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  • Location: UTRECHT 
  • Founded: 1987-05-25
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    Annual Report 2006 A brand in motion

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    Annual Report 2006 SNS REAAL SNS REAAL N.V. Croeselaan 1 PO Box 8444 3503 RK Utrecht Netherlands Telephone + 31 30 291 5200 www.snsreaal.com Corporate Communications Telephone + 31 30 291 4844 concerncommunicatie@snsreaal.nl Investor Relations Telephone + 31 30 291 4246/7 investorrelations@snsreaal.nl The latest information for investors can be found at www.investor.snsreaal.nl. SNS REAAL Annual Report 2006 1

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    Brand in motion - Our multicoloured company logo, inspired by the Kaleidoscope, reflects who we are: diverse, dynamic, truly a brand in motion! The year 2006 was yet another eventful year for SNS REAAL. From a wide variety of developments, the main events are described in this annual report.

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    Contents 6 SNS REAAL at a glance 7 Profile 8 Key figures SNS REAAL 11 Foreword 14 Mission, activities, strategy and objectives 19 Flotation and the SNS REAAL share 23 Supervisory and Executive Boards 28 Report of the Executive Board 29 Strategy Update 34 Prospects for 2007 38 Financial outlines 50 Developments SNS Bank 56 Developments REAAL Verzekeringen 60 Developments SNS Asset Management 61 Risk Management 75 Funding and credit ratings 77 Corporate social responsibility 78 Human Resources 84 Report of the Supervisory Board 90 Corporate governance 91 Capital structure and voting rights 92 Governance Structure 93 Compliance to the Tabaksblat Code 95 Sustainability 97 Compliance 97 Remuneration report 100 External positions held by members of the Executive Board at year-end 2006 100 Information on members of the Supervisory Board 103 Financial Statements 2006 214 Other information 215 Profit appropriation provisions in the Articles of Association 216 Auditor’s report 220 Definitions and ratios SNS REAAL Annual Report 2006 3

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    SNS REAAL’s IPO - 18 May 2006 was a milestone for SNS REAAL, being the date we were listed on Amsterdam’s Euronext stock exchange. With greater strategic and financial flexibility, we are now even better positioned to invest in innovation, consolidate our market positions, and foster continued growth.

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    SNS REAAL at a glance

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    Profile SNS REAAL is an innovative service provider in the banking and insurance sector with a prime focus on the Dutch retail market and on small and medium-sized businesses. Its activities cover three main product groups: mortgages and property finance, savings and investments and insurance. With a balance sheet total of almost € 80 billion, REAAL Verzekeringen works almost exclusively through SNS REAAL is one of the major financial bank-assurance independent intermediaries to sell life insurance, companies in the Netherlands. SNS REAAL has always felt including unit-linked policies and pensions, and non- close to Dutch society. The organisation and the way in life insurance, for example for home cover, mobility and which its 5,776 staff operate are characterised by social disability insurance. Only its subsidiary Proteq sells non- involvement and keeping a close watch on the latest life insurance to the consumer directly via the internet. developments. SNS Asset Management manages the investment funds As a bank and insurer, SNS REAAL holds a distinct of SNS Bank and ASN Bank, the investments of REAAL position in its market by quickly and effectively Verzekeringen and SNS REAAL Pension Fund as well as translating client needs into accessible and transparent assets for institutional investors. SNS Asset Management products. In-depth knowledge of products and efficient also performs specialised investment research in the field processes lead to effective standardisations and of corporate social responsibility. combination options within product and client groups. SNS REAAL is a decisive and flexible organisation that Stock exchange listing through its core brands SNS Bank and REAAL Verzeker- On 18 May 2006, SNS REAAL shares were floated on ingen and specialised sales labels enjoys strong positions Euronext Amsterdam. The share has been included in the in the Dutch market. Amsterdam Mid Cap Index since 2 March 2007. At the end of 2006, the market capitalisation amounted to € 3.9 Activities billion. SNS Bank sells its housing and commercial mortgages, savings, investment and insurance products through its own offices, independent intermediaries, the internet and by phone. The investment products range from do-it-yourself to advisory products and asset management. With SNS Property Finance, SNS REAAL is one of the major financiers of property investments and projects in the Netherlands. SNS Property Finance is also active internationally. Corporate values § Client focus § Professional § Honest § Socially responsible SNS REAAL Annual Report 2006 sns reaal at a glance 7

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    Key figures SNS REAAL In € millions 2006 2005 2004 2003 Result Income banking operations Net interest income banking operations 567 595 571 587 Net commission and management fees 120 114 109 92 Other income 81 56 13 18 Total income banking operations 768 765 693 697 Income insurance operations Net premium income 1,958 1,745 1,650 1,737 Result on investments 576 545 618 453 Result on investments on behalf of policyholders 215 394 126 196 Other income 46 48 41 31 Total income insurance operations 2,795 2,732 2,435 2,417 Other income and eliminations 4 (17) 46 109 Total consolidated income 3,567 3,480 3,174 3,223 Total consolidated expenses 3,108 3,064 2,816 2,866 Operating profit before taxation 459 416 358 357 Taxation 88 93 70 97 Third-party interests -- -- -- 17 Net profit for the period 371 323 288 243 Net profit banking operations 214 204 151 129 Net profit insurance operations 170 140 128 86 Net profit group activities (13) (21) 9 28 Earnings per share (€ ) 1.65 1.55 1.38 1.16 Diluted earnings per share (€ ) 1.65 1.55 1.38 1.16 In € millions 31-12-2006 31-12-2005 31-12-2004 31-12-2003 Balance sheet Total assets 79,742 68,088 59,972 52,691 Investments 10,626 9,953 8,233 8,740 Investments for insurance contracts on behalf of policyholders 3,955 3,426 2,798 2,971 Loans and advances to customers 56,700 46,143 42,551 34,360 Loans and advances to credit institutions 3,769 4,207 3,421 3,071 Shareholders’ equity 3,200 2,528 1,880 1,643 Capital base 4,864 4,144 3,323 2,799 Debt certificates 31,259 25,654 23,464 16,061 Technical provisions insurance operations 13,283 12,658 11,330 11,174 Savings 13,678 12,333 10,973 10,404 Amounts due to credit institutions 7,534 3,419 2,442 2,344 In percentage 31-12-2006 31-12-2005 31-12-2004 31-12-2003 Ratios Return on shareholders’ equity 12.7% 1 14.1% 16.6% 15.9% Double Leverage 107.8% 105.3% 114.3% 115.3% Average number of employees (FTE) 5,609 5,336 5,383 5,545 SNS Bank: Efficiency ratio 62.6% 59.8% 63.1% 64.6% BIS ratio 11.2% 11.9% 11.7% 11.9% Tier 1 ratio 8.2% 8.7% 8.7% 8.3% REAAL Verzekeringen: New annual premium equivalent (in € millions) 196 176 2 172 168 Operating cost/premium ratio 13.8% 13.5% 13.2% -- Solvency life operations 236% 233% 192% 195% Solvency non-life operations 279% 275% 261% 359% 1 ) ROE has been calculated with weighting the share issue in May. 2 ) New annual premium equivalent 2005 adjusted for EEV standards. 8 SNS REAAL Annual Report 2006 sns reaal at a glance

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    1 Net profit SNS REAAL 2 Earnings per share SNS REAAL € millions € 400 1.80 350 1.60 300 1.40 250 1.20 1.00 200 0.80 150 0.60 100 0.40 50 0.20 0 0.00 2002 2003 2004 2005 2006 2002* 2003* 2004 2005 2006 Net profit SNS REAAL Earnings per share SNS REAAL * ) Number of shares after stock split up in 2004 was used for calculation earnings per share 2002 and 2003. 3 Composition of net profit 2006 (excluding group activities) 4 Composition of income SNS REAAL € millions 4,000 44% 3,500 (2005: 41%) 3,000 2,500 2,000 56% 1,500 (2005: 59%) 1,000 500 0 2002 2003 2004 2005 2006 SNS Bank Net commission and other income REAAL Verzekeringen Net interest income banking operations Result on investments Net premium income 5 Composition of expenses SNS REAAL 6 Number of employees (FTE) € millions Employees (FTE) 4,000 6,000 3,500 5,000 3,000 4,000 2,500 2,000 3,000 1,500 2,000 1,000 1,000 500 0 0 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 Other expenses SNS REAAL Acquisition costs for insurance operations SNS Bank Staff costs REAAL Verzekeringen Value adjustments to financial instruments and other assets Technical expenses on insurance contracts SNS REAAL Annual Report 2006 sns reaal at a glance 9

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    7 Shareholders’ equity SNS REAAL 8 Return on shareholders’ equity SNS REAAL € millions % 3,500 18 3,000 16 14 2,500 12 2,000 10 1,500 8 6 1,000 4 500 2 0 0 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 Retained earnings Return on shareholders’ equity SNS REAAL Reserves Share premium Issued share capital 10 Operating cost/premium ratio 9 Efficiency ratio SNS Bank REAAL Verzekeringen % % 66 20 65 18 64 16 14 63 12 62 10 61 8 60 6 59 4 58 2 57 0 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 Efficiency ratio SNS Bank Operating cost/premium ratio Effect of capitalising the internal acquisition costs 12 Solvency levels 11 Solvency levels SNS Bank REAAL Verzekeringen % % 13 500 12 450 400 11 350 10 300 9 250 8 200 150 7 100 6 50 5 0 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 BIS ratio Non-life Tier 1 ratio Life Core Capital ratio Financial target Solvency Non-life (200%) Financial target BIS ratio (11.0%) Financial target Solvency Life (150%) Financial target Tier 1 ratio (8.0%) Financial target Core Capital ratio (6.0%) 10 SNS REAAL Annual Report 2006 sns reaal at a glance

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    Foreword SNS REAAL has had a very exciting year. The listing was a historical event for the company, which has not only benefited brand recognition of SNS REAAL itself, but also those of our brands and products. With the acquisition of Bouwfonds Property Finance and the intended acquisition of Regio Bank, we have strengthened our base for future growth and achieved a spread in our sources of income. An increase in profit of almost 15% is a good result considering the difficult market conditions. Key figures Key points § Net profit rose to € 371 million (+ 14.9%) § Flotation increases strategic flexibility § Earnings per share rose to € 1.65 (+ 6.5%) § Market performance and acquisitions have § Return on equity at 12.7% above target strengthened basis for growth § Broadening of client base key focus for 2007 In 2006, SNS REAAL took some important steps in implementing its long-term strategy. Our stock exchange listing has enhanced our strategic options. The first opportunity we were able to capitalise on in this respect was the acquisition of Bouwfonds Property Finance, one of the major players in the Netherlands in property finance and a financially sound company with international operations. Through this acquisition we have achieved the objective of strengthening our position on the SME market and at the same time reducing our dependence on the mortgage market. With the intended acquisition of Regio Bank, we will strengthen our existing franchise bank activities and our share of the savings market will rise by a full percentage point. Despite, or possibly thanks to, the challenging conditions in our core markets, SNS REAAL demonstrated once again its resilience and distinctive capacity. Changes in competition, rules and regulations, client needs and trends are introducing increasingly turbulent conditions that accordingly demand alertness, speed and flexibility. With our clear focus on core products and client groups, and through our client- focused and efficient organisation, we are proving capable of distinguishing ourselves from larger market parties with innovative, appealing products and short time-to-market. This is reflected in the introduction of the ‘budget mortgage’, the first basic mortgage whereby clients are free to purchase only those options they really need, and through innovative services such as Live@dvies via the internet and a talking digital bank card, the digipass, for the visually impaired. This type of innovation contributes to growth in client numbers and improves our brand awareness and market reputation. Market performance On the mortgage market, extremely fierce price competition, a shrinking mortgage refinancing market and a flat yield curve caused interest income to decline. In the first half year, our market share fell to 7.6%. Thanks to new, innovative products, improved distribution and increased retention in the existing portfolio, we increased our market share in the second half of the year to 8.0% (8.3% at year- end 2005). The reduced interest income was partly offset by an increase in mortgage volume (especially in the second half year), better margins on a growing savings portfolio and higher margins on our SME activities. New, appealing savings products and ASN Bank’s strong growth boosted the savings portfolio from € 12.3 billion to € 13.7 billion (+ 11%), and drove up our share of the savings market to 6.3%. SNS Bank’s investment products also did well. SNS Fundcoach, an internet provider of amongst others international investment funds, has become a success formula. Funds invested rose to € 589 million (+ 97.7%). SNS REAAL Annual Report 2006 sns reaal at a glance 11

