avatar SRH N.V. Finance, Insurance, And Real Estate
  • Location: UTRECHT 
  • Founded: 1987-05-25
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    ANNUAL REPORT This report is a translation of the Dutch Geïntegreerd Jaarverslag (Integrated Annual Report) 2013.In case of conflict between the Dutch and the English report, the Dutch Geïntegreerd Jaarverslag is leading.


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    Table of contents General 2 3 1 Foreword 5 2 Profile and brands 2.1 General 5 2.2 Banking activities 6 2.3 Insurance activities 7 2.4 Group activities 8 9 3 SNS REAAL Executive Board 11 4 Strategy and Organisation 4.1 Bank and insurer go their own way 11 4.2 Separation of Group activities has begun 12 4.3 Mission, core value and social responsibility 12 4.4 Putting the customer's interests first 13 4.5 Customer satisfaction 14 4.6 Management and policy development for Corporate Responsibility 15 4.7 Realisation of CR targets for 2013 15 4.8 CR targets for 2014 17 18 5 Nationalisation and its implications 5.1 Nationalisation 18 5.2 Change in the capital structure 21 5.3 Separation of Property Finance 23 5.4 Overview financial impact of the nationalisation measures 25 5.5 Temporary and final decision of the European Commission 25 Annual Report 26 27 6 Outlook for 2014 6.1 Financial markets 27 6.2 Impact of laws and regulations 28 6.3 SNS Retail Bank 28 6.4 REAAL NV 30 31 7 Financial outlines 7.1 Results 2013 compared to 2012 31 7.2 Impact of one-off items 31 7.3 SNS Retail Bank 34 7.4 Insurance activities 34 7.5 Group activities 36 7.6 Property Finance 36 7.7 Operating expenses 37 38 8 Developments at SNS Retail Bank 8.1 Strategy SNS Retail Bank 38 8.2 Targets 40 8.3 SNS Retail Bank financial developments 40 8.4 Income 41 8.5 Expenses 42 8.6 Credit risk 42 8.7 Distribution and organisation 43 8.8 Developments per product group 50 55 9 Developments at REAAL 9.1 Strategy of REAAL 55 9.2 Commercial developments and organisation 56 9.3 Financial developments at REAAL Life 63 9.4 Income 65 9.5 Expenses 65


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    9.6 Financial developments at REAAL Non-Life 67 9.7 Income 68 9.8 Expenses 68 9.9 REAAL Other 69 70 10 Developments at Zwitserleven 10.1 Strategy 70 10.2 Financial developments 71 10.3 Income 72 10.4 Expenses 73 10.5 Commercial developments and organisation 73 80 11 Developments Group activities 11.1 Financial developments 80 11.2 SNS Asset Management 80 11.3 Sustainable supply chain and the environment 84 86 12 Developments Property Finance 12.1 Financial developments 86 12.2 Results 2013 compared to 2012 86 12.3 Income 87 12.4 Expenses 87 12.5 Portfolio development 87 88 13 Risk and capital management 13.1 Overview of financial risks in 2013 88 13.2 Future developments in financial risks 90 13.3 Capitalisation 91 13.4 Liquidity 93 13.5 Non-financial risks 93 13.6 New regulations and their implementation 95 98 14 Funding and credit ratings 14.1 SNS Retail Bank funded mainly by savings 98 14.2 Public funding 98 14.3 Funding transactions in 2013 98 14.4 Credit ratings 99 101 15 Our people 15.1 Impact and consequences nationalisation for employees 101 15.2 Putting the customer ’s interest first 101 15.3 Integrity: compliance with internal and external rules and regulations 102 15.4 Personal leadership 102 15.5 Attractive and responsible employer 103 15.6 From work to work 104 15.7 Sustainable employability 105 15.8 Attracting and developing talent 106 15.9 SNS REAAL Pension Fund 108 15.10 Employee participation 108 15.11 Key figures of employees 109 110 16 Report of the Supervisory Board 16.1 Themes 110 16.2 Composition of the Executive Board 113 16.3 Meetings of the Supervisory Board 113 16.4 Committee meetings 114 16.5 Financial statements 116 16.6 Remuneration report 116 16.7 Closing words 122 123 17 Corporate governance 17.1 The Executive Board 123 17.2 The Supervisory Board 125 17.3 Corporate Governance Code 127 17.4 Management statements 128 Annual Report 129 130 18 Consolidated financial statements 18.1 Consolidated balance sheet 130 18.2 Consolidated income statement 131 18.3 Consolidated statement of comprehensive income 132 18.4 Consolidated statement of changes in equity 133 18.5 Consolidated cash flow statement 137


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    139 19 Accounting principles for the consolidated financial statements 19.1 General information 139 19.2 Nationalisation and its implications 139 19.3 Basis of preparation 147 19.4 Accounting principles used for consolidation 157 19.5 Specific balance sheet principles 160 19.6 Specific income statement accounting principles 179 19.7 Contingent liabilities and commitments 183 19.8 Cash flow statement 183 184 20 Segmentation 20.1 Information by segment 184 20.2 Balance sheet by segment 186 20.3 Income statement by segment 188 20.4 Balance sheet Banking activities by segment 190 20.5 Income statement Banking activities by segment 192 20.6 Balance sheet Insurance activities by segment 194 20.7 Income statement Insurance activities by segment 196 198 21 Acquisitions and disposals 21.1 Separation Property Finance 198 21.2 Other disposals 198 199 22 Risk management and organisation 22.1 Main developments risk profile 199 22.2 Risk management organisation 199 22.3 Risk management committees 202 22.4 Risk management departments 204 22.5 Risk classification 207 22.6 Framework for business control 208 211 23 Financial risk management Banking activities 23.1 Introduction 211 23.2 Credit risk Banking activities - overview 211 23.3 Credit risk SNS Retail Bank 213 23.4 Credit risk Property Finance 221 23.5 Market risk of Banking activities 225 23.6 Liquidity risk Banking activities 230 234 24 Financial risk management Insurance activities 24.1 Introduction 234 24.2 Insurance risk Life 234 24.3 Insurance risk Non-life 238 24.4 Insurance risk reinsurance 243 24.5 Market risk Insurance activities 245 24.6 Credit risk Insurance activities 251 24.7 Liquidity risk Insurance activities 255 257 25 Financial instruments and hedge accounting 25.1 Financial instruments 257 25.2 Hedging and hedge accounting 267 271 26 Non-financial risk management 26.1 Management of non-financial risks 271 26.2 Property Finance 272 26.3 Capital requirement operational risk 272 273 27 Capital management 27.1 Introduction 273 27.2 Capital management SNS REAAL 273 27.3 Capital management SNS Bank NV 275 27.4 Capital management Insurance activities 278 282 28 Notes to the consolidated financial statements 28.1 Intangible assets 282 28.2 Property and equipment 285 28.3 Investments in associates 287 28.4 Investment properties 288 28.5 Investments 289 28.6 Investments for account of policyholders 293 28.7 Derivatives 293 28.8 Deferred tax assets and liabilities 295


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    28.9 Property projects 296 28.10 Loans and advances to customers 298 28.11 Loans and advances to banks 302 28.12 Other assets 302 28.13 Cash and cash equivalents 303 28.14 Equity 303 28.15 Participation certificates and subordinated debts 303 28.16 Debt certificates 305 28.17 Insurance and reinsurance contracts 309 28.18 Provision for employee benefits 312 28.19 Other provisions 317 28.20 Savings 318 28.21 Other amounts due to customers 318 28.22 Amounts due to the Dutch State 319 28.23 Amounts due to banks 319 28.24 Other liabilities 320 28.25 Off balance sheet commitments 320 28.26 Related parties 324 28.27 Net interest income 326 28.28 Net premium income 327 28.29 Net fee and commission income 328 28.30 Share in result of associates 329 28.31 Investment income 329 28.32 Investment income for account of policyholders 331 28.33 Result on financial instruments 332 28.34 Other operating income 332 28.35 Technical claims and benefits 333 28.36 Charges for account of policyholders 334 28.37 Acquisition costs for insurance activities 334 28.38 Staff costs 334 28.39 Other operating expenses 336 28.40 Impairment charges / (reversals) 337 28.41 Other interest expenses 338 28.42 Other expenses 338 28.43 Taxation 338 28.44 Result discontinued operations 339 341 29 Company financial statements 29.1 Company balance sheet 341 29.2 Company income statement 342 29.3 Principles for the preparation of the company financial statements 342 343 30 Notes to the company financial statements 30.1 Subsidiaries 343 30.2 Receivables from subsidiaries 343 30.3 Investments 344 30.4 Equity 345 30.5 Subordinated debt 348 30.6 Debt certificates 348 30.7 Other amounts due to customers 349 30.8 Amounts due to the Dutch State 349 30.9 Other liabilities 349 30.10 Off balance sheet commitments 350 30.11 Related parties 350 30.12 Audit fees 351 353 31 Overview of principal subsidiaries 354 32 Other information 32.1 Provision regarding profit or loss appropriation 354 32.2 Independent auditor’s report 355 32.3 Independent assurance report 357 GRI 358 359 1 GRI Table 375 2 Attachments 2.1 GRI table: 2.10 Awards 375 2.2 GRI table: 4.12 Signed and endorsed charters 378 2.3 GRI table: 4.13 Membership of associations and/or advocacy organisations 380 2.4 GRI table: 4.14 Stakeholders engaged 383 2.5 GRI table: EN01 Materials 387


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    2.6 GRI table: EN03 Energy 387 2.7 GRI table: EN08 Water consumption 388 2.8 GRI table: EN16 Emissions 388 2.9 GRI table: EN22 Waste 388 2.10 GRI table: EN29 Transport 389 2.11 GRI table: LA13 Diversity 389 392


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    Key figures SNS REAAL In € millions 2013 2012 2011 2010 2009 Result SNS Bank 190 88 257 162 120 REAAL Life (439) 72 247 208 49 REAAL Non-Life - (84) 32 16 54 REAAL Other (43) (15) 1 (18) (11) REAAL (482) (27) 280 206 92 Zwitserleven (141) (120) (87) 36 104 Insurance activities (623) (147) 193 242 196 Group activities 19 (100) (93) (71) (80) SNS REAAL Core activities (414) (159) 357 333 236 Property Finance (1,536) (813) (243) (593) (219) SNS REAAL (1,950) (972) 114 (260) 17 Total income 6,291 7,270 6,119 7,068 8,497 Total expenses 6,737 7,415 5,954 7,384 8,446 Balance Sheet Total assets 124,574 133,663 131,836 127,713 128,900 Investments 33,377 34,175 31,435 31,001 31,166 Investments for account of policyholders 13,440 13,227 12,420 12,637 12,038 Loans and advances to customers 55,032 64,334 67,552 69,117 70,457 Total equity 4,496 3,285 5,090 4,719 5,062 Savings 33,276 32,815 30,341 27,397 24,435 Insurance contracts 40,846 41,769 38,827 38,814 38,030 Ratios Double Leverage 114.9% 130.1% 115.1% 115.4% 113.1% Number of internal employees (FTE) 6,379 6,724 6,928 7,113 7,520 Absenteeism 3.9% 4.3% 4.4% 4.3% 4.2% Banking activities Efficiency ratio SNS Bank 49.7% 57.4% 49.9% 57.8% 57.0% Core Tier 1 ratio 16.6% 6.1% 9.2% 8.1% 8.3% Tier 1 ratio 16.6% 7.7% 12.2% 10.7% 10.7% BIS ratio 16.7% 9.3% 14.4% 16.7% 13.9% Insurance activities Operating cost/premium ratio REAAL 14.2% 11.9% 11.5% 12.2% 13.0% Operating cost/premium ratio Zwitserleven 14.9% 14.5% 15.2% 15.4% 14.0% Regulatory solvency Insurance activities 172% 176% 203% 195% 230% Regulatory solvency SRLEV 187% 211% 223% 205% 246% Regulatory solvency Non-Life 235% 490% 464% 398% 379% Core Tier 1 ratio, Tier 1 ratio and BIS ratio are calculated based on Basel II.


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    1 Foreword ‘A new foundation for the future’ SNS REAAL has undergone a year of radical change following its nationalisation on 1 February 2013. The nationalisation had far-reaching consequences for society, for our shareholders and subordinated creditors. At the same time, nationalisation brought clarity for both our customers and employees. We have worked hard on a new reality, and to lay a foundation for the future. It is therefore appropriate that we adopt a modest stance. The aid provided by the Dutch State, the taxpayer, has enabled SNS REAAL to devote its attention to regaining the trust of its customers and society. This is something we will continue to build upon during 2014, amongst other by consciously choosing to focus on our utility function in society. During the coming year we will play an active part in the social debate about the future of the banking sector. We aim to be the challenger in the Dutch banking sector to widen the range of choice. We are very much aware of the impact that events in 2013 have had on our employees. Staff in daily contact with customers, for instance in customer contact centres and our bank shops, on occasion faced unacceptable treatment. The wave of media coverage at the time of and following the nationalisation have had a big impact. Nonetheless, I am proud of the positive manner in which employees throughout the company have rolled up their sleeves and made every effort to restore customer satisfaction. In the coming year we will again be calling upon the flexibility and resilience of our employees. The reported net loss of 2013 is mainly caused by Property Finance, including the necessary impairment after nationalisation. Besides, impairments on intangible assets and a lower underlying result resulted in a net loss at the Insurance activities. SNS Retail Bank posted a solid profit and its capital base improved to robust levels. The Core Tier 1 ratio of SNS Bank NV improved to 16.6% compared to 6.1% at year-end 2012. The regulatory solvency of the Insurance activities decreased from 176% at year-end 2012 to 172%, slightly below our set target level of at least 175%. In anticipation of the divestment, REAAL NV is currently investigating all possible alternatives to strengthen and protect its solvency level. This year was dominated by dealing with the aftermath of the nationalisation that took place on 1 February 2013. Following the European Commission’s provisional approval of the State aid in February 2013, SNS REAAL worked constructively with the Ministry of Finance in drawing up a restructuring plan. On 19 August 2013, the Ministry of Finance submitted this restructuring plan to the European Commission. London’s Tower Bridge served as a metaphor in the plan: two towers – in our case, a bank and an insurer – linked together by exchanging their products and knowledge and sharing a common road, namely the bridge. This bridge represents the connectedness of the organisational and financial elements that characterise the SNS REAAL holding company. The bridge is gradually being raised so that an independent bank and insurer will remain. The restructuring plan lays a foundation for the future that provides clarity for SNS REAAL’s customers, employees and its brands. In due course, SNS REAAL will cease to exist in its current form. Following submission of the plan, preparatory work was undertaken during the remainder of 2013. The European Commission granted its final approval of state aid and for the restructuring plan on 19 December 2013. The spin-off of Property Finance became a reality on 31 December. As a result of the thorough preparation undertaken in 2013, significant progress can be achieved during 2014 in creating an independent bank and insurer. Furthermore, the Insurance activities are being prepared for divestment. Based on the principle of ‘people follow jobs’, employees of the holding company will move either to the bank or insurer. We anticipate that, with the exception of the IT department, the allocation process will be completed around the summer of 2014. SNS REAAL Annual Report 2013 3


