avatar SRH N.V. Finance, Insurance, And Real Estate
  • Location: UTRECHT 
  • Founded: 1987-05-25
  • Website:

Pages

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    Annual Report 2007 Focus on growth


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    Annual Report 2007 SNS REAAL SNS REAAL N.V. Croeselaan 1 PO Box 8444 3503 RK Utrecht Netherlands Telephone 030 - 29 15 200 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 2007 1


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    Focus on growth Innovation in a saturated market. Creativity in response to an ever-changing market environment. Admittedly, 2007 was a turbulent year. The landscape of financial institutions, for example, saw some major changes. Regulations were tightened yet again. With due observance its statutory obligations, SNS REAAL managed to achieve commercial successes. This was done by identifying and utilising new opportunities for growth. By each time making clear choices. And, in particular, by never losing sight of who we are and what we want. Focussing on growth in the Netherlands. But always from a wide and innovative perspective, typifying SNS REAAL.


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    Contents 6 SNS REAAL in brief 7 Profile 8 Key figures SNS REAAL 11 Foreword 14 The SNS REAAL share 19 Supervisory and Executive Boards 21 Mission, activities, strategy and objectives 28 Report of the Executive Board 29 Strategy update 33 Outlook 2008 37 Financial outlines 54 Developments SNS Bank 61 Developments REAAL Verzekeringen 66 Developments Group activities 68 Risk Management 79 Capital management 84 Funding and credit ratings 88 Human resources 91 Corporate responsibility 98 Report of the Supervisory Board 104 Corporate governance 105 Governance structure 106 Information Executive Board members 107 Information Supervisory Board members 108 Remuneration report 2007 113 Framework for business control 114 In-control statement 116 Compliance with the Tabaksblat Code 118 Capital structure and voting rights 125 Financial Statements 2007 256 Other information 257 Provisions in the Articles of Association regarding profit appropriation 258 Auditor’s report 262 Definitions and ratios SNS REAAL Annual Report 2007 3


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    Lots of movement in the savings market The savings market is in flux, which means: new opportunities abound. SNS Bank managed to cleverly benefit with the Keuzedeposito. In just two months, this attracted almost 2 billion euro in deposits. In all, savings in 2007 grew to 19.2 billion euro.


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    SNS REAAL in brief


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    Profile SNS REAAL is an innovative service provider in the banking and insurance sector with a focus on the Dutch retail market and on small and medium-sized enterprises. The product range consists of three core product groups: mortgages and property finance, savings and investments and insurance. SNS REAAL is among the largest banking and insurance companies of the Netherlands with a balance sheet total of € 103 billion and 6,713 employees (FTEs). SNS REAAL has a long history of commitment to Dutch disability insurance. Only its subsidiary Proteq sells society. SNS REAAL’s history goes back to the end of the non-life insurance to the consumer directly through 19th century, and has its roots in regional savings banks the Internet. With an income of € 2,864 million, and various insurance companies. SNS REAAL emerged REAAL Verzekeringen is the number 5 life insurer of the in 1997 from a merger of the banking operations of Netherlands. After the finalisation of the acquisition of SNS Group and the insurance operations of Reaal Zwitserleven, REAAL Verzekeringen will be the second Group, which for many years was tied to the trade union largest life insurer in the Netherlands. With an income movement. An eye for social interests and new social of € 598 million, REAAL Verzekeringen is the number 7 developments are in the organisation’s genes. non-life insurer of the Netherlands. As a bank and insurer, SNS REAAL holds a distinct SNS Asset Management, which is part of the position in its market by quickly and effectively Group Activities, manages the investment funds of translating client needs into accessible and transparent SNS Bank and ASN Bank as well as the investments of products. In-depth knowledge of products and efficiently REAAL Verzekeringen and the SNS REAAL Pension Fund. designed processes lead to effective standardisa- SNS Asset Management also provides asset management tions and combination options within product and for institutional investors and performs specialised client groups. SNS REAAL consists of the business units investment research in the field of corporate sustaina- SNS Bank, REAAL Verzekeringen and Group Activities. bility. SNS REAAL is a strong and flexible organisation that, through its core brands SNS Bank and REAAL Verzeker- Listing ingen and specialised sales labels, enjoys strong The SNS REAAL share is listed on NYSE Euronext positions in the Dutch market. Amsterdam, and is included in the Amsterdam MidKap Index. At the end of 2007, the market capitalisation Operations and market positions amounted to € 4.0 billion. SNS Bank sells its housing and commercial mortgages, savings, investment and insurance products directly through its own branch offices, independent inter- mediaries, the Internet and telemarketing, as well as Corporate values indirectly through SNS Regio Bank’s franchise outlets. The investment products range from do-it-yourself to  Client focus advisory products and asset management. With an  Professional income of € 751 million, SNS Bank is the number 5  Honest retail bank of the Netherlands. Through SNS Property  Socially responsible Finance, SNS REAAL is one of the major financiers of property investments and projects in the Netherlands. SNS Property Finance is also active internationally. REAAL Verzekeringen works almost exclusively through independent intermediaries to sell life insurance, including unit-linked policies and pensions, and non-life insurance, for example for home cover, mobility and SNS REAAL Annual Report 2007 sns reaal in brief 7


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    Key figures SNS REAAL In € millions 2007 2006 2005 2004 2003 Result Income banking operations Net interest income, banking operations 783 567 595 571 587 Net commission and management fees 129 120 114 109 92 Other income 26 81 56 13 18 Total income banking operations 938 768 765 693 697 Income insurance operations Net premium income 2,523 1,960 1,745 1,650 1,737 Result on investment 834 561 545 618 453 Result on investment on behalf of policyholders 96 215 394 126 196 Other income 94 68 48 41 31 Total income insurance operations 3,547 2,804 2,732 2,435 2,417 Other income and eliminations 58 4 (17) 46 109 Total consolidated income 4,543 3,576 3,480 3,174 3,223 Total consolidated expenses 3,974 3,117 3,064 2,816 2,866 Operating profit before taxation 569 459 416 358 357 Taxation 101 88 93 70 97 Third-party interests 3 -- -- -- 17 Net profit for the period 465 371 323 288 243 Net profit banking operations 272 214 204 151 129 Net profit insurance operations 205 170 140 128 86 Net profit group activities (12) (13) (21) 9 28 Net earnings per share (€ ) 1.87 1.65 1.55 1.38 1.16 Diluted net earnings per share (€ ) 1.87 1.65 1.55 1.38 1.16 In € millions 31-12-2007 31-12-2006 31-12-2005 31-12-2004 31-12-2003 Balance sheet Total assets 103,074 79,742 68,088 59,972 52,691 Investments 21,067 10,626 9,953 8,233 8,740 Investments for insurance contracts on behalf of policyholders 7,235 3,955 3,426 2,798 2,971 Loans and advances to customers 63,045 56,700 46,143 42,551 34,360 Loans and advances to credit institutions 1,631 3,769 4,207 3,421 3,071 Shareholders' equity 3,591 3,200 2,528 1,880 1,643 Capital base 5,620 4,864 4,144 3,323 2,799 Debt certificates 35,212 31,259 25,654 23,464 16,061 Technical provisions insurance operations 24,858 13,283 12,658 11,330 11,174 Savings 19,179 13,678 12,333 10,973 10,404 Amounts due to credit institutions 6,887 7,534 3,419 2,442 2,344 In percentage 31-12-2007 31-12-2006 31-12-2005 31-12-2004 31-12-2003 Ratios Return on shareholders' equity 13.7% 12.7% 14.1% 16.6% 15.9% Double Leverage 116.3% 107.8% 105.3% 114.3% 115.3% Average number of employees (FTE) 6,245 5,609 5,336 5,383 5,545 SNS Bank: Efficiency ratio 60.3% 62.6% 59.8% 63.1% 64.6% BIS ratio 11.5% 11.2% 11.9% 11.7% 11.9% Tier 1 ratio 8.4% 8.2% 8.7% 8.7% 8.3% REAAL Verzekeringen: New annual premium equivalent (in € millions) 207 196 176 172 168 Operating cost/premium ratio 14.1% 13.8% 13.5% 13.2% -- Solvency Life operations 272% 1 236% 233% 192% 195% Solvency Non-Life operations 255% 1 279% 275% 261% 359% Number of shares outstanding at end of period 261,472,608 234,761,284 Weighted average number of outstanding shares 248,155,233 224,564,046 1 ) Solvency Life and Non-Life operations 2007 are calculated based on new legislation. 8 SNS REAAL Annual Report 2007 sns reaal in brief


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    1 Net profit SNS REAAL 2 Earnings per share SNS REAAL € millions € 500 2.00 cagr = 10% 450 1.80 cagr = 18% 400 1.60 350 1.40 300 1.20 250 1.00 200 0.80 150 0.60 100 0.40 50 0.20 0 0 2003 2004 2005 2006 2007 2003* 2004 2005 2006 2007 Net profit SNS REAAL Earnings per share SNS REAAL *) Number of shares after stock split in 2004 was used for calculation earnings per share 2003. 3 Composition of net profit 2007 (excluding group activities) 4 Composition of income SNS REAAL € millions 5,000 43% 4,500 (2006: 44%) 4,000 3,500 3,000 2,500 57% 2,000 (2006: 56%) 1,500 1,000 500 0 2003 2004 2005 2006 2007 SNS Bank Net commision and other income REAAL Verzekeringen Net interest income Investment income Net premium income 5 Composition of expenses SNS REAAL 6 Number of employees (FTE) € millions Employees(FTE) 4,500 7,000 4,000 6,000 3,500 5,000 3,000 2,500 4,000 2,000 3,000 1,500 2,000 1,000 500 1,000 0 0 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 Other expenses SNS REAAL Staff costs SNS Bank Value adjustments REAAL Verzekeringen Acquisition costs for insurance operations Technical expenses SNS REAAL Annual Report 2007 sns reaal in brief 9


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    7 Shareholders’ equity SNS REAAL 8 Return on shareholders’ equity SNS REAAL € millions % 4,000 20 3,500 18 3,000 2,500 16 2,000 1,500 14 1,000 12 500 0 10 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 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 % % 65 20 64 18 16 63 14 62 12 61 10 60 8 6 59 4 58 2 57 0 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 Efficiency ratio SNS Bank Effect of capitalising the internal acquisition costs Operating cost/premium ratio 11 Solvency levels SNS Bank 12 Solvency levels REAAL Verzekeringen % % 13 400 12 350 11 300 10 250 9 200 8 150 7 100 6 50 5 0 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 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 2007 sns reaal in brief


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    Foreword In 2007, SNS REAAL devoted a great deal of its effort to strengthening and expanding the company. While acquisitions and integrations required much attention from management, the existing activities showed steady development and again delivered a very strong performance. Key figures Key points  Net profit rose to record level of € 465 million  Market performance in line with targets (+25.3%)  Focus on growth, also through new sources of  Earnings per share rose to € 1.87 (+13.3%) income  Return on shareholders’ equity rose from  Operating costs stabilised. 12.7% to 13.7%. In 2007, SNS REAAL again made some important strides in implementing its long-term strategy. The acquired activities of AXA NL, Winterthur and DBV (‘AXA NL Combined’) and the Dutch activities of Swiss Life Holding (‘Zwitserleven’) yet to be acquired offer many strategic benefits. REAAL Verzekeringen will become the second-largest life insurer in the Netherlands, improving amongst others its access to the SME-market for pension products and non-life and disability insurance. In addition, as from 2011 we will annually generate cost benefits of approximately € 50 million before taxes for AXA NL Combined. For Zwitserleven the annual cost benefits will grow to an estimated € 35 million as of 2012. These acquisitions also contribute to further diversification of our income and results, reducing our dependence on the mortgage market in particular and broadening our base for growth. Within banking operations, the property finance activities of SNS Property Finance and the acquired savings portfolio of Regio Bank, in particular, contributed to the diversification. Our new franchise formula SNS Regio Bank, in which the franchise operations acquired from ING and our existing CVB operations were merged, kicked off on 1 July. The formula was an instant success, and over the next few years will be developed into a superior distribution channel. SNS Regio Bank brings us additional distribution capacity in savings and mortgages, and enhanced visibility with almost 300 extra points of sale. In a class of our own SNS REAAL makes clear choices, and its strategy is straightforward. We opt for a focus on the Netherlands and for a limited number of products and services. However, within those restrictions we wish to excel: with a flexible and efficient organisation, with innovative products and services and with a moderate risk profile. This puts us in a unique position of our own in the Dutch market. We are organised differently, we think differently and we act differently. We are accessible and easy to approach, both in the real world and online, and we listen to our clients. This appeals to increasing numbers of consumers and SME-clients. Since our IPO in 2006, our brands are gaining in recognition and reputation. SNS Bank’s website, which independent research has called the best performer of all the websites of the larger financial institutions, our well-trained and motivated employees and the 873 branch offices adorned with the SNS Bank or SNS Regio Bank logo all contribute considerably to this. Last year, SNS Bank and ASN Bank jointly welcomed some 162,500 new clients. REAAL Verzekeringen is developing not only into one of the leading players in the Dutch market, but also into an increasingly stronger brand. The quality of a number of core products was confirmed last year by independent experts. According to the joint performance survey 2007 of the industry associations of insurers and intermediaries, REAAL Verzekeringen was the best pension insurance company of the Netherlands. SNS REAAL Annual Report 2007 sns reaal in brief 11


