ING Verzekeringen N.V.

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1 Primary Credit Analyst: Simon Ashworth, London (44) ; Secondary Contact: Mark Button, London (44) ; Table Of Contents Major Rating Factors Rationale Outlook Financial Profile: Reduced Leverage In Preparation For IPOs DECEMBER 31,

2 Major Rating Factors Strengths: Diverse profile with strong local competitive positions across a number of markets. Strong enterprise risk management. Flexibility to manage capital adequacy and liquidity across the ING Group. Counterparty Credit Rating Weaknesses: Uncertain impact of restructuring of the ING Group, particularly on the financial profile of the insurance operations. Earnings depressed by the difficult operating environment and initiatives to reduce risk. Although capital adequacy has stabilized in the strong range, prospective risks exist from investment risk exposures and economic backdrop. Rationale The ratings on ING Verzekeringen N.V. (INGV; ) and the consolidated insurance operations--collectively ING's insurance operations--reflect the insurance group's diverse profile, with strong local competitive positions across a number of markets, strong enterprise risk management (ERM), and the flexibility to manage capital adequacy and liquidity across the ING Group. These positive factors are partially offset by continued pressure on earnings from both the difficult operating environment and initiatives to reduce asset risk. Although capital adequacy has stabilized in the strong range, this continues to be a constraint, particularly given the investment risk exposures and wider economic pressures, especially across Europe. In addition, there is some uncertainty regarding the impact of the current restructuring of the ING Groep N.V. (ING; A/Negative/A-1). Standard & Poor's Ratings Services considers ING's insurance operations as "not strategically important" under our group rating methodology; under the 2009 restructuring plan ING Group agreed with the European Commission (EC), it took the strategic decision to divest its insurance operations before the end of However, on Nov. 19, 2012, ING announced amendments to the EC-agreed restructuring plan. In particular, it has extended the final deadlines for completing the divestment process; the new dates are 2016 for divestments in Asia and the U.S. and 2018 for divestments in Europe. This reflects ING's announcement earlier in 2012 that it would divest its Asia insurance/investment management operations separately from its European insurance/investment management operations, rather than launching a single IPO. Progress toward divesting the U.S. operations via an IPO remains good, although it is being executed over a longer period than originally expected. INGV is expected to be a legacy entity that is wound down following the IPOs. ING's insurance operations exhibit wide geographical, product, and distribution diversity. INGV has a significant presence in the relatively mature markets of The Netherlands and the U.S. and has built strong positions in the higher-growth markets of Asia and Central and Eastern Europe. This diversity has provided a degree of strategic flexibility as ING responded to the financial crisis. In our opinion, operations across the globe have strong competitive DECEMBER 31,