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    We maintained our market position as one of the larger players in the life insurance market. Income from regular premium payments increased by 7.6% and single premium income was up by 10.4%. Our market share in individual life insurance was down slightly from 15.2% to 14.7%. The value of new business expanded by 33.3% to € 20 million. The non-life market slumped, putting premiums under pressure. In spite of this, net profit of the non-life insurance activities increased in the second half. The integration of Nieuwe Hollandse Lloyd, acquired in 2005, went well and helped to strengthen our market position. Corporate Social Responsibility The capacity to innovate and entrepreneurship are in SNS REAAL’s genes. Our company’s ongoing growth and the increasing pressure of legislation and codes of conduct are seriously challenging when attempting to maintain these competitive advantages. Continuous efforts to offer accessible and transparent products and to safeguard service provision with integrity, focusing on our client’s actual needs, must be self-evident components of our business culture. In SNS REAAL’s business vision, client focus and responsible entrepreneurship go hand in hand. Society and our clients are increasingly asking for products that are developed responsibly. The products themselves must be accessible and transparent so that clients, if necessary with the assistant of an advisor, can determine effectively which product best meets their needs. A specific example of socially-responsible entrepreneurship is ASN Bank, which manages its clients’ savings and investment funds according to strict, transparent and ethical criteria. The increase in ASN Bank’s assets under management (+ 18.5%) and the number of its clients (+ 20.5%) shows that demand for this type of product is rising rapidly. Our vision of corporate social responsibility is explained in the chapter on corporate governance. Unit-linked insurance has been much scrutinised recently. The questions being asked concerning the cost of such insurance and its benefits send a clear signal out regarding the need for transparency. An important initiative from the insurance sector was the inauguration of the De Ruiter Commission and SNS REAAL hopes that the findings of this committee will improve market and product transparency. On track SNS REAAL has clear strategic, operational and financial objectives. In the chapter Strategy update, we set out what we achieved in 2006. We aim to be the favourite bank and insurer of many more retail and SME clients. We will therefore continue on the path we have chosen. The most important objectives for 2007 are: to strengthen our core brands, growth in the SME market, to strengthen distribution capability and further improve efficiency. We have made considerable investments in our IT systems in recent years. This has helped our efficiency ratio and operating cost/premium ratio to be among the best in the market. Over the coming years, we will be focusing on expanding the client base, mainly in the SME market. Property Finance through SNS Property Finance is one of our trump cards in this context. We also aim to grow on the SME market through other banking products, pensions and disability insurance products. We will achieve this growth both through our existing activities and through acquisitions. 12 SNS REAAL Annual Report 2006 sns reaal at a glance

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    Staff SNS REAAL’s listing is not an independent, one-off event. The stock market regulations and increased attention from the media mean we will be judged on our results earlier, both in a positive and negative sense. We are glad to see that many staff are inspired by the fact that the fruits of their labours are more in the spotlight. SNS REAAL was already known as an attractive employer. This attraction has increased as a result of our flotation. Last year was a turbulent and demanding year for both the company and staff. In addition to the flotation and the acquisitions, a number of organisational changes and many legal changes led to an increase in the standard workload. The Executive Board would like to thank all the staff for their contributions last year. After all, our employees are carrying out our strategy on a day-to-day basis in mutual cooperation by providing services to our clients. Sjoerd van Keulen Chairman of the SNS REAAL Executive Board SNS REAAL Annual Report 2006 sns reaal at a glance 13

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    Mission, activities, strategy and objectives Mission possible products, service concepts, product/market SNS REAAL aims to be the favourite financial specialist combinations, labelling and distribution channels. They for retail and SME clients in the Netherlands. We want do so in order to achieve their operational and financial to place our clients’ financial future in their own hands objectives, while using the purchasing and cross-selling by offering accessible and transparent banking and options within the group. insurance products. SNS REAAL focuses mainly on the Dutch market. Its activities cover three main product SNS Asset Management plays mainly a support groups: mortgages and property finance, savings and role for SNS Bank and REAAL Verzekeringen, and investments and insurance. secondly focuses on institutional investors. SNS Asset Management has distinguishing expertise at its disposal In 2006, the strategic focus on our core products was through specialist research in the area of sustainable broadened with products for property financing by investments. the acquisition of Bouwfonds Property Finance. This has enhanced our visibility and credibility in the SME SNS REAAL’s strategic priorities and operational market *. Expanding our position in the SME market is objectives for the coming years are based in part on an important objective. We have therefore replaced the a SWOT analysis of the strengths and weaknesses of previously used term retail(plus) by retail and SME in the the organisation and opportunities and threats in the description of our target market. market. SNS REAAL distinguishes itself in the markets it operates Strengths in by building strong market positions based on a tight § Focus on the Netherlands, client groups and core focus on core product and client groups, great innovative products capacity, largely standardised products and operational SNS REAAL has developed a great deal of expertise processes and complementary brands and distribution in developing, selling and distributing financial methods. retail products in the Netherlands. Resources and management focus are concentrated on core product Activities and clients groups, which partly explains the organi- The table on page 15 summarises SNS REAAL’s sation’s great innovative capacity. SNS REAAL is businesses, brands, product groups and distribution one of the big players in the Dutch market for retail channels. mortgages, property finance and life insurance. § Operational efficiency Strategy In the Dutch banking sector, SNS REAAL has a good SNS REAAL has a simple and lucid strategy. Clear choices efficiency ratio and in the Dutch insurance sector, a were made in our marketing strategy regarding product strong operational costs/premium ratio. SNS REAAL groups, client groups and market regions. SNS REAAL is a flexible and efficient organisation with a short also decided to optimise client access by using comple- time-to-market for its products. It is capable of mentary brands and distribution channels. In this regard, rapidly making a good return on the companies it SNS REAAL uses shared centres for product development acquires, inter alia by cost synergies, as has been and administrative processing for its core product demonstrated in recent years. groups. § Innovation Thanks to its efficient organisation, its specialisation In implementing this strategy, SNS Bank and REAAL in the retail and SME markets and a stimulating Verzekeringen make their own choices regarding best business culture, SNS REAAL is frequently able to create outstandingly innovative products and * ) The Dutch authorities consider 250 employees the upper limit services. of a medium-sized company. With some products, SNS REAAL § Distribution sometimes focuses on larger companies. This is the case in The diversification in distribution channels leads to a particular with property finance and pensions high return on sales effort, making it possible for us 14 SNS REAAL Annual Report 2006 sns reaal at a glance

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    Business Brand Product groups Clients Distribution channels SNS Bank SNS Bank Mortgages, savings, Retail, SME Branches, internet, investments, payments, intermediaries, phone insurance brokerage, commercial credit SNS Property Property financing Companies, profes- Offices Finance (investments, projects, partici- sional investors, project pations, structured financing, developers, housing real estate leasing) corporations BLG Hypotheken Mortgages Retail, SME Intermediaries, distri- bution partners ASN Bank Savings, investments Retail Internet CVB Bank Mortgages, savings, Retail, SME Intermediaries investments (franchisees) SNS Securities Securities research, institu- Institutional (interna- Account management tional brokerage, corporate tional), high-wealth finance, asset management, retail providing liquidity SNS Fundcoach Investment fund supermarket Retail Internet SNS Assurantiën Insurance, pensions SME Branches, sales staff REAAL REAAL Verzeker- Individual life, group life, non- Retail, SME, large Intermediary, agents, Verzekeringen ingen life and disability insurance companies distribution partners Proteq Non-life and funeral insurance Retail Internet, phone, alliances Route Mobiel Breakdown assistance Retail Internet, phone SNS Asset SNS Asset Asset management, research Internal: SNS and ASN Account management Management Management on sustainable investments investment funds, REAAL Verzekeringen investment portfolio External: Semi-institu- tional to capitalise on specific opportunities in each distri- § Brand recognition bution channel (including through brand policy) and In comparison with the largest players in the market, promote cross-selling. Cooperation with intermedi- SNS REAAL has lower brand aries is also strong. This is important particularly in recognition. the mortgage and insurance markets. § Limited synergy benefits between bank and insurer. § Moderate risk profile SNS Bank and REAAL Verzekeringen focus mainly on Focusing on a limited number of banking and their own distribution channels to make optimum insurance products for retail and SME clients, use of changes in the market and client needs. The especially in the Netherlands, mitigates the risk benefit synergy is therefore limited, but may be profile. improved in the medium term. Weaknesses Opportunities § Dependence on mortgages and life insurance § Ageing The strong market position in mortgages mean that The increasing number of elderly people in the a disappointing performance by this product group Netherlands will lead to long-term greater demand would have a relatively major adverse effect on the for pensions and (supplementary) savings and overall results. The same applies to life insurance, investment plans for provisions for old age. albeit to a lesser extent. § Reduction in collective regulations § Scale As a result of leaner or reduced group benefit In comparison with the largest players in the market, provisions, such as VUT (early retirement) and WAO in a number of operations SNS REAAL’s scale benefits (Disablement Insurance Act), private individuals and are more limited. SMEs will increasingly have to insure themselves SNS REAAL Annual Report 2006 sns reaal at a glance 15

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    or arrange supplementary insurance, for example 1 Structural value creation through disability insurance products. SNS REAAL wishes to create value for all its stakeholders, § Under-representation in the Randstad and in particular for its shareholders, clients, staff and In the Randstad, the urban conurbation in Western society. We create growth and returns for our share- Holland where we have recently strengthened our holders through proper risk management. We achieve presence with bank branches, there are good oppor- this for our clients by offering accessible and transparent tunities for improving our market share. products that allow them to manage their financial § Under-representation on the SME market future. Our staff is best served in this capacity by offering It is possible to apply our knowledge and distribution them the scope to develop their talents, while we serve channels better in the SME market for both banking society best through the sustainable development of our and insurance products. company based on balanced concern for social, ethical § International growth and environmental issues. There are also good international growth opportu- nities for SNS Property Finance’s property finance The pillars of SNS REAAL’s approach to value management operations. are: § Sustainable entrepreneurship, savings and § Income diversification investment The combination of banking and insurance The need for sustainable commercial operations activities leads to various types of income: interest and savings and investment products is increasing. income, commissions, premium income, result on With its specialist knowledge in this area, SNS REAAL investments, thus making the overall inflow relatively could capitalise on this development. stable. Furthermore, the effects on banking and § Tax-deductible savings and investments via bank insurance income of interest rate changes tend to products compensate one-another. SNS Bank and REAAL From 2008, it will be possible to create retirement Verzekeringen aim to achieve diversification of provisions with a blocked savings or investment income by developing or acquiring companies with account with a bank. This offers obvious benefits to a products that are well aligned with their existing combined bank/insurer. activities. § Distribution Threats SNS REAAL produces its own products for which it § Competition in mortgage and life insurance markets has its own distribution channels as well as using Our margins are under pressure as a result of partners’ distribution channels, in which the inter- powerful price competition in the market for mediary plays a major role. Moreover, SNS REAAL mortgages and life insurance. distributes third-party products through its distri- § Vulnerability in the event of unfavourable interest bution channels. SNS REAAL views its distribution and stock market developments. role as an important opportunity for creating value The dependence on the interest rate curve in the and seeks to strengthen it. Options include further mortgage market and the link between investments developing the use of the internet and enhancing for own risk and life insurance heightens our vulner- market prominence, by improving the efficiency and ability to unfavourable interest rate and stock market effectiveness of advisory services, improving the developments relative to market players with a alignment of DIY concepts to advisory functions and broader product range. by increasing the use of the group’s own distribution § Increasingly legislative environment channels to sell the products of others. In the financial sector, changes in legislation and § Adequate return, moderate risk regulations demand frequent changes to products The main objective is to improve and maintain and data management. This leads to an increase market positions thanks to powerful, innovative in staffing and IT costs. Moreover, the risk of legal products and distribution methods. Growing returns, claims in the financial industry is increasing. however, must go hand in hand with cost control, the efficient use of capital, a strict pricing policy and risk Strategic priorities management. SNS REAAL has defined a primary strategic course based § Long-term relationships in part on this SWOT analysis, which establishes the SNS REAAL invests great effort into developing and following three priorities: structural value creation, maintaining long-term relationships with its clients financial specialisation on retail and SME clients and and intermediaries. We wish to offer our clients structural growth. accessible and transparent products with a good 16 SNS REAAL Annual Report 2006 sns reaal at a glance