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    In other categories as well, REAAL Verzekeringen achieved high positions in the rankings. With its realistic approach to insurance, REAAL is reaching ever more retail and SME-clients. The integration of AXA NL Combined is likely to take this realism still further. Moderate risk profile Market conditions were not easy in 2007. Continuing pressure on prices in mortgages and in various insurance segments demanded an alert pricing and marketing policy and strong cost control. Financial markets were extraordinarily turbulent. However, the international liquidity and credit crisis did not have a material impact on net profit. Professional risk management and a solid balance sheet limited the direct effects of this crisis. SNS REAAL maintained its moderate risk profile and has again proved its worth in the face of these developments and under these extraordinary market conditions. No financial institution is forever immune to the indirect damage resulting from the turmoil in the financial markets. In 2007, the bank accordingly saw funding grow more expensive and experienced pressure on interest income. Due to its proactive policy, a significant increase in retail funding and by exploiting all other possibilities, SNS REAAL is well-positioned to face 2008 with confidence. Market performance The acquisitions of SNS Property Finance, Regio Bank and AXA NL Combined brought major contributions to the significant and robust net profit growth, but existing operations also developed positively. In savings, our portfolio grew from € 13.7 billion to € 19.2 billion (+ 40.1%), our market share increased from 6.3% to 8.3% and our margins improved. The launch of the savings product Spaarkeuzedeposito in July was a major success and ASN Bank, market leader in sustainable asset growth, again contributed significantly to this growth. SNS Bank’s investment products also performed well. SNS Fundcoach continued last year’s rapid growth. Assets under management rose from € 589 billion to € 802 billion (+ 36.2%). Total assets under management of SNS and ASN investment funds increased by 9.7% to € 4,215 million. Conditions in the mortgages market continued to be challenging; SNS Bank aimed for a healthy balance between return and market share. Market share improved in the second half, but at 7.4% fell just short of the targeted 8 to 10%. SNS Bank enhanced its focus on corporate mortgages and is benefiting from its collaboration with SNS Property Finance. We expect our new approach of the SME market to bear fruit in 2008. SNS Property Finance’s loan portfolio grew from € 8.8 billion to € 11.6 billion (+31.8%). REAAL Verzekeringen generated strong growth in individual life insurance, both through existing activities and the addition of AXA NL Combined. Net income from regular premium products increased organically by 5.1% and income from single premium products rose by 4.0%. Total net premium income of non-life insurance operations rose from € 413 million to € 542 million (+ 31.2%). In the non-life SME-market, REAAL Verzekeringen improved its market position, also due to the addition of AXA NL Combined. Clear strategic direction SNS REAAL has set itself a clear strategic direction for the next few years. While, for hundreds of years, the centre of the bank was an office building, the Internet now forms SNS Bank’s new centre for sales and information, and it is well on its way to becoming a Do It Yourself-bank. We offer advice through the Internet, using live@dvies and webchat, by telephone and through our own branch offices and the franchise offices of SNS Regio Bank. ASN Bank, which offers all its products through the Internet, will further expand its leading position in sustainable asset growth. In the next few years, we will better exploit our improved distribution capacity. By also including third-party products in our range, we offer our clients a more comprehensive range and we give new momentum to our profit and income growth. REAAL Verzekeringen continues to work on further improving the support provided to intermediaries, so that they can offer suitable products and good product information to an increasing number of clients. The REAAL College and more extensive chain integration play a key role in this regard. 12 SNS REAAL Annual Report 2007 sns reaal in brief


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    In the years through 2009, we will continue to pursue average growth of earnings per share of 10% and a return on equity of 15% (after taxes). The spearheads driving our growth are: savings and investment, the SME-market, property finance, pensions, non-life insurance, disability insurance, distribution and growth through acquisitions and strategic partnerships. We will maintain our moderate risk profile and continue to invest in innovation: in processes and systems, products, service provision concepts and new business operations. Innovation will also be a hallmark of our human resources policy, for example by offering more teleworking opportunities. In all our enterprises, we remain true to our principles: customer-orientation, professionalism, integrity and social commitment. Our corporate responsibility objectives are expressed emphatically in our products and services. We will devote even more time and effort to securing integrity in terms of products, the organisation, our employees, business partners and clients, and we will develop new distribution concepts focusing on sustainability. Over the past year, we have also worked on achieving more transparency in unit-linked insurance and we have put a great deal of effort in this context into providing information to and coaching intermediaries. Staff SNS REAAL is an attractive employer. We wish to attract and retain talented employees, for example with special courses for management trainees and our Talent Development programme. Our organisation will be constantly on the move in order to be able to respond efficiently and effectively to new market developments. This also affects our employees. The transformation of SNS Bank into a DIY bank means that we will need fewer staff for client services and more staff for advisory services. Our human resources and housing policies are already geared towards this. REAAL Verzekeringen has been strengthened with more than a thousand new colleagues from AXA, Winterthur and DBV. Increasing complexity of the insurance market as a result of changes in legislation and ongoing product and pricing differentiation require a great deal of expert knowledge. That is why we were very pleased to be able to add so much extra knowledge and experience. The Executive Board would like to thank all the staff for their contributions last year. After all, their expertise, enthusiasm and teamwork, and their services to our clients are what determines the success of our strategy. Sjoerd van Keulen Chairman of the Executive Board of SNS REAAL SNS REAAL Annual Report 2007 sns reaal in brief 13


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    The SNS REAAL share The SNS REAAL share is listed on NYSE Euronext Amsterdam, and has been included in the Amsterdam MidKap Index since 2007. Due to a share issue and a secondary offering by Stichting Beheer SNS REAAL in connection with the acquisition of AXA NL, the free float increased from 34.5% to 45.7% in 2007. Earnings per share 14 Geografic concentration SNS REAAL aims to grow earnings per share by an average shareholders year-end 2007 of 10% per year. This target is based on both organic expansion and growth through acquisitions. In 2007, 13% earnings per share amounted to € 1.87 (+ 13.3%). As a result of the share issue of 22 June 2007, the average 30% weighted number of shares outstanding rose from 21% 224,564,046 to 248,155,233 and the free float of our stock improved. The new shares have been fully taken into 14% account for the purpose of calculating earnings per share as from the issuing date of the new shares. 22% Table 1: Information per share NL Institutional x € 1 (value 31-12-2007) 2007 2006 NL Retail Net profit 1.87 1.65 North America Dividend 0.82 0.71 Europe (incl. UK) Other Dividend yield 5.34% 4.32% Additional information per share is provided on pages 8, 129 Other interests exceeding 5% were not known to and 244. SNS REAAL in February 2008. Ownership spread There is no additional public information on At year-end 2007, Stichting Beheer SNS REAAL held an shareholders in SNS REAAL other than that ensuing interest of 54.3% in SNS REAAL. Aviva plc has reported from the Wft. In September 2007, SNS REAAL a 5.85% interest. The duty to report this interest to commissioned research into the ownership distribution the stock exchange in accordance with the Financial of SNS REAAL N.V. shares. Based on its own Supervision Act (Wft) came into force on 22 June 2007. research, SNS REAAL estimates that the proportional shareholdings of institutional and private investors are 86% and 14% respectively. 13 Ownership spread The ownership spread of SNS REAAL shares is set out in Stichting Beheer graph 14. The percentage for the Netherlands excludes Free float Stichting Beheer SNS REAAL. SNS REAAL 54.3% 45.7% Share ownership directors For information concerning the allocation of shares to SNS REAAL members of the Executive Board as part of the remuner- ation policy, please refer to the section Remuneration report in the chapter Corporate Governance. 100% 100% Share issue SNS Bank REAAL Verzekeringen On 22 June 21,212,121 new shares were issued, the proceeds of which were used to finance the acquisition 14 SNS REAAL Annual Report 2007 sns reaal in brief


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    80 90 100 110 120 40 50 60 70 80 90 100 110 120 0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 12.0 14.0 16.0 18.0 15 17 02-01-2007 02-01-2007 AEX ING 02-01-2007 AMX Fortis Aegon 16-01-2007 16-01-2007 Volume Volume 16-01-2007 02-01-2007 = 100 02-01-2007 = 100 SNS REAAL SNS REAAL 30-01-2007 30-01-2007 Share price 30-01-2007 Share price in € 13-02-2007 13-02-2007 13-02-2007 27-02-2007 27-02-2007 27-02-2007 13-03-2007 13-03-2007 13-03-2007 27-03-2007 27-03-2007 27-03-2007 10-04-2007 10-04-2007 10-04-2007 Share price development in 2007 24-04-2007 24-04-2007 24-04-2007 08-05-2007 08-05-2007 08-05-2007 02-05-2007 22-05-2007 22-05-2007 22-05-2007 Highest share price €18.59 16 Share price development Dutch Financials 05-06-2007 05-06-2007 05-06-2007 19-06-2007 19-06-2007 19-06-2007 03-07-2007 03-07-2007 03-07-2007 Share price development and volume SNS REAAL 17-07-2007 17-07-2007 17-07-2007 Share price development in comparison with indices 31-07-2007 31-07-2007 31-07-2007 14-08-2007 14-08-2007 14-08-2007 28-08-2007 28-08-2007 28-08-2007 11-09-2007 11-09-2007 11-09-2007 25-09-2007 25-09-2007 25-09-2007 09-10-2007 09-10-2007 09-10-2007 23-10-2007 23-10-2007 23-10-2007 06-11-2007 06-11-2007 06-11-2007 20-11-2007 20-11-2007 20-11-2007 04-12-2007 04-12-2007 04-12-2007 21-11-2007 18-12-2007 18-12-2007 18-12-2007 Lowest share price €14.20 31-12-2007 31-12-2007 31-12-2007 SNS REAAL Annual Report 2007 sns reaal in brief 15


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    of AXA NL. In addition, Stichting Beheer SNS REAAL designated by the General Meeting of Shareholders as the sold 12,121,212 existing shares. After exercising the body that is authorised to issue shares, the Supervisory greenshoe option, Stichting Beheer SNS REAAL sold Board can resolve, at the proposal of the Executive Board, another 3,030,303 existing shares. The total issue of that dividends will be distributed fully or partially in the form new shares and the sale of existing shares in the capital of shares in the capital of SNS REAAL in lieu of cash, or to of SNS REAAL thus amounted to 36,363,636 shares. grant the shareholders the option to choose between both Both the share issue and the sale of existing shares took kinds of dividend. If the Executive Board is not designated as place at a price of € 16.50 per share. The total gross the authorised body to issue shares, the General Meeting of proceeds amounted to € 600 million, of which € 350 Shareholders will decide. SNS REAAL will annually present a million pertained to SNS REAAL shares and € 250 million proposal to the General Meeting of Shareholders regarding to Stichting Beheer SNS REAAL shares. As a result, the the dividend distribution. percentage of shares held by Stichting Beheer SNS REAAL fell from 65.5% to approximately 54.3%. Some 7% of the Dividend proposal offered shares was placed with private investors in the The Executive Board proposes a total dividend for 2007 of Netherlands, and approximately 93% with institutional € 0.82 per share. As an interim dividend of € 0.36 per share investors both in the Netherlands and abroad. The share was paid in September 2007, the proposed final dividend issue and the secondary offering of existing ordinary is € 0.46 per share. This dividend will be made payable fully shares by Stichting Beheer SNS REAAL enhanced the free in cash, distributed from profit. The data regarding the float and therefore the liquidity of the SNS REAAL share. dividend proposal to the General Meeting of Shareholders, the ex-dividend quotation and the dividend payment date Special share issue are included in the table on the next page. During the extraordinary meeting of shareholders of 29 January 2008, a resolution was adopted to amend the Agenda Annual General Meeting of Shareholders Articles of Association of SNS REAAL to effect a special The agenda for the Annual General Meeting of Shareholders share issue to Stichting Beheer SNS REAAL at a total issue will be published on our website www.snsreaal.com. Printed price of € 600 million. The purpose of the share issue, copies may be requested by phone (+ 31 30 291 48 76) or by which will be effected in the second quarter of 2008, is to e-mail (aandeelhoudersvergadering@snsreaal.com). increase SNS REAAL’s capital. The capital increase will be used to finance the acquisition of Zwitserleven at more Investor Relations favourable terms. For more information, please refer to SNS REAAL values a good relationship with investors the section Corporate Governance on page 118. and analysts and strives for optimum transparency and consistency in its communications. Any publications that Dividend policy are issued regarding our financial performance, strategy SNS REAAL pursues a stable dividend policy. Assuming and activities can be viewed and downloaded from our the company achieves its internal solvency and funding website, www.investor.snsreaal.com, as soon as they are targets, SNS REAAL intends to distribute a dividend of published. In addition, the Executive Board gives regular 40-45% of net profit. SNS REAAL expects to declare yearly presentations to analysts and investors. SNS REAAL also both an interim dividend and a final dividend payable maintains contacts with investors and analysts by means to the shareholders. In the event of the declaration of of one-on-one meetings, presentations and telephone an interim dividend, it will be proposed in principle conferences. In November 2007, an Investor Day was to amount to 50% of the total dividend of SNS REAAL held, where members of the Executive Board and the in the previous financial year. If the Executive Board is management team gave presentations on strategy, Table 2: Statement of changes in shares Total Other Stichting shareholders Total number of shares per 31-12-2006 234,761,284 80,992,643 153,768,641 Issue of shares SNS REAAL 21,212,121 21,212,121 -- Sale of shares Stichting -- 15,151,515 (15,151,515) Final dividend 2006 2,582,592 890,994 1,691,598 Interim dividend 2007 2,916,611 1,333,875 1,582,736 Total number of shares per 31-12-2007 261,472,608 119,581,148 141,891,460 16 SNS REAAL Annual Report 2007 sns reaal in brief


