and profit & loss account of SNS REAAL Group
Consolidation principles
SNS REAAL Group N.V. holds 100% of the shares in SNS Bank N.V., REAAL Verzekeringen N.V. and SNS REAAL Invest N.V.,
which are respectively engaged in banking, insurance and other operations. The classification of items in the consolidated balance sheet, consolidated profit and loss account and the consolidated cash flow statement, as well as the
accounting principles, are therefore presented as far as possible in accordance with the relevant guidelines and formal
procedures prescribed for banks and insurance companies as a whole. The summary of the group companies shows
which of them form part of SNS Bank, REAAL Verzekeringen and SNS REAAL Invest, respectively.
The assets, liabilities, income and expenses of SNS REAAL Group and its group companies are consolidated in full.
Third-party interests in the equity and income of group companies are disclosed separately in the consolidated balance
sheet and the profit and loss account. Financial relationships and transactions conducted between SNS REAAL Group,
SNS Bank, REAAL Verzekeringen and SNS REAAL Invest within the framework of the normal business operations and in
line with normal commercial practice are not eliminated. All other mutual financial relationships and transactions are
eliminated. This method is designed to provide clear insight into the development of the business activities.
The notes to the consolidated balance sheet and profit and loss account present information by segment, making a distinction between SNS Bank, REAAL Verzekeringen and the group. With effect from 2004, in connection with the change
of strategy, the SNS REAAL Invest information is accounted for under ‘other’. The results of REAAL Verzekeringen are
divided into the categories life insurance, non-life insurance and other.
The company profit and loss account was prepared in accordance with article 402, Book 2 of the Netherlands Civil
Code.
Changes to principles and presentation
In order to fall more into line with what is customary in the sector, and/or international developments, the following
changes have been introduced in the presentation. The management fees on capital invested in the banking operations are henceforth being presented as commission and no longer as other income. The comparative figures have
been adjusted.
Also, the results of a number of specific investments are accounted for henceforth in net terms. As a consequence,
the result is stated in the taxes item. This change has no effect on the equity or the results. The net interest income at
SNS Bank is € 15.6 million lower as a result. This is compensated by lower corporation tax for the same amount.
In order to obtain greater insight into the developments of the controllable operating expenses, it has been decided
to present the amortisation expenses of € 10.2 million on the ‘value of business acquired’ as technical expenses, insurance operations. The corresponding technical costs are also accounted for under this item. Since it would be of little
relevance, we have not adjusted the comparative figures.
Principles for valuation and determination of results
General principles
Valuation
The assets and liabilities are carried at nominal value unless stated otherwise.
70
SNS REAAL GROUP
Annual Report 2004
General notes
The valuation of tangible and intangible fixed assets, participating interests and investments works on the principle of
permanent loss of value. The identified permanent loss of value is charged directly to the profit and loss account. Permanent loss of value in relation to assets stated at fair value is charged to the revaluation reserve and is only charged
to the result if and insofar as there is a negative revaluation reserve on balance.
Recognition
Assets are included in the balance sheet if these can be expected to generate future economic benefits for the company
and if the value of these benefits can be estimated with a fair degree of accuracy. Liabilities are included in the balance
sheet if their settlement will lead to an outflow of assets, which could generate economic benefits whose value can be
estimated with a fair degree of accuracy.
Income is included in the profit and loss account if an increase in the value of an asset or decrease in the value of a
liability leads to an increase in the economic potential, the size of which can be estimated with a fair degree of accuracy.
Expenses are recognised in the profit and loss account if a decrease in the value of an asset or increase in the value
of a liability leads to a reduction in the economic potential, the size of which can be estimated with a fair degree of
accuracy.
Financial assets and liabilities are balanced and stated as a net amount in the balance sheet if and insofar as legal or
contractual provisions permit SNS REAAL Group to simultaneously settle and balance the asset and obligation and if
there was a prior intention to settle said items in this manner.
Foreign currency
Assets and liabilities denominated in foreign currency, and forward exchange contracts entered into in relation to borrowing and lending activities, are converted at the spot rate applicable on the balance sheet date. Gains and losses
resulting from foreign currency transactions are converted at the rates prevailing on the balance sheet date. Foreign
currency differences are accounted for in the profit and loss account. Results arising from forward exchange contracts
entered into for borrowing and lending activities are recognised in the profit and loss account in proportion to the
expired part of the term.
Derivatives
Derivatives are carried at fair value, i.e. the estimated market value. Value adjustments to these derivatives are accounted
for directly in the profit and loss account as income from financial transactions under Other income.
Hedge accounting
Transactions are treated as hedging instruments if identified as such and if the hedging is highly effective in the sense
that changes in the fair value of the hedging instrument largely compensate changes in the fair value of the hedged
position. Financial instruments (including derivatives) used for hedging purposes are accounted for in accordance with
the accounting principles applicable to the hedged position. If financial instruments are used to hedge risks relating to
specific assets or liabilities, which are subsequently sold or terminated, then the instruments are no longer treated as
hedging instruments. Gains and losses resulting from hedging instruments are included in the profit and loss account
concurrently with the gains and losses resulting from the settlement of the hedged position.
Reinsurance
Reinsurance premiums, commission, claims payments, as well as provisions concerned with reinsurance are accounted
for in the same manner as the original contracts for which they were concluded. Receivables relating to reinsurance are
included under Other assets.
SNS REAAL GROUP
Annual Report 2004
71
General notes
Specific principles
Tangible and intangible fixed assets
Tangible and intangible fixed assets are carried at cost net of accumulated depreciation or amortisation respectively.
Straight-line depreciation or amortisation is applied over the estimated useful lives of the assets. For software, IT equipment and the other movable assets, the amortisation or depreciation period used is three to five years.
Participating interests
Participating interests where significant control is exercised over the business and financial policy are carried at net
asset value. The Group’s share in the profits or losses of these participating interests and the gains or losses realised
on their disposal are accounted for in the profit and loss account as income from securities and participating interests
under Other income. Differences between the cost and the share in the fair value of the acquired assets and liabilities
(goodwill) are credited or charged directly to the shareholders’ equity.
Other participating interests are valued at cost or lower fair value, i.e. the stock exchange prices of the shares in these participating interests or, if unlisted, the estimated market value based on the stock exchange prices of similar securities.
Investments
Land and buildings
Land and buildings used by SNS Bank are carried at replacement value, based on continuity and functionality. The replacement value is determined on the basis of regular rotation whereby all buildings are appraised at least once every
ten years. Value adjustments resulting from these appraisals are credited or charged directly to the revaluation reserve
after deducting deferred taxes. Depreciation is applied on a straight-line basis, taking account of estimated useful life
and residual value. Buildings under construction are valued on the basis of incurred expenditure.
Land and buildings used by REAAL Verzekeringen are carried at fair value, i.e. the estimated proceeds from a private sale
in their rented state. Appraisals are made on a rotational basis where all land and buildings are independently appraised
at least once every five years. Unrealised value adjustments are credited or charged to the revaluation reserve, after
deducting deferred taxes. No depreciation is applied in relation to land and buildings, with the exception of payments
made for the perpetual settlement of ground rent. Gains and losses realised in the sale of land or buildings are directly
incorporated in the profit and loss account, taking account of taxes and/or deferred taxes. Buildings under construction
(including land) are valued on the basis of incurred expenditure.
Land and buildings not in own use
Land and buildings not used for the group’s own activities are carried at fair value, i.e., the estimated proceeds from a private
sale in their rented state. No depreciation is applied. Gains or losses (including realised value adjustments) made on the
sale are reported in the profit and loss account.
Shares and convertible bonds
Shares and convertible bonds are carried at fair value. For the listed shares and convertible bonds, as well as the related
options, this is the market price on the balance sheet date. Unlisted securities are stated at the estimated fair value.
For the investments in shares held by SNS Bank, unrealised changes in value are reported in the revaluation reserve,
taking account of deferred taxes. Realised changes in value are included directly in the profit and loss account.
For REAAL Verzekeringen, unrealised and realised value movements are accounted for in the revaluation reserve, taking account of deferred taxes. In the event of a negative revaluation reserve, value adjustments are charged against
72
SNS REAAL GROUP
Annual Report 2004
General notes
profits. Insofar as the revaluation reserve relates to life insurance operations, an amount is released from this reserve
to the profit and loss account to supplement the total return on investment. This amount is computed as the difference
between, on the one hand, the average yield on ten-year Dutch government bonds over the previous ten years, applied
at the average value of this investment portfolio and, on the other hand, the dividends actually received.
Participating interests are carried at cost or lower fair value, i.e. the estimated market value.
Investments in fixed-income securities
Investments in fixed-income securities are carried at redemption value. The difference between the redemption value
and the purchase price is included under Prepayments and Accrued assets or under Accrued liabilities, as appropriate,
and is reported in the profit and loss account as interest income in proportion to the residual term to maturity of the
related asset. Investments in fixed-income securities that do not pay out annual interest (e.g. zero coupon bonds) are
carried at purchase price plus the part of the difference between purchase price and redemption value that is attributable
to the expired term. Gains or losses on swaps are stated in the profit and loss account as interest income on the basis
of the weighted average term of the portfolio concerned. Insofar as this accounting method would, on balance, lead to
higher capitalisation of expenses than deferral of income, the surplus is booked directly to the profit and loss account.
Gains or losses arising from a structural decline in the portfolio are reported directly in the profit and loss account.
Positions in investment pools
Positions in investment pools held by REAAL Verzekeringen are carried at fair value, in accordance with the accounting principles applied by the pools themselves. Proceeds from divestments are booked directly to the profit and loss account.
Investments on behalf of policyholders
Investments made on behalf of policyholders are carried at fair value, in accordance with the accounting principles applied to the investments held at the risk of the insurer, with the exception of the investments made separately for large
group pension contracts. These are valued in accordance with the conditions of the contracts in question. The changes
in value are reported in the profit and loss account.
Loans and advances
The Mortgage loans, Other loans, and receivables from Banks are carried at nominal value. A downward value adjustment is applied where necessary to this value, to cover the risk of default. The addition to bad debt provisions, which is
stated in the profit and loss account under Value adjustments to loans and advances, is based on the receivables’ level
of risk. In addition, the adequacy of the provision is evaluated statically on an annual basis, taking account of the value
of the provided sureties.
Interest is not booked on credits already in the process of settlement. Depending on the degree of doubt about the
repayment, interest on other credits is recorded in the profit and loss account only on receipt.
This item includes lease contracts, usually operational. Leased assets are carried at cost less depreciation and any
diminution in value as determined on the basis of the nature of the assets, the contract period, the estimated useful
life and the residual value.
Other assets
At SNS Bank, securities held in the trading portfolio – both shares and interest-bearing securities – are stated at fair
value, which is usually the market price on balance sheet date. Interest-bearing securities issued by group companies
that have been purchased for resale are valued at cost or lower fair value. Realised and unrealised value movements are
stated in the profit and loss account as Other income.
SNS REAAL GROUP
Annual Report 2004
73
General notes
Accrued assets
At REAAL Verzekeringen, the accrued acquisition costs exclusively concern the acquisition commissions on life insurance policies with regular premiums. The capitalised acquisition costs are written down on a straight-line basis over a
maximum of 10 years, in line with the repayment of expenses by the premiums.
The accrued acquisition costs also include the Value of Business Acquired (VOBA), which has the nature of accrued
acquisition costs. VOBA is the cash value of estimated future cash flows in the portfolio of an acquired company, which
are present on the date of acquisition.