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    price/quality ratio. SNS REAAL seeks to guarantee § Product groups the integrity of staff and company in product SNS REAAL offers three product groups: mortgages development and client contact. Monitoring client and property finance, savings and investments and satisfaction and performing research into clients insurance (life, pensions, non-life and disability). We needs are important factors in developing products want to be market leader in these product areas. By and services. choosing a limited number of product groups, we are § Cost management, synergy and benefits of scale able to standardise many products and modules, and are crucial. Our efficiency ratios are among the best use resources and staff efficiently and with focus. Some in the Dutch financial market but will have to improve of our SME banking products are based on those for further. Centralised product development and retail clients. We also develop specific products for the standardisation of products, systems and processes SME market. Our specialty products in property finance generate significant benefits in synergy and scale are developed by SNS Property Finance. SNS REAAL is without harming the great diversity of distribution one of the biggest players in the Dutch retail mortgage, methods. SNS REAAL has gained great experience property finance and life insurance. in integrating newly-acquired activities rapidly and § Netherlands efficiently. SNS REAAL focuses its financial resources and § Attracting, developing and retaining talent management attention on the Dutch market. We also SNS REAAL invests in its staff and thereby in the to some extent develop real estate financing products in company’s structural development. We offer an order to serve our Dutch clients who are located abroad. extensive programme of talent and leadership development. We support professional courses and 3 Structural growth ‘training on the job’. We stimulate mobility within SNS REAAL seeks profitable growth in its activities. This the group as this improves creativity and benefits is necessary to ensure continuity and to maintain and innovation and synergy within the company. improve our market positions. In a competitive market § Responsible entrepreneurship like the Netherlands, scaling up can often make an SNS REAAL offers a broad range of responsible important contribution to achieving higher returns. products and services, aims to operate responsibly Expanding income streams and seeking new sources and supports social projects and activities. of income, for example through alliances, are central SNS REAAL looks to combine responsible and themes, as is the need to look for new ways to struc- commercial entrepreneurship. The main features turally reduce costs. in this regard are accessibility, transparency and integrity. SNS REAAL’s growth strategy over the coming years is based on the following main drivers: savings and 2 Focus on retail and SME clients in the Netherlands investments, the SME market, property finance, distri- SNS REAAL focuses on a number of client and product bution, pensions, disability insurance and non-life groups in the Netherlands. This leads to the efficient use insurance, and growth via acquisitions and strategic of resources, distinctive brands and market positioning, cooperation. For mortgages and individual life and a moderate risk profile. In 2006, we expanded our insurance, in which we have already achieved leading strategic focus on our core products with products for market positions, we expect a slowdown in growth over property finance through the acquisition of Bouwfonds the coming years. Property Finance. This has enhanced our visibility and credibility in the SME market. § Savings and investments Given the ageing population and the increasing § Client groups personal responsibility of citizens to provide for their SNS REAAL targets retail and SME clients. Our markets own pensions, we see good growth opportunities for are characterised by narrow margins, a broad product savings, investments and insurance products in this range, the growing use of the internet and clients who area, such as pensions. look for a provider capable of quickly and effectively § SME clients meeting their changing needs with appealing products. Both SNS Bank and REAAL Verzekeringen see good Customer focus is about product development, data growth opportunities in the SME market. Commercial processing, marketing and client contact. SNS REAAL mortgages are a target growth area in SNS Bank’s has embedded client focus throughout the organi- retail product portfolio. Other target growth areas for sation, where it plays an important role in our training REAAL Verzekeringen are non-life insurance packages and educational programmes. and defined contribution pensions for the SME market. SNS REAAL Annual Report 2006 sns reaal at a glance 17

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    § Property financing § SNS Bank Tier 1 ratio more than 8%. SNS Property Finance wants to become a recognised § Life capital ratio more than 150%. international real estate financier. § Non-Life capital ratio more than 200%. § Disability insurance A growth market for disability and absenteeism Operational objectives insurance with good margins has developed as a SNS REAAL has defined a number of operational result of a retreating government. objectives for implementing its mission over the coming § Distribution years: Substantial growth could come through the better § Market share in new mortgages: 8-10%. use of and further improvement of the existing distri- § Market share in overall savings: 6-8%. bution channels, including in particular the internet, § Market share individual life insurance 14-17%. development of new franchise formulas and further § Market share non-life insurance: 4-6%. expansion of the number of distribution channels, § Top 5 position in disability insurance in 2009. e.g. via activities in adjacent segments and use of partners’ distribution channels. The chapter Strategy Update provides quantitative § Acquisitions and qualitative information on the results SNS REAAL The flotation in 2006 has enhanced SNS REAAL’s achieved in 2006 in pursuing these strategic, operational acquisition strength. Interesting potential acqui- and financial objectives. sitions include companies which can contribute towards strengthening our existing market positions and expanding into adjacent segments. Important criteria include moderate risk in the field of integration and execution and opportunities for synergy, enabling us to create value, in maintaining our solvency standards and in achieving our financial goals. New financial objectives Due to the acquisition of Bouwfonds Property Finance, the objectives that were in force until 2006, have been reassessed and new return and efficiency objectives have been set. They are listed below. The capital ratio targets have remained the same: § SNS REAAL double leverage less than 115%. § SNS Bank BIS ratio more than 11%. Return and efficiency objectives valid up until 2006 Return and efficiency objectives 2007-2009 Return Return § Growth of earnings per share by over 10% annually. § Growth of earnings per share of 10% per annum on average, starting in 2006 up to year-end 2009, including acquisitions funded with existing capital. § Return on equity of over 12.5% per annum after tax. § Return on shareholders’ equity of 15% per annum on average after tax. Efficiency Efficiency § Efficiency ratio SNS Bank below 58% at year-end 2008. § Efficiency ratio SNS Bank of 55% as per year-end § Operating cost/premium ratio REAAL Verzekeringen less than 2009. 13% at year-end 2008. § Operating cost/premium ratio REAAL Verzekeringen of 13% as per year-end 2009. § Combined ratio for non-life insurance operations of 97% as per year-end 2009. 18 SNS REAAL Annual Report 2006 sns reaal at a glance

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    Flotation and the SNS REAAL share On 18 May 2006, SNS REAAL shares were introduced on Eurolist by Euronext, the Amsterdam stock exchange. The share has been included in the AMX index since 2 March 2007. This flotation has increased SNS REAAL’s strategic flexibility. The proceeds of the flotation came to € 1,368 million. previous year. The weighting of each fund is partly € 952 million was due to the majority shareholder determined on the basis of market capitalisation of the Stichting Beheer SNS REAAL, while € 416 million will be free float. The weighting factor is 10% at the maximum. used for general business purposes and for financing The estimated index weighting on 2 March 2007 is acquisitions. approximately 4.8% of the Mid cap index. Including the green shoe option, 80,487,548 shares Dividend policy were floated. SNS REAAL placed 24,496,210 new shares, SNS REAAL pursues a stable dividend policy. which, at the introductory price of € 17.00, generated Assuming the company achieves its internal solvency proceeds of € 416 million. Stichting Beheer SNS REAAL, and financing targets, SNS REAAL intends to distribute the only shareholder at that stage, floated 55,991,338 a dividend of 40-45% of net profit. SNS REAAL has existing shares. Of the total number of shares placed, the intention to declare both an interim dividend 79% was acquired by domestic and foreign institutional and an annual dividend to the shareholders. In the investors. Over 21% was placed with some 30,000 private event of the declaration of an interim dividend, it is shareholders in the Netherlands. The flotation placed proposed that this will in principle amount to 50% 34.5% of SNS REAAL shares on the free market. The other of the total dividend of SNS REAAL in the previous 65.5% of the shares is in the hands of Stichting Beheer financial year. SNS REAAL. Options on SNS REAAL shares are also traded on the stock exchange. If the Executive Board is designated by the Annual General Meeting as the body that is authorised to Since 2 March 2007, the SNS REAAL share has been issue shares, the Supervisory Board can resolve at the included in the Amsterdam Mid Cap Index (AMX). proposal of the Executive Board that dividends will be The ticker symbol is SR. The AMX is the index of the distributed fully or partly in the form of shares in the middle segment of Dutch companies as determined capital of SNS REAAL instead of in cash, or to give the by Euronext. It is a weighted index based on the share shareholders the option to choose between both kinds prices of the 25 most traded medium-sized companies of dividend. If the Executive Board is not designated listed on the Dutch Stock Exchange. This inclusion is as the authorised body to issue shares, the General partly dependent on the effective trading volume in the Meeting of Shareholders will decide. Important dates 2007 14 March Publication of the 2006 results, press conference with webcast; analysts’ meeting with call-in option and webcast. 18 April Registration date for the Annual General Meeting 7 May Trading update 1st quarter 2007 9 May Annual General Meeting in the Jaarbeurs in Utrecht with webcast 9 May (after trading) Declaration and publication of optional dividend distribution 11 May Ex-dividend date 29 May Final date for dividend preference notification 6 June 2006 final dividend payment date 16 August Publication of first-half results for 2007. Press conference with webcast; analysts’ meeting with call-in option and webcast 15 November Trading update 3rd quarter 2007 14 March 2008 Publication of the 2007 results; press conference with webcast; analysts’ meeting with call-in option and webcast SNS REAAL Annual Report 2006 sns reaal at a glance 19

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    SNS REAAL will annually put a proposal to the General Agenda for the Annual General Meeting of Shareholders regarding the dividend distri- Meeting of Shareholders bution. The agenda for the Annual General Meeting of Share- holders will be published on our website www.snsreaal.nl. Dividend proposal Printed copies may be requested by phone (+ 31 30 291 The Executive Board will propose a total dividend for 4876) or by e-mail (concerncommunications@snsreaal.nl) 2006 of € 0.71 per share. Since an interim dividend of as from 12 April 2007. € 0.32 was paid in September 2006, the proposed final dividend is € 0.39. Shareholders can choose to take the Ownership spread full dividend in cash, charged to net profit, or fully in At the end of 2006, Stichting Beheer SNS REAAL held an shares charged to the share premium reserve. On 11 interest of 65.5% in SNS REAAL. The duty to report this May 2007 the share will be quoted ex-dividend, and the interest to the stock exchange in accordance with the Act dividend will become payable on 6 June 2007. on the Disclosure of Major Holdings and Capital Interests in Securities-Issuing Institutions (WMZ) came into force The dividend proposal will be submitted to the Annual on 18 May 2006. Other interests of over 5% were not General Meeting of Shareholders (AGM) on 9 May 2007. known by SNS REAAL in February 2007. Earnings per share There is no additional public information on share- SNS REAAL is aiming for an average growth in earnings holders in SNS REAAL other than that ensuing from per share of 10% per year. This objective is based the WMZ. In January 2007, SNS REAAL commissioned on organic growth and growth through acquisi- research into the ownership distribution of SNS REAAL tions. In 2006, earnings per share amounted to € 1.65 N.V. shares. Based on its own research, SNS REAAL (+ 6.5%). Following the flotation of SNS REAAL, the estimates that the proportional shareholdings of insti- average weighted number of shares in issue rose from tutional and private investors are 82% and 18% respec- 208,801,030 to 224,564,046. The new shares are fully tively. included from the date of issue in calculating the earnings per share. The distribution of SNS REAAL shareholding is shown in figure 15. The percentage for the Netherlands is exclusive Share price in 2006 of the Stichting Beheer SNS REAAL. 13 Share Price Performance SNS REAAL Share ownership directors and employees € For information concerning the awarding of shares to 18.5 members of the Executive Board as part of their remuner- 18.0 ation policy, please refer to the section Remuneration 17.5 report in the chapter Corporate Governance. 17.0 Staff who on the Initial Public Offering date had an 16.5 employment contract with SNS REAAL or one of its 16.0 operating companies and were not defined by the 15.5 15.0 14 Ownership spread 18-05-2006 25-05-2006 01-06-2006 08-06-2006 15-06-2006 22-06-2006 29-06-2006 06-07-2006 13-07-2006 20-07-2006 27-07-2006 03-08-2006 10-08-2006 17-08-2006 24-08-2006 31-08-2006 07-09-2006 14-09-2006 21-09-2006 28-09-2006 05-10-2006 12-10-2006 19-10-2006 26-10-2006 02-11-2006 09-11-2006 16-11-2006 23-11-2006 30-11-2006 07-12-2006 14-12-2006 21-12-2006 28-12-2006 Share Price Performance SNS REAAL Stichting Beheer Free float SNS REAAL Information per share 65.5% 34.5% In euro’s (value 29-12-2006) 2005 2006 Net profit 1.55 1.65 SNS REAAL Dividend n.a. 0.71 Dividend yield n.a. 4.32% Further information per share can be found on page 8 100% 100% (Key figures) and pages 108 and 208. SNS Bank REAAL Verzekeringen 20 SNS REAAL Annual Report 2006 sns reaal at a glance

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    Compliance department as ‘closely involved in the flotation’ were eligible for a gift of 20 shares. A total of 5,832 staff received a share entitlement on the day of the listing, which they can convert into a cash amount should they wish to do so. 15 Spread shareholders year-end 2006 11% 30% 41% 18% NL Insitutional NL Retail UK/US/CAN Other Investor Relations SNS REAAL considers a good relationship with investors and analysts to be extremely important and therefore strives for optimum transparency and consistency in its communications. All reports and information on our performance, strategy and activities can be viewed or downloaded from the date of publication on the website www.investor.snsreaal.nl. Moreover, the Executive Board gives regular presentations to analysts and investors. SNS REAAL also maintains contact, individually and on a collective basis, with investors and analysts via one-on- one discussions, presentations and conference-calls. Other information More information on SNS REAAL shares can be found at www.investor.snsreaal.nl. The site also includes an interactive version of this annual report with a search function. SNS REAAL Annual Report 2006 sns reaal at a glance 21