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    recent acquisitions and integration plans, market developments, growth opportunities, asset and risk management and financial objectives. Other information More information on the SNS REAAL share can be found on www.investor.snsreaal.com. The site also includes an interactive version of this annual report with a search function. Table 3: Important dates 2008 29 January Extraordinary General Meeting of Shareholders. 21 February Publication annual figures 2007. 14 March Annual report 2007 available on www.snsreaal.com. 28 March Record date for the Annual General Meeting of Shareholders. 31 March Publication European Embedded Value Report 2007. 16 April Annual General Meeting of Shareholders in Jaarbeurs, Utrecht, with webcast. 18 April Date ex-final dividend. 22 April Expected record date final dividend. 5 May 2007 final dividend payment date. 21 May Trading update 1st quarter 2008 (before opening hours). 14 August Publication of first-half results for 2008 (before opening hours). Press conference with webcast; analysts' meeting with call-in option and webcast. 15 August Expected date ex-interim dividend. 19 August Expected record date interim dividend. 12 November Trading update 3rd quarter (before opening hours). Fourth quarter Investor Day. 19 February 2009 Publication of the 2008 annual figures; press conference with webcast; analysts' meeting with call-in option and webcast. SNS REAAL Annual Report 2007 sns reaal in brief 17


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    The Executive Board of SNS REAAL. From left to right Ronald Latenstein van Voorst, Rien Hinssen, Sjoerd van Keulen en Cor van den Bos. 18 SNS REAAL Annual Report 2007 sns reaal in brief


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    Supervisory and Executive Boards SNS REAAL Executive Board Sjoerd van Keulen, chairman Ronald Latenstein van Voorst 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 Executive Board since also charged with supervising the departments Legal, 2002. He is also charged with supervising SNS Asset Compliance and Operational Risk Management, Internal Management and the group staff departments Risk Audit, Human Resources, Corporate Communications, Management, Investor Relations, Group Finance, ICT, Corporate Affairs and International Affairs. Fiscal Affairs and Facility Management. About his mission: ‘SNS REAAL is a modern bank About his mission: ‘SNS REAAL is an object lesson in assurance institution with its roots in the Netherlands. how to grow profitably in a saturated market. We have More and more people notice and appreciate this. achieved that by further conquering the Randstad urban We distinguish ourselves by combining innovation area, by alertly responding to new market opportunities and entrepreneurship with level-headedness and and by regularly adding new sources of income closely accessibility.’ related to our existing ones.’ Sjoerd van Keulen started his professional career as an After graduating in economics, Ronald Latenstein van organisational consultant. As a banker, he was previously Voorst specialised in business administration. Following a member of the Executive Board of MeesPierson and several national and international financial management Fortis. positions, he joined SNS REAAL in 1995. After a brief intermezzo as CFO at Bank Insinger de Beaufort, he Cor van den Bos returned to SNS REAAL in 2002. Cor van den Bos (1952) has been a member of the Executive Board since 2001 and is Chairman of the Board More extensive CVs of the Executive Board members can of Directors of REAAL Verzekeringen. be found on www.snsreaal.com. Their external positions are outlined on page 107 of this annual report. About his mission: ‘The art is to grow fast, yet remain nimble, innovative and fresh. Because: effectiveness is a major driver of our success.’ 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. Rien Hinssen Rien Hinssen (1956) has been a member of the Executive Board since 1999 and is chairman of the Management Board of Directors of SNS Bank. About his mission: ‘We want to be close to our clients in every respect – by means of the Internet and through the 870 branch offices of SNS Bank and SNS Regio Bank, but also by offering attractive and accessible products. Organising your finances should be easy for everyone.’ Rien Hinssen read law, and then specialised in financial and business 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 2007 sns reaal in brief 19


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    Supervisory Board Joop Bouma, chairman Jaap Lagerweij Appointed in 1990, Joop Bouma (1934) is emeritus Appointed in 2006, Jaap Lagerweij (1947) is managing professor of business economics at Rijksuniversiteit director of the Sperwer Groep, a board member of Groningen; he was Deputy Chairman of the Board of Superunie, a supermarket purchasing organisation, and Vereniging AEGON and is a supervisory board member a former chairman of the board of retailers HEMA and at various other companies. the Praxis Group. He is also on the supervisory boards of various other companies. Hans van de Kar, vice-chairman Appointed in 1997, Hans van de Kar (1934) is a lecturer in Henk Muller financial management at Leiden University and chairman Appointed in 1997, Henk Muller (1942) is on the or board member of various other organisations in the Supervisory Board of ASN Beleggingsfondsen N.V., social, cultural and financial area. chairman of the Netherlands Participation Institute and a member of the Supervisory Council of SNV Nederlandse Jos van Heeswijk Ontwikkelingsorganisatie. He is also a board member Appointed in 1990. Previously, Jos van Heeswijk (1938) of Stichting Beheer SNS REAAL. Muller is a former board was chairman of the board of Geveke N.V. He has been member of the FNV trade union, a former member of the on the supervisory boards of various other companies in Sociaal-Economische Raad and Stichting van de Arbeid. the energy, technology and trade sectors. A number of the Supervisory Board members were Bas Kortmann also on the supervisory board of a legal predecessor Appointed in 1990, Sebastiaan Kortmann (1950) is of SNS REAAL N.V. For more information about the vice-chancellor and member of the executive board of Supervisory Board members, please refer to the section the Radboud University Nijmegen. He is a member of the on Corporate Governance, on page 107. Supervisory Board of Dela Coöperatie U.A. and chairman or board member of some anti-takeover foundations and trust offices. In addition, Bas Kortmann is on the board of Stichting Beheer SNS REAAL. Robert Jan van de Kraats Appointed in 2006, Robert Jan van de Kraats (1960) is vice-chairman of the Executive Board and CFO of Randstad Holding N.V., where he is responsible for Yacht (interim professionals), 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. Van de Kraats is on the Executive Board of New Venture and on the Supervisory Board of Ordina N.V. 20 SNS REAAL Annual Report 2007 sns reaal in brief


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    Mission, activities, strategy and objectives Mission its specialist research in the area of sustainable SNS REAAL strives to be the preferred financial specialist investment being a distinguishing feature in the market. for retail and SME clients*) in the Netherlands. We want to enable our clients to secure their financial future SNS REAAL’s strategic priorities and operational by offering accessible and transparent banking and objectives for the coming years are based in part on a insurance products. SNS REAAL focuses mainly on the SWOT analysis of the strengths and weaknesses of the Dutch market. Its activities cover three main product organisation and the opportunities and threats in the groups: mortgages and property finance, asset growth market. (i.e. savings and investments) and insurance. Strengths SNS REAAL distinguishes itself in the markets it operates ~Focus on the Netherlands, client groups and core in by building strong market positions based on a tight products focus on core product and client groups, great innovative SNS REAAL has developed a great deal of expertise capacity, largely standardised products and operational in developing, selling and distributing financial processes and complementary brands and distribution retail products in the Netherlands. Resources methods. and management focus are concentrated on core product and clients groups, which partly explains the Activities organisation’s great innovative capacity. SNS REAAL The table on page 22 summarises SNS REAAL’s business is one of the big players in the Dutch market for retail units, brands, product groups and distribution channels. mortgages, property finance and life insurance. The activities of Zwitserleven have not yet been included. ~Innovation This acquisition is expected to be finalised in the first half Thanks to its efficient organisation, its specialisation of 2008. in the retail and SME markets and a stimulating business culture, SNS REAAL is frequently able to Strategy create outstandingly innovative products and services. SNS REAAL has a clear, straightforward strategy. Clear ~Distribution choices were made in our marketing strategy regarding The diversification in distribution channels leads product groups, client groups and market regions. to a high return on sales effort, making it possible SNS REAAL also decided to optimise client access by for us to capitalise on specific opportunities in each using complementary brands and distribution channels. distribution channel and to promote cross selling. In this regard, SNS REAAL uses shared centres for Cooperation with intermediaries is also strong. This is product development and administrative processing for important particularly in the mortgage and insurance its core product groups. markets. ~Moderate risk profile In implementing this strategy, SNS Bank and Focusing on a limited number of banking and REAAL Verzekeringen make their own choices regarding insurance products for retail and SME clients in the best possible products, service concepts, product/ the Netherlands, and properly balancing risk and market combinations, labelling and distribution return by means of continuous and proactive risk channels. They do so in order to achieve their operational management, mitigates the risk profile. and financial objectives, while using the purchasing and ~Operational organisation and ICT infrastructure cross-selling options within the group. In the Dutch banking sector, SNS REAAL has a strong efficiency ratio and in the Dutch insurance sector, a The Group activities, including SNS Asset Management, strong operational costs/premium ratio. In addition, are holding activities aimed primarily at supporting SNS REAAL is a flexible and efficient organisation with SNS Bank and REAAL Verzekeringen. SNS Asset a short time-to-market for its products. It is capable Management also focuses on institutional investors, of rapidly making a good return on the companies * ) The Dutch authorities consider 250 employees the upper limit of a medium-sized company. With some products, SNS REAAL also focuses on larger companies. This is the case, in particular, with property finance and pensions. SNS REAAL Annual Report 2007 sns reaal in brief 21


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    Table 4: Business unit Brand Product groups Clients Distribution channels SNS Bank SNS Bank Mortgages, savings, Retail, SME Branches, internet, investments, payments, intermediaries, insurance brokerage, telephone commercial credit SNS Property Property finance (investments, Companies, profes- Offices Finance projects, participations, sional investors, project structured financing, real developers, housing estate leasing) corporations ASN Bank Savings, investments Retail Internet SNS Regio Bank Mortgages, savings, Retail, SME Franchise offices investments BLG Hypotheken Mortgages Retail, SME Intermediaries, distri- bution partners SNS Securities Securities research, institu- Institutional (interna- Account management tional brokerage, corporate tional), high-wealth finance, asset management retail SNS Fundcoach Investment funds Retail Internet SNS Assurantiën Insurance, pensions SME Offices, sales staff REAAL Verzeker- REAAL Verzeker- Individual life, group life, Retail, SME and larger Intermediaries, agents, ingen ingen, AXA and non-life and disability companies distribution partners Winterthur * insurance DBV Life individual Retail Intermediaries, distribution partners Proteq Non-life and funeral insurance Retail Internet, telephone, alliances Route Mobiel Breakdown assistance Retail Internet, telephone SNS Asset SNS Asset Asset management, research Internal: SNS and ASN Account management Management Management on sustainable investments investment funds, investment portfolio REAAL Verzekeringen External: institutional investors * ) The brand names AXA and Winterthur will be replaced by REAAL Verzekeringen in the course of 2008. it acquires, inter alia, through cost synergies, as has their own distribution channels to make optimum been demonstrated in recent years. use of changes in the market and client needs. The synergy is therefore limited, but may be improved Weaknesses in the medium term. ~Dependence on individual life insurance and mortgages Opportunities The strong market position in individual life insurance ~Ageing means that a disappointing performance by this The increasing number of elderly people in the product group would have a relatively major adverse Netherlands will lead to a greater demand in the long effect on the overall results. The same applies to term for pensions and (supplementary) savings and mortgages, albeit to a lesser extent. investment plans for old age provisions, including ~Scale the bank savings scheme on favourable tax terms In comparison to the largest players in the market, in applicable since 1 January 2008. a number of operations, SNS REAAL’s scale benefits ~Reduction in collective regulations are more limited. As a result of leaner or reduced group benefit ~Brand recognition provisions, such as VUT (early retirement) and WAO Compared to the brands of the major players, (Disability Insurance Act), private individuals and entre- SNS REAAL’s brands are not as well known. preneurs will increasingly have to insure themselves or ~Limited synergy benefits between bank and insurer arrange supplementary insurance, for example through SNS Bank and REAAL Verzekeringen focus mainly on disability insurance products and pension products. 22 SNS REAAL Annual Report 2007 sns reaal in brief