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    In parallel with the aftermath of the nationalisation and preparing the restructuring plan, attention has also been devoted to further strengthen our core activities. The bank has focused on restoring trust among its customers. We intend to return to our origins and values as a thorough-going retail bank, providing our customers with a choice between simple savings, checking account and mortgage products. The essence is best described by the following motto: 'The customer knows best what he wants and requires, selects the most appropriate product and understands what it costs and what it delivers'. For the insurer, this means cutting back on the number of products and simplifying their terms and conditions. Considerable attention has also been devoted to a more customer-focused approach and a range of processing improvements were implemented during 2013. In addition, Zwitserleven introduced a savings product and the PPIs. Taking our mission of ‘Simplicity in finance’ as their compass, our brands will continue to strive to look after the interests and needs of our customers in the best ways possible. In 2013, SNS REAAL made the conscious choice to return to its social origins that were founded in savings banks and the trade union movement. The company’s social utility is embedded in SNS Retail Bank’s Manifesto and in the new strategies of REAAL (‘Financial resilience’) and Zwitserleven (‘The benefit of thinking ahead’).Together with our mission of CARE!, this ensures that Corporate Responsibility is integrated into our business strategy. In the area of sustainability we were also able to achieve progress on a number of fronts during 2013. BLG Wonen, a brand of SNS Retail Bank, drew up its vision for sustainable housing based on assessing the living requirements of its customers and thereby assisting them in making improvements. In the insurance field, our investment policy, executed by SNS Asset Management, was again recognised as being the most socially responsible among all insurers in the Netherlands. Our Advisory Council, established in 2012, has continued to meet several times a year. With this Council, we discuss dilemmas and issues with which the company is confronted. Members of the Council are drawn from a range of sectors in mainstream society. Most members have different banking and insurance expertise, others have experience in different fields altogether. This serves to provide us with additional critical opinions and advice. Despite the considerable increase in workload, SNS REAAL's management paid attention to managing the various risks to which the company is exposed. Due to a changing external environment, new laws and regulations (Solvency II, Basel II/III), an increased number of inquiries from regulators and regulatory requirements, the necessary focus on the business unit Property Finance, necessary investments in the data warehouse infrastructure and organizational changes within SNS REAAL, there was pressure on the available qualitative attention for the internal control framework. Specifically with respect to the linkage between internal control at the group and at the business units level. The internal control framework currently consists of individual components through which the actual risks are managed and of which the effectiveness is tested. In the new governance structure, the management teams of the bank and insurer will give further substance to an integrated control framework. With the publication of our annual results and this annual report we are, thankfully, able to close the book on the year of nationalisation. We have thus laid the foundation for the future, starting with a clean slate. The year 2014 will be taken up with implementing the restructuring plan and expanding our core activities. We are facing our new future with confidence. Gerard van Olphen SNS REAAL Annual Report 2013 4


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    2 Profile and brands SNS REAAL is a financial service provider in the field of banking and insurance. With its Banking and Insurance activities SNS REAAL offers a balanced range of brands like SNS Bank, ASN Bank, RegioBank and Zwitserleven, Zelf and REAAL. All our brands focus primarily on the Dutch savings, investment, mortgage, insurance and pension markets. 2.1 General 2.1.1 Back to our social roots SNS REAAL is strongly rooted in Dutch society. SNS and REAAL date back 200 years when the first savings banks with a public utility function were founded. After this, the trade unions founded insurance companies Concordia and de Centrale, which later merged into REAAL. Predecessor banks of SNS Bank include many regional savings banks. The credit crisis caused governments to interfere in companies, of which we were one. In the years that lay behind us society was focused too much on prosperity growth and income. SNS REAAL wants to take up its role in society and return to its social roots: a financial services provider that makes people conscious of money matters and insures them against risks in an affordable manner. We have an important social utility function that requires us to uphold the highest ethical standards. After all, SNS REAAL watches over other people’s money; money that will often be needed at a future moment, when people are weak (ill, damage, old age, demise). Keeping an eye on our moral compass allows us to arrive at a well operating sector, embedded in society. Only if financial service providers, together with their stakeholders, take simplicity in finance seriously, we can contribute to restoring faith and to a healthier Netherlands. SNS REAAL has a balance sheet total of €124 billion and approximately 6,400 employees (FTEs), making it a relevant player in the Dutch market. SNS REAAL has its headquarters in Utrecht. Stichting administratiekantoor beheer financiële instellingen (NL Financial Investments, ‘NLFI’) is the sole shareholder of SNS REAAL. 2.1.2 Bank and insurer go their own way With the approval of the European Commission, the Banking and Insurance activities of SNS REAAL will each steer their own course. From an organisational point of view, the split up of SNS REAAL means that the Group support to the business units will be dismantled. To the extent and time that SNS Retail Bank, REAAL and Zwitserleven do not operate individually, SNS REAAL will continue to manage and control financial solvency, the risk profile and our common values from a group perspective. 2.1.3 Simplicity in finance SNS REAAL aims to make banking business simple, understandable and transparent. We do this by actively engaging our customers in developing our products and services. But also with the assistance of committed employees, who believe in these products and services. 2.1.4 Customer focus We work hard to earn our customers, who encompass both private individuals and business customers. By offering sound customer service and support, we favour an optimal relationship with each and every customer: accessible, transparent and fairly priced. We ultimately aim for sustainable relationships with our customers but also with society. SNS REAAL Annual Report 2013 5


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    2.1.5 A brand for every customer There is no such thing as the average customer. Everyone has different desires, needs and preferences. We want to serve our customers in the way that best fits their needs. That is why, instead of one brand for all customers, we have opted for different brands that each serve their customers in the way that suits them best. Each brand has its own way of working, image, mentality and products, from savings and investments through to insurance. For example, customers of SNS Bank can visit one of our more than 200 shops; ASN Bank is the sustainable bank, Proteq Dier & Zorg enables customers to choose the best insurance cover for their pet, while RegioBank works with personal advisors. 2.2 Banking activities 2.2.1 SNS Bank SNS Bank was founded in 1817 with a view to increasing people's financial independence. This assignment and challenge are just as relevant today as they were back then. As a broad, accessible bank for consumers and small businesses, we allow our customers to choose for themselves how they manage their banking business: via the website, over the telephone, with a financial advisor at home or at one of the 200 SNS Shops or via the mobile channel. Products: current accounts, savings, mortgages, insurance, loans, investments and bank savings. www.snsbank.nl 2.2.2 RegioBank RegioBank is the SNS REAAL regional bank format to which some 530 independent advisors are affiliated. RegioBank is the local bank without the fuss or hassle. With great personal attention, a sense of service and a full range of banking products all under one roof. Products: mortgages, savings, payments, loans and investments. www.regiobank.nl 2.2.3 ASN Bank ASN Bank has been one of the leading banks in sustainable banking in the Netherlands for 50 years. Money is invested in projects and companies that respect people, animals and the environment. ASN Bank aims to demonstrate that sustainable banking goes perfectly hand-in-hand with competitive results. Products: savings, payments, investments and asset management. www.asn.nl 2.2.4 BLG Wonen BLG Wonen is a financial service provider whose aim is to allow its customers to live as comfortably as possible. Carefree home ownership makes you feel at home. Now and in the future. BLG Wonen achieves this by making our customers’ living wishes come true via transparent services and professional, personal advice from the best independent advisors. Products: mortgages, savings and insurance. www.blg.nl SNS REAAL Annual Report 2013 6


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    2.3 Insurance activities 2.3.1 REAAL REAAL believes that financial services can be improved upon and puts all its efforts into helping its customers to get ahead. Putting the interests of the customer first, our service is personal, clear and equal, whether you are buying a house, running a business or managing your financial future. REAAL cooperates with financial advisors who guarantee objective advice. Products: savings, investments, insurance (individual life, non-life and disability). www.reaal.nl 2.3.2 Zwitserleven Zwitserleven has been the leading Dutch pension provider since 1901. Zwitserleven looks after the pension capital of people and applies its knowledge and expertise to give its customers a responsible future. By thinking ahead now, Zwitserleven aims to enable its customers to enjoy an unconcerned retirement and to experience the Zwitserleven Feeling. Product: pensions, savings www.zwitserleven.nl 2.3.3 Proteq Dier & Zorg Proteq Dier & Zorg is the largest provider of accident and health insurance for cats and dogs in the Netherlands. And with good reason. For example, customers choose the type of insurance cover that best suits their pet, while supplementary coverage provides even greater security. Product: accident and health insurance for dogs and cats. www.proteqdierenzorg.nl 2.3.4 Zelf Zelf is intent on keeping costs as low as possible. It therefore shuns costly commercials and has just one simple office. And with Zelf, you arrange your own insurance. Quickly and easily. Products: non-life and funeral insurance. www.zelf.nl 2.3.5 Route Mobiel Route Mobiel, an initiative by Proteq, offers roadside assistance for motorists through an efficient organisation and an extensive network of roadside assistance services in the Netherlands and more than 40 other European countries. Route Mobiel also provides supplementary car and travel insurance which fits in seamlessly with its roadside assistance cover. Products: road assistance services, car and travel insurance. www.routemobiel.nl SNS REAAL Annual Report 2013 7


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    2.4 Group activities 2.4.1 SNS Asset management SNS Asset Management is the leading responsible asset manager of institutional investors, with a focus on the brands of SNS REAAL. SNS Asset Management achieves investment objectives by delivering sustainable performance, service and advice by taking sustainability as a starting point for its investment process. Products: asset management for institutional investors. www.snsassetmanagement.nl SNS REAAL Annual Report 2013 8


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    3 SNS REAAL Executive Board Gerard van Olphen, Chairman of the Executive Board Gerard van Olphen (1962) has been Chairman of the Executive Board since February 2013. In addition, he is responsible for the Group staff departments Group Audit, Corporate Communications, Corporate Strategy, Human Resources and Compliance, Security & Operational Risk Management. More on Gerard van Olphen. Maurice Oostendorp, CFRO Maurice Oostendorp (1956) has been Chief Financial and Risk Officer (CFRO) since February 2013. Additionally, he is responsible for the Group staff departments Group Finance, Group Risk Management, Investor Relations, Tax and Insurance Treasury & Investment Management. More on Maurice Oostendorp . SNS REAAL Annual Report 2013 9


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    Dick Okhuijsen Dick Okhuijsen (1965) has been a member of the Executive Board since December 2009 and focuses on all of SNS REAAL’s Banking activities. More on Dick Okhuijsen. Wim Henk Steenpoorte Wim Henk Steenpoorte (1964) has been a member of the Executive Board since September 2011 and focuses on all of SNS REAAL’s Insurance activities. Additionally, he is responsible for IT & Change and the Group staff departments Legal Affairs and Facility Management. More on Wim Henk Steenpoorte. SNS REAAL Annual Report 2013 10


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    4 Strategy and Organisation 4.1 Bank and insurer go their own way The business units of SNS REAAL are preparing themselves for a separate future. As a result SNS REAAL does not have an operational strategy for the Group as a whole. The strategy for the various business units is described in the chapters on SNS Retail Bank, REAAL and Zwitserleven. The Executive Board has been instructed by the Minister of Finance to implement the restructuring plan submitted to the European Commission in August 2013, which received final approval in December 2013. The plan consists of measures to ensure the long-term viability of the activities and to limit the distortions of competition resulting from the State aid. 4.1.1 Separation of Property Finance and sale of the Insurance activities The restructuring plan consists of two structural measures: the separation of Property Finance, and the divestment of the insurance activities. The legal separation of Property Finance was effected on 31 December 2013. Since 31 December, this entity has been operating entirely independently of SNS Bank and SNS REAAL under its new name Propertize. The new entity continues to be supported by the Group in certain areas on the basis of service provision agreements, such as legal affairs. Under shareholdership of the Dutch State (NLFI), Propertize will continue to phase out its finance portfolio, a process that will certainly take several years. The insurance activities of REAAL and Zwitserleven are incorporated into REAAL NV. The asset manager SNS Asset Management, which is still a Group activity at the end of 2013, will be added to REAAL NV in the course of 2014. REAAL NV will be divested in accordance with the decision of the European Commission. REAAL NV may be able to play a part in the expected consolidation in the insurance market. The Dutch State and SNS REAAL have committed themselves to use the proceeds of REAAL NV to reduce the double leverage in SNS REAAL’s balance sheet. The holding company of SNS REAAL will be dismantled. In organisational terms, the separation of SNS REAAL means that the support from the Group to the business units will be phased out, including accounting, control, human resources, tax, legal and IT. To the extent that and for as long as SNS Retail Bank, REAAL and Zwitserleven do not stand on their own, SNS REAAL will continue to provide support from the group in the area of management and control of financial viability, the risk profile and shared values. 4.1.2 Good starting position for SNS Retail Bank The nationalisation and separation of Property Finance improved the capital position and decreased the risk profile of SNS Bank. This will lead to renewed access to capital markets funding. The future envisaged for SNS Retail Bank is that of an independent bank for retail customers, self-employed persons and the SME market, so that the Dutch consumer banking market remains competitive, with an adequate number of players. SNS Retail Bank is not prohibited by the European Commission to become a price leader in certain markets. With the approval of the European Commission, subject to the conditions set, SNS Retail Bank is well positioned for further development. With the four retail brands (SNS Bank, RegioBank, ASN Bank and BLG Wonen), SNS Retail Bank is close to our customers. By engaging them, SNS Bank Retail will further improve our services and strengthen our market positions. In the longer term, the intention of the Dutch State is to privatise SNS Retail Bank. The approval from the European Commission commits SNS REAAL to a number of limitations, please refer to section 5.4, that will apply until the end of the restructuring period, unless otherwise determined. SNS REAAL Annual Report 2013 11