Subordinated debts
This item includes the subordinated bonds and loans that are considered in the solvency test by De Nederlandsche
Bank (the Dutch central bank). These are stated at nominal value. At REAAL Verzekeringen, the final bonus account
concerns final bonus commitments in relation to certain life insurance policies. Entitlement to the final bonus applies
only to specific individual policies that become payable upon expiry of the agreed term or upon the death of the insured
party. Entitlement to the final bonus lapses on surrender of the policy. Entitlements to final bonuses not yet paid out
are subordinated to all other debts. It is also stipulated that entitlement to a final bonus is cancelled if and insofar as
the results erode the capital base to the extent that the statutory solvency requirements can or may no longer be complied with. The final bonus account is calculated on an actuarial basis using the same principles as applied to calculate
the profit additions, which form part of the Technical provisions for insurance operations, and taking account of the
estimated probability of early termination of insurance policies. Part of the final bonus account is converted annually,
according to a fixed method, into an unconditional right of the policyholder and added to the Technical provisions for
insurance operations.
Fund for general banking risks
SNS Bank keeps an open fund for general banking risks. It serves as a buffer in the event of calamities and is a precautionary measure taken in view of overall banking risk. Deferred tax assets in relation to the fund for general banking
risks are deducted from the fund. Additions to and withdrawals from this fund are noted separately in the profit and
loss account.
General provisions
Provisions are carried on the balance sheet to cover obligations and losses as at the balance sheet date, for which the
amounts are uncertain as at the balance sheet date, but which can be reasonably well estimated; risks with respect to
expected obligations or losses, the size of which can be reasonably well estimated; expenses to be incurred in a subsequent financial year, provided such expenses originate at least partly in the year under review or in a prior year and the
purpose of the provision is to spread the charges evenly over a number of years.
Deferred tax liabilities
A provision for deferred tax liabilities is carried to cover the differences between the book value according to the financial
statements and the tax value, as well as for tax equalisation reserves. The provision for tax liabilities is based on the actual
rate of taxation. Deferred tax assets are stated under Other assets insofar as it is likely that these can be realised.
Pensions and early retirement
The pension commitment equals the cash value of the future pension entitlements less the fair value of investments.
The value of the pension entitlement is based on the contracts and takes into account demographic and economic
assumptions, such as the expected future salary developments, indexations and chances of dismissal. With respect
to the counterpart investments, account is taken of the expected return on investment and the investment gains or
losses achieved.
74
SNS REAAL GROUP
Annual Report 2004
General notes
The pension costs are charged to the profit and loss account in such a way that the costs are spread across the expected
working life of the employees.
Technical provisions, insurance operations
Life insurance
The provision for life insurance comprises the actuarial commitments, including profits already allocated under profitsharing schemes, less the actuarial value of future premiums. The costs are calculated using the net method. For insurance
policies whose term exceeds the period for which premiums are paid, an additional provision, calculated according to
actuarial principles, is levied to cover costs incurred in the premium-free period. The average actuarial interest rate is
4%. Mortality rates are determined on the basis of the same principles used to calculate the premiums. Where necessary, adjustments are made in accordance with the latest mortality tables. In the case of insurance contracts for which
there is no exposure to investment risks, the actuarial interest rate is based on the guaranteed return.
The provision for life insurance is checked annually for adequacy and, if necessary, added to for any inadequacy as a
result of principles applied. The adequacy test looks at expected future developments, unamortised interest rate rebates
and accrued acquisition costs.
The provisions are stated net of capitalised interest rate rebates. Depending on the type of insurance contract, the
capitalised interest rate rebate is amortised either on an actuarial basis or over a period of eight years.
Unearned premiums and current risks
The provision for unearned premiums is computed in proportion to the unexpired risk periods. The provision is equal
to the unearned gross premiums net of prepaid reinsurance premiums. Gross premiums are stated net of the stated
commission. The provision for unexpired risks is calculated on the basis of claims and administrative expenses that may
arise after balance sheet date and which are covered by contracts concluded before that date, insofar as the amount
estimated in this connection exceeds the provision for unearned premiums and the premiums claimable in relation to
these contracts.
Outstanding claims
The provision for reported but unsettled claims is determined for each individual item. A provision is also carried for
claims arising from events that have occurred, but have not yet been reported, as well as for claim-handling expenses.
The adequacy of the provision for unsettled claims is tested each year using standard actuarial techniques.
Profit sharing and discounts
This provision is valued on the basis of actuarial principles and consists of the amounts set aside in relation to profitsharing schemes for policyholders or beneficiaries.
Insurance policies in which policyholders bear the investment risk
The technical reserves for insurance policies, in which policyholders bear the investment risk, are generally stated in
the balance sheet value of the related investments.
Gross premium income
The premium income from life insurance products is included in the profit and loss account on the date on which the
policyholder’s payment falls due. Other premiums are allocated to the periods to which they relate.
Method for cost allocation
The costs for group staff are allocated to group subsidiaries proportionately. The costs of the Group Executive Board
and certain holding company costs are not allocated to group subsidiaries.
SNS REAAL GROUP
Annual Report 2004
75
General notes
The investment income from the insurance operations is allocated to the technical accounts in the notes to the financial
statements.
Taxes
When computing the tax burden, account is taken of all temporary differences between the profit before taxation, calculated on the basis of the accounting principles described above, and the taxable amount according to tax legislation.
Taxes on profit are computed on the basis of operating profits before taxation as shown in the financial statements,
allowing for tax-exempt profit components such as the participation exemption.
Principles for the consolidated cash flow statement
The cash flow statement is drawn up according to the indirect method, making a distinction between cash flows from
operating, investment and financing activities.
Cash flows in foreign currency are converted at the average exchange rates during the financial year.
With regard to cash flow from operations, the net profit is adjusted for income and expenses that did not result in
income and expenses in the same financial year and for changes in provisions and accrued and deferred items (Other
assets, Accrued assets, Other liabilities and Accrued liabilities).
With investments in consolidated participating interests, the liquid assets available in these participating interests are
deducted from the purchase price.
Liquid assets consist of cash, deposits at De Nederlandsche Bank (Dutch central bank) and net amounts at other
banks.
76
SNS REAAL GROUP
Annual Report 2004
2004
In € millions
2003
Assets
Bank
2004
1. Intangible fixed assets
2003
Insurance
2004
2003
Total
2004
2003
Software
8
10
2
5
10
15
Total
8
10
2
5
10
15
Balance as at 1 January
Investments
Divestments
Amortisation
15
5
(2)
(8)
7
13
-(5)
Balance as at 31 December
10
15
Accumulated amortisation on the intangible fixed assets as at 31 December
2004 amounted to € 14 million (2003: € 6 million).
Bank
2004
2. Tangible fixed assets
Insurance
2004
2003
2003
Other
2004
2003
Total
2004
2003
Data processing equipment
Other moveable assets
25
25
9
12
--
1
34
38
42
50
30
30
--
1
72
81
Total
67
75
39
42
--
2
106
119
Investments
Divestments
Depreciation
119
31
(11)
(33)
110
50
(3)
(38)
106
119
Accumulated depreciation on the tangible fixed assets as at 31 December
2004 amounted to € 188 million (2003: € 161 million).
The legal ownership is entirely held by SNS REAAL Group.
3. Participating
interests
Equity
participation
Receivables
Total
Bank
2004
Insurance
2004
2003
2003
Other
2004
2003
Reclassification
2004
2003
Total
2004
2003
5
6
--
1
49
138
(3)
(3)
51
142
--
--
--
18
255
318
--
--
255
336
5
6
--
19
304
456
(3)
(3)
306
478
SNS REAAL GROUP
Annual Report 2004
77
2004
In € millions
Equity participation in participating interests
Acquisitions and expansions
Disposals and reductions
Income from participating interests
Dividend received
Change in group composition 1
Other movements
Revaluations
2003
Participating
Other participating
interests with
interests
significant influence
2004
2003
2004
2003
141
163
1
6
3
Total
2004
2003
142
169
67
--
--
(132)
(1)
--
(148)
36
58
--
--
36
58
--
(23)
--
--
--
(23)
--
18
--
(5)
--
13
19
--
--
--
19
--
(1)
(10)
--
--
(1)
(10)
51
141
0
1
51
142
(147)
3
67
(132)
Receivables from participating interests
Advances
Repayments
Change in group composition 1
336
889
(970)
--
226
16
(340)
434
255
336
345
569
7,615
62
6
2,793
356
512
8,082
58
7
2,972
11,390
11,987
The receivables from participating interests include a subordinated loan of
€ 6 million (2003: € 5 million).
4. Investments
Land and buildings
Fixed-Income securities
Interests in investment pools of insurance operations
Deposits at insurers
Total
Bank
Land and buildings
2004
Insurance
2004
2003
2003
Total
2004
2003
Land and buildings entirely or partially in group’s
own use
Other land and buildings
118
122
61
61
179
183
1
2
165
171
166
173
Total
119
124
226
232
345
356
) The change in group composition concerns the treatment of the reduction of two wholly-owned capital interests to interests of less than 50%,
involving the interest being partly converted to short-term loans that are included under receivables.
1
78
SNS REAAL GROUP
Annual Report 2004
2004
In € millions
2003
Investments
Divestments
Revaluations
Depreciation
356
7
(15)
(1)
(2)
328
50
(27)
7
(2)
345
356
Bank
2004
Insurance
2004
2003
2003
Total
2004
2003
Listed
Unlisted
15
11
176
454
191
465
--
3
378
44
378
47
Total
15
14
554
498
569
512
Composition of the portfolio by industry:
- Financial institutions
- Trade, industry and services
- Investment funds
- Other
100
8
326
135
98
13
399
2
Total
569
512
512
363
(382)
76
1,136
154
(745)
(33)
569
512
Additions
Disposals
Revaluations
Fixed-income securities
Bonds and fixed-income
securities
Private loans
Deposits at credit institutions
Other fixed-income securities
Bad debt provision
Total
Bank
2004 2003
Insurance
2004 2003
1,067
1,372
4,399
4,312
--
--
--
--
--
1,705
1,772
--
19
(41)
--
--
79
75
--
--
--
--
79
75
430
610
4
4
--
--
--
--
434
614
1,497
1,982
6,187
6,163
--
19
(41)
(47) 7,643
8,117
--
--
--
--
19
(41)
(6)
1,491
(5)
1,977
(22)
6,165
(30)
6,133
Other
2004 2003
Elimination
2004 2003
Total
2004 2003
--
5,466
5,684
(47) 1,664
1,744
--
(28)
(47) 7,615
(35)
8,082
SNS REAAL GROUP
Annual Report 2004
79
In € millions
2004
2003
The balance includes listed securities issued by group companies for an
amount of € 10 million (2003: € 0).
Additions and advances
Disposals and redemptions
Other movements
Change in group composition
8,082
5,721
(5,601)
28
(615)
4,836
7,694
(4,428)
(20)
--
7,615
8,082
1,206
2,499
1,057
1,355
2,545
1,334
474
230
404
46
Total
5,466
5,684
Composition of the portfolio of private loans by counterparty:
- The Dutch government or guaranteed by the Dutch government
- Other Dutch public bodies or guaranteed by Dutch public bodies
- Trade and industry
- Other
16
9
1,539
17
83
43
10
1,273
9
409
Total
1,664
1,744
Bonds and fixed-income securities
Private loans
Other investments
2,000
305
143
345
1,871
856
9
236
Total
2,793
2,972
Composition of the bond portfolio by counterparty:
- The Dutch government or guaranteed by the Dutch government
- Foreign public bodies or guaranteed by foreign public bodies
- Trade and industry
- Other
Investments on behalf of policyholders include separate deposits for account
and risk of policyholders, investments for unit-linked insurances and separate
investments for large collective pension contracts.