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    ~Under-representation in the Randstad urban area Zwitserleven contribute to a structural reduction of In the Randstad urban area, where the number of the costs per unit of production. bank branches and franchises has recently been ~SNS REAAL uses the growth opportunities in the increased considerably, we have good opportunities Randstad urban area by developing SNS Regio Bank, for improving our market share. a franchise formula with 727 branches, of which ~Under-representation in the SME-market 116 in the Randstad urban area. The development The are opportunities for applying our knowledge of SNS Regio Bank also contributes to improving and distribution channels more adequately in SNS Bank’s brand recognition. the SME-market for both banking and insurance ~SNS REAAL capitalises on the diversification products. and effectiveness of its distribution channels by ~Corporate sustainability, savings and investment reinforcing the range of banking and insurance The need for sustainable commercial operations products with third-party products, enhancing the and savings and investment products is increasing. distribution share in a cost-efficient way. With its specialist knowledge in this area, SNS REAAL ~SNS REAAL reduces its dependence on individual could capitalise on this development. life insurance and mortgages by focusing on growth ~Distribution of third-party products markets, including sustainable asset growth, property Selected sales of third-party banking and insurance finance, pensions, SME non-life insurance and products will contribute to improving our total disability insurance. product range and to profitable growth. ~SNS REAAL offsets its limited cost benefits from ~International growth economies of scale with a short time-to-market and There are also good international growth opportu- with innovative products and services based on its nities for SNS Property Finance’s property finance efficient organisation, its retail and SME specialisa- operations. tions and its stimulating corporate culture. Threats Strategic priorities ~Competition in mortgage and life insurance markets Also based on the SWOT analysis, SNS REAAL has Our margins are permanently under pressure as a determined a main strategic course with the following result of strong price competition in the market for three priorities: structural value development, focussing mortgages and life insurance. on retail and SME clients in the Netherlands and ~Vulnerability in the event of unfavourable interest and structural growth. stock market developments. Banks and insurance companies are dependent on 1 Structural value creation the yield curve on the mortgage market and on the SNS REAAL aims to create value for all its stakeholders: in investments for their own risk that are linked to life particular shareholders, clients, employees and society insurance policies. By definition, this makes them in general. We create growth and return for our share- vulnerable to unfavourable interest rate and stock holders while adequately controlling risks; we create market developments. accessible and transparent products for our clients that ~Increasingly legislative environment allow them to manage their financial future. Our staff is In the financial sector, changes in legislation and best served in this capacity by offering them the scope to regulations demand frequent changes to products develop their talents, while we serve society best through and data management. This leads to an increase in the sustainable development of our company based on a staffing and IT costs. Moreover, the risk of legal claims balanced concern for social, ethical and environmental in the financial industry is increasing. issues. Strategic challenges Central features of SNS REAAL’s value management are: SNS REAAL has identified a number of strategic ~Diversification of income challenges based on the complex of strengths, The combination of bank and insurance activities weaknesses, opportunities and threats. The most results in different types of income: interest, important strategic challenges are: commissions, premium income, investment income. ~SNS REAAL employs its strong operational efficiency Therefore, the income flow is relatively stable. and its experience with consolidating acquired Moreover, in the event of interest rate changes, there companies to significantly improve the scale of are compensating income effects between the bank a number of activities, particularly in insurance. and the insurance activities. In addition, SNS Bank The acquisition of AXA NL and the acquisition of and REAAL Verzekeringen aim for diversification of SNS REAAL Annual Report 2007 sns reaal in brief 23


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    income through the development or acquisition of 2 Focus on retail and SME clients in the Netherlands companies with products that are supplementary to SNS REAAL focuses on a number of client and product the existing activities. groups in the Netherlands. This leads to the efficient use ~The distribution function of resources, distinctive brands and market positioning, SNS REAAL produces its own products for which it has and a moderate risk profile. its own distribution channels as well as using partners’ distribution channels, in which the intermediary ~Client groups plays a major role. Moreover, SNS REAAL distributes SNS REAAL targets retail and SME clients. Our third-party products through its distribution channels. markets are characterised by narrow margins, a SNS REAAL views its distribution role as an important broad product range, the growing use of the Internet opportunity for creating value and seeks to strengthen and clients who look for a provider capable of it. This is why we are looking to strengthen the distri- quickly and effectively meeting their changing needs bution function. with appealing products. Customer focus is about ~Sufficient return with a moderate risk profile product development, data processing, marketing The main objective is to improve and maintain market and client contact. SNS REAAL has embedded client positions thanks to powerful, innovative products and focus throughout the organisation, where it plays distribution methods. Growing returns, however, must an important role in our training and educational go hand in hand with cost control, efficient use of programmes. capital, a strict pricing policy and risk management. ~Product groups ~Long-term relationships SNS REAAL offers three product groups: mortgages SNS REAAL invests great effort into developing and and property finance, savings and investments and maintaining long-term relationships with its clients insurance (life, pensions, non-life and disability). and intermediaries. We wish to offer our clients We want to be market leader in these product areas. accessible and transparent products with a good By choosing a limited number of product groups, we price/quality ratio. SNS REAAL seeks to guarantee the are able to standardise many products and modules, integrity of staff and company in product development and use resources and staff efficiently and effectively. and contacts with clients. Some of our SME banking products are based on ~Cost control, synergy and economies of scale those for retail clients. We also develop specific Cost control is essential. Our efficiency ratios are (standardised) products for the corporate market. Our among the best in the Dutch financial market but will specialty products in property finance are developed have to improve further. Standardisation of products, by SNS Property Finance. systems and processes generate significant benefits in ~The Netherlands synergy and scale without harming the great diversity SNS REAAL focuses its financial resources and of distribution methods. SNS REAAL has gained management attention on the Dutch market. In considerable experience in integrating newly-acquired addition, we also develop property finance activities activities rapidly and efficiently. abroad to a limited extent. ~Attracting, developing and retaining talent SNS REAAL invests in its staff and thus in the 3 Structural growth company’s structural development. We offer an SNS REAAL seeks profitable growth in its activities. extensive programme of talent and leadership This is necessary to ensure continuity and to maintain development. We support professional courses and improve our market positions. In a competitive and ‘training on the job’, and promote mobility market like the Netherlands, scaling up can often make between business units in order to improve creativity, an important contribution to achieving higher returns. innovation and synergy. We offer opportunities for Broadening income flows and looking for new sources of working at home and for flexible working hours, and income, for example, through alliances, is a central point for achieving a good balance between the careers and of focus. In addition, looking for new possibilities to personal lives of our staff. structurally lower costs also remains necessary. ~Corporate Sustainability SNS REAAL offers a broad range of sustainable For mortgages and individual life insurance, in which we products and services and aims to operate responsibly have already attained leading market position, we expect and supports social projects and activities. SNS REAAL a lower growth in the coming years than in the previous looks to combine responsible and commercial years. SNS REAAL’s growth strategy for the coming years entrepreneurship. is based on the following drivers: ~Savings and investments 24 SNS REAAL Annual Report 2007 sns reaal in brief


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    Given the ageing population and the increasing Financial targets personal responsibility of citizens to provide for their The targets for return, efficiency and solvency have own pensions, we see good growth opportunities for remained unchanged compared to last year. savings, investments and insurance products in this Solvency area. ~SNS REAAL double leverage lower than 115%. ~SME-market ~SNS Bank BIS ratio higher than 11%. SNS Bank and REAAL Verzekeringen both see good ~SNS Bank Tier 1 ratio higher than 8%. growth opportunities in the market of small and ~Life solvency ratio higher than 150%. medium-sized enterprises for commercial mortgages ~Non-Life solvency ratio higher than 200%. and non-life insurance packages, as well as for The targets for the BIS ratio and Tier 1 ratio of SNS Bank defined-contribution pensions. remain unchanged until we have obtained clarity with ~Property finance regard to the Basel II requirements. The capital ratio’s of SNS Property Finance wants to become a recognised REAAL Verzekeringen and the efficiency targets remain international real estate financier. unchanged as well. ~Pensions Within the product group asset growth, especially Table 5: pensions offer good growth opportunities, certainly Return and efficiency objectives 2008-2009 after the acquisition of Zwitserleven. Return  Growth of earnings per share of 10% per ~Distribution annum on average, starting in 2006 up to Substantial growth could be achieved through better year-end 2009. use of and further improvement of the existing distri-  Return on shareholders’ equity of 15% per bution channels, including in particular the Internet, annum on average after tax. the further development of the SNS Regio Bank franchise formula, offering more third-party products, Efficiency  Efficiency ratio SNS Bank of 55% as per year-end 2009. and further expansion of the number of distribution  Operating cost/premium ratio channels, e.g. through activities in adjacent segments REAAL Verzekeringen of 13% as per year-end and the distribution channels of our partners. 2009. ~Non-life insurance  Combined ratio for non-life insurance In non-life insurance, the SME segment offers good operations of 97% as per year-end 2009. growth opportunities, partly in connection with the acquisition of AXA NL Combined. ~Disability insurance products Operational targets A growth market for disability and absenteeism SNS REAAL has defined a number of operational insurance with good margins has developed as a targets for implementing its mission over the coming result of a retreating government. years: A number of these targets have been revised in ~Acquisitions connection with acquisitions. Interesting potential acquisitions include companies ~Market share in new mortgages: 8-10% (unchanged). that can contribute towards strengthening our ~Market share in overall savings: 7-9% (formerly 6-8%). existing market positions and expanding into adjacent ~Market share in individual life insurance 16-19% segments. (formerly 14-17%). ~Market share in non-life insurance: 6 - 8% Strategy per business unit (formerly 4-6%). The business units SNS Bank, REAAL Verzekeringen and ~Top five position in disability insurance in 2009 SNS Asset Management, part of the Group activities, (unchanged). each translate the strategy of SNS REAAL into their own strategy and yearly initiatives. Within SNS Bank, the The chapter Strategy Update provides quantitative retail business SNS Bank and SNS Property Finance, and qualitative information on the results SNS REAAL the property finance business, each pursue their achieved in 2007 in pursuing these strategic, operational own strategy. The strategies of the business units are and financial objectives. explained in the chapters Developments SNS Bank, Developments REAAL Verzekeringen and Developments Group activities. SNS REAAL Annual Report 2007 sns reaal in brief 25


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    Faster growth: sustainable saving 2007 was a fruitful year in terms of sustainable savings. ASN Bank grew correspondingly: 350 million euro was deposited thanks to the ASN Summer Deposit campaign. This brought total savings to over 3.5 billion euro. A record number of 563 new ASN Young Savers thanks to the GoedGeldSpel.nl. And close the end of the year, yet another growth milestone was achieved: ASN Bank had the pleasure of welcoming its 350,000th customer.


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  • Page 30

    Report of the Executive Board


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    Strategy update SNS REAAL is pleased to account for the way in which it has worked towards achieving its strategic ambitions and objectives. In the summary below, we describe our performance and strategic initiatives in 2007 in relation to our strategic priorities and operational and financial targets. Strategic priorities and communication to promote knowledge and 1 Structural value creation. effectiveness of intermediaries and the continuation Central features of SNS REAAL’s value management are: of relationships with large distribution partners and ~Diversification of income mortgage distribution chains, that sometimes sell our Dependence on income related to mortgages and products under their own labels. mortgage-related life insurance decreased, while the ~Cost control, synergy and economies of scale share of total income generated in the SME market The acquisition of Regio Bank and the merger with increased. The increased income diversity was mainly the CVB franchise operations to form SNS Regio Bank due to the large increase in the corporate loan portfolio resulted in a strong improvement of the scale and cost due to the acquisition of SNS Property Finance at the structure in franchise banking. end of 2006, the acquisition of AXA NL Combined and By moving a large property finance portfolio from the growth of SNS Fundcoach. The consolidation of SNS Bank’s retail operations to SNS Property AXA NL Combined from 5 September 2007 contributed Finance, these loans can now be managed in a better to income diversification by adding products aimed at infrastructure and at lower cost. Further reduction supplementary (niche) markets, in particular disability of SNS Bank’s finance activities for the SME sector in and SME non-life insurance. favour of an enhanced focus on SME mortgages also ~The distribution function contributed to an enhanced cost structure. The acquisition of Regio Bank significantly The acquisition of AXA NL Combined and the planned strengthened SNS Bank’s distribution capacity. acquisition of Zwitserleven will lead to economies of The total number of branch and franchise offices of scale and a better cost structure for virtually all REAAL’s SNS Bank rose from 605 to 873. Product information, insurance activities based on indirect distribution. sales and marketing through the Internet improved ~Attracting, developing and retaining talent further during the year. REAAL Verzekeringen’s In order to further increase the company’s appeal distribution network was strengthened by the as an employer for young talented professionals, acquisition of AXA NL Combined, which led to a more management trainees were recruited and considerable increase in the number of intermediaries the career development programme for young and underwriting agents. talented professionals was enhanced including the ~Good returns with a moderate risk profile implementation of various initiatives to encourage the SNS REAAL’s return on shareholders’ equity (ROE) promotion of talented employees to higher positions. improved from 12.7% to 13.7%, driven by strong profit For more information, see the chapter on Human growth and a more efficient use of capital. In 2007, the Resources on page 88. ROE still felt a slight negative impact from the time ~Corporate Sustainability difference between the share issue in June, effected in Based on the recommendations of the De Ruiter connection with the acquisition of AXA NL Combined, committee, agreements were made within the Dutch and the completion of that acquisition in September. Association of Insurers to improve information on ~Long-term relationships unit-linked insurance and increase the accessibility and SNS Bank’s key initiatives to retain clients included: an transparency of these products. REAAL Verzekeringen attractive transition for the clients of the acquired Regio has already implemented part of these improvements Bank, special informative meetings for SNS Fundcoach in 2007 and other improvements will become available clients and the development of a mortgage retention to clients and intermediaries in the course of 2008, as programme. recommended by the De Ruiter committee. The section REAAL Verzekeringen’s key initiatives to retain clients on Developments REAAL Verzekeringen provides included: An attractive transitional scheme for an overview of these implemented and scheduled clients of the acquired AXA NL Combined, coaching improvements. SNS REAAL Annual Report 2007 report of the executive board 29