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    4.2 Separation of Group activities has begun In the second half of 2013, a number of measures were taken to strengthen the equity position of the insurance activities (REAAL NV) and to reduce the interdependency between SNS Bank NV and REAAL NV. As a result of the separation SNS REAAL will change its corporate model. The SNS REAAL Executive Board will still bear final responsibility for the Group and for the transition the Group has to go through. Responsibility for the implementation of the separation of the Banking and Insurance activities will, as far as possible, be anchored in the management teams of the bank and the insurer. This has already led to a reallocation of duties within the Executive Board in October 2013. The organisational responsibilities will be combined with responsibilities under the Articles of Association as much as possible. In the transitional phase towards the independence of the bank and the insurer, SNS REAAL will gradually change the governance structure, starting in 2014, after obtaining the approval of the Central Works Council. This will include the transfer of the Group activities, the formation of independent risk and control functions, and the preparation of the transfer of IT functions in the course of 2015. The separation process will mean that the synergy benefits realised as a result of combining activities in the Group will cease. On the other hand, the organisational structure will be simplified. The aim is that the organisational and legal separation will not adversely affect cooperation between the brands. The usage of each other’s distribution and production potential and market expertise will continue to be an important source of synergy for the Banking and Insurance activities. Only the legal frameworks within which this cooperation takes place will change. 4.3 Mission, core value and social responsibility SNS REAAL’s mission is Simplicity in finance. This reflects the origins of our company, which began nearly 200 years ago. Even then, transparency, simplicity and solidarity were our guiding principles. We care about the fundamentals in people’s lives, such as housing, education, a buffer for unexpected expenses, compensation in the event of losses and an adequate pension. With Simplicity in finance, SNS REAAL works towards this. We want to act responsibly for all stakeholders in our company. The core value CARE! stands for the responsibility SNS REAAL want to take for its customers, for each other, for our profits and for society. Dutch financial institutions are subject to an extensive system of laws and regulations that safeguard the quality and security of financial products and services. Compliance is obviously required. Corporate responsibility (CR), however, goes beyond this. Based on our convictions and our sense of responsibility, and in dialogue with our stakeholders, we hope to have a positive effect on society in two ways: boost financial resilience through our products and advice and improve the environment in which people live. In policy-related choices, SNS REAAL also lets itself be guided by the (potential) positive social impact that it can achieve as a company. 4.3.1 Financial resilience Most importantly, we stimulate people to become financially resilient by the quality of our service. The guiding principle in this respect is the concept of putting customer's interests first. SNS REAAL strives to offer our customers insight, clarity and prospects, so that they can make the right financial decisions, big or small. Key elements of this service are: • providing simple, accessible and safe products and services with limited risk; • ensuring that customer experiences and complaints are used for improvement; • enabling customers to make responsible choices by providing comprehensible product information and/or appropriate advice; • systematic testing of customer's interests and customer integrity; • measuring and improving customer satisfaction. SNS REAAL Annual Report 2013 12


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    In order to increase people’s financial resilience and independence, SNS REAAL also strives to provide financial education to those who need it most, whether they be adults, young people or children. We do this through our foundations Geldinzicht, Weet wat je besteedt, Samen voor Later, our guest teaching programme Eurowijs and our participation in Bank voor de klas. SNS REAAL offers appropriate assistance to customers in financial difficulties, and strives to contribute to the reform of the financial sector with initiatives designed to promote well-being and the restoration of confidence. We wish to increase our transparency and social contribution, ensure stability, and to offer services that put the well-being of our customers first. 4.3.2 Sustainable living environment SNS REAAL endeavours to achieve a sustainable living environment by: • promoting sustainable innovation in society, through products and marketing that contribute to sustainable living, personal well-being and energy efficiency, and by financing sustainable infrastructure, social facilities and power generation; • responsible investment of our own funds and the funds of our customers. A significant portion of our balance sheet, more than € 46.8 billion, consists of customer investments and our own investments. We only invest in companies, government bodies and institutions that respect the principles we have established with respect to the environment, the climate, social issues and corporate governance. The principles are established in the Fundamental Investment Principles of SNS Asset Management and the investment policy of SNS Bank, which are available for inspection at www.snsam.nl and www.snsbank.nl; • ensuring the responsible conduct of our business, whereby potential environmental effects are taken into account and where we positively affect our environment and the well-being of our employees. 4.4 Putting the customer's interests first In 2013, our services were primarily focused on putting the customer's interests first. SNS REAAL shares the methods designed to achieve and ensure this as well as the results in detail with the Dutch Authority for the Financial Markets (AFM). AFM requests SNS REAAL to carry out a self-assessment each year, and provides feedback on the results. This has led to many improvements each year, the most important of which can be found at www.snsreaal.nl. SNS Retail Bank, REAAL and Zwitserleven took a large number of initiatives to better serve and guarantee the customers’ interest. In 2013, the AFM researched putting customer's interest first of parts in the services. The reports received concern SNS Bank and partly also our other bank brands. The AFM investigated the policy on savings, mortgages and complaints management. SNS Retail Bank significantly outperformed on most important items compared to last year. Moreover, for savings and mortgages SNS Retail Bank scored higher than the market benchmark. On the elements consumer credit and cost information of investments, that are less relevant at SNS Retail Bank, it scored as well as or slightly lower compared to the previous year. The cost information of investments scored considerably higher than the market benchmark and consumer credit slightly less. SNS Retail Bank underperformed the market benchmark on the item customer contact. In 2013 SNS Retail Bank made a substantial effort to improve its communication with customers, however it can make a further impact by renewing all of its conditions. The self-assessments shared by the business units with the AFM state a number of points of interest as well as the numerous improvements achieved in 2013. These points of interest lead to the conclusion that the progress in putting customer's interest first, that SNS Retail Bank should wish to accomplish, is less than anticipated. SNS Retail Bank distinguished three points of interest in its analysis for 2013: dilemmas, conduct and legislation. Dilemmas arise from the choices that have to be made from limited resources. Optimising the price/quality ratio and customer satisfaction must not stand in the way of a decent profit and sound solvency, since the profitability of the business is also in the interests of customers (and others) and needs to be safeguarded in the future. Changes in behaviour cannot be achieved in one or two years. They require more time, despite the intensive encouragement that we provide. SNS REAAL Annual Report 2013 13


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    For example in the form of HR tools such as management based on personal leadership and performance assessment linked to the customer s interests. Finally, changes to legislation sometimes limit the ability of the organisation to make room for the customer's interests in all its processes that SNS Retail Bank considers necessary. The AFM investigated six large insurers in the area of customer's interest in 2013. Beginning in 2014, REAAL received feedback on a number of items like customer information, aftercare in unit-linked insurance and complaints management. On all these points REAAL scored clearly higher than 2012. In addition to describing the many improvements achieved in 2013, REAAL also describes the points of interest in its self-assessment. We were not sufficiently able to motivate customers to assess their unit-linked insurance policies and, with the help of an advisor, adjust them as necessary, despite an intensive communication policy (see section 9.2.3). The wide range of products that are no longer sold are an obstacle to efficient and customer-oriented management. REAAL is working on standardising its systems and products to improve this situation. REAAL trusts that its efforts in recent years will translate into increased customer satisfaction based on the Net Promotor Score (NPS) (see section 4.5). Zwitserleven has initiated changes in its conduct and process management, but these are time consuming. As with REAAL, Zwitserleven would like to have more insight in customer data in order to more effectively meet the customer's needs. Zwitserleven would like to have an integrated CRM system offering a complete overview of communications and products for each customer. However, this requires substantial investment in IT. The primary investment focus is currently on a new administration system, which will improve efficiency, and thereby the costs of product management. This is also in the customers' interests. 4.5 Customer satisfaction We want to assess correctly paying attention to our customers and improvement of our performance. SNS REAAL brands therefore use the NPS method (Net Promoter Score) to measure customer satisfaction. This measures the number of customers who are so enthusiastic about the brand that they would recommend it to friends and acquaintances. The number of customers that advise friends and acquaintances to avoid the brand is deducted from the result. The uniform NPS measurements, based on a representative sample, are carried out by an external agency twice a year. Customer satisfaction in the financial sector as a whole has been under pressure due to the developments relating to the financial crisis. A limited number of Dutch banks and insurers had a positive NPS score out of all those surveyed in 2013, one of which was ASN Bank. It is likely that most brands have seen a reduction in their NPS score in the light of developments associated with the nationalisation. The measurements show that customers who have more recently been in contact with the brand, for example via the telephone helpdesk, are on average more satisfied than other customers. Measurements at the business units also indicate this. The brands therefore aim at intensifying customer contact, also through various types of dialogue. Table 2: Customer satisfaction based on NPS 2013 2012 SNS Bank (39%) (35%) ASN Bank 19% 22% RegioBank (7%) (7%) BLG Wonen (15%) (30%) REAAL (48%) (51%) Zwitserleven - employees of customers (43%) (41%) See chapter 8 Developments at SNS Retail Bank for details of the NPS at the banking brands, chapter 9 Developments at REAAL for details of the NPS for REAAL and chapter 10 Developments at Zwitserleven for details of the NPS for Zwitserleven. SNS REAAL Annual Report 2013 14


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    4.6 Management and policy development for Corporate Responsibility The Executive Board has delegated the implementation of Corporate Responsibility (CR) to the Director of CR, who will work with a CCR steering group consisting of two members of the Executive Board, the management teams of SNS Retail Bank, REAAL, SNS Asset Management and Zwitserleven and the directors of certain Group staff departments. The steering group, led by the Chairman of the Executive Board, met on five occasions in 2013 and discussed matters including progress at the business units and the further development of Group-wide themes such as performance indicators and the encouragement of a positive social impact. Also, an analysis was done on diversity of employees and the way to promote this. Based on the results diversity guidelines have been introduced for recruitment, appointment and for the talent programmes. Also a discussion took place on the way to improve the energy performance of our buildings. Concrete agreements were made to compensate for the CO2-emission in 2013, and to procure green electricity certificates. SNS REAAL regularly reviews its policy and results in the light of the opinions of its stakeholders. We carried out a materiality analysis (stakeholder consultation) in 2012. This brought to light a number of themes that SNS REAAL has prioritised in our policy and reporting: financial accountability, our involvement with the community, product responsibility, chain responsibility, customer satisfaction, the stakeholder dialogue, ethics and integrity, and our role as an employer. We focus our discussions on exactly those issues (in more detail) that are important to our stakeholders. To test our policy against the opinions of CR-stakeholders in other sectors, SNS REAAL also makes use of an advisory council. SNS REAAL became affiliated to the Grote Bedrijven Netwerk (Large Companies Network, or GBN) of CR Netherlands. As a member of the GBN, SNS REAAL can benefit more from the networks and expertise of CR Netherlands, which offers master classes, workshops, training courses and (multi-year) sustainability programmes. SNS REAAL has integrated the reporting of its corporate social responsibility in its annual report. The reporting also presents the additional information required under the standards of the Global Reporting Initiative (GRI). Within set frameworks, our business units are responsible for their own results. Most of the information on our CR performance can therefore be found in chapters 8 to 11. Our policy and results as a responsible employer are discussed in chapter 15 Our People. Targets for the Group as a whole are stated at the end of this chapter. The further development of CR will include further improvements to our reporting. Our integrated CR report for 2012 scored 170 points out of a possible 200 points in the Ministry of EL&I’s Transparency Benchmark, compared to a score of 162 points a year earlier. SNS REAAL was one of the top 50 companies of the 460 Dutch companies assessed. The Fair Bank Guide and the Fair Insurance Guide publish empirical studies of the investment policies of banks and insurers. The studies indicate there are shortcomings in the transparency provided on the investment policy of SNS Bank, REAAL and Zwitserleven. SNS Asset Management adjusted its Fundamental Investment Principles to more closely reflect the transparency criteria of the bank and insurance guides at the end of 2013. 4.7 Realisation of CR targets for 2013 In its previous annual report, SNS REAAL announced four CR initiatives. A brief evaluation of the progress of each initiative is given below. 1 Integration of CR into the entire business, i.e. in management objectives and profit targets for our brands and staff departments. SNS REAAL included the following new targets in the management reporting and achieved the following scores in 2013: • The number of product conditions with simplified information using simple language should be at least 80%. This target corresponds to the GRI indicator FS15. The 2013 score differs per brand and shows a mixed picture. REAAL Non-life was the only brand to meet the target and revised and improved almost all its retail product range. SNS REAAL Annual Report 2013 15


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    The other brands did not achieve the target of 80%, but did make considerable improvements. In May 2013, REAAL Life revised the proposition information, the terms and conditions and the product chart of term life insurance to B1 level. It did not concern the launch of a new product, but the rewriting of existing communication. At Zwitserleven, the introduction of simple banking products contributed to this target. In this reporting year, SNS Bank put effort in the revision of information in relation to bank savings for REAAL Banking Services, like example calculations, reading guide and process guide. • The number of indicators in the programme for quality, integrity and continuity (QIC) that measure and improve the relationship with and wishes of our intermediaries. This target has been changed into obtaining a qualitative indication of the quality, integrity and continuity of the intermediaries. REAAL and Zwitserleven use a number of indicators to monitor distribution in the QIC programme, in order to ensure - together with their distribution partners – that a further increase in quality can be achieved for customers. Cooperation with partners who also consider quality to be important is thus essential. In 2013 therefore, in the interests of our customers, the insurers transferred several hundred portfolios of distribution partners with no active cooperation agreement, to distribution partners with whom an active and good-quality relationship is maintained. • The percentage of employees taking integrity training should be at least 80%. Score in 2013: 90%. This target corresponds to the GRI indicator SO2/3. • The percentage and number of companies in portfolio with which we communicate on environmental and social aspects should be at least 10 per business unit or Group staff department. This target was adjusted over the year to the number of instances of communication on environmental and social aspects with stakeholders per business unit or Group staff department. This target corresponds to the GRI indicator FS10. In 2013 we succeeded to a limited extent in a systematic registration of the number of communication moments for the business units as well as the group staff departments. In annex 2.4 Consultation with stakeholders, the contacts by the brands on environmental and social aspects are elaborated. • Total direct and indirect emission of greenhouse gases (CO2 emissions) by weight. Per FTE, this should fall by at least 3% for energy usage in office buildings, at least 2% for travel between home and work and for business travel, and at least 2% for external data centres and IT equipment used by SNS REAAL. Scores in 2013: 1.7% (based on energy usage), 14% (based on CO2 emissions) and 19% (based on energy usage) respectively. 2 Continuing to improve the quality (simplicity, convenience) of our products, so that our customers are in an even better position to make the choices that are most suited for their options and objectives. In addition to the information under item 1, the brands of SNS Retail Bank, REAAL and Zwitserleven have improved the product information on their websites, frequently on the basis of customer contacts. Much of the product information has also been rewritten in simpler language. REAAL has improved and simplified its retail non-life products (see section 9.2.4) and disability products (see section 9.2.5). Zwitserleven introduced its straightforward and transparent NuPensioen product in early 2014 (see section 10.5.3). 3 Further sustainability in the distribution chain, including: • expanding our contacts with stakeholders, such as customers and distribution partners, in order to achieve improvements collectively. For their customers, our brands do this by means of customer panel, see chapter 8, 9 and 10. RegioBank continuously measures customer satisfaction with respect to the Independent Advisers. In 2013, 1,777 customers completed an online survey. An improvement procedure is initiated for NPS scores of less than 80%. RegioBank has a profile for advisers with required levels of knowledge, skills, training, integrity, compliance and personality. During 2013, RegioBank encouraged its advisers to take the Financial Supervision Act e-learning modules that focus on compliance, integrity, and putting the customer's interests first. RegioBank provided 'BAAT' training courses focusing on customer contact and maintaining a positive customer relationship for 857 advisers in 2013. SNS REAAL Annual Report 2013 16