80
SNS REAAL GROUP
Annual Report 2004
2004
In € millions
Additions and advances
Disposals and redemptions
Revaluations
Other movements
Bank
5. Mortgage loans
Loans with (government) guarantee
Other mortgage loans
Bad debt provision
Total
2004
2003
2,972
477
(1,124)
101
363
4
2,103
1,324
(529)
74
---
2,793
2,972
2003
Insurance
2004
2003
Total
2004
2003
5,835
4,050
1,169
1,047
7,004
5,097
27,668
25,891
822
1,050
28,490
26,941
33,503
29,941
1,991
2,097
35,494
32,038
(41)
33,462
(40)
29,901
(3)
1,988
(1)
2,096
(44)
35,450
(41)
31,997
Breakdown of the portfolio by type of security:
- Residential property in the Netherlands
- Residential property outside the Netherlands
- Other property in the Netherlands
33,406
293
1,751
30,251
244
1,502
Total
35,450
31,997
Advances
Repayments
Release from provisions
Securitisation
Received from securitisations
31,997
8,128
(3,323)
-(1,250)
(102)
28,433
9,810
(3,912)
8
(2,500)
158
35,450
31,997
As further security, an undisclosed lien has been established on mortgages
with a total value of € 3 million (2003: € 5 million).
A synthetic securitisation has been closed under the name Provide Lowlands I.
In this transaction launched under KfW’s Provide platform, SNS Bank bought
credit risk protection against € 1 billion of its residential mortgage portfolio.
SNS REAAL Group has securitised mortgage receivables, which are reported
as off balance sheet items. With these transactions, the economic ownership
of mortgage receivables was transferred to separate companies.
The outstanding principal amounts of the securitised portfolio amount to
€ 5,517 million for SNS Bank (2003: € 5,004 million).
SNS REAAL GROUP
Annual Report 2004
81
In € millions
The net interest income of the separate companies has been made a
component of the SNS REAAL Group’s interest income by means of an interest
rate swap.
A positive result within the separate companies creates a positive value for
the deferred purchase price. This receivable is reported in the balance sheet
under Accrued assets. In the profit and loss account of SNS REAAL Group, this
result is included under the net interest income. Realisation and payment
depend on the future results of the securitised mortgages portfolio.
At year-end 2004, the total receivable was € 83 million (2003: € 52 million).
As at 31 December,
the following portfolios were outstanding:
Hermes I
Hermes II
Hermes III
Hermes IV
Hermes V
Hermes VI
Hermes VII
Hermes VIII
Total
First call-option
date
Hermes I
Hermes II
Hermes III
Hermes IV
Hermes V
Hermes VI
Hermes VII
Hermes VIII
n.a.
n.a.
18 Jul 2009
18 Jul 2009
18 Jan 2011
18 Nov 2009
18 Feb 2010
18 Nov 2013
Initial principal
437
184
665
336
900
442
800
402
1,100
742
1,250
922
1,250
1,255
1,250
1,234
7,652
5,517
Contractual date of
expiry
Subordinated
bonds in own
possession
as at 31 Dec 2004
Jul 2009
Apr 2012
Jun 2009
Oct 2033
Oct 2034
May 2035
Nov 2037
May 2038
Total
6. Other loans
This item relates to loans and advances to non-banks, other than in the form
of interest-bearing securities.
82
SNS REAAL GROUP
Annual Report 2004
Principal as at
31 December 2004
Date of
securitisation
Nov 1999
Nov 2000
Jun 2001
Nov 2001
Nov 2002
May 2003
Sep 2003
May 2004
Deferred selling
price
as at 31 Dec 2004
4.8
4.4
--
13.9
--
14.5
--
12.9
--
13.6
--
12.5
--
7.5
--
3.3
4.8
82.6
In € millions
Banking
2004
2003
Personal loans
Business loans
Lease contracts
2003
Elimination
2004
2003
Total
617
595
38
101
--
--
2,187
2,377
378
141
(438)
(42)
--
--
2
317
--
--
2,804
2,972
418
559
(438)
(42)
(38)
(45)
--
--
380
514
(438)
(42)
Bad debt provision
Total
Other
2004
2003
2004
(98)
2,706
(86)
2,886
2004
2003
655
696
2,127
2,476
2
317
2,784
3,489
(136)
2,648
(131)
3,358
Breakdown by security:
- Public sector
- Private sector with government guarantee
- Private sector other
313
266
2,069
173
336
2,849
Total
2,648
3,358
Breakdown by business sector:
- Public sector
- Agriculture and horticulture, forestry and fishery
- Industry
- Service sector companies
- Other (mainly private)
313
15
204
1,367
164
585
173
18
168
1,364
311
1,324
Total
2,648
3,358
3,124
2,410
753
420
Loans include receivables from group companies up to an amount of
€ 91 million (2003: € 14 million).
7. Banks
The Banks item concerns loans and advances to banks, insofar as not in the
form of interest-bearing securities.
There is no receivable extended in the form of a subordinated loan (2003:
€ 5 million).
8. Liquid assets
Liquid assets also include the demand deposits at De Nederlandsche Bank
and deposits of REAAL Verzekeringen at other banks. Loans and advances of
SNS Bank to banks are included in Banks.
SNS REAAL GROUP
Annual Report 2004
83
In € millions
2004
2003
9. Other assets
Securities trading portfolio
Amounts due from direct insurance:
- Policyholders
- Agents
Amounts due from reinsurance
Deferred tax receivables 1
Other amounts due
133
239
40
19
285
104
86
158
28
295
153
186
Total
667
1,059
498
170
350
207
444
210
253
308
1,225
1,215
1,961
1,643
The securities trading portfolio contains listed securities issued by group
companies up to an amount of € 85 million (2003: € 213 million).
10. Accrued assets
Accrued interest
Premiums / discounts
Accrued acquisition costs
Other accrued assets
Total
The accrued acquisition costs include an amount of € 117 million for the
value of business acquired in connection with the acquisition of the Zurich
insurance portfolio.
Liabilities
11. Shareholders’ equity
For further details on shareholders’ equity, please see the notes to the
company balance sheet.
) For a specification of this item, see page 86.
1
84
SNS REAAL GROUP
Annual Report 2004
2004
In € millions
12. Third-party interests
2003
298
298
951
142
951
150
Final bonus account
1,093
52
1,101
55
Total
1,145
1,156
114
136
125
5
50
50
81
80
200
110
114
136
125
5
50
50
81
80
200
110
951
951
This item includes participation certificates issued by SNS Bank to third
parties. The certificates have an open-ended term, with SNS Bank maintaining
the right to early redemption in full after 10 years, provided permission is
given by DNB (the Dutch central bank). Dividend in the form of a coupon
rate is fixed over a period of 10 years and equal to the CBS return on 9-10 year
Government bonds with a spread (CBS: Central Bureau of Statistics/Statistics
Netherlands). The payment on the participation certificates is charged to the
profit sharing.
This item also includes the equity interest of third parties in the group
companies of SNS REAAL Group.
13. Subordinated debts
Bond loans
Private loans
Bond loans
SNS REAAL Group
SNS Bank
SNS Bank
SNS Bank
SNS Bank
SNS Bank
SNS Bank
SNS Bank
SNS Bank
SNS Bank
7.25%
6.25%
5.125%
4.00%
Variable
Variable
Variable
7.625%
5.75%
Variable
1996/06
1997/09
1999/11
1999/19
2000/10
2000/10
2001/11
Perpetual
Perpetual
2003/13
Total
The two perpetually subordinated bond loans mentioned above have a term
that is basically open-ended. However, both loans will be reassessed after 10
years, when the new interest rate will be set. At that time, redemption can be
opted for.
Private loans
The average interest rate amounts to 6.3% (2003: 6.3%).
SNS REAAL GROUP
Annual Report 2004
85
2004
In € millions
2003
Final bonus account
The final bonus account is largely of a long-term nature.
14. Fund for general banking risks
70
70
As the fund is deemed to be more than sufficient to absorb adverse effects
resulting from banking risks, no additions were made to the reserve in recent
years.
15. General provisions
Bank
2004 2003
Insurance
2004 2003
Other
2004 2003
Group
2004 2003
Total
2004 2003
Deferred tax liabilities
Other general provisions
9
12
79
96
--
--
--
--
88
108
--
44
3
87
--
--
(11)
1
(8)
132
36
26
20
38
--
2
4
2
60
68
Total
45
82
102
221
--
2
(7)
3
140
308
Deferred taxes
The sources of deferred tax receivables can be specified as follows:
- Bonds
- Technical provisions, insurance operations
- Pension provision
- Other provisions
- Tax-deductible losses
- Other
31
31
-14
2
26
39
35
38
23
1
17
104
153
The sources of deferred tax liabilities can be specified as follows:
- Real estate
- Investments
- Capitalised acquisition costs
- Interest rate rebates
- Equalisation reserve
- Other
51
32
3
--2
40
14
7
12
23
12
Total
88
108
6
2
4
1
31.5%
34.5%
Total
The deferred tax receivable on tax-deductible losses can be specified as
follows:
- Total tax-deductible losses
- Tax deductible losses carried as deferred tax receivable
Average tax rate
86
SNS REAAL GROUP
Annual Report 2004
In € millions
2004
2003
The various pension schemes provided by SNS REAAL Group for its staff were
changed from final-pay schemes to average-pay schemes with effect from
1 January 2004. The majority of employees are being guaranteed pensions
of 70% of their average wage, taking account of the AOW-franchise and other
specific conditions. The pension granted commences at the age of 60, 62
or 65.
The tables below illustrate the pension liabilities and the fair value of the
pension investments.
The additional pension provision required as at 31 December is calculated as
follows:
Present value of pension entitlements
Investments/pension provision already accounted for
Shortfall in entitlements less investments
Actuarial loss not yet incorporated (corridor)
Pension provision for former Zurich employees
Additional pension provision accounted for
1,446
1,168
278
(298)
12
(8)
1,264
948
316
(194)
10
132
Provided the pension schemes remain unchanged, € 15.9 million of the loss to
be amortised will be charged to 2005.
The changes in the additional provision during the year can be specified as
follows:
- Additional pension provision as at 1 January
- Additional Zurich pension provision
- Other movements
- Change of pension scheme
- Already stated pension charges
- Pension premiums paid
Additional pension provision as at 31 December
132
2
-(33)
64
(173)
(8)
204
10
6
-67
(155)
132
The change from final-pay scheme to average-pay scheme amounts to
€ 33 million gross, and is presented in the summary as change of pension
scheme. This amount is accounted for as staff costs in the profit and loss
account.
SNS REAAL GROUP
Annual Report 2004
87
In € millions
2004
2003
With effect from 1 January 2004, all staff pension rights were placed with the
former pension fund of SNS Bank, the name of which has been changed to
‘Pensioenfonds SNS REAAL Groep’ (SNS REAAL Group Pension Fund). In order
to bring the assets of the pension fund up to an adequate level, SNS REAAL
Group made a deposit in addition to the normal premium payments, as it also
did last year. The payments are accounted for as ‘Pension premiums paid’ in
the summary of changes above.