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    The popularity of our sustainable savings and 3 Structural growth investment products, including the products of Our main drivers of structural growth are savings and ASN Bank, increased sharply as described in the investment, the corporate market, property finance, section on Developments SNS Bank. For our vision on pensions, non-life insurance, disability insurance, distri- corporate sustainability, please refer to the Corporate bution and growth through acquisitions and strategic Responsibility section.Various measures were taken partnerships. to further embed the integrity of the organisation ~Savings and investments and employees, customers, business partners and The assets managed by the SNS and ASN investment products. For more information, please refer to the funds increased from € 3.8 billion to € 4.2 billion Integrity and Compliance section in the chapter (+ 9.7%); within this, new funds amounted to € 356 Corporate Sustainability. million. Investment products, for which SNS Bank provides advisory and management services, showed 2 Focus on retail and SME clients in the Netherlands healthy growth. The assets under management ~Client groups at SNS Fundcoach, our digital investment fund The consolidation and growth of SNS Property supermarket, rose from € 589 million to € 802 million Finance helped to sharply increase the share in (+ 36.2%). Our share of the savings market increased SNS Bank’s income generated from SME clients. In from 6.3% to 8.3%, including new funds amounting to addition, the acquisition of AXA NL Combined has € 5.5 billion net. The investments in connection with resulted in a broader catchment area in the market, insurance contracts on behalf of policyholders grew both in the retail and SME target groups; it will also from € 3,955 million to € 7,235 million, almost entirely provide REAAL Verzekeringen with better access to caused by the acquisition of AXA NL Combined. better educated and higher remunerated clients in ~SME market the retail and disability markets. In the SME market, The acquisition of AXA NL Combined strengthens REAAL Verzekeringen will obtain better access to and broadens SNS REAAL’s opportunities for growth both the existing target group and to new niche in the SME segment. In the non-life product group, target groups in specialist sectors. After completion, in particular in liability, technical insurance and the takeover of Zwitserleven will provide disability, REAAL Verzekeringen will gain better access REAAL Verzekeringen with a stronger representation to niche markets. In the semi-group pensions product in the SME and larger-company markets. group, the acquisition of AXA NL Combined boosts ~Product groups REAAL Verzekeringen’s market share. The products of SNS Bank’s retail operations further reduced REAAL Verzekeringen and AXA NL Combined in this its finance activities for the SME sector focused area are very similar, and integration in this product more sharply on corporate mortgages and total group will result in improved commercial capability solutions packages for the SME market. The larger and efficiency due to economies of scale. corporate mortgages of the retail business were ~Property finance transferred to the portfolio of SNS Property Finance. SNS Property Finance’s total loan portfolio grew from The acquisition of AXA NL Combined will particularly € 3.8 billion to € 5.6 billion (+ 47.4%).This excludes reinforce SME non-life insurance businesses, in the transition of the property finance portfolio of retail particular knowledge-intensive liability insurance banking operations to the amount of € 1.1 billion. The and technical insurance. The acquisition of AXA NL total value of the property finance portfolio increased Combined will also lead to an expansion of the from € 8.8 billion at year-end 2006 to € 11.6 billion at disability product group range. After finalising the year-end 2007. takeover of Zwitserleven, REAAL Verzekeringen will ~Distribution be better represented in life insurance, particularly Distribution capacity was boosted by the new in pensions. franchise formula SNS Regio Bank, incorporating ~The Netherlands CVB Bank’s franchise operations and the acquired SNS REAAL will continue to focus primarily on the operations of Regio Bank. This took the total number Dutch market. At year-end 2007, 95% of SNS Bank’s of distribution outlets of SNS Bank from 605 to 873, total loan portfolio consisted of loans in the and sharply increased our presence in the Randstad Netherlands. Only SNS Property Finance has a urban area was sharply improved. For the next few limited focus on foreign operations. years, SNS Bank’s distribution strategy will focus on aligning the distribution methods and standards of the company’s own channel and those of the franchise channel. 30 SNS REAAL Annual Report 2007 report of the executive board


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    In 2007, nearly 300 SNS Bank cash dispensers were considerably by the increase in collaborating inter- placed in virtually all HEMA outlets. This agreement mediaries and underwriting agents. The purchase with HEMA will contribute to improving our client price of AXA NL Combined was approximately € 1.8 service level and SNS Bank’s brand awareness; billion. For more details on the purchase price, see it will also reduce the cash provision role of our page 166 of this annual report. branch offices, while creating new opportunities for interactive marketing communications. The strategic priorities delivered by this acquisition The acquisition of AXA NL Combined led to marked are diversification of SNS REAAL’s sources of growth of the number of intermediaries and the income, a substantial market share increase, number of collaborating underwriting agents, in significant cost synergies due to economies of particular enhancing our access to the SME market. scale and the addition of market knowledge, distri- The results of Proteq, the direct sales channel of bution outlets and supplementary products in the REAAL Verzekeringen, fell short of expectations. That SME non-life market and in disability. is why we will introduce a new strategy in 2008, which will offer better communication and sales opportu- y~Zwitserleven* nities through the Internet. We will market non-life The intended acquisition of Zwitserleven will retail insurance, animal healthcare insurance (Dier represent a major strengthening in the Dutch en Zorg) and vehicle breakdown insurance (Route non-life insurance market, in particular in Mobiel) as separate brands. pensions. The acquisition also adds 4.7% ~Pensions market share for REAAL Verzekeringen in the life The group and semi-group pension portfolios grew, insurance market. Partly due to the acquisition mainly on the back of the acquisition of AXA NL of AXA NL Combined, the total share of the life Combined. Finalisation of the Zwitserleven acquisition insurance market (including life-cycle products) will further reinforce the basis for growth in pensions. rose to approximately 15.7%. The purchase price ~Non-life insurance of the Dutch and Belgian activities of Swiss Life Net premium income of the total non-life operations Holding will amount to at most € 1,535 million. In rose from € 413 million to € 542 million (+31.2%), January 2008, SNS REAAL and Delta Lloyd Group in particular due to the consolidation of AXA NL signed a letter of intent on the sale of the Belgian Combined from 5 September. The acquisition of operations for € 135 million. AXA NL Combined has provided a much broader basis for future growth in non-life insurance. This acquisition is aligned with SNS REAAL’s ~Disability insurance products strategic priorities by delivering a substantial REAAL Verzekeringen has individual and collective increase in market share in pensions, significant disability product ranges, which were marketed cost synergies due to economies of scale in all life between September 2006 and May 2007. The growth insurance products, and the addition of a strong potential in this area was strengthened further in 2007 brand and market knowledge. through the acquisition of AXA NL Combined, which has additional products and market positions in the y~Regio Bank higher segment and the medical sector. The acquisition of Regio Bank, which was ~Acquisitions and strategic partnerships. announced in 2006, was completed on 1 July 2007. y~AXA NL Combined* The franchise organisation was incorporated The acquisition of AXA Nederland, Winterthur into the new SNS Regio Bank formula, together and DBV (‘AXA NL Combined’), finalised on 5 with CVB Bank’s existing franchise operations, September, means a significant improvement and giving SNS Bank a leading franchise position in an addition to REAAL Verzekeringen’s operations. banking products in the Netherlands with over 700 With this acquisition, REAAL Verzekeringen franchisees. The purchase price of Regio Bank was increases its market share in the overall insurance approximately € 55 million. For more details, see market (including life-cycle products) from 5.2% to page 167 of this annual report. 9.3%. The market share in the life market rose from This acquisition meets SNS REAAL’s strategic 6.1% to 11.0%. In the non-life market (excluding criteria by significantly raising the distribution healthcare insurance) our share rose from 3.4% capacity of SNS Bank, strengthening our core to 5.8%. Distribution capacity was strengthened mortgages and savings products and providing * ) Market shares relate to 2006 and are based on gross premium income. Source: AM Jaarboek SNS REAAL Annual Report 2007 report of the executive board 31


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    cost synergies and a more prominent presence the areas of research and corporate finance, and in the Randstad urban area by the addition of 55 provides advisory and management services to franchise offices. institutional and private investors. The purchase price of FBS Bankiers was approximately y~FBS Bankiers € 16 million. For more details on the purchase The acquisition of FBS Bankiers, completed on price, see page 169 of this annual report. 1 October 2007, strengthens the operations of SNS Securities, in particular in the areas This acquisition meets our strategic objectives of securities advisory and asset management by delivering increased scale in our advisory and services FBS Bankiers has 30 employees and asset management services and by adding a client its annual sales amount to almost € 10 million. portfolio and expertise. SNS Securities provides investment services in Table 6: Financial targets Return 2007 2006 Target Growth in earnings per share 13.3% 6.5% 10% per annum on average, starting in 2006 up to year-end 2009 Return on ordinary shareholders’ equity, after tax 13.7% 12.7% 15% per annum on average Efficiency 2007 2006 Target Efficiency ratio SNS Bank 60.3% 62.6% 55% at year-end 2009 Operating cost/premium ratio 14.1% 13.8% 13% at year-end 2009 REAAL Verzekeringen Combined ratio non-life operations1 95.9% 94.7% 97% at year-end 2009 Solvency 2007 2006 Medium-term target Double leverage SNS REAAL 116.3% 107.8% < 115% BIS ratio SNS Bank 11.5% 11.2% > 11% Tier 1 ratio 8.4% 8.2% > 8% Solvency life operations 2 272% 236% > 150% Solvency non-life operations 2 255% 279% > 200% 1 ) As of 2007, the combined ratio is calculated excluding reinsurance results, excluding indemnified business by AXA S.A. and excluding Kyrill storm. 2 ) Solvency life and non-life operations 2007 are calculated based on new legislation. Table 7: Operational targets 2007 2006 Target 2007 Target 2008 Market share new mortgages 7.4% 8.0% 8 - 10% 8 - 10% Market share savings balances 8.3% 6.3% 6 - 8% 7 - 9% 1 Market share individual life insurance (excluding 14.5% 15.7% 17 - 20% 18 - 22% life-cycle products) Market share non-life insurance (excluding life cycle 4.2% 3.4% 4 - 6% 5 - 7% products) 2 Top five position disability insurance in 2009 3 Nr. 4 1 ) Concerns REAAL Verzekeringen, excluding AXA NL Combined. 2 ) Own estimate by REAAL Verzekeringen for 2007. 3 ) Concerns individual disability insurance. 32 SNS REAAL Annual Report 2007 report of the executive board


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    Outlook 2008 If the crisis on the financial markets continues in 2008, as it has so far, this may prove to be a challenging year. SNS REAAL will continue to focus on diversifying its existing sources of income and on investing in new sources, on improving the operational efficiency based on integration processes, and on innovating in marketing and distribution. At the same time, SNS REAAL will maintain its moderate risk profile. Financial markets the US, i.e. the interest rate less inflation expecta- Equity tions, reflect the advent of a recession. This may change The stock markets will continue to be volatile for the time during the course of the year if the economy develops being, especially due to concerns about the impact of the less unfavourably than many analysts now fear. In the credit crisis. Meanwhile, stock markets have generally wake of a possible rise in US interest rates, long-term become cheaper, measured by various valuation interest rates in the eurozone will also rise slightly. methods, such as dividend discount models - in which Credit spreads – the risk mark-ups on the money and interest rates play a big role -, price/earnings ratios or capital markets –are likely to remain at the current high dividend yields. However, these low valuations come levels for some time in 2008. This means banks will need at the end of a period marked by exceptionally strong to obtain their funding at relatively high costs. growth in corporate earnings. Consequently, if corporate earnings were to fall significantly, this might put new Product markets pressure on equity valuations. However, no such relapse Mortgages can as yet be derived from the leading indicators for the We anticipate continued strong competition and US and the eurozone. We expect that concerns about a ongoing pressure on prices. The overall Dutch mortgage recession in the US and a widening of the financial crisis market is expected to contract, in particular due to will continue for some time. This may result in disap- limited new construction activity and limited circulation pointing equity revenues for investors. in the residential market; both these trends will result in ongoing scarcity. The mortgage refinancing market Interest rates will remain at its present low level. The yield curve is not In order to limit the risks of an excessive slowdown of likely to change by much, but may rise slightly at the end economic growth, the Federal Reserve - the American of the year. We expect interbank interest rates to show Central Bank - is expected to continue its policy of rate a mixed picture, which may contribute significantly to cuts. In the eurozone, the European Central Bank (ECB) relatively large changes in mortgage interest rate levels will give priority to countering inflationary trends. This over the course of the year. considerably reduces the likelihood of interest rate cuts, particularly as the average inflation rate in the eurozone Savings and investments is now above the norm. At the same time, the eurozone Economic developments will continue to support a will not be able to avoid a certain slowdown of growth, favourable savings environment. Mounting uncertainty which in turn reduces the likelihood of a rate hike. due to the credit crisis and the economic develop- ments in the US may result in a higher savings growth The central banks will do all they can to ensure that the at the expense of growth in investments. We expect the money market continues to function properly, but the investment climate to improve later in 2008. For the situation cannot return to normal until mutual trust full year 2008, SNS REAAL again expects the savings between banks is restored. This requires transparency, and investment inflow to increase. Inflow in investment i.e. clarity about the financial health of potential debtors, products and structured savings and investment which can only be achieved after the major banks have products in the investment market will again likely reported their audited figures for 2007. exceed that of individual equity investments. We expect products for sustainable asset growth to again outstrip Bond yields are currently low, relative to nominal the growth of other products. economic growth. The very low real interest rates in SNS REAAL Annual Report 2007 report of the executive board 33