3 positions that have proven resilient through this period of uncertainty, as demonstrated by stability in new sales and client balances. However, given the continued progress with the trade sales of the Asian operations and the U.S. IPO, our assessment of competitive position is not enhanced by diversification accruing from these businesses. We consider INGV has strong flexibility to manage its capital and liquidity, given its affiliation with ING. Our view is supported by ING's focus on rebuilding capital, limited need for INGV to pay dividends, and incentives for ING to support the capital needs of its insurance business to ensure successful IPOs and trade sales. The extension in the divestment and state repayment deadlines gives the group increased flexibility, which is particularly important in the context of the current difficult operating environment. However, this also means that some risks will persist within the group for longer, such as those from ING's U.S. closed-block variable annuity (CBVA) business and the Japanese closed-block single-premium variable annuity (SPVA) business. There remains execution risk in delivery of the divestments and uncertainty over the future financial profile of INGV after the Asian and U.S. divestments. A key concern is that it has not been made fully clear how the proceeds from sales will be used, and whether that use will support our current view of a strong financial profile. We expect further progress regarding the divestments over 2013, which will clarify the absolute levels of proceeds from divestments and the net impact of divestments on the group's financial profile; in particular, how divestment proceeds will be used, including the repayment profile of external debt and eliminating internal double leverage. Relative improvements in earnings over 2011 and lower leverage strengthened fixed-charge cover ratios to over 7x at year-end 2011, a level consistent with the ratings. We expect debt-servicing ratios to remain above 5x over the rating horizon, despite earnings pressure and following continued divestment progress. Initiatives to reduce risk, combined with the difficult operating environment continue to weigh on underlying earnings. Consequently, we view operating performance as the most significant area of relative weakness in the rating profile, although we recognize that progress is being made to stabilize returns. There has been progress to stabilize investment results and also control expenses. There remains pressure on technical margins over 2012 and bottom-line profitability from the focus on protecting regulatory capital, rather than mitigating earnings volatility. We anticipate INGV posting operating earnings of over 1 billion in 2012 and these earnings remaining flat over Despite management actions to improve capital adequacy within the strong range, this continues to be a constraint due to investment risk exposures and wider economic pressures, particularly across Europe. ING has taken a number of actions over recent years to replenish capital and reduce risk to mitigate the adverse impact on capital adequacy of turmoil in financial markets. Investment risk exposures, however, remain elevated because of financial market developments, with material equity market and interest rate sensitivity, and credit risk exposures, especially those relating to commercial mortgage-backed securities and eurozone bonds. Liquidity: Strong asset liquidity to support net outflows Liquidity is strong and well-managed at ING's insurance operations. Available liquidity includes significant holdings of high-quality government and corporate bonds, and cash. The improvement in the revaluation reserve provides additional flexibility in managing policyholder-related cash flows. In our opinion, liquidity at INGV has been pressured over recent years owing to capital needs in subsidiaries. The strengthening of minimum capital targets in operating units has also reduced the potential dividend flows to the DECEMBER 31,

4 holding company. The sale of businesses including the Latin American pension business in 2011 and certain Asian insurance operations in 2012 and 2013 provide substantial liquidity to meet needs. We expect this trend to continue to be managed appropriately given the linkages between ING and INGV over the divestment process. The main contractual refinancing requirements over the rating horizon are two senior debt issues totaling 2 billion in We also understand that following discussions with the EC, INGV was able to call a 1.25 billion hybrid on Dec. 21, In addition to liquid assets held at INGV, liquidity is supported by 5 billion in combined euro and U.S. dollar commercial paper (CP) programs, and INGV is an issuer under the ING group's 45 billion debt issuance program. INGV's short-term liquidity is further enhanced by back-up credit facilities of around 0.5 billion, including a facility from its sister company, ING Bank N.V. (A+/Stable/A-1). We consider INGV has the flexibility to meet its liquidity needs given its position in the ING Group, with cash needs at INGV also expected to be met by cash flows from subsidiaries. The provision of a 1.1 billion letter of credit (LOC) by ING Bank to fund the reserve strengthening in the U.S. reduces the burden on INGV and demonstrates the continuing support from the wider ING Group in managing capital and liquidity. Outlook The negative outlook on INGV and certain operating insurance subsidiaries reflects our view of the risks relating to the financial risk profile of the group. There are significant risks and uncertainties associated with the divestment of ING's insurance operations on capitalization and financial flexibility. Further pressure stems from the state of the economy, active initiatives to reduce risk, and other management actions linked to divestments; combined, these weaken operating performance, in our view. We may lower the ratings on INGV if: The divestment process or the economy weakens capitalization or financial flexibility such that capitalization falls below strong levels or prospective leverage ratios rise above 30% from the 28% seen at year-end 2011; Risks from economic pressures or de-risking affect our assessment of operating performance. This could also arise from legacy risks before divestment relating to ING's U.S. CBVA or investment exposures; or We see evidence that the performance of ING's insurance business is being impaired by the uncertainty surrounding its divestment. The ratings on INGV could also be lowered if ING is downgraded, given the role of ING Bank (ING Bank; A+/Negative/A-1) within the group, as both ING and ING Bank currently have a negative outlook. Under our criteria, with all other factors remaining the same, one of the two notches of government support currently factored into the long-term counterparty credit rating on ING Bank would be removed if the long-term unsolicited rating on The Netherlands were lowered by one notch. Despite ING's insurance operations being assessed as "not strategically important" to ING, this would affect the rating on INGV due the ongoing linkages between ING and INGV. The outlook on INGV could be revised to stable if: ING continues to make concerted progress with its divestments over 2013 without impairing the strength of INGV's DECEMBER 31,