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    The Executive Board of SNS REAAL. From left to right Rien Hinssen, Sjoerd van Keulen, Cor van den Bos en Ronald Latenstein van Voorst. 22 SNS REAAL Annual Report 2006 sns reaal at a glance

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    Supervisory and Executive Boards SNS REAAL Executive Board S. van Keulen, Chairman R.R. Latenstein van Voorst MBA Sjoerd van Keulen (1946) has been Chairman of the Ronald Latenstein van Voorst (1964) has been Chief Executive Board and CEO since the end of 2002. He is Financial Officer (CFO) on the Board since 2002. He is also charged with supervising the departments Legal, also charged with supervising SNS Asset Management Compliance and Operational Risk Management, Internal and the group staff departments Balance Sheet Audit, Human Resources, Corporate Communications, Management & Risk Management, Financial Reporting Corporate Strategy, Corporate Affairs and International & Information Management, Investor Relations, Affairs. Management Accounting, ICT, Fiscal Affairs and Facility Management. ‘At SNS REAAL, we are developing something unique – a retail formula in the financial world. We distinguish ‘In the Randstad, where there are 9 million people, we ourselves by combining innovation and entrepreneurship have only just shown our face. We have noticed that with level-headedness and accessibility.’ consumers there have a real need for an alternative to the large banks. We also have attractive growth oppor- Sjoerd van Keulen started his professional career as tunities in savings and investments and property organisational consultant. As a banker, he was previously financing.’ a member of the Executive Board for MeesPierson and Fortis. Following his studies in economics, Ronald Latenstein van Voorst specialised in business administration. After C.H. van den Bos several national and international financial management Cor van den Bos (1952) has been a Member of the Board positions, he started at SNS REAAL in 1995. After a brief since 2001 and is Chairman of the Board of REAAL intermezzo as CFO at Bank Insinger de Beaufort, he Verzekeringen. returned to SNS REAAL in 2002. ‘The art is to grow fast yet remain nimble, innovative More extensive CVs can be found on www.snsreaal.nl and fresh. Decisiveness is an important reason for our Their external positions are outlined on page 100 of this success.’ annual report. Cor van den Bos trained as a corporate economist, after which he specialised in accountancy. He has held various board-level positions at Aegon and was a member of the Executive Board of the Athlon Groep. M.W.J. Hinssen Rien Hinssen (1956) has been a Member of the Board since 1999 and is Chairman of the Board of SNS Bank. ‘Slowly but surely, we are becoming one of the big boys. Yet we remain the ‘challenger’. We are on the offensive, looking to help clients just that little faster and more cleverly than our competitors.’ Rien Hinssen trained as a lawyer and subsequently specialised in financial-economic management. He held various positions at Rabobank and started at SNS Bank in 1982 as District Director for North and Central Limburg. SNS REAAL Annual Report 2006 sns reaal at a glance 23

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    Supervisory Board Prof. J.L. Bouma, Chairman Superunie, a supermarket purchasing organisation and a Appointed in 1990. Mr Bouma (1934) is emeritus former chairman of the board of retailers Hema and the Professor of Corporate Economics at Rijksuniversiteit Praxis Group. He is on the Supervisory Board of a number van Groningen, was Deputy Chairman of the Board of of other companies and on the Executive Board of the Vereniging AEGON and is member of the Supervisory Elsevier Food Council. Board at various other companies. H. Muller H.M. van de Kar, Vice-Chairman Appointed in 1997. Mr Muller (1942) is on the Supervisory Appointed in 1997. Mr Van de Kar (1934) is lecturer in Board of ASN Beleggingsfondsen N.V., chairman of the financial management at Leiden University and chairman Netherlands Participation Institute and a member of the and board member of various other organisations in the Supervisory Council of SNV Nederlandse Ontwikkeling- social, cultural and financial arena. sorganisatie. He is also a board member of the Stichting Beheer SNS. Mr Muller is a former Federation Director of J.V.M. van Heeswijk the FNV union, a former member of the Social Economic Appointed in 1990. Mr Van Heeswijk (1938) is former Council and the Labour Foundation. chairman of the Executive Board of Geveke N.V and on the Supervisory Board of Tref B.V. He has been on the Some supervisory directors already held a supervisory Supervisory Boards of various other companies in the directorship with a legal predecessor of SNS REAAL N.V. energy, technology and trade sectors. A more extensive list of the other positions held by the Supervisory Board directors and their retirement rota is J. den Hoed given on pages 100 and 101 of this annual report. Appointed in 2003. Mr Den Hoed (1937) is a former CFO of Akzo Nobel N.V. He is an advisor to various other company boards and is a board member of Stichting Beheer SNS REAAL. Prof. S.C.J.J. Kortmann Appointed in 1990. Mr Kortmann (1950) is chairman of the Research Centre, Company & Law, at Nijmegen University, Professor of Civil Law at the Nijmegen University Law Faculty and chairman and member of various Supervisory Boards. Mr Kortman is also a member of the board of Stichting Beheer SNS REAAL. R.J. van de Kraats Appointed in 2006. Mr Van de Kraats (1960) is vice chairman of the Executive Board and CFO of Randstad Holding N.V. and responsible for Yacht (interim profes- sionals), Asia, mergers and acquisitions, IT, Investor Relations and shared service centres. He is a former member of the Executive Board and CFO of NCM Holding N.V. Mr Van de Kraats is on the Executive Board of New Venture and on the Supervisory Board of Ordina N.V. J.E. Lagerweij Appointed in 2006. Mr Lagerweij (1948) is managing director of the Sperwer Groep, a board member of 24 SNS REAAL Annual Report 2006 sns reaal at a glance

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    SNS REAAL Annual Report 2006 sns reaal at a glance 25

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    Now also a property finance specialist - With the acquisition of Bouwfonds Property Finance, SNS REAAL gained a major new area of expertise: property finance. It enhances our ability to develop and co-ordinate an even wider range of financial services with optimum effect, both at home and internationally. Throughout this process, we continue to rely on our core competencies: market analysis and risk assessment.

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    Report of the Executive Board

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    Strategy Update SNS REAAL is pleased to report on the way in which it has worked towards achieving its strategic ambitions and objectives. In the summary below, we report on our performances and strategic initiatives in 2006 in relation to our strategic priorities and operational and financial objectives. Strategic priorities 1 December 2006. The return on equity decreased 1 Structural value creation due to the timing difference between the new Central features of SNS REAAL’s value management are: share issue in May and the aquisition of Bouwfonds Property Finance on 1 December 2006, which was § Diversification of income financed partly with the share issue proceeds. The SNS Bank increased the diversification of its main factors squeezing profitability were the flat yield activities through the acquisition of Bouwfonds curve and pressure on margins on mortgage sales. Property Finance and the growth of SNS Fundcoach. Due to autonomous growth (€ 0.4 billion) and the Healthy growth in new business at REAAL Verzeker- acquisition of Bouwfonds Property Finance (€ 8.8 ingen, particularly in individual life insurance, billion), the SME credit portfolio grew from € 2.6 contributed to an improvement of the profitability billion to € 11.8 billion at year-end 2006, approxi- of the products. Additionally, the return on equity mately 21.0% of SNS Bank’s total credit portfolio. improved due to the higher return on investments This did not result in significant growth of interest and improvements in the asset mix. The main income since the acquired activities were only factors squeezing profitability were pressure on consolidated as per 1 December 2006. premiums for non-life insurance and the rapid rise of purchasing organisations and chains. REAAL Verzekeringen increased the spread of its product range with the introduction of disability SNS Bank’s capital base was increased in order insurance products. The strong growth in non-life to keep the solvency at the desired level after the insurance, primarily due to the takeover of Nieuwe acquisition of Bouwfonds Property Finance. Since the Hollandse Lloyd in 2005, contributed to greater flotation, SNS REAAL is better able to release existing diversity. This had the effect of increased spreading capital and use it in alternative ways, as was done of premium income from life insurance, non-life with the acquisition of Bouwfonds Property Finance. insurance and disability insurance. This acquisition has resulted in a higher risk profile, which was set off by higher commercial margins and § Distribution function income diversification. The distribution function was strengthened in many areas, with new and updated products, expansion in § Long-term relationships the number of distribution channels and by improve- SNS Bank focused mainly on: ments in service provision. For the most important - Developing further the do-it-yourself concept by examples, please refer to the chapters SNS Bank professionalising distribution on the internet. Developments and REAAL Verzekeringen Develop- - Marketing communication for new mortgage ments. products, to enhance the market share of the mortgage sector, for the new savings product § Sufficient return with moderate risk profile Maxisparen, for sustainable products, for SNS The lower ROE ratio of SNS Bank was partly due Fundcoach (including investment evenings) and to the consolidation of SNS Property Finance as of for the SNS Zakelijk Internet Super Sparen and Return of shareholders’ equity 2006 2005 Target year-end 2008 SNS Bank 14.1% 14.9% > 12.5% REAAL Verzekeringen 13.6% 12.9% > 12.5% SNS REAAL Annual Report 2006 report of the executive board 29

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    SNS 100% Bedrijfshypotheek products. beste 49 bedrijven om voor te werken (The best 49 - A special retention programme for mortgages to companies to work for), SNS REAAL achieved second limit switching from existing mortgages and for place last year. We implemented various initiatives optimising the quality of the mortgage portfolio. to encourage the promotion of talent to higher positions. At SNS Bank, we reassessed the desired REAAL Verzekeringen focused mainly on: leadership profiles and we reached new agreements - Further improving the knowledge and concerning achieving, improving and testing good effectiveness of intermediaries. The REAAL leadership. At the end of 2006, we started the ‘Ik ben College, our own training programme set up in SNS’ (I am SNS) project. The objective of this project 2005, was developed further. One of the main is to further attune the thoughts and actions of our areas of focus was capitalising on the needs of staff to the market experience. A similar project is major clients earlier and more effectively. underway at REAAL Verzekeringen entitled ‘100% - Perpetuating relationships with major REALIST’ . distribution partners and mortgage chains that occasionally sell our products under their own § Corporate social responsibility label. We developed new products, services, codes of conduct ands procedures aimed at enhancing the § Cost management, synergy and economies of scale accessibility and transparency of our products and The higher efficiency ratio of SNS Bank was mainly the integrity of our staff and organisation. The acces- due to lower income as a result of lower interest sibility of our products was enhanced with a talking margins and higher staff costs as a result of the digipas for the visual and physical impaired and a life hiring of temporary staff for projects in the areas of insurance for a limited group of people with HIV. supervision, regulation and compliance. SNS Bank and ASN improved the transparency of the SNS Bank made good progress with a project aimed costs of investment funds by being the first Dutch at automating and standardising data (from the bank to introduce a total cost percentage. This lead moment a product is ordered to the moment it is to a further increase in transparency in unit linked delivered) for the sale of mortgages. This Straight insurance offered by REAAL Verzekeringen as all Through Processing (STP) of mortgages improves investment products are in these funds. Additionally, the quality of data processing and will generate the transparency in the relationship between cost significant cost savings. In the first half of 2007, STP and revenue again became an important part of the will be introduced at SNS Bank and BLG Hypotheken. training offered by REAAL Verzekeringen, both for The reorganisation of SNS Bank’s SME operations, its own staff and for its intermediaries. Guarantees which is proceeding according to plan, also to ensure the integrity of the organisation and staff contributes positively to cost control. were embedded further in the organisation. For more information, please refer to the chapter Corporate The higher operating cost/premium ratio at REAAL governance under Compliance. Verzekeringen is mostly due to efforts in response to new legislation, such as the new Pensions Act The popularity of our sustainable savings and and the Work and Income Act. The sale of individual investment products, including the products of life insurance (products based on regular premium ASN Bank, increased sharply. For more information, payments) had a positive effect on the operating please refer to the chapter ‘Developments SNS Bank’ cost/premium ratio. on pages 53 and 54. SNS REAAL aims to improve the integration of corporate social responsibility into its § Attracting, developing and retaining talent operational activities. For our vision on corporate Different rankings indicate that SNS REAAL is an social responsibility, please refer to the Corporate attractive employer. On the Corporate Research governance chapter. Foundation ranking, publisher of the book De Ratios 2006 2005 Target year-end 2008 Efficiency ratio SNS Bank 62.6% 59.8% < 58% Operating cost / premium ratio REAAL Verzekeringen 13.8% 13.5% < 13% 30 SNS REAAL Annual Report 2006 report of the executive board