The following important long-term assumptions were applied in the
calculation of the pension provision:
- Discount rate
- Expected salary development (including correction for inflation)
- Expected return on investments/technical provisions, insurance operations
- Expected indexation
4.25%
4.25%
5.3%
2.0%
4.75%
4.5%
5.3%
2.0%
68
6
40
25
(13)
--
7
(4)
61
68
Other general provisions
Other general provisions include provisions for reorganisation.
Changes:
- Through profit and loss
- Through the shareholders’ equity
16. Technical provisions, insurance operations
Provision for life insurance obligations
Unamortised interest rate rebates
Provision for unearned premiums and accrued risks
Provision for payable claims
Provision for profit-sharing and rebates
Technical provision for insurance policies in which policyholders bear the
investment risk
Total
The technical reserve for life insurance includes no amount for pension
liabilities to staff and former staff, due to the transfer to the pension fund of
SNS REAAL Group (2003: € 886 million).
The technical provisions for insurance operations are largely of a long-term
nature.
88
SNS REAAL GROUP
Annual Report 2004
7,983
(150)
68
422
162
7,685
(145)
62
471
2
8,485
8,075
2,845
3,099
11,330
11,174
In € millions
17. Savings
2004
2003
11,263
10,404
Breakdown by category:
- Private loans
- Business deposits
- Credit balances of account holders
- Mortgage deposits
- Other credit balances
1,334
571
4,397
351
685
1,266
608
4,330
345
607
Total
7,338
7,156
17,813
16,169
2,372
2,344
The Savings item comprises balances of savings accounts, savings deposits
and term deposits of private customers. This item also includes interest
payable on savings, insofar as the contract terms stipulate that this interest is
to be added to the savings account.
18. Other funds entrusted, banking operations
Other funds entrusted concern non-subordinated debts to non-banks other
than in the form of debt certificates.
Other funds entrusted, banking operations, also include debts to group
companies up to an amount of € 389 million (2003: € 334 million).
19. Debt certificates
Debt certificates concern bonds and other debt certificates with a fixed or
variable interest rate insofar as not subordinated.
The debt certificates have an average interest rate of 3.3% (2003: 3.3%).
20. Banks
The Banks item refers to debts to banks, insofar as not in the form of interestbearing debt certificates.
Banks includes no debts to group companies (2003: € 1 million).
SNS REAAL GROUP
Annual Report 2004
89
Notes to the consolidated balance sheets
In € millions
2004
2003
21. Other liabilities
Loans and other long-term debts
Debts in relation to direct insurance
Deposits of reinsurers
Debts to reinsurers
Taxes and social security contributions
Other liabilities
91
162
164
18
12
587
105
184
157
-2
607
1,034
1,055
Accrued interest
Premiums / discounts
Other accrued liabilities
391
30
494
393
220
668
Total
915
1,281
106
1,301
106
1,055
Total
The non-subordinated bond loans, private loans and deposits held by
SNS Bank are included in other funds entrusted, banking operations, debt
certificates and banks.
22. Accrued liabilities
Off-balance sheet commitments
Contingent liabilities
Commitments regarding sureties and guarantees issued
Commitments arising from irrevocable facilities
In order to meet its clients’ requirements, SNS REAAL Group offers loanrelated financial products, such as surety bonds and guarantees. The
underlying value of these products is not accounted for as assets or liabilities
in the balance sheet. For these products, the above mentioned underlying
value indicates the maximum potential credit risk incurred by SNS REAAL
Group, assuming that all its counterparties would default on their contractual
obligations and all existing sureties would be worthless.
Guarantees concern both credit replacement and non-credit replacement
guarantees. It is expected that the majority of guarantees will expire without
any claim being made against them and will therefore not cause any future
cash flows.
90
SNS REAAL GROUP
Annual Report 2004
In € millions
2004
2003
The irrevocable facilities consist mainly of credit facilities granted to clients,
but which have not yet been used. These facilities are granted for a specified
period and at a floating interest rate. The majority of the irrevocable credit
facilities that have not yet been used have sureties pledged for them.
Securitisations
The SNS REAAL Group has securitised mortgage receivables. With these
transactions, the economic ownership of mortgage receivables was
transferred to separate companies.
The outstanding principal of the securitised portfolio amounts to
€ 5,517 million for SNS Bank (2003: € 5,004 million) and € 267 million for REAAL
Verzekeringen (2003: € 301 million). These special purpose vehicles (SPVs) are
not consolidated in the SNS REAAL Group’s financial statements.
Rental commitments
The future rental commitments arising from lease contracts as at
31 December are as follows:
2005
2006
2007
Financial years after 2007
7
5
3
--
7
5
3
--
Legal proceedings
Group subsidiaries of SNS REAAL Group are involved in legal proceedings
that relate to claims by and against these companies that ensue from normal
business operations. Although it is impossible to predict the result of pending
or threatened legal procedures, on the basis of information currently available
and after consulting legal advisors, the Group Executive Board believes that
the results of these proceedings are unlikely to adversely materially affect the
financial position or results of SNS REAAL Group’s activities.
Terrorism-pool
Dutch insurance companies have jointly set up the ‘Nederlandse Herverzekeringsmaatschappij voor Terrorisme’ (NHT – Dutch reinsurance company for
terrorism), the company that accommodates the risk of terrorism.
REAAL Verzekeringen reinsures itself with this company, with maximum
cover of € 1 billion per event per year. At the same time, the terrorism cover in
policies is limited to the reimbursement provided by the NHT insurers.
SNS REAAL GROUP
Annual Report 2004
91
In € millions
Risk policy of SNS REAAL Group
SNS REAAL Group has chosen a conservative risk profile. Management
decisions are taken on the basis of a broad knowledge of the risks and a
number of established risk parameters. Individual activities are assessed
according to their capital requirements, risk and return.
Market risk
Market risk concerns adverse value changes in the trading positions and the
structural positions of the group due to interest rate changes and changes
in foreign currency and equity markets. SNS REAAL Group monitors market
risks with the aid of simulation models, scenario analyses and stress tests.
This enables insight to be gained into the potential consequences of the
market risk for capital and profit. SNS REAAL Group uses derivatives in the
management of market risk.
Interest rate risk
SNS REAAL Group is exposed to structural interest rate risk. This risk arises
from the difference between the term of loans provided/investments made
and that of loans contracted/liabilities. The interest rate risks with respect to
these positions are monitored by the relevant ALM Committee. The interest
rate risk of SNS Bank is monitored with the aid of gapping and duration
analysis, value-at-risk and the analyses of stress scenarios. As an indication
of the interest rate risk, the table below shows SNS Bank’s typical interest
maturity calendar.
Assets
Banks
Loans and advances
Interest-bearing securities
B 1 month
> 1 month
B 3 months
> 3 months
B 1 year
> 1 year
B 5 years
> 5 years
Total
1,914
707
245
--
--
2,866
10,052
1,566
6,737
11,662
6,151
36,168
23
3
20
834
296
1,176
1,425
540
330
--
--
2,295
4,547
2,212
4,643
4,821
2,227
18,450
1,986
4,502
2,219
4,577
4,260
17,544
50
240
5
8
563
866
Liabilities
Banks
Funds entrusted
Debt certificates
Subordinated debts
Derivatives
Swaps
92
SNS REAAL GROUP
Annual Report 2004
442
(1,017)
(751)
(63)
1,080
(309)
In € millions
Currency risk
Given that SNS REAAL Group focuses on the Dutch market, it has little
or no sensitivity to foreign currency rates. At SNS Bank, all the relevant
currency risks are hedged. The currency risks in the investment portfolio of
REAAL Verzekeringen are hedged for 75%. The table below gives an indication
of the foreign currency position of SNS Bank.
US Dollars
Japanese Yen
British Pounds
Swiss Francs
Canadian Dollars
Australian Dollars
Other
Total
Balance sheet
debit
Balance sheet
credit
139
1,486
459
212
411
415
(4)
6
23
--
23
(23)
Net
Derivatives
(1,347)
247
(1,345)
(247)
1
43
(42)
44
--
379
(379)
379
100
411
(311)
311
1,133
2,946
(1,813)
1,815
The converted total assets and liabilities of SNS REAAL Group in foreign
currency come to € 1,421 million (2003: € 903 million) and € 3,119 million
(2003: € 3,552 million) respectively.
Credit risk
The table below gives an indication of the credit risk of SNS Bank, based on
the weighting percentages used in regular reporting to De Nederlandsche
Bank (DNB). Generally, these percentages are 0% for claims against or
guaranteed by OECD governments, 20% for claims against or guaranteed by
OECD banks, 50% for loans entirely and fully covered by mortgages and 100%
for the other counterparties.
Notional
amount
Risk-weighted
amount
Loans and advances to the public sector
Liquid assets
Short-dated government paper
Banks
Loans and advances to the private sector
Equities
Fixed assets and participating interests
Other assets
Accrued assets
Derivatives and off balance sheet products
Solvency requirements for market risks
313
442
430
2,866
35,855
1,176
33
199
40
686
---
---305
18,712
47
15
191
40
307
355
75
Total
42,040
20,047
SNS REAAL GROUP
Annual Report 2004
93
In € millions
Liquidity risk
The residual term of a number of assets and liabilities as at 31 December 2004
is illustrated in the table below.
Assets
Banks
Mortgage loans
Other loans
Payable on
demand
> 1 month
B 3 months
> 3 months
B 1 year
> 1 year
B 5 years
> 5 years
Total
2,139
770
176
31
8
3,124
--
774
31
362
34,283
35,450
1,449
75
189
509
426
2,648
1
75
132
2,709
2,549
5,466
214
384
271
809
694
2,372
--
--
--
121
21
142
9,470
155
243
550
845
11,263
4,094
357
208
346
2,333
7,338
--
1,871
1,349
9,728
4,865
17,813
346
13
411
16
248
1,034
Liabilities
Banks
Private loans
Funds entrusted:
- Savings
- Other
Debt certificates
Other liabilities
The table below illustrates the residual term as at 31 December 2003.
Assets
Banks
Mortgage loans
Other loans
Payable on
demand
521
> 1 month
B 3 months
1,769
> 3 months
B 1 year
> 1 year
B 5 years
> 5 years
Total
77
35
8
2,410
175
647
36
364
30,775
31,997
66
1,542
462
817
471
3,358
221
137
160
2,314
2,852
5,684
127
416
266
962
573
2,344
--
--
--
3
147
150
8,623
95
153
835
698
10,404
4,658
422
214
466
1,396
7,156
--
1,012
2,795
9,558
2,804
16,169
--
1
4
810
240
1,055
Liabilities
Banks
Private loans
Funds entrusted:
- Savings
- Other
Debt certificates
Other liabilities
94
SNS REAAL GROUP
Annual Report 2004
In € millions
The fair value of the financial assets and liabilities
The table below sets out the estimated fair value of the financial assets and
liabilities of SNS REAAL Group. A number of balance sheet items have not
been included in this table because they do not satisfy the definition of a
financial asset or liability. The total of the fair value shown below does not
represent the underlying value of SNS REAAL Group and should, therefore, not
be interpreted as such.