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    Property finance Mortgages Demand for high-quality properties in the Netherlands ~Within the Budgethypotheek concept, more remains high, despite high levels of investment over options and product choices aimed at various target the past few years. In the office market, the divide groups. between high-quality and less attractive properties is ~Increased third-party product sales through our own widening, and the latter category is clearly becoming distribution channels. less profitable. Prospects for the residential market ~Improvement and increased flexibility of advisory and the markets for distribution centres and shopping services, for example by using more mobile centres remain positive. Demand for mixed-use centres SNS Bank advisers. is especially strong. ~Product range optimisation and sales coaching for franchisees of SNS Regio Bank. Partly due to scarcity of attractive investment projects ~Promotion of joint purchasing by franchisees of in the Netherlands, demand for foreign property SNS Regio Bank through a centralised purchasing investment opportunities from Dutch investors remains organisation. high. ~More collaboration with purchase organisations based on exclusive mortgage arrangements Life insurance and more sales through the intermediaries and The overall market for individual life insurance is mortgage chains. expected to contract slightly, in particular due to a ~Fine-tuning of the SME approach, focusing, among decreasing demand for unit-linked insurance. Rising other things, on self-employed individuals. demand is expected for risk insurance that can be taken ~Intensifying marketing communication for out in combination with banking products, however commercial mortgages, with a special focus on due to the relatively low average premiums for these distribution through SNS Regio Bank. products, this leads, on balance, to a contracting market. The mortgage-related insurance market will decline Savings and investments on the back of the mortgage market developments ~Improvement and expansion of Internet discussed above, and due to longer-term insurance functionality, enabling clients to better manage resulting from a reduction in mortgage redemptions. their financial affairs, obtain a better overview and The single premium market is expected to remain stable. make easier use of corresponding online and offline advisory functions. In the pensions market, semi-group unit-linked pensions ~Improvement and increased flexibility of advisory in particular are showing good opportunities for growth. services, for example by using more mobile IFRS regulations make it less attractive for employers to SNS Bank advisers. administrate a pension fund for own account and risk. ~Product range optimisation and sales coaching for This leads to a shift from employers’ pension funds to franchisees of SNS Regio Bank. pension schemes outsourced to insurers. ~Third-party investment fund sales through our own distribution channels. Non-life insurance ~Intensifying SNS Bank’s savings campaigns and The private non-life insurance market is expected to ASN Bank’s new sustainable asset growth products. remain stable. Product transparency and comparability ~Introduction of products in the area of tax-friendly will improve further; simple products will increasingly savings for mortgage repayments or pension be sold through the Internet and sales to or via interest schemes. groups, who require volume discounts will become more important. Property finance ~Stronger focus on alternative sectors and property Limited growth is expected for the total corporate concepts, such as mixed-use centres, residential non-life market, but prospects vary considerably by centres for the elderly, healthcare centres and hotels segment. Substantial growth is anticipated in the (investment financing). disability market, in particular due to ongoing economic ~Stronger focus on regions outside the Randstad growth and the increasing number of entrepreneurs. urban area (investment finance and project finance). ~Stronger focus on investments in carefully selected Initiatives projects (project finance). The key initiatives planned for each product group are ~Selective growth in a number of major European set out below. markets (project finance). 34 SNS REAAL Annual Report 2007 report of the executive board


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    Life insurance ~More focus on the growth markets of risk insurance, immediate annuities and semi-group unit-linked pensions. ~Promoting the sales and advisory quality of the inter- mediaries through strong chain integration. ~Improving the transparency of investment insurance based on the recommendations of the De Ruiter Committee. For more information, see page 65. ~Realising a better cost structure through economies of scale based on the integration of AXA NL Combined. Non-life insurance ~Improvement and expansion of the non-life SME insurance product range, in particular based on the integration of AXA NL Combined. ~Repositioning of Proteq and improvement of the direct distribution channel, in particular through improved internet functionality. ~Promoting the efficiency and advisory quality of the intermediaries through strong chain integration. ~Realising a better cost structure through economies of scale based on the integration of AXA NL Combined. Disability insurance ~Improvement and expansion of the product range, particularly based on the integration of AXA NL Combined. Objectives Our long-term operational and financial objectives are set out in the chapter Strategy, mission, activities and objectives on page 21. In view of the continuing unrest and volatility on the financial markets, we do not give any concrete forecast of the profit and revenue development of SNS REAAL in 2008. SNS REAAL Annual Report 2007 report of the executive board 35


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    SNS REAAL In € millions 2007 2006 Change SNS REAAL 465 371 25.3% SNS Bank 272 214 27.1% SNS Retail 186 208 (10.6%) SNS Property Finance 1 86 6 1,333.3% REAAL Verzekeringen 205 170 20.6% REAAL Life 177 145 22.1% REAAL Non-Life 23 21 9.5% REAAL Other 5 4 25.0% Group activities (12) (13) 7.7% Total income 4,543 3,576 27.0% Total expenses 3,974 3,117 27.5% Operating profit before taxation 569 459 24.0% Taxation 101 88 14.8% Third party interests 3 -- -- Net profit for the period 465 371 25.3% Earnings per share (EPS) (€ ) 1.87 1.65 13.3% Diluted earnings per share (€ ) 1.87 1.65 13.3% Balance Sheet Total assets 103,074 79,742 29.3% Investments 21,067 10,626 98.3% Investments for insurance contracts on behalf of policyholders 7,235 3,955 82.9% Loans and advances to customers 63,045 56,700 11.2% Group equity 3,591 3,200 12.2% Savings 19,179 13,678 40.2% Technical provisions insurance operations 24,858 13,283 87.1% Ratios Return on shareholders’ equity (ROE) 13.7% 12.7% Double Leverage 116.3% 107.8% Average number of employees (FTE) 6,245 5,609 SNS Bank Efficiency ratio 60.3% 62.6% BIS ratio 11.5% 11.2% Tier 1 ratio 8.4% 8.2% REAAL Verzekeringen Operating cost/premium ratio 14.1% 13.8% Solvency life operations 2 272% 236% Solvency non-life operations 2 255% 279% Number of shares outstanding at end of period 261,472,608 234,761,284 Weighted average number of outstanding shares 248,155,233 224,564,046 1 ) Comparative figure net profit SNS Property Finance 2006 relates only to December 2006. 2 ) Solvency life and non-life operations 2007 are calculated based on new legislation. 36 SNS REAAL Annual Report 2007 report of the executive board


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    Financial outlines In 2007 SNS REAAL’s net profit rose by 25.3% to a record level of € 465 million. Earnings per share rose by 13.3% to € 1.87, while return on shareholders’ equity was 13.7%, up from 12.7%. This strong performance was driven by robust organic growth of several key activities, as well as by the results of the recent acquisitions of SNS Property Finance, SNS Regio Bank and AXA NL Combined. SNS REAAL discontinued SNS REAAL Invest and, as from 1 July 2006, SNS Asset Management. Result 2007 SNS REAAL’s net profit grew by € 94 million, from € 371 Net profit from Group activities, including consolidation million to € 465 million (+ 25.3%). On average over the adjustments, remained stable at € 12 million negative in past four years, this represents a compound annual 2007 compared to € 13 million negative in 2006. growth rate of 18%. Result from Group activities was positively influenced by € 35 million from the sale of the remaining 40% interest SNS Bank’s net profit increased from € 214 million to in La Ser Lafayette Services Nederland and part of the € 272 million (+ 27.1%), mainly driven by SNS Property holding of F. van Lanschot Bankiers’ shares (this interest Finance’s contribution of € 86 million and growing net was reduced from 7.6% to 5.3%). However, interest interest income from retail banking. This compensated a expenses increased by € 24 million mainly because decrease in the net result on bond gains, which in 2006 the acquisitions of SNS Property Finance and AXA NL amounted to € 35 million. Combined were partly funded by increasing double REAAL Verzekeringen’s net profit increased from € 170 leverage at holding company level. In addition staff costs million to € 205 million (+ 20.6%). Within this, net profit increased by € 14 million. This was primarily driven by the of REAAL Verzekeringen Life increased by € 32 million of first time inclusion of a full year of staff costs of SNS Asset which € 12 million was attributable to AXA NL Combined. Management, the introduction of a long-term incentive Net profit of REAAL Verzekeringen Non-Life and Other programme and the increase of staff in connection with grew by € 3 million including € 10 million contribution of legislation and compliance. AXA NL Combined. The € 12 million net negative impact of the Kyrill storm on the non-life insurance operations Earnings per share was partly offset by favourable developments in claims in SNS REAAL aims to grow its earnings per share (EPS) the second half of 2007. by an average of 10% annually, starting in 2006 up to year-end 2009, including acquisitions. EPS for 2007 Operating costs were kept well in check. The efficiency amounted to € 1.87 (+ 13.3%); on average for the period ratio at SNS Bank showed a positive development. 2006-2007 this represents a compound annual growth At REAAL Verzekeringen the operating cost/premium rate of 10%. This is an important step towards achieving ratio, excluding AXA NL Combined, improved from 13.8% SNS REAAL’s implied EPS target of € 2.27 by the end of in 2006 to 13.3% in 2007. 2009. After the issue of new ordinary shares on 22 June 2007 and the interim (stock) dividend for 2007 declared At 17.8%, the effective tax rate was lower than in 2006 and paid in September 2007, the weighted average (19.2%). This reduction was mainly due to the lower number of outstanding shares for 2007 was 248,155,233. statutory corporate tax rate, which decreased from 29.6% As from the issue date, the new shares have been fully in 2006 to 25.5% in 2007. taken into account for the purpose of calculating EPS. Net profit from Group activities Return on shareholders’ equity Group activities comprise the business units managed Return on shareholders’ equity (ROE) of SNS REAAL was directly by SNS REAAL at holding company level, whose 13.7% (2006: 12.7%). The financial target is a ROE of income and expenses are not allocated to SNS Bank 15% per annum on average after tax. ROE in 2007 was or REAAL Verzekeringen. These include the largely reduced by the timing difference between the share issue SNS REAAL Annual Report 2007 report of the executive board 37


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    18 Earnings per share SNS REAAL On the liability side, SNS Bank showed a reduction of amounts due to credit institutions of € 2.2 billion, € mainly due to the accelerated redemption of a facility 2.00 cagr = 10% 1.80 with ABN AMRO N.V. in connection with the acquisition 1.60 of Bouwfonds Property Finance in 2006. The growth of 1.40 SNS Bank’s total assets of € 6.2 billion was primarily 1.20 1.00 funded by the growth of savings by € 5.5 billion 0.80 (+ 40.2%). Besides the contribution of Regio Bank (€ 2.1 0.60 billion), savings increased due to strong organic growth 0.40 0.20 at ASN Bank and as a result of SNS Bank’s successful 0 deposit campaigns. Furthermore, the total amount of 2003* 2004 2005 2006 2007 debt certificates increased by € 1.3 billion. Earnings per share SNS REAAL *) Number of shares after stock split in 2004 was used for calculation earnings per share 2003. Technical provisions at REAAL Verzekeringen increased by € 11.6 billion, particularly due to the acquisition of for the acquisition of AXA NL Combined in June and the AXA NL Combined (€ 11.2 billion). The life technical completion of the acquisition in September. provision increased by € 10.7 billion, and that for non-life by € 0.9 billion. Balance sheet SNS REAAL’s balance sheet grew by € 23.3 billion, from SNS REAAL’s group equity grew by € 391 million to € 3.6 € 79.7 billion at year-end 2006 to € 103.0 billion at the billion (+ 12.2%) compared to year-end 2006. This was end of 2007 (+ 29.2%). Excluding the impact of the mostly attributable to the share issue (€ 342 million net acquisitions of AXA NL Combined (€ 16.6 billion) and of costs recognised in 2007) and the net profit for 2007 Regio Bank (€ 3.0 billion), the balance sheet grew by of € 465 million. This was partly offset by a decrease of € 3.7 billion to € 83.4 billion. € 325 million caused by the unrealised revaluation of investments and cash flow hedges in response to market 19 Return on shareholders’ equity SNS REAAL developments and realisations and a decrease of € 94 million related to the distribution of the final dividend for % 2006 and the interim dividend for 2007. The capital base 20 increased by € 759 million to € 5.6 billion, while subordi- 18 nated debt increased by € 368 million to € 2,032 million. 16 The acquisition of AXA NL Combined was financed by 14 € 450 million internal resources by the net proceeds of the share issue in June 2007 of € 342 million and for the 12 remaining part by a combination of hybrid capital and 10 debt certificates. 2003 2004 2005 2006 2007 Return on shareholders' equity SNS REAAL Solvency The ‘double leverage’, which is the ratio between the book value of the subsidiaries and SNS REAAL’s share- Investments for own account increased by € 10.4 billion holders’ equity, increased from 107.8% at year-end to € 21.0 billion (+ 98.1%), mainly as a result of the 2006 to 116.3% at the end of 2007. While shareholders’ consolidation of AXA NL Combined (€ 7.9 billion). Loans equity was strengthened by the share issue in June (€ 342 and advances to customers rose by € 6.3 billion to € 63.0 million), the value of associated companies and subsidi- billion (+ 11.1%), mainly attributable to the acquisitions aries increased mainly due to a share premium of € 711 of AXA NL Combined and Regio Bank and organic growth million paid in to REAAL Verzekeringen by SNS REAAL at SNS Property Finance. and the 2007 net profit generated by associated Goodwill and other intangible fixed assets rose by € 1.2 companies and subsidiaries (less dividends paid). billion to € 2.0 billion mainly due to the recognition of The double leverage is set to come into line with the intangible fixed assets related to AXA NL Combined. This target (<115%) in early 2008. consists of Value of Business Acquired (€ 658 million), other intangible assets (€ 162 million) and goodwill SNS Bank’s capital base increased by € 344 million (€ 237 million). to € 3.9 billion. The € 272 million net profit was partly 38 SNS REAAL Annual Report 2007 report of the executive board