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    BLG Wonen performs checks on a weekly basis to ascertain whether advisers have the correct licences from the AFM. In 2013 BLG also started to conduct customer satisfaction surveys, which included questions regarding satisfaction with the customer’s own intermediary. In addition to the regular contacts with advisers, BLG organised various meetings in 2013, at which meetings knowledge was transferred to 550 advisers. BLG Wonen parted company with over 100 intermediaries in 2013. • better safeguarding the quality of advice provided by the intermediaries working with our brands. SNS Asset Management conducted a dialogue on environmental and social aspects with 24 stakeholders. 4 Stichting Geldinzicht, a new social initiative of SNS REAAL designed to increase people’s ability to manage their own financial affairs, particularly through education. Stichting Geldinzicht started in 2013. This foundation gears its activities towards people between the ages of 25 and 55 who are only just managing to make ends meet each month. The purpose of Geldinzicht is to make people financially independent and aware, and able to manage their own affairs, by organising training courses and workshops. These courses and workshops are positive, preventive and accessible. People learn how to make their own decisions in the interests of their financial health. Geldinzicht focuses on knowledge, attitude and behaviour. Motivation at the time of application is important. Course fees are therefore charged, and this also means that the foundation can cover its costs. 200 people took a training course or attended a workshop in 2013. See www.geldinzicht.nl for further information. With Stichting Geldinzicht, SNS REAAL is now also supporting financial education for adults. Previous initiatives by the brands were (and are) targeted at children and young people. 4.8 CR targets for 2014 SNS REAAL will maintain the targets stated under 1, 2 and 3 in section 4.7. We are also adding the following targets: • A higher NPS-score per brand, see also section 4.5. • New or revised products will 100% be tested by or developed in cooperation with a customer panel. • 95% of the customer assets under management by SNS Asset Management complies with the updated Fundamental Investment Principles of SNS Asset Management. • An improvement in the average score by employees for SNS REAAL as an employer as shown in the annual employee survey. SNS REAAL Annual Report 2013 17


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    5 Nationalisation and its implications 5.1 Nationalisation In January 2013, the Dutch Central Bank (DNB) informed SNS REAAL of its conclusion that the capital position of SNS Bank NV was insufficient to cover the company's current and possible future risks. SNS Bank NV was requested to present by 31 January 2013 a final solution for its capital position that according to the judgement of DNB would provide a sufficient degree of certainty of succeeding and that would furthermore result in supplementing the capital deficit that existed according to DNB. SNS Property Finance BV (Property Finance) had been an important factor in the arising of the capital deficit. In the opinion of DNB, the proposal of SNS REAAL NV offered insufficient certainty that the identified capital deficit could be addressed in the short term. DNB subsequently informed the Ministry of Finance that it no longer considered it sound for SNS Bank NV to continue to carry out its banking operations. On 1 February 2013, the Minister of Finance (the Minister) decreed (the Decree) by virtue of Articles 6:2 and 6:4 of the Dutch Financial Supervision Act to expropriate: • all issued shares in the capital of SNS REAAL NV; • all core Tier 1 capital securities issued by SNS REAAL NV to Stichting Beheer SNS REAAL (Stichting securities); • all subordinated bonds of SNS REAAL NV and SNS Bank NV, including the participation certificates issued by SNS Bank NV; • subordinated private debts of SNS REAAL NV and SNS Bank NV. In the Decree the Minister set out that he had concluded that the stability of the financial system had been placed at serious and imminent risk by the situation in which SNS REAAL found itself prior to 1 February 2013. All shares, Stichting securities and subordinated bonds were expropriated for the benefit of the Dutch State (the State). The expropriation of subordinated private debts was effected by expropriating the corresponding debts relating to liability capital components of SNS REAAL NV and SNS Bank NV for the benefit of Stichting Afwikkeling Onderhandse Schulden SNS REAAL (Private Debt Settlement Foundation SNS REAAL, ‘Stichting AOS’). In the Decree, the Minister explained that the capital components of the subordinated private debts had been expropriated in the name of a separate foundation in order to avoid these debts being transferred to the State. Through a provision under Article 6:1 of the Financial Supervision Act, SNS REAAL has been appointed as sole director of Stichting AOS. The Decree came into effect at 08.30 a.m. on 1 February 2013. At that moment, the expropriated securities and capital components were legally transferred to the State and Stichting AOS respectively. Following the expropriation of the shares, Stichting securities, subordinated bonds and subordinated private debts, the following measures were taken in line with the Minister’s nationalisation decree in 2013: • A paid-in share premium of € 2.2 billion by the State in SNS REAAL NV, € 1.9 billion of which was passed through as share premium to SNS Bank NV. • The conversion of B shares of SNS REAAL NV into ordinary shares. • The conversion of the core Tier 1 capital securities issued to the State and Stichting Beheer SNS REAAL into share premium on ordinary SNS REAAL NV shares. • The expropriated subordinated bonds of SNS REAAL NV and SNS Bank NV were injected by the State as share premium capital into SNS REAAL NV. As a result of this measure, € 1,038 million (net of tax) of third-party debt was converted into shareholders' equity. • The expropriated subordinated private debts of SNS REAAL NV and SNS Bank NV were expropriated in the name of Stichting AOS. As a result of this measure, € 49 million was incorporated into capital through profit and loss. • A bridge loan to SNS REAAL NV of € 1.1 billion. SNS REAAL Annual Report 2013 18


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    • The shares in Property Finance were transferred on 31 December 2013 to an asset management organisation in combination with a State guarantee on the temporary loan that is provided by SNS Bank NV to this asset management organisation. Following the transfer, the State injected € 0.5 billion in Property Finance. • As a result of the transfer of the activities of Property Finance to an asset management organisation and in combination with the State guarantee on the loan, SNS Bank NV released around € 4.5 billion in risk-weighted assets • Property Finance was transferred at a transfer value as determined by the Minister, which resulted in a devaluation of the real estate financing portfolio of € 2.8 billion compared to the book value as at 30 June 2012. On 19 December 2013, the European Commission (EC) approved the measures of the Minister as submitted by the Ministry of Finance in the restructuring plan on 19 August 2013. The change in capital structure is set out in section 5.2, the separation of Property Finance in section 5.3 and a more detailed explanation of the EC’s decision is provided in 5.5. Changes to the Executive Board and Supervisory Board Executive Board members Ronald Latenstein (CEO) and Ference Lamp (CFRO) and the chairman of the Supervisory Board, Rob Zwartendijk, resigned from their positions on 1 February 2013. They were not given a notice period nor any severance pay. The vice chairman of the Supervisory Board, Piero Overmars, temporarily acted as chairman of the Supervisory Board until he stepped down on 1 November 2013. On 4 February 2013, the following Executive Board members were nominated and appointed by the State: Gerard van Olphen as chairman of the Executive Board and Maurice Oostendorp as CFRO and member of the Executive Board. On 1 November 2013, Piero Overmars, Jaap Lagerweij, Robert Jan van de Kraats and Herna Verhagen resigned from the Supervisory Board of SNS REAAL NV. At the Extraordinary General Meeting of Shareholders held on 18 October 2013 it was decided to reduce the number of Supervisory Board members of SNS REAAL NV per this date to seven members. With effect from 1 November 2013, Jan Nooitgedagt, Jan van Rutte and Monika Milz were appointed as Supervisory Board members to the ensuing three remaining vacancies on the Supervisory Board. Mr Nooitgedagt was also appointed Chairman of the Supervisory Board. The new members were also appointed to the Supervisory Board of SNS Bank NV, SRLEV NV and REAAL NV. Mrs Milz was appointed in accordance with the reinforced right of recommendation of the Central Works Council. Role NLFI in governance structure Since 31 December 2013, Stichting administratiekantoor beheer financiële instellingen (NL Financial Investments, ‘NLFI’) holds 100% of the shares in SNS REAAL NV. NLFI is responsible for the management of the shares and the exercise of all rights associated with the shares, including voting rights, in accordance with the law and the articles of association of NLFI. Despite possessing all voting rights attached to the shares, in accordance with the law and the articles of association of NLFI all significant and fundamental decisions must first be approved by the Minister. Based upon the law and the articles of association of NLFI, NLFI does not possess the right to dispose of nor encumber the shares; these rights can only be obtained after receipt of formal authorisation from the Minister. Dividend policy SNS REAAL has established a dividend policy that is determined and can be amended by the General Meeting of Shareholders (NLFI). The Executive Board, with approval of the Supervisory Board, has the right to submit herefore a proposal. The following sections set out specific legal aspects of the nationalisation, procedures and investigations. SNS REAAL Annual Report 2013 19


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    5.1.1 Council of State A considerable number of stakeholders lodged appeals against the Decree with the Administrative Jurisdiction Division of the Dutch Council of State. On 25 February 2013, the Council of State decided that the appeals largely do not have a legal base and therefore upheld the expropriation decree. The Council of State judged that the Minister has expropriated the securities and assets lawfully but not the corresponding liabilities or obligations of SNS REAAL NV and SNS Bank NV towards expropriated parties insofar as these obligations or liabilities are related to the (former) ownership of the securities referred to. Therefore, any such claims can still be made against SNS REAAL NV and/or SNS Bank NV respectively. A number of stakeholders have referred the appeal procedure at the Council of State to the European Court of Human Rights (ECHR) for review. 5.1.2 Enterprise Chamber The holders of the securities and capital components, as mentioned above, by law have a right to compensation by the State at the level of the actual value of the affected enterprise at the time of the expropriation. The level of compensation is to be established by the Enterprise Chamber of the Amsterdam Court of Appeal. The Minister’s current offer is a compensation of € 0, against which various holders have lodged an appeal at the Enterprise Chamber. On 11 July 2013, the Enterprise Chamber issued an interim ruling and appointed experts to assess the value of the expropriated securities and capital components. On 9 October 2013, the State lodged an appeal against this ruling. It did so also because this was the first time that the Intervention Act had been applied and the State attaches importance to the Supreme Court’s ruling on how certain aspects of the law should be interpreted before the assessment by experts, as recommended by the Enterprise Chamber, gets underway. At the request of the State, the Enterprise Chamber has postponed the procedure until a decision on the appeal has been made. It is not yet known when the Supreme Court will issue its ruling. In the event that the Enterprise Chamber rules that compensation is due, this compensation will be paid by the State. 5.1.3 Private debt settlement Foundation SNS REAAL In his Decree, the Minister explained that the capital components of the subordinated private debts were expropriated for the benefit of a separate foundation, Stichting AOS, in order to avoid these debts being transferred to the State. Since Stichting AOS was not provided with any assets, either on incorporation or thereafter, it has not been able to meet its obligations assigned to it under the Decree, resulting from the private loans issued to SNS REAAL NV and SNS Bank NV at the time. In his Decree, the Minister appointed SNS REAAL NV as director of Stichting AOS. Stichting AOS was incorporated by and for the State to arrange the legal settlement of (the expropriation of) private subordinated debt and not with the purpose to carry out activities for SNS REAAL. On 12 November 2013, at the request of one of the lenders, the District Court for the Central Netherlands declared Stichting AOS bankrupt. The trustee in bankruptcy is considering the procedure for settling this bankruptcy as well as the roles of the State and director SNS REAAL NV. 5.1.4 Participation certificates Among the subordinated bonds of SNS Bank NV expropriated by the State are so-called third series participation certificates (€ 57 million). Shortly after the nationalisation, the Minister requested management to conduct a fact-finding investigation to ascertain whether there had been any irregularities in the offer of and/or advice concerning these certificates in the past and, if required, to draw up a proposal for compensating those affected. Based on the investigation performed, SNS Bank NV made a proposal for compensation to the clients in question on 11 July 2013. At the time of publication of this annual report, 97% of the clients had accepted SNS Bank NV's offer. From the total provision of € 53 million, which was recognised for the payment of the compensation in the first half of 2013, the amount of € 51.3 million was paid out in the course of 2013. SNS REAAL Annual Report 2013 20


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    5.1.5 Other legal procedures and investigations 5.1.5.1 General Various former holders of expropriated securities and capital components have initiated legal proceedings to seek compensation for damages. At the time of drawing up the financial statements, no court proceedings had (yet) been initiated against SNS REAAL NV and/or SNS Bank NV other than those stated below. Currently, it is not possible to make an estimate of the probability that possible legal proceedings of original holders or other parties affected by the nationalisation may result in liability, or the level of the financial impact on SNS REAAL NV and/or SNS Bank NV. For this reason, at year-end 2013 no provisions have been made in respect of possible legal actions by holders concerning the expropriated securities and capital components and other affected parties. As the outcomes of possible legal proceedings cannot be predicted with certainty, it is not possible to rule out that a negative outcome may have a material negative financial impact on the capital position, results and/or cash flows of SNS REAAL NV and/or SNS Bank NV. 5.1.5.2 Frijns/Hoekstra Commission On 5 March 2013, the Minister announced an inquiry into the actions of DNB and the Ministry of Finance and the interaction between them with regard to SNS REAAL. For that purpose, an inquiry commission was set up, chaired by Dr J.M.G. Frijns and R.J. Hoekstra, LL.M. (the Commission). The Commission heard former Executive and (former) Supervisory Board members of SNS REAAL and inspected documents of SNS REAAL. The report was published on 23 January 2014. The conclusions and recommendations relate to the primary subjects of the inquiry, the Ministry of Finance and DNB. Following the publication of the report various parties emphasised the desirability of a further inquiry directed specifically at SNS REAAL. 5.1.5.3 Stichting Beheer SNS REAAL Stichting Beheer SNS REAAL, the former holder of the majority of the shares in SNS REAAL NV, claims, amongst other, that it does not have sufficient information to determine its asserted value in the compensation proceedings against the State (see section 5.1.2). SNS REAAL contests this claim on substantive and procedural grounds. On 11 November 2013, the Stichting filed a petition for a provisional witness hearing at the District Court in Amsterdam. In addition to the officers of SNS REAAL, the witnesses named in the petition include officials of the State and DNB. The court session planned for 11 February 2014 following the request by Stichting Beheer SNS REAAL for a provisional witness hearing has been postponed. 5.1.5.4 Arbitral proceedings on subordination of a loan A lender of one of the private loans included among the liabilities placed by the Decree of 1 February 2013 in Stichting AOS (see section 5.1.3) disputes the subordination of that loan and started an arbitral proceeding at the Netherlands Arbitration Institute in December 2013. Since SNS REAAL NV was the original contractual party for this expropriated loan, it is a formal party to these proceedings and will conduct the defence. 5.2 Change in the capital structure This section discusses the impact of the nationalisation on the capital structure of SNS REAAL NV and SNS Bank NV. SNS REAAL Annual Report 2013 21