2004
Financial assets
Investments:
- Shares and convertible bonds
- Fixed-Income securities
Loans and advances
Banks
Liquid assets
Other assets:
- Trading portfolio
- Other receivables
Accrued assets 1 2
Estimated fair
value
306
2003
Balance sheet
value
306
Estimated fair
value
503
Balance sheet
value
478
569
569
512
512
8,082
7,762
8,186
8,082
39,436
38,098
36,534
35,355
3,106
3,124
2,404
2,410
753
753
420
420
133
133
239
239
534
534
820
820
253
992
307
962
53,172
52,124
49,925
49,278
1,150
1,145
1,164
1,156
36,375
36,414
33,631
33,729
2,406
2,372
2,374
2,344
1,034
1,034
1,060
1,055
506
915
594
1,281
41,471
41,880
38,823
39,565
Financial liabilities
Subordinated loans
Funds entrusted and debt certificates
of the banking operations
Banks
Other liabilities
Accrued liabilities 2
) Accrued assets exclude accrued acquisition costs with respect to insurance policies.
) The difference between the balance sheet value and fair value of the accrued items is caused by the fact that the accrued interest and share premiums/discounts have been discounted in the fair value of the interest-bearing items.
1
2
SNS REAAL GROUP
Annual Report 2004
95
The estimated fair values represent the amounts for which financial
instruments can be traded at balance sheet date on a realistic commercial
basis between properly informed parties prepared to enter into a transaction
‘at arm’s length’. The fair value of financial assets and liabilities is based on
market prices, insofar as these are available. If not, various techniques have
been developed for estimating the fair value of these instruments. These
techniques are subjective by nature and rely on different assumptions with
respect to the discount rate and the timing and volume of the expected future
cash flows. Changes in these assumptions can have a significant influence on
the estimated fair value. This can lead to the stated fair value not being an
accurate estimate of the net fair value. Furthermore, the estimated fair value
is based on the market conditions at a given moment and, therefore, probably
not an accurate estimate of the future net fair value.
The following methods and assumptions have been applied in order to
determine the estimated fair value of the financial instruments.
Financial assets
The fair value of participating interests is based on the stock exchange prices
of the shares in these participating interests or, if unlisted, the estimated
market value based on the stock exchange prices of similar securities. The fair
value of receivables from participating interests is determined in the same
way as described below for fixed-income securities.
Investments
The fair value of shares and convertible bonds is based on stock market
prices. The fair value of interest-bearing securities, insofar as these are not
mortgage loans, is based on the cash value of the expected future cash flows,
using the current market interest rate as applicable given the return, the
creditworthiness and term of the investment. The fair value of mortgage loans
is estimated by determining the cash value of the expected future cash flows,
using the interest rate currently applicable to similar loans.
Loans and advances
The fair value of loans and advances is estimated on the basis of the cash
value of the expected future cash flows, using the interest rate currently
applicable to loans and advances under similar conditions and credit risks.
Banks
The fair value of loans and advances to banks is estimated on the basis of
the cash value of the expected future cash flows, using the current market
interest rate applicable to loans and advances with similar characteristics.
Liquid assets
The book value of the liquid assets is considered a fair estimate of the fair
value.
96
SNS REAAL GROUP
Annual Report 2004
Other assets
The fair value of equities included in the trading portfolio is based on stock
market prices. The book value of the ‘other receivables’ is considered a fair
estimate of the fair value.
Accrued assets
The book value of the accruals is considered a reasonable estimate of the
fair value, with the accrued interest and the share premiums/discounts being
discounted in the fair value of the interest-bearing items.
Financial liabilities
Subordinated loans
The estimated fair value of the subordinated loans is based on the cash value
of cash flows, using the interest rate applicable to similar instruments.
Funds entrusted and debt certificates of the banking operations
The book values of demand deposits and deposits without agreed terms are
considered a reasonable estimate of the fair value. The estimated fair value of
deposits with agreed terms is based on the expected cash value of the future
cash flows, using the interest rate currently applicable to deposits with the
same residual term.
Banks
The fair value of debts to banks is estimated on the basis of the cash value of
the future cash flows, using the interest rate currently applicable to debts to
banks under similar conditions.
Other liabilities
The fair value of negotiable other liabilities is estimated on the basis of
stock market prices. The book value of non-negotiable other liabilities with
a variable interest rate is considered a fair estimate of the fair value. The
fair value of non-negotiable other fixed-interest liabilities is estimated by
determining the cash value of the cash flows, using the interest rate currently
applicable to similar instruments.
Accrued liabilities
The book value of the accruals is considered a fair estimate of the fair value,
with the accrued interest and the share premiums/discounts being discounted
in the fair value of the interest-bearing items.
SNS REAAL GROUP
Annual Report 2004
97
Derivatives
Derivatives are financial instruments embodied in contracts whose
value depends on one or more underlying primary financial instruments.
Derivatives contain rights and obligations as a result of which one or more of
the financial risks attendant on the underlying primary financial instruments
are transferred between parties. They do not lead to the transfer of the
underlying primary financial instrument when the agreement is entered into,
nor need any transfer take place on the expiry of the agreement.
Examples of derivatives are forwards, options, swaps and futures. The
underlying primary financial instruments can be interest rate products,
foreign exchange products, equity products or a combination of these. The
transferred financial risks are interest rate risks, currency risks, market risks
or a combination of these risks.
In principle, SNS REAAL Group enters into derivative transactions to hedge
interest rate risks and currency risks. Interest rate swaps and forward rate
agreements are used for hedging interest rate risks. Currency risks are
primarily covered by means of forward exchange transactions and currency
swaps. A proportion of the derivatives transactions are effected for arbitrage
and trading purposes. The interest rate and currency derivatives are generally
over-the-counter contracts and the other derivatives contracts are usually
listed on the stock exchange.
The contracted amounts (or notional amounts) shown in the summary
(including the breakdown by residual term to maturity) reflect the extent to
which SNS REAAL Group is active in the various markets.
Notional amounts
> 1 year
B 1 year
B 5 years
Total
Interest rate contracts:
- Swaps and FRAs
- Options
- Purchased options
- Futures
Currency contracts:
- Swaps
- Forwards
Forward commodity
contracts:
- Swaps
Total
98
SNS REAAL GROUP
Annual Report 2004
43,400
> 5 years
Positive
fair value
Negative
fair value
9,057
19,243
15,100
601
941
5,013
--
4,191
822
57
1
2,362
2,362
--
--
--
7
58
58
--
--
--
--
3,455
365
3,013
77
113
385
6,865
6,865
--
--
22
43
10
--
--
10
--
1
61,163
18,707
26,447
16,009
793
1,378
In € millions
Of the total in notional amounts, 14.1% (2003: 21.7%) relates to contracted
derivatives from trading activities. The remaining 85.9% (2003: 78.3%) relates
to activities in the context of balance sheet management.
The notional amounts show the units of account that, in relation to
derivatives, reflect the relationship to the underlying values of the primary
financial instruments. These notional amounts give no indication of the size
of the cash flows or the price and credit risks attendant on the transactions.
The positive fair value on balance sheet date indicates the maximum losses of
SNS REAAL Group on its derivatives transactions should all its counterparties
default on their obligations. We understand positive fair value to mean the
market-to-market value of the derivatives contracts, for which a receivable
from the counterparty arises that, if not met, leads to profit erosion. This fair
value will fluctuate daily as a result of the change in value of the underlying
assets.
Credit risk is a better basis for comparison with other banking activities.
To provide insight into the scale of the derivatives activities and the related
credit risks, in addition to the positive replacement value, the weighted and
unweighted credit equivalents are shown.
This unweighted credit equivalent is an indication of the maximum loss that
SNS REAAL Group could incur on its derivatives transactions. The weighted
credit equivalent is determined by multiplying the unweighted credit equivalent by the weighting percentages in accordance with the standards of international supervisory authorities.
The unweighted credit equivalent amounts to a total of € 1,426 million (2003:
€ 1,186 million) and the weighted credit equivalent to a total of € 320 million
(2003: € 275 million).
Statutory solvency requirements
For SNS Bank, the capital requirements, in accordance with the BIS
requirements, amounts to 8% of the risk-weighted assets, off-balance sheet
items and market risk of the trading portfolios (the so-called ‘BIS standard’).
At year-end 2004, this came to € 1,694 million (2003: € 1,609 million).
Core capital (Tier 1)
Supplementary capital (Tier 2)
Available Tier 3 capital
Deductible items (participating interests)
1,729
710
-(90)
1,596
769
-(64)
Qualifying capital (excluding Tier 3)
2,349
2,301
20,047
8.6%
11.7%
19,313
8.3%
11.9%
Risk-weighted assets
- Tier 1 ratio
- BIS ratio
SNS REAAL GROUP
Annual Report 2004
99
In € millions
2004
2003
European directives require insurance companies based in one of the member
states of the European Union to maintain a minimum solvency margin.
The solvency with respect to the insurance operations as at 31 December 2004
stood at 182% (2003: 177%) of the legally required solvency, as illustrated in
the table below.
100
Available solvency
Legally required solvency
945
520
856
484
Solvency margin
425
372
SNS REAAL GROUP
Annual Report 2004
Notes to the consolidated profit and loss account
In € millions
Income
Gross premium
income
Investment income
Interest income,
banking operations
Commission
Other income
Total income
Banking
2004 2003
Insurance
2004 2003
Other
2004 2003
Group
2004 2003
Elimination
2004 2003
Total
2004 2003
--
--
1,689
1,779
--
--
--
--
--
--
66
76
749
649
--
--
--
1
--
(3)
1,689
1,779
815
723
1,763
1,729
--
--
27
59
44
70
(46)
109
92
--
--
--
--
--
--
--
(64) 1,788
--
109
1,794
92
14
17
10
3
50
74
334
260
(334)
(270)
74
84
1,952
1,914
2,448
2,431
77
133
378
331
(380)
(337) 4,475
4,472
--
--
--
--
--
24
38
50
78
--
--
2
4
11
45
13
8
(14)
Expenses
Technical expenses,
insurance operations
--- 1,876 1,934
Interest charges,
banking operations
1,240 1,219
--Other interest charges
--54
41
Staff costs
238
279
139
146
Other operating
expenses
188
170
179
177
Value adjustments to
loans and advances
59
56
9
-Other costs
--3
2
Total expenses
Operating profit
before taxation
Taxes
Group profit
Net profit
--
1,876
1,934
(31)
(53) 1,283
1,282
3
(15)
(15)
41
29
24
--
--
426
460
(8)
--
--
366
347
3
5
--
--
--
--
71
61
--
--
--
--
--
--
3
2
(68) 4,066
4,115
1,725
1,724
2,260
2,300
44
62
83
97
(46)
227
190
188
131
33
71
295
234
(334)
(269)
409
357
54
61
47
45
(5)
--
(15)
--
--
81
97
173
129
141
86
38
71
310
243
(334)
(269)
328
260
--
--
--
--
--
--
--
--
18
17
18
17
173
129
141
86
38
71
310
243
(352)
(286)
310
243
(9)
SNS REAAL GROUP
Annual Report 2004
101
2004
In € millions
2003
Income
23. Gross premium income
Gross premium income concerns the insurance premiums before deduction of
reinsurance premiums.
Life insurance:
- Regular premiums
- Single premiums
778
594
770
716
Non-life insurance
1,372
317
1,486
293
Total
1,689
1,779
24. Investment income
This includes interest income, rental income, dividends and part of the
realised value movements of shares. In addition, this includes income from
investments made on behalf of policyholders.
Banking
2004 2003
Land and buildings
Shares and convertible bonds:
- Interest, dividend, etc. 1
Bonds and fixed-income
securities
Private loans
Other investments
Income from investments made
on behalf of policyholders:
- Interest, dividend, etc.