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    distributed to SNS REAAL as dividends (€ 130 million). The 2007 solvency ratio of REAAL Verzekeringen, based Subordinated debt increased by € 230 million. The fair on the new calculation method, amounted to 198% value reserve was € 35 million lower as a result of higher and reflects the total solvency position of the insurance interest rates. Tier 1 capital amounted to € 2.6 billion. operations. SNS Bank’s capital adequacy position remained strong. The Tier 1 ratio at the end of 2007 was 8.4% (year-end Overall, the strong capital base is now being deployed 2006: 8.2%), the BIS ratio was 11.5% (year-end 2006: more effectively and is better aligned with SNS REAAL’s 11.2%) and the Core capital ratio was 6.5% (year-end risk profile. 2006: recalculated 6.5%). Basel II was adopted on 1 January 2008. If the Basel II ratios were calculated as at 31 December 2007 the ratios were even more robust. Based on preliminary calcula- tions, the Tier 1 ratio was 12.8%, the BIS ratio was 17.2% and the Core capital ratio was 11.2%. REAAL Verzekeringen’s capital base increased by € 1,022 million, to € 2.4 billion (+ 71.6%) at the end of 2007. With the acquisition of AXA NL Combined, SNS REAAL injected € 711 million in the form of paid-in share premium into REAAL Verzekeringen’s capital. In addition, in the second half of the year the capital base was further reinforced by subordinated loans (€ 420 million). The net profit of € 205 million for 2007 was partly offset by a dividend of € 26 million distributed to SNS REAAL and a net total decline of € 276 million in the fair value reserve and the cash flow hedge reserve. The solvency ratios of REAAL Verzekeringen remained well above target. New legislation, which is effective from 2007 (Wft), has positively affected the solvency calculation as the surplus value of the technical provisions shown by the liability adequacy test at life operations is now taken into account. As a result, solvency of life operations 2007 was 272%. Solvency of non-life operations of 255% was not influenced by the new calculation method. 20 Solvency levels SNS Bank 21 Solvency levels REAAL Verzekeringen % % 13 400 12 350 11 300 10 250 9 200 8 150 7 100 6 50 5 0 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 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 REAAL Annual Report 2007 report of the executive board 39


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    SNS Bank In € millions 2007 2006 Change Result Net interest income banking operations 783 567 38.1% Net commission and management fees 129 120 7.5% Result on investments 14 67 (79.1%) Results on derivatives and other financial instruments 13 15 (13.3%) Other operating income (1) (1) 0.0% Total income 938 768 22.1% Value adjustments to financial instruments and other assets 35 36 (2.8%) Staff costs 332 283 17.3% Depreciation and amortisation of tangible and intangible fixed assets 31 25 24.0% Other operating expenses 203 173 17.3% Total expenses 601 517 16.2% Operating profit before taxation 337 251 34.3% Taxation 64 37 73.0% Third party interests 1 -- -- Net profit for the period 272 214 27.1% Net profit SNS Retail 186 208 (10.6%) Net profit SNS Property Finance 1 86 6 1,333.3% Risk-weighted assets 30,744 28,454 Ratios Return on shareholders’ equity 12.6% 14.1% Efficiency ratio 60.3% 62.6% BIS ratio 11.5% 11.2% Tier 1 ratio 8.4% 8.2% Core capital ratio 6.5% 6.5% Number of branches SNS Bank 146 167 Number of agencies SNS Regio Bank 727 438 Number of cash dispensers 513 308 1 ) Comparative figure net profit SNS Property Finance 2006 relates only to December 2006. Result Despite the lower statutory corporate tax rate, the The results of Regio Bank have been consolidated in effective tax rate increased to 19.0% compared to 14.7% SNS Bank results from 1 July 2007. SNS Bank’s net in 2006 as a result of the lower impact of structured tax profit of € 272 million rose by € 58 million (+ 27.1%). investments. Furthermore in 2006 the effective tax rate SNS Property Finance contributed € 80 million to this was influenced by a recalculation of the net deferred tax increase and Regio Bank € 4 million. liabilities resulting in a release of € 9 million. The effect of the international liquidity and credit crisis Return on shareholders’ equity (ROE) for 2007 was 12.6% on SNS Bank’s liquidity position was relatively limited. down from 14.1% in 2006. The liquidity position of SNS Bank remained solid, supported by the diversified funding policy, the growth Income of savings on the back of the savings deposit campaigns Total income increased from € 768 million in 2006 to and the ample liquidity buffers accumulated prior to € 938 million (+ 22.1%) in 2007. The higher net interest the credit crisis. Nevertheless if the current situation income and higher net commissions and management endures for a longer period, it will also have an impact on fees of SNS Retail Banking and the contribution made banking operations. by SNS Property Finance more than compensated for the lower results on investments and derivatives and 40 SNS REAAL Annual Report 2007 report of the executive board


  • Page 43

    22 Composition of income SNS Bank 23 Efficiency ratio SNS Bank € millions % 1,000 65 64 750 63 62 500 61 60 250 59 58 0 57 2005 2006 2007 2003 2004 2005 2006 2007 Other income Efficiency ratio SNS Bank Net commission and management fees Net interest income SNS Property Finance Net interest income Retail Banking percentage of total funding increased from 36% at the end of 2006 to 42% at the end of 2007. At the end of other financial instruments. SNS Bank’s interest income 2007, 56% of retail loans was funded with retail money (excluding SNS Property Finance, Regio Bank and FBS) (2006: 44%). SNS Bank has maintained a prudent and increased by € 24 million (+ 4.4%) compared to the proactive funding and liquidity strategy and was able level realised in 2006, despite a € 24 million decrease in to profit for a longer period from the historically low penalty interest income due to a further contraction of credit spreads by attracting a relatively large amount of the mortgage refinancing market on the back of rises long-term funding. Looking ahead, the funding position in interest rates. Margin pressure in mortgages was has been secured until the end of 2008 without need for more than compensated by improved margins in other recourse to the capital markets as of today. products, most notably savings. The consolidation of SNS Property Finance, an improved net interest income and a sharply lower result on 24 Diversification of funding investments and derivatives and other financial sources year-end 2007 instruments enhanced the quality of income. The diversification of net interest income improved due 7% (2006: 11%) to strong growth of net interest income on savings 16% (2006: 15%) products and SME mortgages and the acquisition of 12% SNS Property Finance. In retail banking, commissions (2006: 14%) 21% and management fees as a percentage of total income (2006: 19%) grew from 15.9% to 17.0%. 42% (2006: 36%) 2% (2006: 5%) Expenses Total expenses rose by € 84 million due to SNS Property Finance (€ 70 million) and Regio Bank (€ 12 million). Medium term notes Value adjustments to financial instruments and other Retailfunding assets remained low at € 35 million (2006: € 36 million). Credit institutions As a result of the increased income, strict cost control Securitisation Benchmark Bonds and the consolidation of SNS Property Finance for a full Other year, the efficiency ratio improved from 62.6% in 2006 to 60.3% in 2007. Funding SNS Bank’s funding strategy has consistently been based on three pillars: diversification of funding sources, commitment to the investor base and a proactive view of the environment. The retail lending base grew due to a combination of the acquisition of Regio Bank and organic growth. As a result, retail funding as a SNS REAAL Annual Report 2007 report of the executive board 41


  • Page 44

    SNS Retail Banking In € millions 2007 2006 Change Result Net interest income banking operations 596 551 8.2% Net commission and management fees 128 120 6.7% Result on investments 13 67 (80.6%) Results on derivatives and other financial instruments 12 15 (20.0%) Other operating income 2 -- -- Total income 751 753 (0.3%) Value adjustments to financial instruments and other assets 20 35 (42.9%) Other expenses 505 476 6.1% Total expenses 525 511 2.7% Operating profit before taxation 226 242 (6.6%) Taxation 39 34 14.7% Third party interests 1 -- -- Net profit for the period 186 208 (10.6%) Risk-weighted assets 18,832 19,571 Efficiency ratio 67.2% 63.2% Result SNS Retail Banking’s net profit decreased from € 208 fall was caused by a decrease in the volume of early million to € 186 million (– 10.6%). Excluding the net result redemptions on the back of interest rate hikes, which on the 2006 bond sales of € 35 million and the impact further contracted the mortgage refinancing market, of the conversion of the property finance activities to continuing a trend that had started in 2006. Penalty SNS Property Finance (€ 4 million), net profit rose by interest income also declined as the spread between 9.8% due to improved net interest income and higher net client interest rates and market interest rates narrowed. commissions and management fees. Penalty interest income in the second half of 2007 amounted to € 15 million which was almost equal to the Regio Bank has been included in SNS Retail Banking’s first half of 2007. result from 1 July 2007. In the second half of 2007, Regio Bank made a positive contribution to net profit of € 4 Interest rates rose across the entire yield curve during million. The integration of this company into SNS Bank 2007. Short-term interest rates continued to increase and and related system conversions were completed at the yield curve became partly inverted in the second half year-end 2007. of 2007. The long end of the yield curve steepened but continued to be relatively flat. During 2007, SNS Bank’s Income exposure to future interest rate hikes was reduced. Net interest income These movements in the yield curve and the ALM policy The increase of net interest income of SNS Retail Banking resulted in a limited but positive ALM income in line by € 45 million (+ 8.2%) was due to an increase of with 2006. commercial interest income while penalty interest fell by € 24 million. The growth of commercial interest income In the highly competitive mortgage market, compared was due to higher sales volumes in almost all product to the first half of 2007, SNS Retail Banking regained segments and improved margins on savings products market share in mortgages from 6.7% to 7.4%. and the SME portfolio. This growth was partially offset SNS Budget Mortgage, voted ‘Best European Mortgage by lower margins in the mortgage business as a result of Product of 2007’, generated over half of the new the ongoing fierce competition. Regio Bank contributed mortgage production. In the existing mortgage portfolio, € 26 million to net interest income. retention improved in 2007. The acquisition of Regio Bank added a mortgage portfolio of € 1.6 billion, in total Penalty interest income fell by € 24 million from € 53 SNS Bank’s retail mortgage portfolio expanded by 5.7% million in 2006 to € 29 million in 2007 (– 45.3%). This to € 44.8 billion (2006: € 42.4 billion). 42 SNS REAAL Annual Report 2007 report of the executive board


  • Page 45

    In 2007, the savings market share grew from 6.3% Expenses to 8.3% partly as a result of successful products at Value adjustments to financial ASN Bank and SNS Bank’s savings deposit campaigns. instruments and other assets Regio Bank contributed € 2.1 billion to the savings Value adjustments to financial instruments and other portfolio and SNS Bank’s total savings portfolio assets fell by € 15 million from € 35 million in 2006 to increased by € 5.5 billion to € 19.2 billion (+ 40.1%). € 20 million in 2007 (– 42.9%). The lower addition for ASN Bank showed considerable growth in both volume retail mortgages reflects the low risk of this portfolio, and the number of clients. In 2007, the number of clients fewer forced property sales and associated lower increased by 14.4% (45,651 new clients). shortfalls on foreclosures per item. In addition, in 2006 the provisioning policy was tightened, resulting in Net commission and management fees higher additions. There was a markedly lower inflow of Excluding the management fees of SNS Asset infected loans from the SME sector, in particular due to Management, which was transferred to SNS REAAL at 1 the improved economic environment and to the release July 2006, growth of net commissions and management of a number of remaining provisions in respect of the fees in 2007 was € 16 million (+ 14.3%). This increase settlement of various loans. The value adjustments as occurred across all commission-related activities, the a percentage of risk-weighted assets fell from 0.18% in insurance commissions grew by 6.1% to € 35 million. 2006 to 0.11% in 2007. Growth in securities commissions was mostly driven by the activities of SNS Fundcoach and SNS Securities. Other expenses SNS Fundcoach’s assets under management increased Other expenses increased by € 29 million, from by € 213 million from € 589 million at year-end 2006 to € 476 million in 2006 to € 505 million in 2007 (+ 6.1%). € 802 million at the end of 2007 (+ 36.2%). The numbers This increase was mainly due to the acquisitions and of new accounts and active clients both grew in 2007, integration of Regio Bank and FBS (€ 22 million). and SNS Fundcoach’s fee income increased accordingly. Excluding these factors, strict cost control limited Additionally, management fee income of SNS and the increase in other expenses to € 7 million (+ 1.5%). ASN funds rose compared to 2006. The total number of FTEs at retail banking decreased Net commission fees contributed by SNS Securities by 103, despite the integration of Regio Bank (54 FTEs). grew from € 13 million to € 16 million, supported by the This decrease was caused by STP projects and the FBS Bankiers contribution and the former activities of reorganisation of the SME business. However, total staff Van der Hoop. costs increased as more temporary staff was hired for projects related to legislation (implementation of Basel Other income II), efficiency and integration. The result on investments fell sharply, from € 67 million in 2006 to € 13 million in 2007, largely due to the absence in 2007 of the significant net profits realised from bond sales in 2006 (€ 35 million net). Based on the positive revaluations and SNS Bank’s interest rate projections, substantial results were made in 2006 through bond sales. In view of the size of the fair value reserve at the end of 2007 and the interest rate environment, the result on investments, as indicated before, is expected to remain low in 2008. Income from derivatives and other financial instruments fell by € 3 million from € 15 million in 2006 to € 12 million at the end of 2007. The international liquidity and credit crisis had a minor negative impact on the market value of SNS Bank’s bond trading portfolio (– € 9 million). As we intend to hold this portfolio to maturity date (approximately two years), future positive results will offset this current negative mark to market performance. SNS REAAL Annual Report 2007 report of the executive board 43