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    5.2.1 B Shares An amendment to the Articles of Association of SNS REAAL NV came into effect on 5 February 2013 whereby the B shares that were expropriated from Stichting Beheer SNS REAAL by the State on 1 February 2013 were converted into 6 ordinary shares. The number of ordinary shares has therefore increased from 287,619,867 to 287,619,873. The six B shares had a denomination of € 100 million (totalling: € 600 million), but the nominal value per B share was equal to the nominal value of the ordinary shares (€ 1.63 per B share). To the extent that the issue price of the B shares was higher than the nominal value, the excess was considered share premium on the B shares. The share premium allocated to the B shares was converted to share premium on ordinary shares at the conversion of the B shares to ordinary shares. 5.2.2 Core Tier 1 capital securities The Stichting securities that were issued in 2008 were expropriated. The core Tier 1 securities which SNS REAAL issued to the State in 2008 (book value as at 1 February 2013: € 565 million) and the Stichting securities (book value as at 1 February: € 313 million) were added to share premium on ordinary shares in SNS REAAL in 2013. The Minister's letter to Parliament states that the conversion of the core Tier 1 securities of the State affected the EMU balance by € 0.8 billion. This takes into account financial penalties which SNS REAAL would have owed at repayment. 5.2.3 Expropriation of subordinated bonds and private debts 5.2.3.1 Subordinated bonds The State injected the expropriated subordinated bonds into SNS REAAL in the form of share premium on 1 February 2013. Thereafter, with economic effect on the same day, SNS REAAL transferred the expropriated subordinated bonds issued by SNS Bank NV in the form of share premium to SNS Bank NV. The resulting merger of debt extinguished all debt claims including all ensuing payment obligations to the State . The value of the expropriated subordinated bonds was recognised directly to equity, and is for the most part not subject to corporation taxation. The result which arose from cancelling the derivatives associated with the expropriated items was, through profit and loss, recognised in shareholders’ equity. The definite taxable result of these measures as based on an advanced tax ruling by the Dutch Tax Authority has led to a net capital increase of € 1,038 million in 2013 (pro forma estimate in the financial statements of 2012: € 987 million). 5.2.3.2 Subordinated private debts Subordinated private debts were expropriated. The liability capital components of SNS REAAL NV and SNS Bank NV corresponding to these debts were also expropriated on behalf of Stichting AOS. The subsequent release in the balance sheet was, through profit and loss, recognised in shareholders' equity. The definite taxable result of these measures as based on an advanced tax ruling by the Dutch Tax Authority has led to a net capital increase of € 49 million in 2013 (pro forma estimate in the financial statements of 2012: € 71 million). 5.2.4 Capital injection of € 2.2 billion In his Letter to Parliament, the Minister explained that SNS REAAL required a capital injection totalling € 2.2 billion: € 1.9 billion for SNS Bank NV and € 300 million for SNS REAAL NV. A paid-in share premium of € 2.2 billion in SNS REAAL NV was made on 11 March 2013, € 1.9 billion of which was passed by SNS REAAL NV as share premium to SNS Bank NV on the same day. SNS REAAL Annual Report 2013 22


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    5.2.5 Bridge loan from the State to SNS REAAL of € 1.1 billion In his letter to Parliament, the Minister explained that DNB expected that SNS REAAL, as a result of the expropriation, would for some time experience difficulties in attracting external funding. To offset this, the State provided SNS REAAL with a bridge loan of € 1.1 billion. This sum was received on 4 March 2013. This loan was used to redeem € 485 million of external debt and € 615 million of internally draw down loans. 5.2.6 Resolution levy contribution The Minister requested all banks to make a contribution in the form of a one-off resolution levy. Based on the most recent estimate, SNS Bank NV’s contribution is estimated to be € 76 million. This amount will fall due in 2014 and will be charged to profit or loss in that year. 5.3 Separation of Property Finance 5.3.1 Introduction The separation of the Property Finance activities was part of the restructuring plan, which was submitted to the EC by the Ministry of Finance on 19 August 2013. The EC approved the transfer on 19 December 2013. DNB issued a Declaration of no objection for the separation of Property Finance on 24 December 2013. On 31 December 2013, the shares of Property Finance were transferred to the State for the amount of € 1, followed by the transfer of the Property Finance shares by the State to NLFI. On 1 January 2014, Property Finance changed its name to Propertize BV. As an independent organisation, split off from SNS REAAL, Propertize will focus on run-off of the real estate financing and property projects portfolio. In the starting phase, SNS Bank NV will continue to fund Propertize. The credit risk on Propertize after the separation is covered by a State guarantee covering SNS Bank NV’s total exposure to Propertize of € 4.1 billion as at 31 December 2013. It is the aim of Propertize to refinance the entire funding provided by SNS Bank in the course of 2014 through issuing State guaranteed Medium Term Notes and Commercial Paper to institutional investors. In 2014 Propertize has three times successfully placed Medium Term Notes with a volume of € 2.3 billion. 5.3.2 Developments in 2013 in relation to the nationalisation Property Finance was an important factor in the decision to nationalise SNS REAAL. The continuing losses in Property Finance's real estate and real estate finance portfolio amongst other resulted in SNS Bank NV's capital position becoming inadequate in the opinion of DNB. In the Decree it was, therefore, decided to transfer Property Finance’s activities to a separate asset management organisation, isolated from SNS REAAL. The Minister determined that Property Finance had to be transferred at a transfer value determined by the Minister, at a value which is € 2.8 billion lower than the book value of the real estate finance portfolio as at 30 June 2012. As a result of impairments recognised between 30 June 2012 and 31 December 2013, the portfolio has been written-down by a total of € 1,833 million. An impairment of € 776 million was recognised in the second half of 2012, followed by an impairment of € 1,057 million in 2013. To enable Property Finance to also absorb the remaining expected gross write-off of € 967 million (€ 2.8 billion less the impairments of € 1,833 million already recognised), SNS REAAL increased the capital of Property Finance through a paid-in share premium of € 725 million net before transfer. This increased the capital of Property Finance to such a level that Property Finance is able to absorb expected future losses of up to € 967 million gross. The total impairments of € 1,833 million on the total assets of Property Finance, increased by the additional net capital of € 725 million, is equal to the total write-down of € 2.8 billion as determined by the Minister at the time of expropriation. SNS REAAL Annual Report 2013 23


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    On 31 December 2013, the shares of Property Finance were transferred to the State for € 1. At the transfer SNS Bank NV therefore recognised an additional loss of € 725 million net, the amount of Property Finance's shareholders' equity. Up until the time of separation on 31 December 2013, Property Finance was part of the fiscal unity of SNS REAAL. Based on the advanced tax ruling with the Dutch Tax Authority, it was determined that the impairments of €1,057 million over 2013 and the anticipated future losses of € 967 million can be regarded as deductible losses. All financial relationships associated with tax between Property Finance and SNS REAAL was settled at year-end 2013. The initial estimate in the pro forma figures in the 2012 financial statements was based on a tax deduction for the impairments of € 1.7 billion. Following consultation with the Dutch Tax Authority, the tax deductible amount was raised to € 2.71 billion. The final deduction corresponds with the amount of € 2.8 billion as determined by the Minister, adjusted by € 90 million for non-deductible losses. The increase in tax deductibility has led to an additional capital increase of € 252 million, compared to the previous estimate in the 2012 pro forma figures. As a result of the regular redemptions, the settlement of the tax position (including tax credits over the entire write-off of € 2.8 billion) and paid-in share premium by SNS Bank NV, Property Finance’s debt to SNS Bank NV at year-end 2013, directly preceding the transfer to the State, decreased to € 4.5 billion. Following the transfer, the State provided a € 0.5 billion capital injection into Property Finance, € 0.4 billion of which was used to redeem the outstanding debt to SNS Bank NV. This decreased the outstanding debt from € 4.5 billion to € 4.1 billion as at 31 December 2013. To protect the capital position of SNS Bank NV, the State provided SNS Bank NV with a guarantee on the funding to Property Finance. The funding therefore has no effect on the risk-weighted assets of SNS Bank. 5.3.3 Guarantees Following the share transfer on 31 December 2013, SNS Bank NV withdrew the 403 declaration for Property Finance on 31 December 2013 and initiated the proceedings provided for in Article 2:404 of the Dutch Civil Code to terminate the remaining guarantees. SNS Bank NV and SNS REAAL, respectively, also withdrew the 403 declarations for four subsidiaries of Property Finance on 31 December 2013, and initiated the proceedings to terminate the remaining guarantees. Some creditors have announced that they will object to the termination of the remaining guarantees. SNS Bank NV issued separate guarantees to a number of counterparties of Property Finance in the past. Following the withdrawal of the 403 declaration and termination of the remaining commitments arising from the 403 declaration, these guarantees will remain in place. SNS Bank NV expects Property Finance to be able to meet its obligations to these counterparties as Property Finance is adequately capitalised at the time of the share transfer. SNS Bank NV, therefore, deems it unlikely that a guarantee will be invoked. Some counterparties of Property Finance who conduct legal proceedings against Property Finance have thereby also arraigned SNS REAAL NV and / or SNS Bank NV. The legal basis of this is unclear and SNS REAAL NV and SNS Bank NV consider the likely success of these claims against SNS REAAL NV and/or SNS Bank NV to be limited. No specific agreements were made about these claims upon the transfer of Property Finance on 31 December 2013. SNS REAAL Annual Report 2013 24


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    5.4 Overview financial impact of the nationalisation measures The financial impact of implementing the nationalisation measures on the capital is shown below. Table 2: Effects nationalisation measures on income statement SNS REAAL HY 2012 2013 Total In € millions Income statement Equity Income statement Debt capital Equity Debt capital Property Finance Impairments Property Finance (776) - (1,057) - (1,833) - Transfer Property Finance - - (967) - (967) - Subtotal Property Finance (776) - (2,024) - (2,800) - Capital structure Capital injection Dutch State - 2,200 - - 2,200 - Conversion subordinated bonds - 946 84 - 1,030 - Expropriation subordinated private debts - - 62 - 62 - Participation certificates - 57 (53) - 4 - Conversion accrued interest - 31 3 - 34 - Subtotal capital structure - 3,234 96 - 3,330 - Bridge loan Dutch State - - - 1,100 - 1,100 Tax effect 192 (7) 448 - 633 - Total (584) 3,227 (1,480) 1,100 1,163 1,100 The amount reported in the column HY 2012, is the 2012 impairment related to Property Finance after determination of the transfer value. There is also an effect within the shareholders' equity (€ 878 million), which relates to the core Tier 1 securities issued to the Dutch State and Stichting Beheer SNS REAAL which were deposited as share premium on ordinary shares. The effect is in addition to the total effect on shareholders' equity of € 3,227 million as reported in the table. The total effect on the share premium as a result of these measures is € 4,105 million. 5.5 Temporary and final decision of the European Commission In its decision of 22 February 2013, the European Commission granted temporary approval for the capital injection of € 2.2 billion in SNS REAAL NV, € 1.9 billion of which was to be passed through to SNS Bank NV, and the bridge loan issued by the State to SNS REAAL NV in the amount of € 1.1 billion. Final approval was granted on 19 December 2013, based on the restructuring plan submitted by the Ministry of Finance on 19 August 2013. In line with the restructuring plan submitted, the State commits to two structural measures regarding (the balance sheet of) SNS REAAL: a Separation of the Property Finance activities b Divestment of the insurance subsidiary REAAL NV, which includes all insurance and asset management activities of SNS REAAL. The separation of the Property Finance activities results in a substantial reduction of risk-weighted assets and is an important measure to further restore viability of SNS REAAL. It will also facilitate access to capital market funding for SNS Bank NV. The transfer of the Property Finance activities to the State took place on 31 December 2013. SNS REAAL commits itself to the divestment of the insurance subsidiary REAAL NV, taking into account the risk that this divestment could result in a significant loss. The State and SNS REAAL commit to use the future proceeds of the divestment of REAAL NV to reduce the double leverage on the balance sheet of SNS REAAL. The holding company SNS REAAL will be wound down. The entity resulting from the restructuring will be a standalone bank focused on banking for retail and self-employed clients. In the course of time, the State is committed to privatising SNS Bank NV. The decision of 22 February 2013 stipulated amongst other that until the final decision SNS REAAL was not permitted to carry out any acquisitions (acquisition ban) or make payments on hybrid instruments (hybrid debt call and coupon ban). In its final decision of 19 December 2013, the EC set a number of conditions and restrictions which, unless otherwise SNS REAAL Annual Report 2013 25


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    stated, will apply until the end of the restructuring period in December 2017. The principal conditions and restrictions amongst other are: • An acquisition ban will apply for a period of three years starting from the date of the EC decision. • SNS REAAL will not advertise the fact that it is State-owned or make any reference to any State support received in its communications with existing or potential customers or investors. • SNS REAAL will refrain from making any payments on the hybrid debt instruments outstanding at the time of the EC decision, unless those payments stem from a legal obligation, and will not call or buy back those instruments without prior approval of the European Commission. • Restrictions apply to the remuneration of employees and senior management until the end of the restructuring period or until SNS REAAL has repaid the State aid. • SNS REAAL commits to transfer the administrative structure currently borne by the holding company to the bank and the insurance company • SNS REAAL commits to the phasing out of any financial interdependence between the banking and the insurance activities. SNS REAAL Annual Report 2013 26


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    6 Outlook for 2014 Consumer and producer confidence are increasing in the Netherlands and in the rest of the eurozone. The eurozone continues to see economic growth. In the Netherlands, however, growth will be modest because consumers, banks and the government are giving priority to the further restoration of their financial situation. Unemployment and the housing market could stabilise in 2014. With a stronger capital position, SNS Retail Bank can focus on growth in savings and payments and regaining market share in new mortgage production. Further strengthening of the capital position is also important in view of tighter regulatory requirements and changing laws and regulations. The focus on savings continues to be important in order to keep our dependence on the capital market at an acceptable level. In addition to this, however, SNS Retail Bank wishes to create new possibilities for public funding in the capital market by means of solid financial performance. REAAL and Zwitserleven are increasing the viability of their activities with a new strategy, and, together with SNS Asset Management, they are preparing for a future outside the Group. REAAL and Zwitserleven have been incorporated into REAAL NV. SNS Asset Management will be added to this entity in the course of 2014. REAAL NV will phase out its dependence on support from the Group staff departments of SNS REAAL. Although there is a possibility of a slight increase in interest rates, the solvency of the life insurer will continue to remain under pressure due to the low level of long-term interest rates. 6.1 Financial markets 6.1.1 General The global economy is gaining momentum in the wake of the United States. Continuing new job creation is leading to an acceleration in wage growth. Higher consumption can then generate increased economic activity, initiating an upward spiral. Growth of the eurozone is continuing, mainly due to good performance by the German economy. The question is whether France will be able to benefit from this, as reforms in that country are long overdue. In the peripheral euro countries, confidence, and thereby the potential for recovery, is increasing. The current phase of the economic cycle is generally favourable for equities. The chance of downside corrections is becoming somewhat greater now that the US central bank (the Fed) is beginning to phase out its policy of purchasing bonds. This means, however, that the situation is returning to normal, and that is ultimately not a bad thing. The price/earnings ratios of many shares rose significantly in the course of 2013; in comparison to other investment categories, however, their value is still attractive. The outlook for equities is slightly better than the outlook for bonds. 6.1.2 Short-term interest rate will remain low, long-term rate could rise A further increase in long-term interest rates is likely. The US is the leading market here. The US long-term interest rate is too low in relation to economic growth and inflation. The Fed’s ‘tapering’ of its bond purchases could cause long-term rates to rise. We expect to see German 10-year yields in a range between 1.75% and 2.25%. Based on the outlook of the ECB, the modest economic growth and the low forecast for inflation, the potential for higher yields is limited. SNS REAAL Annual Report 2013 27