5 balance sheet. For instance, pro forma capital adequacy levels (accounting for divestment proceeds and hybrid repayment in December 2012) continue to be resilient, financial leverage remains below 30%, fixed-charge cover is sustainable around 5x and there is more certainty around the impact and use of sale proceeds, including the capital structure post-divestments; and There is an upward trend in our assessment of operating performance measured across a range of metrics, including outperformance versus our earnings expectation and also improvements across the different sources of earnings. Financial Profile: Reduced Leverage In Preparation For IPOs INGV is an intermediate holding company of the ING group. ING's insurance operations are consolidated under INGV and accounted for about 40% of the ING group's International Financial Reporting Standards equity employed in subsidiaries at year end The long-term counterparty credit rating on INGV is lower than the long-term counterparty credit ratings on its operating subsidiaries to reflect the structural subordination of holding company creditors to operating company policyholders. Capital quality has improved since the third quarter of 2009, largely following the conversion of 1 billion of intragroup hybrids into equity in the fourth quarter of 2009 and 1.5 billion in the fourth quarter of At the end of the third quarter of 2012, financial leverage was around 28%, and significantly lower than its peak of over 40% in late 2008/early The profile of INGV's adjusted capital base on Sept. 30, 2012, was 71% equity shareholders' funds, 15% hybrid securities, and 14% senior debt. INGV has moved away from its historic leverage tolerances as it determines the appropriate capital structure post-ipo. INGV remains focused on strengthening capital adequacy and reducing leverage in advance of the planned IPOs, including holding higher levels of regulatory capital in key operating units. We expect further progress with divestments over 2013, which will help clarify the absolute levels of proceeds from divestments and the net impact of divestments on the group's financial profile; in particular, the use of divestment proceeds including the repayment profile of external debt and eliminating internal double leverage. Relative improvements in earnings over 2011 and lower leverage strengthened fixed-charge cover ratios to over 7x at year-end 2011, a level consistent with the ratings. We expect debt-servicing ratios to remain around 5x over the rating horizon despite earnings pressure and following continued divestment progress. We consider INGV has strong flexibility to manage its capital and liquidity needs, given its affiliation with ING. Despite the operational separation of ING's banking and insurance entities, we continue to view the ownership links, contractual arrangements, and financial incentives that exist for ING to support its insurance business as enhancing INGV's financial flexibility. This support is evidenced by ING's focus on rebuilding capital; limited need for INGV to pay dividends (INGV has not paid a dividend to ING since third-quarter 2009); incentives for ING to support the capital needs of INGV to ensure successful IPOs; the conversion of intra-group hybrids into equity; and the provision of letters of credit by ING Bank, guaranteed by ING Group, to fund reserve strengthening in the U.S. We anticipate that capital flows between INGV and its operating subsidiaries will be reviewed quarterly to manage DECEMBER 31,

6 capital ratios in line with targets. ING Verzekeringen N.V. (Consolidated) Financial Statistics --Year-ended Dec Q Hybrid equity ratio (%) Senior debt leverage (%) Financial leverage (%) Fixed charge cover* (x) *Based on operating result. Ratings Detail (As Of December 31, 2012) ING Verzekeringen N.V. Counterparty Credit Rating Senior Unsecured A- Senior Unsecured A-2 Subordinated Counterparty Credit Ratings History 07-Dec Nov Oct Sep Mar Dec-2008 BBB A-/Watch Neg/A-2 A/Stable/A-1 A+/Negative/A-1 AA-/Negative/A-1+ *Unless otherwise noted, all ratings in this report are global scale ratings. Standard & Poor's credit ratings on the global scale are comparable across countries. Standard & Poor's credit ratings on a national scale are relative to obligors or obligations within that specific country. Additional Contact: Insurance Ratings Europe; InsuranceInteractive_Europe@standardandpoors.com DECEMBER 31,

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