  • Page 46

    SNS Property Finance In € millions 2007 2006 1 2006 Change Pro forma Result Net interest income banking operations 187 16 182 2.7% Net commission and management fees 1 -- -- -- Result on investments 1 -- -- -- Results on derivatives and other financial instruments 1 -- -- -- Other income (3) (1) 5 (160.0%) Total income 187 15 187 0.0% Value adjustments to financial instruments and other assets 15 1 11 36.4% Other expenses 61 5 55 10.9% Total expenses 76 6 66 15.2% Operating profit before taxation 111 9 121 (8.3%) Taxation 25 3 39 (35.9%) Third party interests -- -- -- -- Net profit for the period 1 86 6 82 4.9% Effect purchase price allocation 23 1 12 91.7% Net profit for the period (before PPA) 109 7 94 16.0% Risk-weighted assets 11,912 8,883 8,883 Efficiency ratio 32.6% 33.3% 29.4% 1 ) Comparative figure net profit SNS Property Finance 2006 relates only to December 2006. Result Total net profit of SNS Property Finance amounted to to financial instruments and other assets. The organic € 86 million compared to a pro forma net profit in 2006 growth of net profit was fully offset by the higher PPA of € 82 million (+ 4.9%). The loan portfolio grew from adjustments in 2007 compared to the adjustments in the € 8.8 billion at the end of 2006 to € 11.6 billion at the end pro forma figures 2006. It is expected that the impact of of 2007 (+ 31.8%). This increase was due to the organic the PPA will decrease substantially in the coming years. growth of the loan portfolio of € 1.7 billion (+ 19.3%) and by integration of the existing property finance The total portfolio of SNS Property Finance as at 31 activities of SNS Bank (€ 1.1 billion). The integration of December 2007 consisted of € 7.0 billion of investment these activities with those of SNS Property Finance was finance and € 4.6 billion of project finance. The portfolio completed at year-end 2007 and made a contribution to is well diversified by geography and across asset classes. the net profit of € 4 million. These positive developments The major part of the portfolio is domestic (76%) and were partly offset by lower other income and higher other investments in North America are limited to 7% of the expenses. total portfolio. The total portfolio share of the residential sector amounted to 37% at the end of 2007. Excluding the effect of the Purchase Price Allocation (PPA) adjustments and higher funding costs, Income SNS Property Finance recorded a net profit of € 109 Net interest income in 2007 increased by € 5 million million, an increase of 16.0% compared to pro forma net (+ 2.7%) to € 187 million. This increase was due to the profit for 2006 excluding PPA adjustments of € 94 million. growth of the portfolio, partly offset by lower (non-) PPA adjustments in 2007 were € 23 million, compared recurring commissions. Recurring interest revenue to € 12 million in the pro forma net profit for 2006. The accounted for 94% of total net interest income, with the difference was due to the PPA adjustment to fair value remainder sourced from transaction-related income. of equity participations which led to a higher negative The organic growth in the portfolio mainly related PPA impact on the other income and value adjustments to expanding international project finance activities. 44 SNS REAAL Annual Report 2007 report of the executive board


  • Page 47

    25 Geographic composition portfolio 26 Portfolio by asset classes SNS Property Finance SNS Property Finance 14% 7% 12% 3% 37% 7% 22% 76% 22% The Netherlands Residential North America Offices Spain Shops Other Business premises Other On a total portfolio basis margins remained stable. Within this, lower margins on investment finance were offset by a small increase in margins on project finance together with an increase in the share of project finance in the total portfolio. Expenses Value adjustments to financial instruments and other assets Total value adjustments in 2007 were negative at € 15 million, with a net provision release of € 1 million in the first half year followed by a net negative charge of € 16 million in the second half. The adjustment in the second half was due to impairments on a limited number of loans in the USA and Spain, partly compensated by releases of other provisions as a result of settlement and final repayment on impaired loans. SNS Property Finance has taken full control of the projects involved and has acted swiftly to restructure the management and focus of these projects. The value adjustments as a percentage of risk weighted assets of SNS Property Finance were at a satisfactory level of 0.13%. Other expenses Compared to the pro forma figures for 2006, other expenses increased by € 6 million mainly due to the increase of staff related to the expansion of activities and to costs related to the process integration. As a result the efficiency ratio increased to 32.6% compared to 29.4% in pro forma 2006. SNS REAAL Annual Report 2007 report of the executive board 45


  • Page 48

    REAAL Verzekeringen In € millions 2007 2006 Change Result Premium income 2,584 2,009 28.6% Reinsurance premium 61 49 24.5% Net premium income 2,523 1,960 28.7% Share in the result of associated companies -- 3 (100.0%) Net commission and management fees 54 57 (5.3%) Result on investments 834 561 48.7% Result on investments for insurance contracts on behalf of policyholders 96 215 (55.3%) Results on derivatives and other financial instruments 29 6 383.3% Other operating income 11 2 450.0% Total income 3,547 2,804 26.5% Technical expenses on insurance contracts 1,979 1,393 42.1% Technical expenses on insurance contracts on behalf of policyholders 496 663 (25.2%) Technical expenses on insurance contracts 2,475 2,056 20.4% Acquisition costs for insurance operations 333 240 38.8% Value adjustments to financial instruments and other assets 29 (2) -- Staff costs 184 141 30.5% Depreciation and amortisation of tangible and intangible fixed assets 35 27 29.6% Other operating expenses 88 75 17.3% Other interest expenses 144 34 323.5% Total expenses 3,288 2,571 27.9% Operating profit before taxation 259 233 11.2% Taxation 52 63 (17.5%) Third party interests 2 -- -- Net profit for the period 205 170 20.6% Effect purchase price allocation 15 -- -- Net profit for the period (before PPA) 220 170 29.4% Ratios Return on shareholders’ equity 13.9% 13.6% Operating cost/premium ratio 14.1% 13.8% Solvency life operations 1 272% 236% Solvency non-life operations 1 255% 279% New annual premium equivalent (in € millions) 207 196 Value New Business (in € millions) 2 14 20 Combined ratio non-life operations 3 98.6% 94.7% Claims ratio 3 55.9% 53.7% The comparative figures have been adjusted for comparison purposes. 1 ) Solvency life and non-life operations 2007 are calculated based on new legislation. 2 ) VNB 2007 includes AXA NL Combined which is based on different calculation principles than REAAL Verzekeringen. As of 2007 VNB includes cost synergies of AXA NL Combined and surplus value of technical provisions of the liability adequacy test. 3 ) As of 2007 the combined and the claims ratios are calculated excluding reinsurance results and excluding indemnified business by AXA S.A. Result REAAL Verzekeringen’s net profit increased from € 170 Excluding the net impact of AXA NL Combined net profit million to € 205 million (+ 20.6%), with results of AXA NL rose by € 13 million (+ 7.6%). The negative net impact of Combined being consolidated from 5 September 2007. the Kyrill storm on the non-life insurance operations was AXA NL Combined made a positive contribution to € 12 million but this was more than offset by favourable REAAL Verzekeringen’s net profit in 2007 of € 22 million development in claims and higher results on investments including funding costs. and derivatives and other financial instruments. 46 SNS REAAL Annual Report 2007 report of the executive board


  • Page 49

    28 Composition of income 27 Net profit REAAL Verzekeringen for own account REAAL Verzekeringen € millions € millions 225 4,000 200 3,500 175 cagr = 24% 3,000 150 2,500 125 2,000 100 1,500 75 50 1,000 25 500 0 0 2003 2004 2005 2006 2007 2005 2006 2007 Net profit REAAL Verzekeringen Net provision Other income Investment income Furthermore, the effective tax rate decreased from 27.0% Net premium income in 2006 to 20.1% in 2007, mainly caused by the lower corporate tax rate and the higher impact of structured tax investments. Excluding the negative net effect of Purchase Price Allocation (PPA) adjustments of € 15 million, REAAL Verzekeringen posted a net profit of € 220 million (€ 205 million including PPA). Within this the contri- bution to net profit of AXA NL Combined was € 51 million (€ 36 million after PPA). The PPA adjustments consisted of € 11 million amortisation of Value of Business Acquired (VOBA) and € 4 million depreciation and amortisation of other tangible and intangible fixed assets. Income Total income of REAAL Verzekeringen increased from € 2,804 million to € 3,547 million (+ 26.5%). Net income from regular life premiums grew by € 242 million to € 1,144 million (+ 26.8%) due to a combination of organic growth (€ 46 million, + 5.1%) and the contribution of AXA NL Combined of € 196 million. Single life premiums grew by € 192 million to € 837 million. Excluding AXA NL Combined, single life premiums increased by € 26 million (+ 4.0%). Net non-life premium income rose by 31.2%, to € 542 million. Excluding AXA NL Combined net non-life premiums were virtually flat compared to 2006. Other operating income increased by € 9 million to € 11 million due to the sale of a former Nieuwe Hollandse Lloyd (NHL) portfolio to AEGON and the surrender fees received at the termination of an important distribution partnership. SNS REAAL Annual Report 2007 report of the executive board 47


  • Page 50

    Result on investments REAAL Verzekeringen In € millions 2007 2006 Change Result Interest income 631 426 48.1% Dividend income 45 30 50.0% Rental income 19 15 26.7% Other -- 4 (100.0%) Direct investment income 695 475 46.3% Realised gains/losses 105 81 29.6% Unrealised gains/losses 34 5 580.0% 139 86 61.6% Total result on investments REAAL Verzekeringen 834 561 48.7% The result on investments for own account rose by Operating cost/premium ratio € 273 million compared to 2006 (+ 48.7%). Excluding The operating cost/premium ratio increased from 13.8% the contribution of AXA NL Combined, the results on to 14.1%. Excluding AXA NL Combined staff costs, investments increased by € 58 million. This positive depreciation costs and other operating expenses were development was mainly due to the increase in realised nearly on a par with 2006, whilst premium income gains on sales of equities. Taking into account the fair grew organically (regular premiums + 5.1% and single value reserve at the end of 2007 and the prevailing stock premiums + 4.0% compared to 2006). As a result market conditions, realised gains could be lower in 2008. the operating cost/premium ratio excluding AXA NL Unrealised gains/losses increased by € 29 million to € 34 Combined improved to 13.3%. million due to increased results on investment property (€ 13 million) and higher unrealised gains on bonds Pro forma figures for AXA NL Combined (€ 16 million) as a result of expansion of the investment Update pro forma 2006 figures portfolio at fair value through profit and loss. Since the announcement of the acquisition of AXA NL Combined on 4 June 2007 SNS REAAL continued the Expenses determination of the Purchase Price Allocation (PPA) REAAL Verzekeringen’s total expenses rose by € 717 of AXA NL Combined. This has resulted in adjustments million to € 3,288 million. Excluding AXA NL Combined to the valuations of Value of Business Acquired (VOBA) total expenses increased by € 45 million, due to € 35 and other intangible fixed assets. The valuation of million higher acquisition costs as a result of strong VOBA has been increased from € 617 million to € 673 production growth in the past few years and a one-off million, mainly caused by an increased yield curve. adjustment of € 15 million to better align the amorti- The determination of the other intangible fixed assets sation of acquisition costs for insurance operations resulted in PPA adjustments of € 167 million, consisted with premiums from policyholders. Interest expenses of the distribution network, client relations, trademark increased by € 27 million due to increased structured tax and software. The value of these intangible fixed investments. assets had not yet been determined at the time of the announcement of the acquisition. As a result the Value adjustments to financial instruments and other amortisation costs for VOBA in 2006 were increased assets, excluding AXA NL Combined, increased by € 29 from € 22 million to € 26 million. Amortisation costs of million caused by € 15 million equity impairments as a other intangible fixed assets amounted to € 12 million result of lower stock markets and value adjustments to which had not been calculated at 4 June 2007. loans and intangible fixed assets. Furthermore technical In addition, the pro forma financing costs increased expenses on insurance contracts increased organically from € 34 million to € 40 million as a result of higher by € 52 million, mainly due to growth of the life portfolio. interest rates in 2007 compared to the 2006 interest Technical expenses on insurance contracts on behalf rates as presented in June 2007. The impact on the pro of policyholders decreased by € 102 million due to the forma amortisation costs and financing costs for 2006 as interest rate hike resulting in a decrease in the value communicated when the acquisition was made public on of fixed-income security investments for insurance 4 June 2007 is summarised as follows: contracts on behalf of policyholders. 48 SNS REAAL Annual Report 2007 report of the executive board

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