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    2 Focus on retail and SME clients in the Netherlands Vermogensbeheer and SNS Managed Account. Our § Client groups share of the savings market increased from 6.0% With the acquisition of Bouwfonds Property Finance, to 6.3%. New funds amounted to € 1,345 million we have taken a major step in achieving our ambition net. The investments in connection with insurance of reaching more clients in the SME market. In contracts on behalf of policyholders grew from non-life insurance, the former activities of Nieuwe € 3,426 million to € 3,955 million. Hollandse Lloyd, integrated in 2006, cooperation with Goudse Verzekeringen (absenteeism) and § SME clients the expansion of the disability insurance products With the acquisition of Bouwfonds Property Finance, contributed in the stronger focus on the SME sector. SNS REAAL became one of the major players in the Dutch market for property finance. This acquisition § Product groups is in line with our ambition of earning a greater With the acquisition of Bouwfonds Property Finance, share of our profits from SME clients. SNS Bank’s we widened the strategic product focus with products services now have two pillars: SNS Business Advice for property financing. The activities continue under and SNS Property Finance. SNS Business Advice the banner of SNS Property Finance. SNS Property distributes its products through the existing Finance’s portfolio amounted to € 8.8 billion at the channels. As a specialist in corporate mortgages, end of 2006. In 2007, part of the SME credit portfolio SNS Business Advice can benefit from the expertise, of the SNS Bank, worth € 3.0 billion in total at year- reputation and market and client information of end 2006, will be added to the portfolio of SNS SNS Property Finance. Furthermore, SNS Business Property Finance. Our expansion in disability and Advice offers savings and investment products to SME absence leave insurance contributed to broadening clients. the product range for SME clients. For the coming years SNS Bank expects to realise a § Netherlands higher rate of growth from SME clients than from SNS REAAL’s focus will remain trained primarily on retail clients. the Dutch market. In 2006, SNS Bank increased its presence in the Randstad by opening five new REAAL Verzekeringen intensified its marketing and branches. At the end of 2006, 77.0% of SNS Property distribution of insurance packages for SME clients. Finance’s portfolio consisted of financing in the This included refining the approach per business Netherlands. The remainder relates to financing sector. The gradual shift in focus from retail to of projects and participations in Belgium, France, business continued. Spain, Portugal, Denmark and North America. The distribution of property finance across a number of § Disability insurance products geographical markets has reduced the dependence REAAL Verzekeringen strengthened its growth on the Dutch mortgage market. potential considerably on the disability market. During the year, an entirely new and improved range 3 Structural growth of income, absence leave and Work and Income The most important areas for achieving our structural Act (WIA) insurances were introduced, in part in growth are savings and investments, the SME market, cooperation with Goudse Verzekeringen. REAAL disability insurance products, distribution and acquisi- Verzekeringen offers various product options, tions. including cheaper coverage which is more in line with actual needs, thereby distinguishing itself from the § Savings and investments rest of the market. REAAL Verzekeringen aims to be in The assets under management by SNS Fundcoach, the top 5 disability insurers within a number of years. our digital investment fund supermarket, rose from € 298 million to € 589 million (+ 97.7%). § Distribution The assets managed by the SNS and ASN investment SNS Bank opened five new branches in the Randstad funds increased from € 3.2 billion to € 3.8 billion and will further increase the number of branches (+ 19%). New funds amounted to € 404 million. in the Randstad in 2007. The distribution strength The investment products incorporating advisory increased mortgage sales through closer cooperation services, SNS Vermogensprisma and SNS Effecten with purchasing associations and mortgage chains. Adviesdesk, also grew steadily, as did the asset SNS Bank introduced various innovative improve- management services offered by SNS Bank, SNS ments and additions to its services via the internet SNS REAAL Annual Report 2006 report of the executive board 31

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    with ASN Bank and SNS Fundcoach. At the end of - Regio Bank 2006, a long-term contract was signed with the SNS REAAL and ING Bank are discussing a HEMA for the placements of cash points at the 350 possible acquisition of Regio Bank. On 3 HEMA shops. This agreement will contribute to the December 2006, a memorandum of under- improvement in our client service, brand awareness standing was signed to this effect. Regio Bank for the SNS Bank, reduce cash withdrawals from offers mortgage and savings products through our offices and offer additional opportunities for 380 independent intermediaries throughout the interactive marketing communications. Netherlands. At year-end 2006, Regio Bank had a mortgage portfolio of € 2.0 billion and savings Proteq, which focuses on the direct distribution deposits of € 3.0 billion. SNS REAAL wants to of non-life insurance via the internet, decided not combine the activities of CVB Bank and Regio to extend the cooperation with Kruidvat and V&D Bank under the banner of SNS Regio Bank. following the end of the test period. The results This will generate a leading franchise position were insufficient. Proteq remains interested in new in banking products in the Netherlands, with alliances for additional distribution. more than 800 intermediaries, a mortgage portfolio of € 5.3 billion and a portfolio of savings Route Mobiel, our breakdown assistance service of € 4.7 billion. This acquisition would raise the insurance and a supplementary distribution channel total mortgage portfolio of SNS REAAL by 5% for non-life insurance, performed well. The number and our market share of the savings market of clients rose to more than 161,000. would increase by at least 1 percentage point. All projections are based on figures current at § Acquisitions year-end. - Bouwfonds Property Finance With the acquisition of Bouwfonds Property The strategic importance of this acquisition is Finance, SNS REAAL has become one of the the fact that it significantly raises the distribution largest financiers of real estate in the Netherlands. strength of the CVB Bank franchise formula, Bouwfonds Property Finance is a profitable strengthens our core mortgages and savings company with a mortgage portfolio worth some products and provides cost synergy and a more € 8.8 billion when the transaction was concluded, prominent presence in the Randstad as a result of most of which being the financing of private the addition of 55 franchise offices in this region. housing construction, shops and shopping centres. The market in which the company - Route Mobiel operates, now under the banner of SNS Property SNS REAAL purchased all the shares of Route Finance, demands specialist expertise in financing Mobiel which it did not own. A minority holding and real estate. The threshold for new entrants is of 40% had been acquired previously when the therefore higher than in the retail market, so that company started up in 2004. commercial margins are higher. At the same time, part of the operations have a higher risk profile. The strategic importance of this acquisition is that it provides a further, additional source of The Dutch activities, comprising mainly income, brings with it an additional innovative investment and project financing, represent retail product and concept and a broader client some 77% of the portfolio. The remaining 23% base consisting of drivers who are potential relates to project financing and holdings in clients for our other products. Belgium, France, Spain, Portugal, Denmark and North America. These relate mainly to property - Van Leeuwenhoeck Research financing for Dutch clients. By acquiring Van Leeuwenhoek Research, SNS REAAL has strengthened the activities of SNS The strategic importance of this acquisition Securities, adding the fundamental research and is that it represents a major expansion in the value analysis of biotechnology companies. current real estate activities, it creates a better brand awareness in the market, it increases The strategic importance of this acquisition is the our scale on the SME market and reduces fact it broadens the product range in company dependence on retail activities. research and advice to institutional investors. 32 SNS REAAL Annual Report 2006 report of the executive board

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    In the 2005 annual report, we mentioned our intention to strengthen SNS REAAL’s positioning. The listing on 18 May and the associated communications campaign contributed considerably to this strengthening. Financial targets Return 2005 2006 Target 2006 Target as of 2007 Growth in earnings per share 8.0% 6.5% > 10% 10% on average per year, including acquisitions financed with existing equity Return on shareholders’ equity after tax 14.1% 12.7% > 12.5% 15% on average per year Efficiency 2005 2006 Target 2006 Target as of 2007 Efficiency ratio SNS Bank 59.8% 62.6% < 58%, year end 2008 55%, year end 2009 Operating Cost / Premium ratio 13.5% 13.8% < 13%, year end 2008 13%, year end 2009 REAAL Verzekeringen Combined ratio non-life operations 98.1% 98.9% 97%, year end 2009 Solvency 2005 2006 Medium-term target Double Leverage SNS REAAL 105.3% 107.8% < 115% BIS-ratio 11.9% 11.2% > 11% Tier 1-ratio 8.7% 8.2% > 8% Solvency life operations 233% 236% > 150% Solvency non-life operations 275% 279% > 200% SNS REAAL Annual Report 2006 report of the executive board 33

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    Prospects for 2007 SNS REAAL expects to be able to profit in particular from favourable conditions in the markets for savings and investments, property finance, pensions and disability insurance and SME non-life insurance. Conditions in the mortgage market and the individual life insurance market remain difficult. Based on the present information, the interest rate climate and the yield curve will not change materially. Financial markets decrease slightly. The unfavourable relationship between Shares short and long interest rates will persist in the first half In 2007, SNS REAAL expects moderate economic growth of the year. As mentioned above, we expect a moderately with slightly decreasing inflation. This is favourable for higher yield curve in late 2007, which will have a minor the equity market. In the first few months, however, prices positive impact on our mortgage activities. We expect may be pressured by disappointing economic results. the growth in the mortgage market, and thereby our If the soft landing scenario pans out and is followed by mortgage activities, to weaken, partly as a result of a improving economic growth, calm and the prospect of weakening of the mortgage refinancing market. We ongoing profit growth will return to the market. Given expect increasing demand for long-term mortgages. the currently high profit margins, any further corporate This expected development will strengthen the basis growth will be limited. Yet we expect investors to express for sustainable but limited growth of the mortgage confidence by being prepared to pay a higher market portfolio, but in the short term it will reduce penalty multiple. The most important price gains will result from interest income earned on switching and the short-term this upward valuation. This is a typical phenomenon for commercial margin. equity bull markets in their last stage. Savings and investments Interest The economic developments will support a favourable We expect that in the first half of 2007 the financial savings and investment climate. As a result, SNS REAAL markets will show uncertainty about economic growth once again expects an increase in the influx of savings figures in the United States. For this reason and due to and investment funds. For the savings and investment the excessively high money supply growth, the European market, we expect a further increase in funds entrusted Central Bank will aim to raise the interest rate. In view for both Individual investments as well as for investment of the robust growth in the eurozone and the excessively funds and structured savings/investment products. high money supply growth, the ECB will aim for an Of the total market the share of investment funds and interest rate that is neither stimulating nor restrictive. structured products is expected to increase. We expect that this level, estimated at around 4%, to be achieved in the first half of the year. This will slightly lift Important factors that determine in the inflow of savings: the whole yield curve, although it will initially certainly § Consumer confidence and purchasing power flatten off somewhat. Later in the year, when economic A stable and high level of consumer confidence and prospects become certain and more positive, the long purchasing power has a negative effect on the inflow end of the interest curve will rise slightly. of savings. An increase in purchasing power will initially lead to a higher inflow of savings, which will We expect the U.S. Federal Reserve will keep short-term only diminish once consumers start adjusting their interest rates at around the present level for quite some spending patterns. time. In the first half of the year, economic growth in the § Legislation and regulations US may be a little disappointing, which will reduce the Changes in legislation on employee savings schemes long-term interest rate somewhat, but later in the year and life-cycle schemes as well as new proposals for the long-term interest rate may go up again. pension and house savings can affect regular savings behaviour. Product markets § Interest rate developments Mortgages Sudden changes in interest rates can affect We expect ongoing strong competition on the consumers’ savings behaviour and the competition’s mortgage market, although the price pressure may marketing policies. 34 SNS REAAL Annual Report 2006 report of the executive board

  • Page 37

    § Competition from existing and new companies more stringent demands on the size of pension funds’ Increasing price competition can affect the inflow. net assets, on better information provision and commu- This happens when we maintain the desired margins, nication with those building up or already entitled to a but also when we respond to an interest rate pension. It also stipulates a lowering of the entry age to increase. 21 years. For REAAL Verzekeringen, the new act will put § Increased mobility of savings pressure on the administrative organisation as a result of More and more, clients tend to transfer their savings the changes in products and data processing. to accounts with the most favourable conditions. We expect this trend to continue in 2007. Non-life insurance The considerable competition on price in the car Property financing insurance sector, the product group with the largest There is a surplus of capital and equity in the Dutch premium volume in non-life insurance, is expected to market for property financing for investments in high- continue. For the market as a whole, hardly any growth is quality property. The high transaction volumes in the expected. investment markets are expected to continue. The share of international transactions in this volume is on the Strategic initiatives and objectives rise. Dutch investors are increasingly active beyond our SNS REAAL views savings and investments, the SME national borders; Germany in particular is very attractive market, property finance, distribution, disability to them. insurance, acquisitions and strategic cooperation as its main growth avenues. In 2007, we will also devote There is increasing demand in the growth sectors of our additional attention to cost control in order to further economy for new development and redevelopment of improve the return on our activities and strengthen real estate. Demand for capital market solutions based our competitive position. In 2007, the following on structured financing is growing. Many market parties initiatives will contribute to the implementation of our are showing an interest in financing with a relatively high strategy. degree of risk, regarding both investment financing and project financing. Pressure on commercial margins will Savings and investments (SNS Bank) continue. § The core products SNS Fundcoach, Fund Account, Managed Account and Cash Account, will be Life insurance developed further. SNS Bank will intensify its A major part of our individual life insurance portfolio marketing communication, for example via day is linked to mortgages. As a consequence, this market courses and investment evenings. is heavily dependent on the mortgage market, which, § Investment services will be professionalised further, as explained above, is showing only limited growth through, for instance, Live@dvies, whereby clients potential for 2007. These market forces will have a see and hear advisors live via the internet. Live@dvies negative effect on short-term income and a limited was introduced successfully in 2006 for mortgage positive effect on the sustainability of the portfolio due to advice. lower outflow as a result of mortgage refinancing. § We are again aiming for a considerable increase in the influx of savings funds through our successful There is sharp competition on price in the group product SNS Spaarmix, a range of innovative savings pensions market. The best growth opportunities exist products introduced in 2006, and through the in the market for companies up to 100 employees and products of ASN Bank. for major shareholders managers. Due to the upswing § SNS Bank will introduce new savings and investment of the labour market and an ageing population, products, including innovative special-offer products. employers will be increasingly prepared to invest in § Depending on the new legislation coming into force good secondary employment conditions, including good on 1 January 2008, new bank products aimed at pension schemes and disability insurance solutions. saving for a pension or a house will be developed. Many employers will be looking for solutions which limit the financial risks to their organisations. Under IFRS Savings and investments (REAAL Verzekeringen) regulations, those risks have increased for employers § Good advice is crucial in particular for the unit linked who offer their employees traditional pension schemes. insurance. REAAL Verzekeringen is already focusing strongly on improving the advising skills of the New legislation in the field of pensions came into effect agents in this area, but will increase its efforts yet on 1 January 2007 with the new Pension Act. It stipulates further in 2007. SNS REAAL Annual Report 2006 report of the executive board 35