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    6.2 Impact of laws and regulations New legislation and regulation are resulting in increasing costs in the financial sector, for the maintenance of capital, risk management, internal organisation, the resolution levy and/or taxation. Good and close supervision is a good thing, but not always effective and efficient. The introduction of Basel III means that banks have to hold more capital in relation to their risk and the volume of their loans and investments. The requirements entail a tripling of the capital requirement over six years in comparison to 2010 and will thereby increase the costs of lending, including mortgages. The uncertainty surrounding the timeframe and final requirements that Solvency II will bring makes it difficult for the Insurance activities to determine the right strategy for an adequate and efficient capitalisation. A bank tax came into effect in October 2012, which amounted to € 8 million (2012: € 8 million) for SNS REAAL in 2013. The funding of the deposit guarantee scheme will also change. As from July 2015, banks must deposit monies in advance in a fund that will be managed by Stichting Depositogarantiefonds. The 2014 Resolution Levy Act as a result of the nationalisation of SNS REAAL, concerns a temporary and one-off bank levy of € 1 billion on the deposits that were guaranteed on the basis of the Dutch deposit guarantee system and that were held by the banks on 1 February 2013. The banks are allowed to postpone payments into the deposit guarantee scheme in return for the levy. The contribution for SNS REAAL into this levy is estimated at € 76 million, with which a contribution will be made to the costs of our own nationalisation. Zwitserleven is dealing with numerous changes to its products and administration in connection with the Witteveenkader, which sets the maximum amount that can be deducted from tax for the accrual of a pension. The arrangements approved by the Dutch Senate at the end of 2013 on the basis of the Pensions Agreement are also putting pressure on the organisation. 6.3 SNS Retail Bank 6.3.1 The mortgage market stabilises In December 2013, the Dutch Senate gave its approval to the Housing Agreement previously announced by the Cabinet. The agreement consists of, firstly, a gradual limiting of the tax-deductibility of mortgage interest over the long term, and secondly, a series of measures to boost the housing market in the short term and reduce the debt burden of households. We expect the number of new mortgages to increase in 2014, whereby the downward trend in house prices may come to a halt. For the overall mortgage market, we expect stability or slight growth. The prospects are that the number of mortgage holders with payments in arrears will rise further, although the increase will not be as strong as in 2013. By means of more detailed analysis of customer data and proactive management, in 2014, we will be better positioned to consult with customers that may encounter problems with their payments at an early stage. SNS Bank, BLG and RegioBank are focusing on rebuilding sales of new own-brand mortgages and mortgages from third parties. The margin on mortgages remains at a healthy level. With our services, we will strive to promote sustainable housing. SNS REAAL Annual Report 2013 28


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    Diversity in advisory fees A ban on commissions has applied to mortgages and other complex financial products since January 2013. Instead of this commission, the advisory body (bank, insurer, or intermediary) will receive a fee based on an agreement with the customer. Both consumers and financial institutions are still looking for the best way to deal with the new situation. Our brands want to help their customers decide whether they need advice or not, and they also intend to offer less detailed advice at a lower price. We want to avoid a situation in which customers make the wrong choices because they want to save money on advice, but we also want to avoid a situation in which customers pay for a (full) advisory service when they themselves have already collected most of the relevant information they need to make the best choice. 6.3.2 Savings virtually stable, growth in sustainable investing The continuing economic crisis continues to make saving attractive; however, savings growth is expected to flatten further as the economy picks up. Additional mortgage repayments and continuing low interest rates, combined with a recovery of confidence in the equity markets, could put the savings market under pressure. Furthermore, some savers may have to draw down their savings as a result of continuing unemployment and lower house prices. Growth in the market for bank savings accounts will also probably level off. As from 1 January 2014, redundancy payments to employees will be taxable immediately. The abolition of the periodic payments entitlement exemption means that new savings accounts for accrual and payment, the golden handshakes, will only be sold under certain conditions. Tax-free payments into annuity accrual accounts will also be limited. The effect of this measure will not be significant, since the payments of most of our customers still fall within the tax-free band. Bank savings based on advice have become less attractive for relatively small amounts since the introduction of the fixed advisory fee in 2013. Sustainable investing continues to become more popular. The ASN investment funds, with approximately € 1.6 billion of assets under management at year-end 2013, will be able to benefit from this. Ban on distribution fees for investment funds providers Distribution fees paid by Dutch investment funds to distribution partners have been banned with effect from 2014. As prescribed, SNS Bank, RegioBank and ASN Bank charge a separate service fee with effect from 2014, but they do set their own fee level. The effect of these changes on customer behaviour is difficult to predict. SNS Bank and RegioBank offer a range of five profile funds, focusing mainly on straightforward and low-threshold investing for a broad target group. ASN Bank is still the specialist in sustainable investing, and expects to see little or no change with respect to sales through its own distribution channel. Sales of ASN investment funds through other banks could be affected by the pricing policies of the banks in question. 6.3.3 Trends: mobile, social media and online communities Usage of mobile banking and the number of its users continue to grow, partly due to the extra functionalities that are becoming available. This is convenient for customers and instructive for the bank, as it provides information on usage times and transaction types. More and more customers are using social media or an online community to communicate with each other and with the bank on money matters. This is also a win-win situation, because the bank can obtain greater understanding of customer needs. This improves the services provided. SNS REAAL Annual Report 2013 29


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    6.4 REAAL NV 6.4.1 REAAL: More direct contact and dialogue with customers REAAL has introduced a new strategy in 2014 that focuses on more direct contact and dialogue with customers, including dialogue via an online customer community. With more market and customer information, REAAL can defend and strengthen its market positions more effectively. The new production platform for non-life products also plays an important part in this. REAAL want to strengthen the distribution via qualified intermediaries, with different service concepts that fit well into the needs of customers and intermediaries. For its existing life portfolio, REAAL is focusing on optimising value through cost control by means of standardising its products and systems. The total market for individual life insurance policies is shrinking systematically due to the gradual maturing of unit-linked insurance policies that were concluded in the past. Sales of term life insurances will gradually move towards the banks and the direct channel at the expense of sales via the intermediary advisory channel. REAAL will take measures to respond to this trend so that it can defend its leading position in this market. The retail non-life market is expected to remain stable and a slight fall is expected for the market for disability insurance. Consumers are increasingly purchasing simple products such as non-life policies without using an intermediary. Gathering information and comparing products oneself has become easier as a result of the improvement and expansion of websites. REAAL will take extra steps to reflect this trend in 2014. 6.4.2 Zwitserleven: lower costs and more personalisation of pensions The pensions market remains under pressure in 2014 and is expected to fall slightly. Growth of contribution income will be negatively affected by new tax restrictions on pension accrual, limited salary increases and lower confidence in group pension accrual. The capping of pension reduction above € 100,000 will be offset in the Pensions Agreement to some extent by a so-called 'net annuity', which reflects the trend towards more flexibility and optional features based on personal responsibility. Zwitserleven takes a positive view of this measure and hopes to see further personalisation of the pensions market. Due to the low level of long-term interest rates, the liabilities remain high and the solvency and profitability of pension insurers remain under pressure. With a new strategy, Zwitserleven intends to respond to the changing market conditions. The priorities in 2014 are: • less tailor-made work and more cost-effective standardised products; • simple products focusing on personal supplementary accrual; • cost reductions through standardisation of systems and processes and purchase from third parties; • encouragement of the transition from guaranteed pensions to defined-contribution schemes, which will mean that pensions continue to be more sustainable and affordable. SNS REAAL Annual Report 2013 30


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    7 Financial outlines 7.1 Results 2013 compared to 2012 Adjusted for the impact of one-off items, net profit from the core activities of SNS REAAL declined to € 386 million from € 443 million in 2012. The decline was driven by lower realised gains on bonds and lower underlying performance at the Insurance activities. One-off items negatively impacted SNS REAAL’s 2013 net result of the core activities by € 800 million compared to € 602 million negative impact in 2012, in both years for the majority consisting of impairments of intangible assets at the Insurance activities. Including one-off items, SNS REAAL's net result of the core activities amounted to € 414 million negative (2012: € 159 million negative). Property Finance posted a net loss of € 1,536 million (2012: € 813 million), which included a write-off of € 2,024 million gross (€ 1,538 million net) in the first quarter of 2013, to bring the valuation of the real estate finance portfolio in line with the transfer value as determined by the Dutch State. Taking into account the significant loss at Property Finance and negative one-off items, SNS REAAL reported a total net loss of € 1,950 million, compared to a total net loss of € 972 million for the year 2012. 7.2 Impact of one-off items Table 3a: Impact of one-off items on SNS REAAL's net result In € millions 2013 2012 Net result SNS Retail Bank 190 88 Net result REAAL (482) (27) Net result Zwitserleven (141) (120) Net result Insurance activities (623) (147) Net result Group activities 19 (100) Total net result SNS REAAL Core activities (414) (159) Net result Property Finance (1,536) (813) Total net result for the period SNS REAAL (1,950) (972) Impact of one-off items SNS Retail Bank (79) (36) Impact of one-off items REAAL (575) (325) Impact of one-off items Zwitserleven (172) (224) Impact of one-off items Group activities 26 (17) Impact of one-off items Property Finance (1,538) (47) Total one-off items (2,338) (649) Adjusted net result SNS Retail Bank 269 124 Adjusted net result REAAL 93 298 Adjusted net result Zwitserleven 31 104 Adjusted net result Insurance activities 124 402 Adjusted net result Group activities (7) (83) Total adjusted net result SNS REAAL Core activities 386 443 Adjusted net result Property Finance 2 (766) Total adjusted net result SNS REAAL 388 (323) SNS REAAL Annual Report 2013 31


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    Table 3b: Breakdown impact of one-off items on SNS REAAL's net result 2013 In € millions SNS Retail Insurance Group SNS REAAL Core Property SNS Bank activities activities activities Finance REAAL Net result 2013 190 (623) 19 (414) (1,536) (1,950) Impact nationalisation: Direct impact of nationalisation measures 7 (6) 57 58 (1,538) (1,480) Impairments: VOBA REAAL Life and Zwitserleven - (439) - (439) - (439) Goodwill REAAL Life - (150) - (150) - (150) Client portfolio REAAL Non-Life - (12) - (12) - (12) Software Zwitserleven - (15) - (15) - (15) Subtotal impairments - (616) - (616) - (616) Other one-off items: Derivatives securitisations (86) - - (86) - (86) Addition provision shortfall IFRS LAT - (110) - (110) - (110) Provision unit-linked policies - (15) - (15) - (15) Pension charge - - (31) (31) - (31) Subtotal other one-off items (86) (125) (31) (242) - (242) Total one-off items 2013 (79) (747) 26 (800) (1,538) (2,338) Adjusted net result 2013 269 124 (7) 386 2 388 One-off items in 2013 amounted to € 2,338 million negative, mainly consisting of the impact of nationalisation measures of € 1,480 million negative, impairments of intangible assets at the Insurance activities of € 616 million and other one-off items of € 242 million negative. 7.2.1 Impact of Nationalisation The impact of nationalisation measures amounted to € 1,480 million negative, of which € 1,538 million negative at Property Finance and € 58 million positive at the core activities. At Property Finance, a provision of € 2,024 million (€ 1,538 million net) was made in the first quarter of 2013 in line with the transfer value of Property Finance. The total assets of Property Finance have been separated at a considerably lower value than the book value. As part of the transfer, a write-off of € 2.8 billion was required on the total assets of Property Finance, valued as per 30 June 2012. This € 2.8 billion write-off has been determined by the Dutch State. Therefore, in addition to the € 776 million impairments and discounts in the second half of 2012, an additional write-off of € 2,024 million gross was taken. In the first half of 2013 the impact amounted to € 1,790 million negative. The impact in the second half was € 252 million positive and related to a tax adjustment of the write-off. In the third quarter of 2013, SNS REAAL concluded a settlement agreement with the Dutch Tax Authorities relating to corporate tax refunds. This ruling clarified the principles upon which the corporate tax refunds for SNS REAAL are to be established, including the tax treatment of the nationalisation measures. In this ruling, it has been ruled that the € 2.8 billion write-off on the total assets of Property Finance is largely tax deductible (€ 2.7 billion), while the 2013 first-half figures were based on a tax deductible amount of € 1.7 billion. This resulted in a € 252 million tax gain. The impact of nationalisation measures on net profit from the core activities amounted to € 58 million positive: € 7 million positive at SNS Retail Bank, € 6 million negative at REAAL Life and € 57 million positive at Group activities. The € 7 million positive impact of the nationalisation measures at SNS Retail Bank consisted of the impact of the expropriation of privately placed subordinated debt and gains from unwinding derivatives related to subordinated debt partly offset by a charge for the compensation to the holders of expropriated participation certificates. The impact in the first half of 2013 amounted to € 20 million positive, while the impact in the second half of 2013 was € 13 million negative. SNS REAAL Annual Report 2013 32


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    This related to a tax charge as it was concluded that the charge for the compensation of the holders of expropriated participation certificates is not tax deductible. REAAL Life’s result included a € 6 million net one-off loss, due to the expropriation of a subordinated bond of SNS Bank that was included in the investment portfolio. The impact of the nationalisation measures at Group activities of € 57 million positive consisted of a € 40 million positive impact of the expropriation of privately placed subordinated debt, € 11 million gains from unwinding derivatives related to expropriated debt and a € 6 million adjustment for the subordinated loan in SNS Bank held by REAAL Life. 7.2.2 Impairments of intangible assets The net impact of impairments of intangible assets amounted to € 616 million negative, entirely at the Insurance activities. This mainly consisted of an impairment of the remaining VOBA (€ 439 million net) driven by the outcome of the IFRS liability adequacy test (LAT). This LAT compares the market value and the IFRS carrying amount of insurance liabilities and related assets. By using shadow accounting, the positive fair value reserve of the fixed-income portfolio is used to increase the IFRS carrying amount of the insurance liabilities. In 2013, the LAT shortfall decreased compared to year-end 2012 due to an increase in interest rates, partly mitigated by adjustments in models and parameters. However, the fair value reserve of the fixed-income portfolio decreased even more sharply. As a result, the fair value reserve of the fixed-income portfolio could not fully compensate the LAT shortfall. The remaining shortfall of € 732 million pre-tax was charged to the income statement of which € 157 million at Zwitserleven and € 392 million at REAAL Life, as an impairment of the remaining VOBA of € 585 million pre-tax (€ 439 million net), which is irreversible and for the remaining shortfall by an addition to the technical provision for an amount of € 147 million pre-tax (€ 110 million net). The latter is reversible in case of a future decrease in the IFRS LAT shortfall. Figures for the second-half of 2012 had also included an impairment of the VOBA of € 129 million net related to the shortfall of the IFRS LAT. Furthermore, at REAAL Life there was an impairment charge of € 150 million net (€ 150 million pre-tax) of the remaining goodwill following a partial impairment in the second half of 2012. The additional goodwill impairment was driven by decreasing volumes for life products resulting in increased competition and margin pressure in the Life market, the structural additional cost allocation from the holding company and the pressure on the capital position. At REAAL Non-Life there was an impairment of € 12 million net (€ 16 million pre-tax) of the capitalised client portfolio, driven by the ongoing difficult circumstances in the Non-Life market. The capitalised client portfolio related to disability, which amounted to € 56 million pre-tax at year-end 2013, has not been impaired, while all other capitalised client portfolios have been impaired entirely. Finally, at Zwitserleven, there was an impairment of € 15 million net (€ 20 million pre-tax) of internally developed and capitalised software in the light of its changed strategy. Zwitserleven's management chose a new strategic direction, with an increased focus on the Defined Contribution (DC) market and with an increased number of products outside the second pillar. The result is a new balance between new markets in which DC, PPI and individual products prevail and the more traditional markets. 7.2.3 Other one-off items In addition to the one-off impact of nationalisation measures and impairments of intangible assets, the net impact of other one-off items amounted to € 242 million negative, of which € 110 million consisted of an addition to the technical provision at Zwitserleven related to the IFRS LAT shortfall. SNS REAAL Annual Report 2013 33