- Value movements
Total
Insurance
2004 2003
102
SNS REAAL GROUP
Annual Report 2004
Elimination
2004 2003
Total
2004 2003
--
--
16
16
--
--
--
--
16
16
--
--
80
(3)
--
--
--
--
80
(3)
66
76
248
155
(1)
(1)
--
--
313
230
--
--
139
130
1
2
--
(3)
140
129
--
--
140
155
--
--
--
--
140
155
66
76
623
453
--
1
--
(3)
689
527
--
--
62
71
--
--
--
--
62
71
--
--
64
125
--
--
--
--
64
125
--
--
126
196
--
--
--
--
126
196
66
76
749
649
--
1
--
(3)
815
723
) Insurance 2004: Including unrealised revaluations for an amount of € 62 million.
1
Group
2004 2003
In € millions
25. Interest income, banking operations
Interest income includes income arising from lending activities and related
transactions as well as related commissions and other income of an interestrelated nature. This also includes results from financial instruments insofar as
these serve to reduce interest rate risks.
Banking
2004 2003
Other
2004 2003
Group
2004 2003
Elimination
2004 2003
Total
2004 2003
Mortgage loans
Other loans
Other
1,487
1,464
--
--
--
--
--
--
247
279
27
49
42
64
(46)
29
(14)
--
10
2
6
--
Total
1,763
27
59
44
70
(46)
1,729
1,487
1,464
(64)
270
328
--
31
2
(64) 1,788
1,794
26. Commission
Commission includes fees for services rendered insofar as these are not of an
interest-related nature.
Bank
2004
Payment services
Securities business
Insurance business
Management fees
Other activities
Total
Total
2003
15
13
2004
2003
15
13
7
11
7
11
34
27
34
27
41
28
41
28
12
13
12
13
109
92
109
92
The commission from insurance business of SNS Bank concerns income from
REAAL Verzekeringen.
27. Other income
This includes income from securities and participating interests, results
from securities trading, price changes on securities in the trading portfolio,
results from currency dealing, foreign exchange rate differences and results
from derivatives not used for hedging purposes. In addition, this includes all
income that cannot be accounted for under other headings.
SNS REAAL GROUP
Annual Report 2004
103
2004
In € millions
Banking
2004 2003
Income from securities
and participating
interests 1,2
Result on securities
business
Result on currency
business
Result on other
financial transactions
Result on sale of
business activities
Other income
Total
Insurance
2004 2003
Other
2004 2003
Group
2004 2003
2003
Elimination
2004 2003
(2)
(2)
--
--
48
68
334
260
(334) (270)
21
16
--
--
--
--
--
--
--
--
8
--
--
--
--
--
--
(7)
(2)
--
--
--
--
--
--
1
--
--
--
--
2
(4)
10
3
2
14
17
10
3
50
Total
2004 2003
46
56
--
21
16
--
--
--
8
--
--
--
(7)
(2)
--
--
--
--
--
1
6
--
--
--
--
14
5
74
334
260
74
84
(334) (270)
Expenses
28. Technical expenses, insurance operations
Insurance expenses include reinsurance premiums, additions to insurance
provisions, payouts, surrender of policies, claims and claims handling costs.
Profit-sharing and rebates are also included.
Life insurance expenses:
- Payments for own account
- Change in technical provisions for own account
- Profit-sharing and rebates
- Reinsurance premiums
1,643
(25)
63
18
1,699
Non-life insurance expenses:
- Claims for own account
- Change in provision for payable claims
- Change in provision for unearned premiums
- Profit-sharing and rebates
- Reinsurance premiums
Total
2
104
SNS REAAL GROUP
Annual Report 2004
1,757
173
(21)
2
2
21
161
3
(9)
-22
177
177
1,876
1,934
) ‘Other 2003’: Including realised revaluation of € 38 million, arising from the sale of Stienstra Holding B.V.
) ‘Other 2004’: In 2004, in winding down SNS REAAL Invest, a large number of participating interests were sold, which contributed € 32 million.
1
880
757
100
20
2004
In € millions
2003
29. Interest charges, banking operations
Interest charges include costs arising from the borrowing of funds and related
transactions, as well as other costs of an interest-related nature.
Banking
2004 2003
Funds entrusted
Debt certificates
Other interest-bearing
commitments
Total
Other
2004 2003
Group
2004 2003
Elimination
2004 2003
Total
2004 2003
516
532
17
36
8
8
(24)
(45)
517
531
609
566
--
--
34
59
--
(2)
643
623
115
121
7
2
8
11
(7)
(6)
123
128
1,240
1,219
24
38
50
78
(31)
(53) 1,283
1,282
30. Other interest charges
41
29
This includes interest expenses related to non-banking activities, which are
attributable to the financial year.
31. Staff costs
Bank
2004 2003
Salaries
Pension costs
Social costs
Other staff costs
156
168
21
18
Total
Verzekering
2004 2003
82
84
43
5
17
10
43
51
238
279
Overig
2004 2003
Total
2004 2003
2
8
27
16
267
276
18
1
1
4
5
31
67
10
--
1
2
1
30
29
42
34
1
1
12
2
98
88
139
146
4
11
45
24
426
460
The composition of the pension costs for own staff breaks down as follows:
- Interest charge
- Increase in cash value of entitlements
- Release due to average wage scheme
- Members’ contributions
- Expected income from investments
- Amortisation of actuarial difference
Total
Groep
2004 2003
60
50
(33)
(2)
(51)
7
59
48
--(47)
7
31
67
SNS REAAL GROUP
Annual Report 2004
105
2004
In € millions
2003
Employees
The average number of staff calculated on the basis of full-time equivalents:
- SNS Bank
- REAAL Verzekeringen
- Group / SNS REAAL Invest
3,328
1,749
306
3,416
1,658
471
Total
5,383
5,545
SNS Reaal Group has not issued any options to management or staff.
Remuneration of the Executive Board and the Supervisory Board
General policy
The policy pursued by SNS REAAL Group with respect to the remuneration
of the members of the Executive Board is in line with that of other managers
within the group. The policy is aimed at attracting and retaining high-quality
people and to motivate them, with their remuneration in accordance with the
strategic and related financial objectives. The remuneration of the Executive
Board is decided by the Supervisory Board.
The table below provides an overview of the salaries and bonuses of the
individual members of the Executive Board.
Remuneration of the Executive Board in 2004
In € thousands
Regular
payments
S. van Keulen
M.W.J. Hinssen
C.H. van den Bos
Total
Payment in
instalments
Severance
payment
Profit-sharing
& bonuses
Total
563
189
--
193
945
428
96
--
145
669
428
127
--
145
700
396
62
--
124
582
1,815
474
--
607
2,896
Remuneration of the Executive Board in 2003
In € thousands
S. van Keulen
M.W.J. Hinssen
C.H. van den Bos
Total
106
SNS REAAL GROUP
Annual Report 2004
Regular
payments
Payment in
instalments
Severance
payment
Profit-sharing
& bonuses
Total
547
144
--
--
691
413
78
--
101
592
418
88
--
89
595
353
49
--
--
402
1,731
359
--
190
2,280
Remuneration of the Supervisory Board in 2004
In € thousands
As member
of the Board
J.L. Bouma
H.M. van de Kar
J.V.M. van Heeswijk
J. den Hoed
D. Huisman
S.C.J.J. Kortmann
H. Muller
J.W.M. Simons 1
Total
As member
of a committee
37
Total
6
43
30
6
36
25
10
35
25
5
30
25
10
35
25
6
31
25
9
34
18
8
26
210
60
270
Remuneration of the Supervisory Board in 2003
In € thousands
As member
of the Board
J.L. Bouma
H.M. van de Kar
J.V.M. van Heeswijk
J. den Hoed 2
D. Huisman
S.C.J.J. Kortmann
H. Muller
J.W.M. Simons
Total
As member
of a committee
Total
35
6
41
28
6
34
23
3
26
11
--
11
23
3
26
23
6
29
23
--
23
23
3
26
189
27
216
Mortgage loans to directors and supervisory directors
In € thousands
S. van Keulen
M.W.J. Hinssen
S.C.J.J. Kortmann
Total
Average
interest rate
2004
2003
5.5%
197
200
4.3%
567
576
4.4%
113
117
877
893
) Mr. Simons passed away on 5 August 2004.
) Mr. Den Hoed joined the Supervisory Board on 1 July 2003.
1
2
SNS REAAL GROUP
Annual Report 2004
107
2004
In € millions
32. Other operating expenses
Acquisition costs:
- Life insurance
- Non-life insurance
Accommodation costs
IT costs
Marketing and public relations
costs
External consultancy costs
Other expenses
Cost allocation
Total
Banking
2004 2003
Insurance
2004 2003
Other
2004 2003
2003
Group
2004 2003
Total
2004 2003
--
--
65
78
--
--
--
--
65
78
--
--
68
60
--
--
--
--
68
60
43
44
11
10
1
2
5
4
60
60
35
35
8
8
--
1
7
3
50
47
24
24
16
7
--
1
2
1
42
33
7
8
3
5
9
2
9
4
28
19
65
52
8
(6)
3
2
(23)
2
53
50
14
7
--
15
--
--
(14)
(22)
--
--
188
170
179
177
13
8
(14)
(8)
366
347
Acquisition costs include depreciation on capitalised acquisition costs up to an
amount of € 35 million (2003: € 32 million). IT costs and accommodation costs
include depreciation and amortisation on tangible and intangible fixed assets
totalling € 41 million (2003: € 44 million).
33. Value adjustments to loans and advances and financial fixed assets
71
61
3
2
Payable taxes
Deferred taxes
72
9
75
22
Total
81
97
These include value adjustments for bad debts and financial fixed assets.
34. Other expenses
Other expenses include all charges that cannot be presented under other
headings.
35. Taxes
108
SNS REAAL GROUP
Annual Report 2004
In € millions
Reconciliation between the nominal and the effective tax rate:
- Operating profits before taxation
- Nominal tax rate
2004
2003
409
34.5%
357
34.5%
Nominal tax amount
Effect of participation exemption
141
(49)
123
(26)
Revaluation of deferred taxes because of reduction in tax rate
Release of tax provision
Other tax facilities
9
(19)
(1)
----
81
97
19.8%
27.2%
18
17
Effective tax amount
Effective tax rate
It has been announced in the tax plans for 2005 that the corporation tax
rate will be reduced from 34.5% to 31.5%. This has resulted in the deferred
corporation tax being recalculated in accordance with the guidelines for
annual reporting. The effect of this is accounted for under ‘Revaluation of
deferred taxes because of reduction in tax rate’.
The increase in the effect of participation exemption is caused by the
net accounting for the specific investments, so that the result of these
investments is shown under the taxes item.
36. Third-party interests
This includes the interest payments on the SNS Bank’s participation
certificates.