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    Savings and investments (SNS Asset Management) § The bank will improve the use of its own offices’ § As part of its growth ambitions, SNS Asset and franchise offices’ advisory function by reducing Management will strengthen the focus on sustainable the administrative burden, in part by improving the products. An important feature of this development do-it-yourself concept. occurred in December 2006 with the introduction of § Assuming that the proposed acquisition takes a sustainable product for microfinancing in emerging place, SNS Bank will integrate the activities of markets. Regio Bank with those of CVB Bank. The latter is SNS Bank’s franchise organisation for savings and SME clients (SNS Bank) investments via an advisory office in the region. The § Focus on commercial mortgages will be intensified. new brand name “SNS Regio Bank” will contribute The provision of other types of credits will be to strengthening the formula. reduced. § SNS Property Finance will set new steps in the Distribution (REAAL Verzekeringen) expansion of its presence in the major European § After a number of years in which many new regions. In addition to the customary financing, products were introduced and additional activities participations will play a major role in this. were initiated, the emphasis in 2007 will mainly be on promoting sales and marketing, together SME clients (REAAL Verzekeringen) with further improvements in information and § Pensions communication with intermediaries. The improved With its range of defined contribution products, use and further development of the internet REAAL Verzekeringen is well placed to respond to the are also key in seeking to optimise the advisory needs of employers in the market for semi-collective capacity of intermediaries and further reduce their pension insurance. As a result of IFRS regulations, administrative load. financial risks have increased for employers who offer § Proteq, the subsidiary for direct sales of non- their employees traditional pension insurance. In life insurance via the internet, will improve its 2007, REAAL Verzekeringen will tailor the regulations organisation and systems for direct sales. One of for its defined contribution products even better to the results will be the ability of clients to make the risks associated with IFRS. Our market position in changes more easily via the internet. pensions also offers good opportunities for the sale § Increased number of products per independent of additional Work and Income Act insurance, both intermediairy and the extension of the number of for employers and for employees. underwriting agents. § Non-life insurance The product ranges for both retail and for SME has Cost management (SNS REAAL) been strongly expanded in recent years. In 2007, § Substantial benefits are expected as result of a there is strong focus on sales improvement and planned reorganisation of the (retail) approach to support. the SME market by SNS Bank, together with new § Disability insurance STP automation which should benefit mortgage REAAL Verzekeringen will intensify the marketing production, outsourcing of the administrative and sales support and focus them on the distin- processing of mortgages of REAAL Verzekeringen guishing product characteristics and differentiation for third parties, stronger focus on distribution, and in the market. This includes an own risk period of a reduction in the number of offices in the east of 1 to 5 years, the disability insurance products for the country. employees, a temporary long-term risk, collaboration with purchase organisations and a combined non-life Acquisitions (SNS REAAL) and insurance of sums product. § Strengthening our growth through acquisitions of both banks and insurance companies remains Distribution (SNS Bank) an important objective. Possible candidates § SNS Bank will develop further the do-it-yourself are activities that can help to strengthen our concept via the internet for all banking products and distribution capacity, offer cost benefits or seek to raise the commercial margin for mortgages those which are likely to strengthen specific by selling more via the bank’s own distribution competencies. SNS REAAL will also continue channel. SNS Bank will also seek new partners for the looking to expand its growth potential through joint distribution of its own mortgages. ventures. 36 SNS REAAL Annual Report 2006 report of the executive board

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    Objectives Our long-term operational and financial objectives as from 2007 can be found in the chapter Strategy, mission, activities and objectives on page 18 . We do not give any forecast of the level of profit or revenues of SNS REAAL in 2007. SNS REAAL Annual Report 2006 report of the executive board 37

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    Financial outlines Net profit growth of almost 15% is a good result given the still challenging market conditions. Earnings per share increased by 6.5%. Return on equity exceeded the target of 12.5%. Our capital base remains strong and offers a good position from which to effect further acquisitions. 17 Composition of net profit 2006 SNS REAAL (excluding group activities) Result SNS REAAL’s net profit grew by € 48 million from € 323 44% million to € 371 million (+ 14.9%). The operating profit (2005: 41%) before taxation increased to € 459 million (+ 10.3%). This increase was due to higher total income of € 3,567 million (+ 2.5%), against an increase in total expenses to 56% € 3,108 million (+ 1.4%). (2005: 59%) The results of SNS Bank and REAAL Verzekeringen are the principal components of SNS REAAL’s results. At SNS Bank, net profit grew from € 204 million to € 214 SNS Bank million (+ 4.9%). Net profit of REAAL Verzekeringen REAAL Verzekeringen increased to € 170 million (+ 21.4%). In group activities, net profit improved to – € 13 million. of intangible assets as a result of a purchase price allocation under IFRS and more expensive funding. On 16 Net profit SNS REAAL a pro forma basis, based on the accountancy principles € millions of Bouwfonds Property Finance, the net profit of SNS 400 Property Finance would have come to € 94 million for 350 2006 as a whole. In the notes below, the figures include 300 the consolidation of SNS Property Finance. 250 200 At REAAL Verzekeringen, Nieuwe Hollandse Lloyd was 150 included for the first full year. This acquisition took place 100 at the end of the third quarter of 2005. Our share in 50 Route Mobiel was increased from 40% to 100% in mid 0 2002 2003 2004 2005 2006 June 2006, and the results of Route Mobiel were consoli- Net profit SNS REAAL dated in REAAL Verzekeringen from that date onwards. Income Before allocation of the net profit on group activities, SNS REAAL’s total income grew by € 87 million to € 3,567 56% of the net profit comes from SNS Bank and 44% million (+ 2.5%). Income for own account was up by € 266 from REAAL Verzekeringen. In view of the 21.4% increase million to € 3,352 million (+ 8.6%). in the net profit of REAAL Verzekeringen, the share in the total net profit of SNS REAAL has risen. SNS Bank’s total income remained more or less steady. The decline in net interest income and the results on The results of SNS Property Finance have been consoli- derivatives were offset by higher commission income and dated in the results of SNS Bank since 1 December 2006. higher results on the sale of investments. The existing property finance activities of SNS Bank will be transferred to SNS Property Finance in 2007. The total income of REAAL Verzekeringen increased by € 63 For December, the net profit of SNS Property Finance million to € 2,795 million (+ 2.3%). Total income for own came to € 6 million after the effect of the amortisation account was 10.4% up at € 2,580 million. Net premium 38 SNS REAAL Annual Report 2006 report of the executive board

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    SNS REAAL In € millions 2006 2005 Change Income banking operations Net interest income banking operations 567 595 (4,7%) Net commission and management fees 120 114 5.3% Other income 81 56 44.6% Total income banking operations 768 765 0.4% Income insurance operations Net premium income 1,958 1,745 12.2% Result on investments 576 545 5.7% Result on investments for insurance contracts on behalf of policyholders 215 394 (45.4%) Result on derivatives and other financial instruments (9) (2) (350.0%) Other income 55 50 10.0% Total income insurance operations 2,795 2,732 2.3% Other income and eliminations 4 (17) 123.5% Total income 3,567 3,480 2.5% Technical expenses on insurance contracts 2,054 2,095 (2.0%) Acquisition costs for insurance operations 218 167 30.5% Value adjustments to financial instruments and other assets 35 60 (41.7%) Staff costs 503 443 13.5% Other expenses 298 299 (0.3%) Total expenses 3,108 3,064 1.4% Operating profit before taxation 459 416 10.3% Taxation 88 93 (5.4%) Net profit for the period 371 323 14.9% Net profit banking operations 214 204 4.9% Net profit insurance operations 170 140 21.4% Net profit group activities (13) (21) 38.1% Earnings per share (€ ) 1.65 1.55 6.5% Diluted earnings per share (€ ) 1.65 1.55 6.5% Total assets 79,742 68,088 17.1% Group equity 3,200 2,528 26.6% Ratios Return on shareholders’ equity 12.7% 1 14.1% Double Leverage 107.8% 105.3% Average number of employees (FTE) 5,609 5,336 5.1% SNS Bank: Efficiency ratio 62.6% 59.8% BIS ratio 11.2% 11.9% Tier 1 ratio 8.2% 8.7% REAAL Verzekeringen: New annual premium equivalent (in € millions) 196 176 2 11.4% Operating cost/premium ratio 13.8% 13.5% Solvency life operations 236% 233% Solvency non-life operations 279% 275% 1 ) ROE has been calculated with weighting the share issue of May. 2 ) New annual premium equivalent 2005 adjusted for EEV standards. SNS REAAL Annual Report 2006 report of the executive board 39

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    18 Composition of income SNS REAAL increment in amortisation costs as a result of the capital- isation of internal acquisition costs introduced in 2005. € millions The increase in staff costs was mainly due to the consoli- 4,000 dation of NHL and costs relating to issues in the field of 3,500 legislation. Technical expenses for own account were up 3,000 2,500 by € 78 million to € 1,391 million (+ 5.9%). This increase 2,000 can be accounted for by higher net premium income and 1,500 the consolidation of NHL including the earn-out expense 1,000 following from this acquisition. The technical expenses 500 on contracts on behalf of policyholders witnessed a fall of 0 € 119 million to € 663 million (– 15.2%). This decline was 2002 2003 2004 2005 2006 caused by lower investment results on these contracts. Net commission and other income Net interest income banking operations Result on investments Result of group activities Net premium income The group activities comprise the business units managed directly by SNS REAAL at holding company income grew by 12.2% to € 1,958 million, and result on level, their income and expenses not being allocated investments for own account was 5.7% up at € 576 million. to SNS Bank or REAAL Verzekeringen. These activities include SNS Reaal Invest, which has been largely Expenses dismantled, and – from 1 July 2006 – SNS Asset SNS REAAL’s total expenses rose by € 44 million to € 3,108 Management, managed directly by the Executive Board. million (+ 1.4%). The net result of SNS Asset Management for the first half of 2006 is included in the result of SNS Bank. SNS Bank’s total expenses were € 10 million higher at € 517 million (+ 2.0%). Staff costs increased by The result of group activities including consolidation € 25 million, the main factors being projects relating adjustments improved by 38.1% to – € 13 million net. to legislation and compliance, projects to improve The result was boosted (+ € 14 million) by the income efficiency in the fourth quarter. The cost increases were on the proceeds from the listing and the release of partly offset by lower value adjustments on financial provisions at SNS Reaal Invest. Higher costs due to instruments and other assets (– € 14 million). projects relating to strategy and legislation and higher The total expenses of REAAL Verzekeringen increased by financing costs for the business units had a negative € 24 million to € 2,562 million (+ 0.9%). This increase was impact (– € 9 million). SNS Asset Management achieved due mainly to higher acquisition costs (+ € 52 million) a positive net result in the second half of 2006. Assets and higher staff costs (+ € 19 million), as well as a € 41 under management grew by € 2.1 billion to € 16.4 billion million decline in technical expenses. The increased (+ 14.7%). acquisition costs are related to higher net premium income, the consolidation of NHL and a second annual Earnings per share Earnings per share increased to € 1.65 (+ 6.5%). For 19 Composition of expenses SNS REAAL the second half of 2006, earnings per share came to € 0.78, up by € 0.01 (+ 1.3%) against the second half of € millions 2005. Earnings per share for the second half of 2006 4,000 were down by € 0.09 (– 10.3%) against the first half year. 3,500 On the other hand, the weighted average number of 3,000 2,500 outstanding shares increased in the second half year 2,000 to 234,212,268 (+ 9%). The new shares are fully taken 1,500 into account for the purpose of calculating earnings 1,000 per share from the date of issuance of the new shares. 500 The diluted earnings per share also totalled € 1.65. 0 2002 2003 2004 2005 2006 Return on equity Other expenses The return on equity (ROE) of SNS REAAL, calculated by Acquisition costs for insurance operations Staff costs weighting the share issue at 8/12 year, came to 12.7% Value adjustments to financial instruments and other assets (2005: 14.1%), which was above the target of 12.5%. Technical expenses on insurance contracts The return on equity was lowered by the May share issue, 40 SNS REAAL Annual Report 2006 report of the executive board