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    At SNS Retail Bank, other one-off items amounted to € 86 million negative. This consisted of results of derivatives related to securitisations of the legacy DBV mortgage portfolio. The securitisations involved are not part of SNS Bank’s regular securitisation programmes and are structured differently in a number of key components. These securitisations contain conditions that the expenses for early settlement of the derivatives contracts under current market circumstances lead to a negative result. In total, a provision of € 86 million net was made to reflect the potential early settlement expenses of all these securitisations. Furthermore, there was an additional € 15 million net charge (€ 20 million pre-tax) at REAAL Life related to the unit-linked policies settlement reached in 2008. At Group activities there was a one-off pension charge of € 31 million net (€ 41 million pre-tax) related to the buy-out of pension rights of employees continuing under the acquired pension scheme of AXA, which is designated as a defined benefit scheme. 7.3 SNS Retail Bank SNS Retail Bank’s net profit increased sharply. The main factor behind this increase was a higher net interest income driven by lower interest expenses due to the expropriation of subordinated debt, declining interest rates offered on savings accounts and the redemption of term deposits. This was partly offset by a lower gain on financial instruments due to a one-off charge related to the revaluation of derivatives related to securitisations of the legacy DBV mortgage portfolio. Furthermore an additional cost allocation from the holding company had a negative impact. Impairments on loans remained high at 39 basis points compared to 40 basis points for 2012. The 2013 loan impairments included a charge related to additional provisioning for lower recovery amounts due to the weak housing market, while 2012 included a charge related to the implementation of more stringent risk assessment models. 7.4 Insurance activities Table 4: Underlying results Insurance activities REAAL Zwitserleven In € millions 2013 2012 2013 2012 Net result for the period (482) (27) (141) (120) Impact of one-off items (575) (325) (172) (224) Adjusted net result for the period 93 298 31 104 Gains, losses and impairments on equity portfolio 19 16 15 6 Gains, losses and impairments on fixed-income securities 96 75 29 114 Result on financial instruments 16 79 29 (60) Changes in insurance contracts due to movements of fair value items (59) (20) (59) 14 Total net impact investment portfolio and hedges 72 150 14 74 Amortisation VOBA and other intangible assets (33) (48) (2) (16) Underlying net results 54 196 19 46 Results on equity hedges are included in gains/losses on equity portfolio instead of result on financial instruments. Changes in insurance contracts due to movements of fair value items includes releases of/additions to provisions for interest rate guarantees in unit-linked portfolio and separate accounts, the impact of shadow accounting and the impact of the hedging of inflation. SNS REAAL Annual Report 2013 34


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    7.4.1 REAAL Adjusted for one-off items, REAAL’s 2013 result of € 93 million was sharply lower due to a lower net impact from gains, losses and impairments on the investment portfolio and hedges and a lower underlying result (see table 3) at both REAAL Life and Non-Life. This was partly compensated by lower amortisation of VOBA and other intangible assets following impairments of VOBA in 2012 and 2013. The total net impact from gains, losses and impairments on the investment portfolio and hedges declined to € 72 million positive driven by a substantially lower result on financial instruments and higher negative results of changes in insurance contracts due to movements of fair value items which mainly consisted of the impact of shadow accounting. This was partly compensated for by higher realised gains on bonds and higher gains on the equity portfolio. REAAL’s underlying result of € 54 million was € 142 million lower. At REAAL Life, the underlying profit was down mainly driven by lower direct investment income due to the absence of a gain on the settlement of Lehman collateral, lower reinvestment yields and the impact of an additional cost allocation from the holding company. At REAAL Non-Life, the underlying result was negatively impacted by high claims ratios at fire and motor and also by an additional cost allocation from SNS REAAL holding. Furthermore, the absence of a release of provisions for unearned premiums contributed to this decrease. REAAL’s reported net result of € 482 million negative also declined due to a higher negative impact from one-off items which consisted of impairments of VOBA (€ 392 million), goodwill (€ 150 million), a part of the client portfolio (€ 12 million), a € 6 million loss due to the expropriation of a subordinated bond of SNS Bank and a € 15 million charge for settlement of unit-linked policies. The 2012 net result had also been negatively impacted by impairments of goodwill and the distribution network and an additional provision for the unit-linked policies based on the settlement reached in 2008. 7.4.2 Zwitserleven In 2013, Zwitserleven’s net result adjusted for one-off items of € 31 million positive decreased sharply driven by a lower net impact from gains, losses and impairments on the investment portfolio and hedges and a lower underlying result, partly compensated for by sharply lower amortisation of VOBA. The total net impact from gains, losses and impairments on the investment portfolio and hedges declined to € 14 million positive driven by sharply lower realised gains on bonds and results on changes in insurance contracts driven by shadow accounting. This was partly compensated for by higher realised gains on the equity portfolio and higher results on financial instruments, mainly consisting of unrealised gains on derivatives used for hedging interest rate risk. Amortisation of VOBA and other intangibles decreased from € 16 million to € 2 million, following impairments of VOBA in 2012 and 2013 and an impairment of internally developed and capitalised software in 2013. Zwitserleven’s underlying profit was € 19 million, a sharp decline compared to 2012 due to lower mortality, interest and cost results (including the additional cost allocation from the holding company). Furthermore, the result for the first-half of 2013 included an additional charge for a provision related to compensation for investment-based pension contracts. Zwitserleven reported a net loss of € 141 million that was due to one-off items consisting of an additional impairment of VOBA (€ 47 million) and an addition to the technical provision (€ 110 million), both related to the IFRS LAT shortfall and an impairment of internally developed and capitalised software (€ 15 million). The 2012 net result had been negatively impacted by an impairment of its brand name and a partial impairment of the VOBA. SNS REAAL Annual Report 2013 35


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    7.5 Group activities Adjusted for one-off items, the net result of Group activities posted in at € 7 million negative, compared to € 83 million negative for 2012. This improvement was due to a higher allocation of operating expenses from the holding company to the Banking and Insurance activities and lower interest charges on expropriated debt. The net result of Group activities improved from € 100 million negative to a net profit of € 19 million. This improvement was partly driven by one-off items: in 2013 there was a one-off gain from nationalisation measures of € 57 million, partly offset by a one-off pension charge of € 31 million net. Furthermore, the 2012 result had included an impairment on the stake in Van Lanschot of € 17 million (2013: € 2 million). 7.6 Property Finance The net loss at Property Finance amounted to € 1,536 million, including a write-off of € 1,538 million net to bring the valuation of the real estate finance portfolio in line with the transfer value as determined by the Dutch State. The total assets of Property Finance have been separated at a lower value than the book value. As part of the transfer, a write-off of € 2.8 billion was required on the total assets of Property Finance as per 30 June 2012. Therefore, in addition to the € 776 million in impairments and discounts in the second half of 2012, in the first quarter of 2013 a constructive obligation of € 2.024 million gross (€ 1.790 million net) was taken to bring the valuation of the real estate finance portfolio in line with the transfer value. In the second half of 2013, an additional tax gain of € 252 million related to the write-off of Property Finance was recorded based on an advance Tax ruling with the Dutch Tax Authorities resulting in a total write-off of € 1,538 million net. In this ruling, it has been ruled that the € 2.8 billion write-off on the total assets of Property Finance is largely tax deductible (€ 2.710 million), while the figures for the first half of 2013 were based on a tax deductible amount of € 1.7 billion. Impairments and discounts in 2013 were offset by releases from the constructive obligation related to the write-off on the total assets of Property Finance. A release of € 1,057 million compensated for loan impairments and discounts for the year 2013, while a release of € 967 million compensated for the loss on the transfer of the real estate portfolio to the Dutch State on 31 December 2013 (transfer result). The latter consisted of the difference between the transfer value and the book value of the real estate portfolio at year-end 2013, after absorbing the impairments for the year 2013. The net result from Property Finance, including impairments and discounts and excluding the transfer result of € 967 million gross (€ 725 million net), amounted to € 811 million negative, compared to a € 766 million net loss adjusted for a goodwill impairment for 2012, mainly due to a marked increase in loan impairments and a decrease in net interest income, partly compensated for by lower operating expenses. 7.6.1 Deconsolidation of Property Finance The nationalisation on 1 February 2013 included the decision to transfer Property Finance to a separate asset management organisation. Therefore, assets and liabilities of Property Finance were classified as held for sale in the balance sheet as at end June 2013. Following the actual transfer of Property Finance to NLFI on 31 December 2013, assets and liabilities of Property Finance are no longer consolidated at year-end 2013. In the income statement of 2013, the total result of Property Finance is classified as a net result from discontinued operations. Comparative figures in the income statement have been adjusted accordingly. SNS REAAL Annual Report 2013 36


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    7.7 Operating expenses Table 5: Total operating expenses SNS REAAL In € millions 2013 2012 Change Total operating expenses SNS REAAL Core activities 1,077 1,032 4% Total operating expenses Property Finance 77 116 (34%) Total operating expenses SNS REAAL 1,154 1,148 1% Adjustments Restructuring charges - 56 SNS Retail Bank's share in savings guarantee scheme (7) (15) Expenses related to the strategic restructuring 22 16 Provision charge for compensation participation certificates 53 - Pension charge 41 - Total adjustments 109 57 Total adjusted operating expenses SNS REAAL Core activities 968 981 (1%) Total adjusted operating expenses Property Finance 77 110 (30%) Total adjusted operating expenses SNS REAAL 1,045 1,091 (4%) Total operating expenses Property Finance are included in the result discontinued operations. Total operating expenses increased slightly, by € 6 million, compared to 2012, mainly due to higher one-off expenses of € 109 million (2012: € 57 million). The one-off expenses consisted of a charge of € 53 million for the compensation of holders of expropriated participation certificates, a one-off pension charge of € 41 million and costs of strategic restructuring plans at Group activities of € 22 million, partly compensated for by a release of € 7 million related to adjusted calculations of SNS Retail Bank’s share in the savings guarantee scheme for DSB Bank. Total adjusted operating expenses decreased by € 46 million to € 1,045 million (-4%), due to a decrease in the number of internal staff and considerable lower operating expenses at Property Finance. Total FTE decreased by 345 FTEs to 6,379, of which 109 due to the separation of Property Finance. 7.7.1 Additional cost allocation from SNS REAAL holding to Banking and Insurance activities In the first half of 2013, an additional amount of operating expenses was structurally allocated from SNS REAAL holding to the Banking and Insurance activities in order to reflect a more accurate stand-alone cost level of these entities. In the second half of 2013, anticipating the separation of the Banking and Insurance activities, it was decided to allocate all regular operating expenses from the holding company to the Banking and Insurance activities. Only expenses related to the separation of the Banking and Insurance activities will remain at the holding company and in 2013 also a one-off pension charge. In 2013, approximately € 92 million of operating expenses have been additionally allocated, of which € 24 million occurred in the first half of 2013. Of the additional allocation, € 37 million related to SNS Retail Bank, € 35 million to REAAL, € 16 million to Zwitserleven, € 2 million to SNS Asset Management and € 2 million to Property Finance. SNS REAAL Annual Report 2013 37


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    8 Developments at SNS Retail Bank 8.1 Strategy SNS Retail Bank 8.1.1 SNS Retail Bank SNS Retail Bank wants to be relevant for its customers. This will be the case as more customers who bank with us are satisfied and we can welcome more customers. We are preparing ourselves for a future as an independent bank that can develop its services in a customer-oriented and profitable way without any form of government support. In the coming years, therefore, SNS Retail Bank will strive to realise further growth in the number of customers and to strengthen its customer relations. The brands of SNS Retail Bank, i.e. SNS Bank, ASN Bank, RegioBank and BLG Wonen, focus on banking in a personal way, with a human touch. The bank wants to achieve this with simple and accessible products, an efficient and robust organisation and a responsible, focused service in which we put the customer’s interests and perception first. We are thus continuing along the same course taken by our brands and their predecessors for many years. In our Manifesto, this is expressed in four themes: • Usefulness instead of return, so that the fundamental things in life, such as housing, education and a buffer for unexpected expenses, are safeguarded. This requires products that are designed with our customers’ personal objectives, risk tolerance and possibilities in mind. • Financial resilience, so that people can take well-informed financial decisions themselves with clear insights and information. This requires planning and calculation tools, messages and warnings on websites, cost transparency, product information in plain language, the promotion of frugality and the provision of or support for financial education. • In a personal way, so that everyone can arrange their financial affairs in a way that meets their wishes, possibilities and objectives. We want to bring the human dimension back to financial matters. This means retaining bank branches in small villages, personal telephone contact rather than multiple choice menus, or personal advice if this is needed. • Sustainability, so that we do the right thing, now and for future generations. For instance, promoting sustainable investment and finance, monitoring the customer’s interests by means of mortgage checks, and encouraging sustainable housing. The Manifesto is the guiding principle for the entire SNS Retail Bank organisation, for the brands as well as for the service centres, the IT departments and the central service departments. 8.1.2 Closer to the customer by deploying multiple brands The Manifesto sets out the common values endorsed by the brands SNS Bank, ASN Bank, RegioBank and BLG Wonen. The various brands focus on specific customer groups on the basis of these values. The Netherlands is a diverse society. Approaching the market with several brands means we can be relevant to a greater number of people. • SNS Bank is the general consumer brand for people looking to manage their financial affairs with an accessible service. SNS Bank wants to compete in the banking market for consumers and self-employed persons, with distinguishing customer propositions that break through existing conventions. The core products are payments, savings, mortgages and insurance. Customers can manage their finances through www.snsbank.nl, mobile applications, customer service, shops and financial advisers. • ASN Bank is the brand for sustainable savings, investments and payments. ASN Bank focuses primarily on retail customers, but also counts social organisations and companies among its customers that wish to manage or invest their money in a responsible manner. Customers can manage their finances through www.ansbank.nl, mobile applications, customer service and the post. SNS REAAL Annual Report 2013 38