SNS REAAL GROUP
Annual Report 2004
109
Consolidated balance sheet of SNS Bank
31 December 2004
31 December 2003
442
430
2,866
275
610
2,210
Assets
Cash
Short-dated government paper
Banks
Loans and advances to the public sector
Loans and advances to the private sector
313
35,855
169
32,618
Loans and advances
Shares
Intangible fixed assets
Property and equipment
Other assets
Accrued assets
36,168
1,176
33
5
8
186
40
686
32,787
1,579
41
6
10
199
95
703
Total assets
42,040
38,515
2,295
2,344
Liabilities
Banks
Savings
Other funds entrusted
Funds entrusted
Debt certificates
Other debts
Accrued liabilities
Provisions
10,404
6,838
18,450
17,544
339
879
45
17,242
15,268
346
845
82
39,552
36,127
70
866
70
869
1,552
1,449
Capital base
2,488
2,388
42,040
38,515
Fund for general banking risks
Subordinated debts
Total liabilities
110
11,263
7,187
SNS REAAL GROUP
Annual Report 2004
Consolidated profit and loss account of SNS Bank
In € millions
2004
2003
Income
Interest income
Interest charges
Net interest income
Income from securities and participating interests
Commission income
Commission expenses
1,829
1,240
1,805
1,219
589
(2)
136
27
586
(2)
104
12
Commission
Result from financial transactions
Other income
109
14
2
Total income
712
92
22
(3)
695
Expenses
Staff costs
Other administrative expenses
238
159
279
140
Staff and other administrative expenses
Depreciation
Value adjustments to financial fixed assets
397
29
62
(3)
419
30
53
3
Total expenses
485
505
227
190
54
61
173
129
Taxes
Net profit
SNS REAAL GROUP
Annual Report 2004
111
31 December 2004
31 December 2003
Investments
9,001
9,043
2,793
2,972
Assets
Receivables:
- Amounts due from direct insurance
- Amounts due from reinsurance
- Receivables from group companies
- Other amounts due
57
12
-145
183
11
2
165
214
Other assets:
- Liquid assets
2
39
311
361
5
42
146
352
Accrued assets:
- Accrued interest
- Other accrued assets
Total assets
112
SNS REAAL GROUP
Annual Report 2004
169
142
193
187
48
311
235
12,671
12,804
31 December 2004
31 December 2003
Liabilities
810
3
718
3
Group equity
Subordinated debts
813
132
721
135
Capital base
Technical provisions:
- Gross 1
- Reinsurance component
945
8,399
275
856
7,918
284
8,124
7,634
2,704
3,002
Other provisions
102
221
Deposits of reinsurers
164
158
Technical provisions for insurance policies in which policyholders bear the
investment risk 1
Debts:
- Debts in relation to direct insurance
- Debts to credit institutions
- Debts to group companies
- Other debts
Accrued liabilities
Total liabilities
179
124
23
282
185
-22
353
608
560
24
373
12,671
12,804
) The acquisition costs are balanced in the technical provisions.
1
SNS REAAL GROUP
Annual Report 2004
113
Consolidated profit and loss account of REAAL Verzekeringen
In € millions
2004
2003
Technical account, life insurance
Premiums, net of reinsurance:
- Gross premium income
- Outward reinsurance premiums
1,372
18
1,486
20
1,354
Investment income:
- Investments for own account
- Investments on behalf of policyholders
594
126
1,466
432
196
720
Benefits, net of reinsurance:
- Gross 1
- Reinsurers’ share
1,656
13
628
894
14
(1,643)
Changes in provision for life insurance:
- Gross 1
(27)
(2)
757
-25
(757)
(63)
(100)
(199)
(210)
Investment costs
(53)
(40)
Result of technical account, life insurance
141
107
Profit-sharing and rebates
Operating expenses
) In 2004, € 856 million was due to the transfer of the value of the group pension operations to the pension fund of SNS REAAL Group.
1
114
(880)
SNS REAAL GROUP
Annual Report 2004
In € millions
2004
2003
Technical account, non-life insurance
Earned premiums, net of reinsurance:
- Gross premium income
- Outward reinsurance premiums
317
21
293
22
296
Change in technical provision for unearned premiums and accrued risks:
- Gross
2
--
271
(10)
(1)
(2)
Investment income
Claims, net of reinsurance:
- Gross
9
294
280
29
21
187
14
174
13
(173)
Change in provision for payable claims:
- Gross
(22)
(1)
-(3)
21
(152)
Profit sharing and rebates
Operating expenses
(161)
(2)
(3)
(164)
--
(119)
(113)
Investment costs
(1)
(1)
Result of technical account, non-life insurance
49
23
SNS REAAL GROUP
Annual Report 2004
115
2004
In € millions
2003
Non-technical account
Technical account result, life insurance
Technical account result, non-life insurance
141
49
107
23
Total technical result
190
130
Other income
Other costs
10
(3)
(9)
Taxes
Net profit
Analysis of
life insurance premiums
Life insurance policies
in which insurer
bears the investment risk
2004
2003
3
(2)
--
188
131
47
45
141
86
Life insurance policies
in which policyholders
bear the investment risk
2004
2003
Regular premium policies
Individual policies:
- Without profit-sharing
198
259
391
305
- With profit-sharing
124
111
--
--
Collective with profit-sharing
322
43
370
37
391
22
305
58
Total
365
407
413
363
Individual policies:
- Without profit-sharing
- With profit-sharing
445
24
436
22
75
--
93
--
Collective with profit-sharing
469
32
458
31
75
18
93
134
Total
501
489
93
227
Total premium income, life
insurance
866
896
506
590
Single premium policies
116
SNS REAAL GROUP
Annual Report 2004
In € millions
Analysis of non-life insurance technical result
Earned gross premiums
Gross claims
Reinsurance balance
Operating expenses
and profit-sharing
Total
Fire
Accident
and health
2004 2003
Motor
vehicles
2004 2003
Other
sectors
2004 2003
2004
2003
2004
2003
315
303
90
85
16
29
162
147
47
42
165
174
35
36
5
16
101
93
24
29
150
129
55
49
11
13
61
54
23
13
(13)
(4)
(6)
(3)
(3)
--
(1)
(1)
(3)
142
116
51
43
8
10
61
53
22
10
(121)
(113)
(39)
(38)
(5)
(5)
(61)
(57)
(16)
(13)
(8)
Operating result
21
3
12
5
3
5
--
(4)
6
(3)
Investment income
28
20
3
3
4
5
13
10
8
2
Technical result
49
23
15
8
7
10
13
6
14
(1)
SNS REAAL GROUP
Annual Report 2004
117
Company balance sheet of SNS REAAL Groep N.V.
31 December 2004
31 December 2003
2,092
368
7
1,894
1,005
20
2,467
2,919
252
272
2,719
3,191
Shareholders’ equity: 5
- Issued share capital
- Share premium
- Revaluation reserve
- Participating interests reserve
- Intangible fixed assets reserve
- Other reserves
- Retained profit
340
15
36
-10
1,250
310
340
15
32
1
15
997
243
Subordinated debts 6
1,961
227
1,643
233
Capital base
Provisions
Long-term debts 7
Short-term debts 8
2,188
(7)
328
210
1,876
3
966
346
Total liabilities
2,719
3,191
Assets
Fixed assets:
- Participating interests in group companies 1
- Receivables from group companies 2
- Other receivables 3
Current assets:
- Receivables 4
Total assets
Liabilities
The numbers mentioned with the balance sheet items refer to the notes starting on page 120.
118
SNS REAAL GROUP
Annual Report 2004
Company profit and loss account of SNS Reaal Groep N.V.
In € millions
2004
2003
Result on group companies after taxation
Other results after taxes
334
(24)
260
(17)
Net profit
310
243
SNS REAAL GROUP
Annual Report 2004
119
In € millions
2004
2003
General
For further details on the accounting principles, please see the general notes
on page 70 and following.
Receivables from and debts to group companies for banking services are
stated as short-term receivables or short-term debts.
Assets
1. Participating interests in group companies
SNS Bank
REAAL Verzekeringen
Other
1,254
810
28
1,151
718
25
Total
2,092
1,894
Capital contribution
Disposals
Revaluations
Released revaluations
Result
Dividend received
Other movements
1,894
--1
-334
(143)
6
1,756
100
(2)
2
(42)
260
(188)
8
2,092
1,894
Breakdown by residual term to maturity:
Payable on demand
> 1 month B 3 months
> 3 months B 1 year
> 1 year B 5 years
> 5 years
-288
--80
-227
698
-80
Total
368
1,005
7
20
2. Receivables from group companies
3. Other receivables
120
SNS REAAL GROUP
Annual Report 2004
2004
In € millions
2003
4. Short-term receivables
Receivables from group companies
Other amounts due
Accrued assets
251
(4)
5
214
16
42
Total
252
272
Liabilities
5. Shareholders’ equity
Issued
share
capital
Share
premium
Revaluation
reserve
Participating
interests
reserve
Statutory
reserve
Other
reserves
Retained
profit
Total
equity
Balance on 1 January 2003
Transfer of 2002 net profit
Revaluations
Net profit 2003
Other movements
340
15
49
42
7
871
84
--
--
--
34
--
50
(84)
--
--
--
4
(2)
--
--
--
(2)
--
--
(21)
(73)
--
52
--
(42)
--
--
--
--
--
--
243
243
--
--
--
--
8
24
--
32
Balance on 31 December 2003
Transfer of 2003 net profit
Revaluations
Net profit 2004
Other movements
340
15
32
1
15
997
243
1,643
--
--
--
--
--
243
(243)
--
--
--
1
--
--
--
--
1
--
--
(2)
(1)
--
3
--
--
--
--
--
--
--
--
310
310
--
--
5
--
(5)
7
--
7
340
15
36
--
10
1,250
310
1,961
Balance on
31 December 2004
1,408
The share premium reserve is recognised for tax purposes.
The revaluation reserve mainly consists of property revaluations.
The statutory reserve was formed for the costs of research and development
software capitalised on the balance sheet.
208,801,030 shares have been issued and fully paid up. The nominal value of a
share is € 1.63.
Stichting Beheer SNS REAAL holds 208,801,029 shares issued via Stichting
Administratiekantoor SNS REAAL. There is a single priority share that is owned
directly by Stichting Beheer SNS REAAL.
SNS REAAL GROUP
Annual Report 2004
121
In € millions
2004
2003
6. Subordinated debts
This concerns debts that are subordinated to the other obligations.
Bond loan 7.25% 1996/06
Private loans
Other debts
114
30
83
114
30
89
Total
227
233
Bond loans
Private loans
269
59
901
65
Total
328
966
Bond loans
6.75% 1995/04
EMTN - loans
-269
227
674
Total
269
901
87
8
96
19
1
14
264
67
210
346
Group companies have subordinated bonds to the value of € 5 million (2003:
€ 4 million).
The private loans have an average interest rate of 7.1%. The term is longer
than five years.
The other liabilities include the present value (based on an actuarial interest
rate of 6.0%) of long-term, non-interest bearing debt of € 113 million nominal
(2003: € 125 million). The remaining term is 9 years.
7. Long-term debt
Group companies hold no bonds (2003: € 31 million).
The private loans are subject to an average interest rate of 4.5% (2003: 5.0%).
The majority of these loans (€ 51 million) have a term of less than five years.
The remainder (€ 8 million) have terms longer than five years.
8. Short-term debts
Debts to group companies
Taxes
Other debts
Accrued liabilities
Total
122
SNS REAAL GROUP
Annual Report 2004
2004
In € millions
2003
Guarantees
Guarantees in the sense of section 403, Book 2 of the Netherlands Civil Code
have been issued for most of the wholly-owned subsidiaries of SNS Bank
and SNS REAAL Invest. Barring a few exceptions, no such guarantees have
been issued for the subsidiaries belonging to REAAL Verzekeringen. SNS
REAAL Groep N.V. has issued guarantees to meet the commitments of REAAL
Schadeverzekeringen N.V. for specific insurance contracts entered into after 1
September 2000.