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    20 Return on shareholders’ equity SNS REAAL in the portfolio of bonds available for sale. Investments for insurance contracts on behalf of policyholders were % up by € 0.5 billion (+ 15.4%). Apart from the € 1.3 billion 18 increase in savings, most of the total assets growth 16 14 was financed by the issue of debt certificates (+ € 5.6 12 billion) and private loans via credit institutions (+ € 4.1 10 billion). This partly resulted from the consolidation of 8 SNS Property Finance. The main contributors to the € 1.3 6 4 billion savings growth were the SNS SpaarMix and ASN 2 Ideaalsparen products. The technical provision insurance 0 operations increased by € 0.6 billion to € 13.3 billion 2002 2003 2004 2005 2006 as a result of the expansion in new insurance product Return on shareholders’ equity SNS REAAL business. while the acquisition of Bouwfonds Property Finance, Group equity funded partly by the proceeds from the share issue, The SNS REAAL group equity was € 672 million higher was not completed until 1 December 2006. at € 3.2 billion (+ 26.6%). This increase was due to the proceeds of the listing (€ 404 million after deduction of Tax rate expenses) and the net profit for 2006 of € 371 million. For 2006, the tax burden came to 19.2% (2005: 22.4%). Conversely, there was a decline of € 52 million caused The reduction in the tax rate was due to the decrease in by payment of the interim dividend and a net fall of € 51 the nominal rate of corporation tax, cut from 31.5% to million consisting mainly of unrealised revaluations of 29.6%. Recalculation of deferred taxation, on account investments and cash flow hedges as a result of market of the further cut in the nominal rate to 25.5% from developments and the realised sales of investments. The 1 January 2007, also contributed to reducing the tax capital base increased by € 720 million to € 4.9 billion, burden. For all of SNS REAAL the total impact of the while subordinated loans were € 48 million higher at recalculation amounted to € 15 million. € 1,366 million. For SNS Bank, the effective tax rate was 14.7% (2005: The capital base of SNS Bank grew from € 2.6 billion 20.9%). The use of structured finance deals and recal- to € 3.5 billion. Owing to the acquisition of Bouwfonds culation of the net deferred tax liability (€ 9 million) Property Finance, SNS REAAL gave the capital of following the cut in the corporation tax rate brought the SNS Bank a € 600 million boost by means of a paid-in effective tax rate down. For REAAL Verzekeringen the share premium. In addition, in the second half of the effective tax rate was 27.0% and was positively affected year the capital base was further reinforced by raising by the recalculation of deferred taxation totalling € 7 subordinated loans. The Tier 1 capital increased from million. € 1.8 billion to € 2.3 billion and the increased subordi- nated capital augmented the total qualifying capital from Balance sheet € 2.4 billion to € 3.2 billion. SNS REAAL’s total assets increased from € 68.1 billion to € 79.7 billion (+ 17.1%). The acquisition of Bouwfonds 21 Shareholders’ equity SNS REAAL Property Finance boosted the total assets by around € 9 € millions billion at the end of 2006. The largest increase in the 3,500 total assets concerned the item loans and advances to 3,000 customers, up by € 10.6 billion. This was mainly due to 2,500 an increase in property finance to € 8.8 billion owing 2,000 to the acquisition of Bouwfonds Property Finance. The 1,500 Mortgages item was up by € 2.3 billion. Here, portfolio 1,000 growth amounted to € 2.7 billion, while market value 500 adjustments resulting from hedge accounting under IFRS 0 led to a slight fall in the mortgages item on the balance 2002 2003 2004 2005 2006 sheet (– € 0.4 billion). Retained earnings Reserves Investments for own account grew by € 0.7 billion to Share premium € 10.6 billion (+ 6.8%). The main reason was an increase Issued share capital SNS REAAL Annual Report 2006 report of the executive board 41

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    22 Solvency levels SNS Bank 23 Solvency levels REAAL Verzekeringen % % 13 500 12 450 400 11 350 10 300 9 250 8 200 150 7 100 6 50 5 0 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 BIS ratio Non-life Tier 1 ratio Life Core Capital ratio Financial target Solvency Non-life (200%) Financial target BIS ratio (11.0%) Financial target Solvency Life (150%) Financial target Tier 1 ratio (8.0%) Financial target Core Capital ratio (6.0%) SNS Bank The capital base of REAAL Verzekeringen grew from € 1.3 billion to € 1.4 billion. The 2006 net profit of € 170 Result million was offset by a dividend of € 54 million paid to The results of SNS Property Finance have been consoli- SNS REAAL and a net decline of € 2 million in unrealised dated in the SNS Bank results from 1 December 2006. revaluations of investments for own account and risk, The existing property finance portfolio by SNS Bank and cash flow hedges. The subordinated loans were will be transferred to SNS Property Finance in 2007. down by € 7 million. In December 2006, the total income of SNS Property Finance came to € 15 million and the total expenses € 6 The double leverage, expressing the ratio between million. The net profit of SNS Property Finance came to the net asset value of the associated companies and € 7 million in December, and € 6 million after purchase subsidiaries and the SNS REAAL shareholders’ equity, price accounting and more expensive funding. On the increased from 105.3% to 107.8%. While the share- basis of the pro-forma figures of SNS Property Finance as holders’ equity was amplified by the proceeds from the shown at the end of this section, the 2006 result came to listing and the 2006 net profit, the value of associated € 94 million against € 84 million for 2005 (+ 11.9%). In the companies and subsidiaries increased, mainly because subsequent notes the figures include the consolidation of a share premium of € 600 million paid in to SNS Bank of SNS Property Finance. by SNS REAAL and the 2006 net profit generated by associated companies and subsidiaries (minus dividends In 2006, the net profit of SNS Bank grew from € 204 paid out). million to € 214 million (+ 4.9%), including € 6 million from SNS Property Finance. Total income was up Solvency from € 765 million to € 768 million (+ 0.4%). The The solvency of SNS Bank decreased slightly, though it contribution from SNS Property Finance, higher net remains strong. The slight fall was due to the increase commission income, and the results of investment sales in the risk-weighted assets of SNS Property Finance. The compensated for the fall in interest income and the total risk-weighted assets amounted to € 28,454 million results on derivatives and other financial instruments. (2005: € 20,175 million). The Tier 1 ratio was 8.2% (2005: Total expenses increased from € 507 million to € 517 8.7%), the BIS ratio 11.2% (2005: 11.9%) and the Core million (+ 2.0%). Capital ratio was 7.4% (2005: 6.9%). Staff costs were up by € 25 million, mainly as a result of The solvency of REAAL Verzekeringen was slightly higher projects relating to legislation and compliance, projects in both the Life and the Non-Life business. In Life, to improve efficiency and the consolidation of SNS solvency increased to 236% and in Non-Life to 279%. Property Finance. The higher costs were partly offset by lower value adjustments to financial instruments (– € 14 million). The tax item was down as a result of a partial release of past deferred tax liabilities owing to the adjustment of the corporation tax rate in 2007. 42 SNS REAAL Annual Report 2006 report of the executive board

  • Page 45

    SNS Bank In € millions 2006 2005 Change Result Net interest income banking operations 567 595 (4.7%) Net commission and management fees 120 114 5.3% Result on investments 67 26 157.7% Result on derivatives and other financial instruments 15 33 (54.5%) Other operating income (1) (3) 66.7% Total income 768 765 0.4% Value adjustments to financial instruments and other assets 36 50 (28.0%) Staff costs 283 258 9.7% Depreciation and amortisation of tangible and intangible fixed assets 25 27 (7.4%) Other operating expenses 173 172 0.6% Total expenses 517 507 2.0% Operating profit before taxation 251 258 (2.7%) Taxation 37 54 (31.5%) Net profit for the period 214 204 4.9% Ratios 1 Return on shareholders’ equity 14.1% 14.9% Efficiency ratio 62.6% 59.8% BIS ratio 11.2% 11.9% Tier 1 ratio 8.2% 8.7% Core Capital ratio 7.4% 6.9% 1 ) ROE has been calculated with weighting the paid-in share premium of December. The return on equity (ROE) came to 14.1% in 2006 (2005: Composition of income at SNS Bank 14.9%). Excluding SNS Property Finance and the effect of The share of net interest income in total income was the capital increase of that acquisition, the ROE would down slightly from 78% to 74%. have been 14.2%, also well above the long-term target of 12.5%. Net interest income In 2006, net interest income declined from € 595 million The efficiency ratio increased from 59.8% to 62.6%. The to € 567 million (– 4.7%). This fall was due mainly to lower rise was due mainly to lower income as a result of the income from ALM results due to a rise in the short-term lower net interest income, and higher staff costs caused interest rate combined with a further flattening of the yield by projects relating to legislation and compliance as well curve. During 2006, the interest rate position was shortened as efficiency. further, reducing SNS Bank’s sensitivity to future increases 24 Net profit SNS Bank 25 Efficiency ratio SNS Bank € millions % 250 66 65 200 64 63 150 62 61 100 60 50 59 58 0 57 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 Net profit SNS Bank Efficiency ratio SNS Bank SNS REAAL Annual Report 2006 report of the executive board 43

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    26 Composition of income SNS Bank € 540 billion (+ 7.4%). The savings entrusted to SNS Bank were up from € 12.3 billion to € 13.7 billion (+ 10.9%). The € milions Dutch savings market grew from € 211 billion to € 220 1,000 billion (+ 4.3%). 750 The SME loan portfolio produced organic growth of € 0.4 500 billion from € 2.6 billion to € 3.0 billion. Including the SNS Property Finance loan portfolio, which totalled € 8.8 250 billion at the end of 2006, the total SME loan portfolio came to € 11.8 billion at the end of 2006. The property 0 finance market requires specialist expertise and has a 2005 2006 higher risk profile, hampering market access for new Other income suppliers and permitting better commercial margins Net commission and management fees Net interest income banking operations than on the mortgage market. in the short-term interest rate. The adjustment of the Net commission and management fees interest rate position brought an improvement in the Commission and management fees were up from € 114 ALM results in the second half of the year compared to million to € 120 million (+ 5.3%). Excluding the activities the first half. of SNS Asset Management, which were transferred to the group activities from 1 July 2006, growth came to 13%. Commercial interest income remained stable. That transfer caused the commission and management Competition on the mortgage market caused a structural fees to decline by € 7 million in the second half of 2006. decline in the margin on new mortgage business, thus reducing the net interest income. This was offset by Securities commission was boosted by our customers’ expansion of the mortgage volume in the second half increased activities on the stock market. The number year, which boosted our market share from 7.6% in of active SNS Fundcoach customers was up from the first half year to 8.0% in the second half, and an 9,700 to 18,200 (+ 87.6%), resulting in more securities improvement in the margins on savings business. trading and management fees. The market value of the assets invested at SNS Fundcoach grew from € 298 The movement in interest rates caused the mortgage million to € 589 million (+ 97.7%). The management refinancing market to contract during the year. Gross fees for the SNS Bank and ASN Bank house funds also income from penalty interest therefore declined from increased. SNS Securities made a larger contribution € 90 million to € 53 million (– 41.1%). In the second half to commission, particularly as a result of the securities of the year, penalty interest income totalled € 17 million, consultancy and asset management activities taken with a downward trend during that period. over from Van der Hoop in 2006, and the expansion in activities relating to equities. The commission earned In a fiercely competitive mortgage market, SNS Bank by SNS Assurantiën, SNS Bank’s independent insurance aimed to achieve a sound balance between margin and consultancy, increased sharply, taking into account the volume, so that its market share dropped slightly from modest scale. 8.3% to 8.0%. The innovative SNS Budgethypotheek and strengthening of distribution, e.g. by stepping up Result on investments the links with purchasing consortia, made a contri- The result on investments surged from € 26 million to bution here. In the existing mortgage portfolio, retention € 67 million (+ 157.7%) owing to the gains realised on improved in the second half of the year. Our share of bond sales. In view of the size of the revaluation reserve the savings market grew from 6.0% to 6.3%, mainly at the end of 2006, the yield curve and the interest rate as a result of the successful products SNS SpaarMix, climate, the results on investments will be substantially ASN Optimaalrekening, ASN Ideaalsparen and CVB lower in the future. SpaarPlus. Result on derivatives and other The SNS Bank mortgage portfolio including SME financial instruments mortgages grew from € 42.6 billion to € 44.9 billion The result on derivatives and other financial instruments (+ 5.6%). All labels (SNS Bank, BLG Hypotheken and dropped from € 33 million to € 15 million (– 54.5%). This CVB Bank) made a positive contribution to growth. The item was lower due to lower market value changes under Dutch mortgage market expanded from € 500 billion to IFRS. 44 SNS REAAL Annual Report 2006 report of the executive board

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    Value adjustments to financial Other operating expenses instruments and other assets Other operating expenses showed a fractional increase The cost of value adjustments to financial instruments from € 172 million to € 173 million (+ 0.6%). Lower IT and other assets declined from € 50 million to € 36 and accommodation costs were offset by increased million (– 28.0%). In particular, the improvement marketing costs, required mainly for projects concerning in credit risk management and the more favourable legislation and efficiency. economic climate resulted in a lower allocation to value adjustments for the SME business. The allocations Pro-forma figures for SNS Property Finance relating to the private mortgage business exceeded For comparison, we have included pro-forma figures for last year’s figure, mainly because of more stringent SNS Property Finance for the years 2005 and 2006. In procedures for non-performing loans and higher 2007, the property finance activities that are recorded at shortfalls on foreclosure and speedier execution. SNS Bank, will be transferred to SNS Property Finance. Staff costs These pro-forma figures are based on the accounting Staff costs were up from € 258 million to € 283 million policies of ABN AMRO Bouwfonds N.V., the former parent (+ 9.7%). The number of employees increased by 151 to company of SNS Property Finance, and do not take into 3,272 FTEs. Excluding SNS Property Finance, the number account the effects of purchase price accounting and of FTEs came to 3,035 at the end of 2006. This led to more expensive funding. For pensions and associates higher permanent staff costs. In addition, € 3 million (including joint ventures), the data available are not was added to the reorganisation provision. Temporary yet sufficient to permit calculations on the basis of the staff costs increased sharply as a direct result of more SNS REAAL accounting policies. temporary workers being hired in the fourth quarter in carry out projects, particularly in connection with Before the acquisition, the Bouwfonds organisation legislation (customer identification, implementation of used central holding company services for which the Basel II) and efficiency. The cost reductions (approx. 200 costs were not passed on in full to the subsidiaries. FTEs) resulting from the STP projects and the reorgani- However, those costs are attributed in the 2006 figures sation of the SME business in the second half of 2007 are in the above table. For the purpose of comparison, these likely to produce the anticipated savings on expenses. costs are attributed in the 2005 figures, using the actual amount allocated for 2006 (€ 4 million before tax). Depreciation and amortisation of tangible and intangible fixed assets The figures for December 2006 included in the Depreciation decreased from € 27 million to € 25 SNS REAAL financial statements are shown in the column million (– 7.4%), primarily due to the disposal of some Property Finance December 2006. The net profit of properties. € 6 million is inclusive of the effects of purchase price accounting under IFRS and more expensive funding. Pro-forma figures SNS Property Finance In € millions Pro-forma Pro-forma Change Pro-forma SNS Property 2006 2005 December 2006 Finance December 2006 Total income 199 185 7.6% 17 15 Total expenses 66 60 10.0% 6 6 Operating profit before taxation 133 125 6.4% 11 9 Taxation 39 41 (4.9%) 4 3 Net profit for the period 94 84 11.9% 7 6 Group equity 638 548 16.4% 634 645 Efficiency ratio 27.6% 27.1% 29.4% 33.3% SNS REAAL Annual Report 2006 report of the executive board 45

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    REAAL Verzekeringen 28 Composition of income for own account REAAL Verzekeringen Result The net profit of REAAL Verzekeringen rose from € 140 € millions million to € 170 million (+ 21.4%). In Life operations, 3,000 the profit increased from € 113 million to € 149 million 2,500 (+ 31.9%). Profits growth was achieved by higher 2,000 premium income and income from investments for own account, and a slight fall in expenses. In the Non-Life 1,500 operation, profits were down from € 27 million to € 21 1,000 million (– 22.2%), mainly because of a higher claims 500 ratio, driven up by incidental claims and the consoli- 0 dation of NHL, which comprises a number of activities 2005 2006 with an inherently higher claims ratio. The combined Other income ratio edged upwards, but improved in the second half of Result on investments the year. Net premium income The return on equity increased from 12.9% in 2005 to 13.6% in 2006. The improvement in the return was due positive impact on the investment results. The proceeds to the increase in the net profit, and was reinforced by from disposals, included in the result on investments for a reduction in the revaluation reserve for bonds and own account, increased by 18.6% to € 80 million in 2006. derivatives. Expenses Income The total expenses of REAAL Verzekeringen increased The increase in the total income of REAAL Verzeker- from € 2,538 million to € 2,562 million (+ 0.9%). The ingen from € 2,732 million to € 2,795 million (+ 2.3%) lower result on investments for insurance contracts was generated mainly by the € 213 million growth of net on behalf of policyholders, which caused the technical premium income. In Life, there was a rise in both regular expenses on insurance contracts on behalf of policy- premium income (+ 7.6%) and single premium income holders to decline, had a positive influence on the (+ 10.4%). In Non-Life, net premium income was boosted level of expenses. The increase in technical expenses, by the acquisition of Nieuwe Hollandsche Lloyd (NHL) in caused by the expansion of the Life portfolio, a higher September 2005. REAAL Verzekeringen thereby increased volume of new single premium business and higher its share of the SME non-life market significantly. non-life premiums had a limited impact. The change in the method of amortising the interest rate rebate The result on investments for own account was up by € 31 had a positive influence of € 11 million on the technical million. Owing to the persistently low long-term interest expenses in the second half year. rate, funds becoming available from the fixed-income portfolio were reinvested at lower rates. This depressed Operating cost/premium ratio the investment result. The increased stake in equities The operating cost/premium ratio increased from and property, which generated more income, had a 13.5% to 13.8%, mainly as a result of the higher amortisation in respect of capitalised internal 27 Net profit REAAL Verzekeringen acquisition costs. Additional expenses were also incurred because of the need to hire in staff for various € millions projects. Operating expenses were also higher due 200 to the fact that the activities originating from NHL 150 were consolidated for the first time for a full year as well as the acquisition of Route Mobiel. In mid 2006, 100 the stake of Route Mobiel was increased to 100% 50 so that expenses were included for the first time in the consolidated figures of REAAL Verzekeringen. In 0 2006 a survey was conducted on cost allocation at -50 REAAL Verzekeringen. The revised parameters for the 2002 2003 2004 2005 2006 allocation of indirect costs are being implemented from Net profit REAAL Verzekeringen 1 January 2007. 46 SNS REAAL Annual Report 2006 report of the executive board

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    REAAL Verzekeringen In € millions 2006 2005 Change Result Premium income 2,007 1,789 12.2% Reinsurance premiums 49 44 11.4% Net premium income 1,958 1,745 12.2% Net commission and management fees 50 43 16.3% Result on investments 576 545 5.7% Result on investments for insurance contracts on behalf of policyholders 215 394 (45.4%) Result on derivatives and other financial instruments (9) (2) (350.0%) Other operating income 5 7 (28.6%) Total income 2,795 2,732 2.3% Technical expenses on insurance contracts 1,391 1,313 5.9% Technical expenses on insurance contracts on behalf of policyholders 663 782 (15.2%) Technical expenses on insurance contracts 2,054 2,095 (2.0%) Acquisition costs for insurance operations 240 188 27.7% Value adjustments to financial instruments and other assets (2) 7 (128.6%) Staff costs 146 127 15.0% Depreciation and amortisation of tangible and intangible fixed assets 16 11 45.5% Other operating expenses 74 69 7.2% Other interest expenses 34 41 (17.1%) Total expenses 2,562 2,538 0.9% Operating profit before taxation 233 194 20.1% Taxation 63 54 16.7% Net profit for the period 170 140 21.4% Ratios Return on shareholders’ equity 13.6% 12.9% Operating cost/premium ratio 13.8% 13.5% Solvency Life operations 236% 233% Solvency Non-Life operations 279% 275% New annual premium equivalent (in € millions) 196 176 1 11.4% Value New Business (in € millions) 20 15 33.3% Combined ratio Non-Life operations 98.9% 98.1% Claims ratio 56.5% 51.7% 1 ) New annual premium equivalent 2005 adjusted for EEV standards. Results REAAL Verzekeringen Life The result on investments for own account was up by € 33 million to € 549 million (+ 6.4%). The effect of the persist- Net profit ently low capital market interest rate was more than The net profit of the Life operation was up from € 113 offset by the increased stake in equities and property, million to € 149 million (+ 31.9%). which generated more income. Results on derivatives and other financial instruments were down, mainly Income because of the movement in the US dollar in 2006. That Net income from regular life premiums grew by € 64 fall was offset by higher values for dollar-denominated million to € 902 million (+ 7.6%). This growth was equities. produced by organic expansion of the portfolio (€ 42 million) and the full-year consolidation of the former New annual premium equivalent NHL portfolio (€ 14 million). Single life premiums and market shares increased by € 61 million to € 645 million (+ 10.4%). The new annual premium equivalent rose by € 20 million Immediate Annuities was the main product group to see to € 196 million (+ 11.4%). The value of new business an expansion in new business. margin improved to 10.2% (2005: 8.5%) SNS REAAL Annual Report 2006 report of the executive board 47

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    29 Composition of net premium Results REAAL Verzekeringen income REAAL Verzekeringen Non-Life 5% Net profit The net profit of the Non-Life operation was down from 6% € 27 million to € 21 million (– 22.2%). The NHL figures 1% were consolidated for the whole year, whereas in 2005 9% that was the case from the fourth quarter only. The main 6% reason for the decline in net profit was an increase in the amount of claims, which was reflected in a higher 73% claims ratio and a higher combined ratio. The fall in the combined ratio in the second half of the year was due to a decline in the technical expenses. Life individual Life collective Income Non-life motor vehicles Non-life accident and health Net premium income grew to € 411 million (+ 27.2%). Non-life fire This increase, and hence the rise in total income, is Non-life other attributable almost entirely to the acquisition of NHL as of the end of September 2005. The bulk of this portfolio In regular Life operations, the market share was down comprises the Fire, Motor and Transport product groups. from 15.2% to 14.7%, owing to strong growth of the life- The reinsurer’s share in total premium income increased, course savings market which expanded the life market also as a result of the NHL take-over. The organic growth as a whole. The life-course savings market offers limited of premium income was virtually zero, owing to the scope for insurers and is dominated by a number of large severe pressure on non-life rates. insurers and suppliers linked to large pension funds. Result on investments was 6.9% down at € 27 million, In life insurance, the value of new business (VNB) owing to the lower long-term interest rate. Funds increased to approximately € 20 million, a rise of € 5 becoming available in 2005 and 2006 were reinvested million against 2005. The value in force was up from at considerably less favourable interest rates. In spite of € 508 million to approximately € 818 million. These this, the result on investments improved in the second increases were due mainly to a higher expected long- half year. term interest rate, better returns on equities, improved mortality results and more efficient, appropriate cost Expenses levels for the various product groups. In the Non-Life operation, total expenses were up from € 322 million to € 422 million (+ 31.1%). The increase in Expenses the technical expenses was almost entirely due to the In the Life operation, total expenses were down from acquisition of NHL. Those expenses also include an earn- € 2,216 million to € 2,140 million (– 3.4%). The acquisition out expense of € 13 million (2005: € 3 million). That cost costs for insurance operations increased to € 135 million was offset by positive run-off results in previous years. (+ 31.1%). In the case of sales of new products based on When acquiring NHL it was decided to structure an earn- regular premiums, the non-recurring acquisition costs out arrangement whereby the run-off results are shared are capitalised and amortised. This amortisation period is with the seller. fully matched with the rate structure. Owing to the strong growth of new business in recent years, initial costs have The former NHL portfolio comprises a significant propor- therefore increased while at the same time the premium tion of product/market combinations with an inherently loadings have been reserved. The acquisition costs higher claims ratio than the original REAAL portfolio. also increased because of a second annual increment Amalgamation of the two portfolios was one factor which in amortisation costs as a result of the capitalisation of pushed up the combined ratio from 98.1% to 98.9%. internal acquisition costs introduced in 2005. Acquisition costs increased by € 20 million to € 105 Since the fourth quarter of 2006, the life insurance sector million (+ 23.5%). The increase was due to higher has become embroiled in controversy concerning unit- premium income (+ 27.2%). The relative decline is attrib- linked insurance. REAAL Verzekeringen has not made any utable to a lower average cost of commission on the provisions in that connection. integrated NHL portfolio. 48 SNS REAAL Annual Report 2006 report of the executive board

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