The Supervisory Board
The Group Executive Board
J.L. Bouma
H.M. van de Kar
J.V.M. van Heeswijk
J. den Hoed
D. Huisman
S.C.J.J. Kortmann
H. Muller
S. van Keulen
C.H. van den Bos
M.W.J. Hinssen
SNS REAAL GROUP
Annual Report 2004
123
Main Group companies
The most important group companies are listed below, broken down under banking operations, insurance operations
and SNS Reaal Invest. Ownership is 100%, unless stated otherwise.
Banking operations
SNS Bank N.V.
Algemene Spaarbank voor Nederland ASN N.V.
CVB Bank N.V.
BLG Hypotheekbank N.V.
SNS Securities N.V.
SNS Assurantiën B.V.
SNS Assuradeuren B.V.
Utrecht
The Hague
’s-Hertogenbosch
Geleen
Amsterdam
Maastricht
Maastricht
Insurance operations
REAAL Verzekeringen N.V.
REAAL Levensverzekeringen N.V.
REAAL Schadeverzekeringen N.V.
REAAL Reassurantie S.A.
Proteq Levensverzekeringen N.V.
Proteq Schadeverzekeringen N.V.
SNS Verzekeringen B.V.
Utrecht
Alkmaar
Zoetermeer
Luxemburg
Alkmaar
Alkmaar
Zoetermeer
SNS REAAL Invest
SNS Reaal Invest N.V.
Foresta Investerings Maatschappij N.V.
124
SNS REAAL GROUP
Annual Report 2004
’s-Hertogenbosch
’s-Hertogenbosch
List of other main equity participations
The most important equity participations are listed below. These are participating interests of SNS REAAL Invest.
Masterfleet N.V.1
(40%)
PrimeLine services B.V.
(40%)
NeSBIC CTE Fund B.V.
(13.6%)
NeSBIC CTE Fund II B.V.
(10%)
Parnassus Participatiefonds B.V. (42.9%)
Life Sciences Partners II B.V.
(13.2%)
Skala Home Electronics B.V.
(50%)
’s-Hertogenbosch
’s-Hertogenbosch
Utrecht
Utrecht
Amsterdam
Amsterdam
’s-Hertogenbosch
Other
The overview as defined in Sections 379 and 414, Book 2 of the Netherlands Civil Code has been filed with the trade
register of the Chamber of Commerce in Utrecht.
) Formerly SNS Automotive N.V.
1
SNS REAAL GROUP
Annual Report 2004
125
126
SNS REAAL GROUP
Annual Report 2004
Other information
SNS REAAL GROUP
Annual Report 2004
127
Other information
Profit appropriation under the articles of association
Article 34
34.1 Subject to the approval of the Supervisory Board, the
Executive Board may reserve as much of the profit
as it deems fit. The General Meeting of Shareholders
is authorised to reserve part of the profit, proposed
by the Group Executive Board and approved by the
Supervisory Board and the priority, for social and
cultural projects.
Any profits not reserved pursuant to the preceding
sentence for social and cultural projects are at the
disposal of the General Meeting of Shareholders for
full or partial reservation or full or partial distribution
to ordinary shareholders in proportion to their holdings of ordinary shares. If there is an appropriation of
profit to shareholders, a distribution shall be made
on the priority share of a percentage of the face value
equal to the statutory interest rate on the last day of
the last completed financial year. No other distribution of profit will be made on the priority share.
34.2 The company may only make payments to shareholders and others entitled to the distributable profits
insofar as its shareholders’ equity exceeds the total
amount of issued share capital plus the statutory
reserves.
34.3 Distribution of profits may only take place following
the adoption of the financial statements in which
such distribution is approved.
Profit 2004: € 310 milion.
The profit is accounted for as retained profit as part of
the shareholders’ equity.
Auditor’s report
Introduction
We have audited the 2004 financial statements of SNS
REAAL Groep N.V., Utrecht. These financial statements
are the responsibility of the company’s management. Our
responsibility is to express an opinion on these financial
statements based on our audit.
An audit also includes assessing the accounting principles
used and significant estimates made by management, as
well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable
basis for our opinion.
Scope
Opinion
We conducted our audit in accordance with auditing
standards generally accepted in the Netherlands. Those
standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.
In our opinion, the financial statements give a true and fair
view of the financial position of the company at 31 December 2004 and of the result for the year then ended, in
accordance with accounting principles generally accepted
in the Netherlands and comply with the financial reporting
requirements included in Part 9, Book 2 of the Netherlands Civil Code.
Amstelveen, 9 March 2005
KPMG Accountants N.V.
128
SNS REAAL GROUP
Annual Report 2004
Other information
Additional information
Embedded value
The embedded value of the life insurance operations of
SNS REAAL Groep N.V. at year-end 2004 amounted to
€ 1,327 million (year-end 2003: € 1,210 million).
The embedded value of the life insurance operations is
defined as the available shareholders’ equity plus the
cash value of the forecast future net results of the existing insurance portfolios, taking account of the costs of
the solvency requirement.
The embedded value of the life insurance operations can
be broken down as follows:
€ millions
Value of existing
portfolio
Embedded value1
31-12-2004
31-12-2003
692
565
635
645
1,327
1,210
The value of the new production provides insight into the
expected profitability arising from the policies taken out
during the financial year.
For forecasting future results, realistic assumptions are
used for variables including market interest rate, return
on investment, expenses, anticipated mortality rate, etc.
The discount rate used is 9% and is equal to the costs of
maintaining the internally required solvency (in the form
of capital base).
The decrease in ‘Value of existing portfolio’ during 2004
was mainly a result of adjustments concerning the interest
expectations for the existing investment portfolio.
The value of the new production in 2004 was € 16 million,
a decline in comparison with € 19 million in 2003.
) Mercer Oliver Wyman, an international consultancy organisation, has assessed the methodology and assumptions used by SNS Reaal Groep N.V. for
the calculation of the embedded value of the life insurance operations as at 31 December 2004, as well as the value of the new production in 2004.
Mercer Oliver Wyman concluded that the applied methodology is sufficient and that the assumptions are reasonable.
1
SNS REAAL GROUP
Annual Report 2004
129
Other information
Curricula vitae of members of the Supervisory Board
The Supervisory Board of SNS REAAL Group had seven
members as at 1 January 2005, all of Dutch nationality. These seven supervisory directors, all men, were
appointed in 1997 when SNS Group and REAAL Group
merged to form SNS REAAL Group. Some of them were
already supervisory directors for legal predecessors of the
merger partners. The summary below gives a selection of
current and former responsibilities of these members.
The Supervisory Board forms the Board of the Foundation
(Stichting Beheer) holding all depositary receipts for the
shares of SNS REAAL Groep N.V. The Supervisory Board
is also the Board of the Stichting Administratiekantoor,
holder of the shares of SNS REAAL Groep N.V. The Stichting
Beheer has transferred the shares of SNS REAAL Groep
N.V. to the custody of Stichting Administratiekantoor. In
2004, one priority share was issued to the Stichting Beheer
SNS REAAL.
SNS REAAL Groep N.V. is 100% owner of SNS Bank N.V.,
SNS REAAL Verzekeringen N.V. and SNS REAAL Invest
N.V.
Prof. J.L. Bouma (70), chairman
Emeritus professor in business economics at Groningen
University; member of the Royal Dutch Academy of Sciences; member of the Supervisory Boards of Albron, Eriks
Group, Intereffekt, Koop Holding Europe, O. de Leeuw
Holding and Raab Karcher Bouwstoffen Nederland.
H.M. van de Kar (61), deputy chairman
University lecturer at the tax-economics faculty at Leiden
University; member of the board of Stichting Uitgeverij
Aksant; chairman of the board of the International Institute for Social History; chairman of the Pension Fund for
the Dutch Theatre; auditor of the International Institute
of Public Finance; dean of Crisis and Disaster Management training; chairman of the Sports Fund Foundation
Leo van de Kar.
J.V.M. van Heeswijk (66)
Supervisory Board member of Tref, Mammoet Holding;
former managing director of Geveke; former chairman of
the Supervisory Board of Calpam Internationale Petroleum
Company, SSM Coal, Merrem & La Porte and Sligro.
J. den Hoed RA (67)
Supervisory Board member of Connexxion and ASMI; chairman of the Supervisory Council of Ziekenhuis St. Jansdal;
Deputy member of the companies’ division court of appeal
council; member of the Supervisory Council of Nederlands
Vaccin Instituut; member of the OBE committee of AFM.
D. Huisman (69)
Chairman of the Supervisory Board of Ophtec; former
chairman of the board of Friesland Chamber of Commerce; former deputy chairman of the Dutch Association of Insurers; former deputy chairman of the Executive
Board of Avéro-Centraal Beheergroep. Former chairman
of the Supervisory Council of MCL/Zorggroep Noorderbreedte.
Prof. S.C.J.J. Kortmann (54)
Professor in civil law at Nijmegen Radboud University;
chairman of Onderzoekscentrum Onderneming & Recht
(RU Nijmegen), chairman of the board of Stichting Grotius
Academie, deputy judge Courts of Arnhem and ‘s-Hertogenbosch; Supervisory Board member of Kropman en
Dela Coöperatie; chairman or member of various boards
of trust offices or anti-takeover foundations of listed
companies.
H. Muller (62)
Supervisory Board member of ASN Beleggingsfondsen; chairman of the Nederlands Participatie Instituut;
Supervisory Council member of SNV, Nederlandse
Ontwikkelingsorganisatie; chairman of the Board of De
Burcht (Nationaal Vakbondsmuseum and Henri Polak
Instituut); chairman of Nederlands Platform Ouderen en
Europa; former federation manager and treasurer of FNV
(Dutch trade union federation), former member of the
Sociaal-Economische Raad and Stichting van de Arbeid.
Retirement rota
2005
2006
2007
2008
130
SNS REAAL GROUP
Annual Report 2004
H. Muller
D. Huisman
H.M. van de Kar
Prof. S.C.J.J. Kortmann
J. den Hoed
J.V.M. van Heeswijk
Prof. J.L. Bouma
Other information
Additional responsibilities of Group Executive Board members
S. van Keulen, chairman (58)
No additional responsibilities.
C.H. van den Bos RA (52)
R.R. Latenstein van Voorst MBA,
Chief Financial Officer (40)
Supervisory Board member of PrimeLine services B.V.
Member of the Board of the Dutch Association of Insurers;
Supervisory Board member of NIBE/SVV, Trustinstelling
Hoevelaken and Stichting Kinderopvang Nederland; chairman of the board of Stichting Verzekeringswetenschap.
M.W.J. Hinssen (48)
Member of the Board of the Dutch Bankers’ Association
(NVB); chairman of the Beleidscommissie Betalingsverkeer
(NVB); seat on the founding body of Brands & Licenses
Betalingsverkeer BV; Board member of the European Savings Banks Group; Board member of the World Savings
Banks Institute.
SNS REAAL GROUP
Annual Report 2004
131
Colophon
Concept & design
VBAT Enterprise, Amsterdam
Photography
Hans van Ommeren, Woerden
Thirza Schaap, Amsterdam
Typesetting
Melis Graphic Services bv, Helmond
Lithography
Neroc Rotterdam
Printing
vanGrinsven drukkers Venlo bv
Publication
SNS REAAL Group
Croeselaan 1
P.O. Box 8444
3503 RK Utrecht
The Netherlands
Paper
This annual report is printed on environmentally friendly paper
132
SNS REAAL GROUP
Annual Report 2004

SNS REAAL Groep Jaarverslag 2003

Transcription

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