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    • RegioBank is the brand for people who consider a local and personal service and a link with the local community to be important. Customers manage their affairs through independent advisers, www.regiobank.nl and mobile applications. • BLG Wonen is the brand for people who prefer to take a wide range of advice on financing their home from their independent adviser. Customers manage their affairs through their independent adviser and www.blg.nl. 8.1.3 Strategy We want more satisfied customers to bank with us and we want to welcome more customers. If we do so with our Manifesto as a guiding principle, growth will make us increasingly socially relevant as well. Our strategic priorities for this are: • Multiple brands, focusing on specific customer groups. The product range, the approach to customer service and the service itself thus vary per brand. • Low and partly variable costs due to collective central services, IT and service centres and flexible distribution, partly based on franchising and intermediary formats. • Focus on serving retail customers and self-employed people in the Netherlands with a comprehensible and straightforward product range. The main range of SNS Retail Bank consists of payments, savings, mortgages and insurance, with the addition of financial advice. Sustainable investing and financing are the main priorities at ASN Bank. Investing is an additional activity of SNS Bank and RegioBank. These strategic priorities form the basis for potential growth, since they contribute to the following goals: • Increasing customer loyalty. We will achieve this by making good use of our knowledge of our existing customers, so that we can inform them regarding additional products from other categories that could meet their needs. • Winning new customers. On average, consumers are doing business with more banks than they used to, meaning that there are opportunities for smaller brands with a strong focus. • Appealing to new customer groups, perhaps with new propositions, making use of our common and cost-effective platform for central services, IT and service centres. • Improving our competitive position in the mortgage market. By increasing our own production, the distribution via third parties will fall in relative terms, which will lead to a greater market share in new own-brand mortgages. • A flexible organisation that can react quickly and intelligently to changes and innovations in the market. • Improving our credit rating in order to gain better access to funding in the money and capital markets. The Manifesto forms the guiding principle and standard for all existing and new activities. We are strengthening our links with social organisations in order to design our services to be customer-oriented and profitable. Strategic choices involve strategic risks. SNS Retail Bank is relatively limited in terms of both size and diversification. The low diversification of the savings and mortgages products makes SNS Retail Bank sensitive for fluctuations in net interest income. By spreading in funding, multiple brands and conservative balance management, we try to reduce our dependency. On the other hand, due to the less complex infrastructure, simple and standard products can be marketed relatively quickly. These simple and standard products meet current market demands. Cooperation with franchisees and intermediaries provides a strong distribution position and keeps costs low and variable, although this does involve additional operational risks. SNS REAAL Annual Report 2013 39


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    8.2 Targets SNS Retail Bank aims at: • Increasing customer satisfaction, as expressed by a upward trend of the Net Promoter Score (NPS) for all brands, see section 4.5 • A credit rating of at least A. Table 6: Capital and liquidity 2013 Ambition Core Tier 1 ratio 16.6% > 13% Loan-to-deposit-ratio 122% between 110% and 130% Table 7: Market Share SNS Retail Bank 2013 Ambition Savings 10.1% > 10% Mortgages, new sales own products 1.8% 5% to 8% 8.3 SNS Retail Bank financial developments Table 8: SNS Retail Bank In € millions 2013 2012 Change Result Net interest income 954 702 36% Net fee and commission income 50 54 (7%) Investment income 38 23 65% Result on financial instruments 3 47 (94%) Other operating income 6 9 (33%) Total income 1,051 835 26% Impairment charges to loans and advances 214 224 (4%) Other impairment charges 10 4 150% Total operating expenses 522 479 9% Other expenses 8 8 0% Total expenses 754 715 5% Result before tax 297 120 148% Taxation 107 31 245% Minority interests - 1 (100%) Net result for the period 190 88 116% One-off items (79) (36) Adjusted net result for the period 269 124 117% Efficiency ratio 49.7% 57.4% Impairment charges to loans and advances as a % of gross outstanding loans to customers 0.39% 0.40% Risk-weighted assets Basel II 14,578 13,081 11% Savings 33,276 32,815 1% Loans and advances to customers 53,417 55,179 (3%) SNS REAAL Annual Report 2013 40


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    8.3.1 Results 2013 compared to 2012 SNS Retail Bank’s net profit in 2013 increased by € 102 million to € 190 million (+116%). Net profit included a € 7 million one-off gain from the nationalisation measures, consisting of the impact of the expropriation of privately placed subordinated debt and gains from unwinding derivatives related to subordinated debt, partly offset by a € 53 million charge for compensation of holders of expropriated participation certificates. Furthermore, the 2013 net result included a one-off charge of € 86 million net, consisting of results of derivatives related to securitisations of the legacy DBV mortgage portfolio. The securitisations involved are not part of SNS Bank’s regular securitisation programmes and are structured differently in a number of key components. These securitisations contain conditions that the expenses for early settlement of the derivatives contracts under current market circumstances lead to a negative result. In total, a charge of € 86 million net was taken to reflect the potential early settlement expenses of these securitisations. The 2012 net result had included a € 9 million loss on the exchange of Greek government bonds and restructuring charges of € 27 million net. Adjusted for these one-off items, net profit of SNS Retail Bank was € 269 million compared to € 124 million for 2012. The main factor behind this increase was higher net interest income. 8.4 Income Net interest income showed a considerable increase of € 252 million (+36%) driven by lower interest expenses due to the expropriation of subordinated debt, declining interest rates offered on savings accounts and redemption of relatively expensive term deposits. In total, retail savings balances increased slightly from € 32.8 billion to € 33.3 billion. After a decline of € 1.3 billion in January, retail savings showed a gradual growth and SNS Retail Bank’s market share in savings recovered to 10.1% (year-end 2012: 10.3%). Bank savings, included in retail savings, continued to increase from € 2.4 billion at year-end 2012 to € 3.0 billion (+25%). Also SME savings, included in ‘Other amounts due to customers’, rebounded after the nationalisation to € 3.1 billion compared to € 2.9 billion at year-end 2012. SNS Retail Bank’s residential mortgage portfolio decreased to € 47.0 billion (year-end 2012: € 49.4 billion), due to redemptions in combination with limited sales of new mortgages. Redemptions were significantly higher than 2012 driven by a higher level of prepayments. SNS Retail Bank’s market share in new mortgages was at 1.8% again limited (2012: 2.1%). Given SNS Retail Bank’s improved financial strength after nationalisation, it aims to gradually increase its market share. The distribution share in mortgages already showed a growth in the last months of 2013. The decrease in loans and advances to customers, in combination with a modest increase in retail funding, led to an improvement of the loan-to-deposit ratio of SNS Retail Bank from 132% at year-end 2012 to 122%. Net fee and commission income showed a limited decrease to € 50 million compared to 2012 driven by lower fees for payments. Investment income increased by € 15 million to € 38 million mainly due to € 12 million gains from the expropriation of privately placed subordinated debt and the absence of a loss of € 13 million gross on the exchange of Greek government bonds, partly offset by lower realised gains on fixed-income investments. The result on financial instruments decreased by € 44 million to € 3 million, mainly driven by a € 115 million gross negative result related potential early settlement expenses securitised mortgage portfolios. This was partly compensated by € 68 million gains from unwinding derivatives related to expropriated subordinated debt. Buy-back results on own funding paper amounted to € 44 million compared to € 49 million in 2012, in both years benefitting from the situation on financial markets. SNS REAAL Annual Report 2013 41


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    8.5 Expenses Total operating expenses increased by € 43 million. Operating expenses included a charge of € 53 million for compensation of former holders of the third tranche of participation certificates, as well as a structural additional cost allocation from SNS REAAL holding of € 37 million. This was partly compensated by a release of € 7 million related to adjustments of SNS Retail Bank’s share in the savings guarantee scheme for DSB Bank. In 2012 there had been a release of € 15 million related to DSB Bank and Icesave. Operating expenses in 2012 had also included a restructuring charge of € 37 million. Adjusted for these items, total operating expenses decreased by € 18 million (-4%) mainly driven by a reduction in the number of staff. The efficiency ratio improved from 57.4% in 2012 to 49.7% driven by higher net interest income, more than absorbing the additional cost allocation from the holding. Table 9: Breakdown impairment charges SNS Retail Bank In € millions 2013 2012 Change Impairment charges of retail mortgages 173 161 7% Impairment charges of other retail loans 5 19 (74%) Impairment charges of SME loans 36 44 (18%) Total impairment charges to loans and advances 214 224 (4%) Other impairment charges 10 4 150% Total impairment charges 224 228 (2%) Total impairment charges to loans and advances remained high and relatively stable at € 214 million. This equates to 39 basis points of gross outstanding loans compared to 40 basis points in 2012. The high level of impairment charges reflects the fragile economic situation in the Netherlands and lower recovery amounts on mortgages as a result of the pressure on housing prices. Impairment charges of retail mortgages increased by € 12 million to € 173 million. This equates to 37 basis points of gross outstanding retail mortgages compared to 31 basis points in 2012. Impairment charges in 2013 included an additional provisioning for lower recovery amounts due to the weak housing market, while 2012 included a charge related to the implementation of more stringent risk assessment models. Impairment charges of other retail loans decreased from € 19 million to € 5 million. Impairment charges in 2012 had included an amount of € 11 million due to the default of one major debtor. Impairment charges of SME loans decreased to € 36 million compared to € 44 million in 2012, with both years impacted by the fragile economic situation and lower recovery amounts as a result of the pressure on prices of collateral. 8.6 Credit risk Housing prices in 2013 were on average 6.4% lower compared to 2012 and the number of houses sold was down 6.1%. A positive note was that the number of houses sold in the second half of 2013 surpassed both the number of houses sold in the first half of 2013 and the second half of 2012. As a result housing prices stabilised in the second half of 2013 compared to the first half. However, overall the housing market was weak in 2013, resulting in lengthy recovery periods of loans in default and lower recovery amounts. Rising unemployment and declining disposable incomes are important drivers for the development of loans more 90 days in arrears, which rose to € 1.2 billion compared to € 0.9 billion at the year-end of 2012. SNS Retail Bank proactively contacts mortgage clients with higher risk mortgages, for instance due to high Loan-to-Values (LtV), and provides information and advice to avoid consecutive missed payments, if necessary in combination with a personal budget coach. SNS REAAL Annual Report 2013 42


  • Page 48

    The quality of the new mortgage inflow is, however, improving thanks to stricter standards and an increase in mortgages covered by the National Mortgage Guarantee Scheme (NHG). At SNS Retail Bank, 75% of mortgage origination in 2013 was covered by the NHG. Of the total mortgage portfolio, 21% (including the securitised part) is now covered by the NHG. At the end of December 2013, the weighted average indexed LtV of the retail mortgages stood at 89%, compared to 87% at year-end 2012. Table 10: Loans and advances to customers SNS Retail Bank In € millions 2013 2012 Change Retail mortgage loans 47,328 49,574 (5%) Retail other loans 293 346 (15%) Provision (342) (252) (36%) Total retail loans 47,279 49,668 (5%) Commercial mortgage loans 1,143 1,282 (11%) Commercial private and other loans 2,805 2,041 37% Provision (111) (103) (8%) Total commercial loans 3,837 3,220 19% Private and cash loans to the public sector 2,301 2,291 0% Loans and advances to customers SNS Retail Bank 53,417 55,179 (3%) Table 11: Loans and advances to customers in arrears SNS Retail Bank In € millions December 2013 December 2012 Change No arrears 51,432 96% 53,346 97% (4%) < 3 months 1,205 2% 1,247 2% (3%) 3 - 6 months 296 1% 287 1% 3% 6 - 12 months 346 1% 265 0% 31% > 1 year 591 1% 390 1% 52% Subtotal arrears 2,438 5% 2,189 4% 11% Provision (453) (1%) (356) (1%) (27%) Total 53,417 100% 55,179 100% (3%) 8.7 Distribution and organisation 8.7.1 Central development and support The total number of unique customers of the banking brands rose, from 2.7 to 2.8 million (+3%), despite the turbulent period during the nationalisation. The highest growth occurred at ASN Bank (+3.0%) and RegioBank (+4.9%). After the nationalisation of SNS REAAL and our subsequent communication, we saw a recovery in confidence because of the growth in the number of customers. Management and employees devoted much attention to implementing the Manifesto. How do we translate these themes into a better customer service? How do we make sure that we do not stray once again from the course that SNS Retail Bank and its brands established 200 years ago? The internal dialogue with employees and managers led to numerous ideas and much enthusiasm. Sticking to one’s course requires effective management and processes, an ethic of continuous improvement, and a culture based on the themes of our Manifesto. Many of the changes to the organisation were designed to achieve this. A lot has already been achieved in the past couple of years with the simplification of savings products, the systematic testing of new products to establish their usefulness to customers, and the use of customer experiences as the basis for improvements. Many new improvements followed in 2013, such as Budgethelp, a Mortgage Assistance Team, the financing of sustainability improvements to homes and more information and convenience on the websites and the mobile banking applications. SNS REAAL Annual Report 2013 43


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    SNS Bank, ASN Bank, RegioBank and BLG Wonen have developed a collective vision with respect to sustainable housing. The Tomorrow’s World (Voor de Wereld van Morgen) platform of ASN Bank has hosted focused crowdsourcing, conclusions from which were also included. There have also been discussions of this theme with NGOs and other stakeholders. The central features of our vision are quality, affordability and sustainability. With a shared vision, the brands can share each other’s expertise and contacts more effectively, and work together on the development of our housing-related services more frequently. This could involve the funding of energy-saving measures, or the offering of energy performance advice. New functionalities were added to the mobile applications of SNS Bank, ASN Bank and RegioBank in 2013. SNS Bank was the first Dutch bank to provide an app to bypass geoblocking when abroad. Geoblocking is the automatic switching off of paying by bank card when abroad that was introduced previously in 2013 to reduce the risk of bank card fraud. The app allows the customer to switch paying by card abroad on or off. Mobile banking has really caught on to our customers. At the end of 2013, nearly 30% of SNS Retail Bank customers were using mobile banking. Users of the app have been able to give their opinions of mobile banking since December 2013. More than 5,000 customers had done so by the end of 2013. These users gave the app an average score of 8.4, and 90% of them recommended it to other customers. Over 70 employees of SNS Retail Bank and Zwitserleven worked together on three savings products for retail customers and on the development and market launch of a related customer services facility for Zwitserleven. This introduced a series of products for a customer group that until now had hardly been served by the SNS Retail Bank brands. Dealing responsibly with money The products and service of our brands contribute to our customers’ ability to have a greater understanding and awareness of their financial affairs. But people also need to have the personal knowledge, motivation and encouragement to be able to handle money sensibly. SNS Retail Bank is actively promoting this in society. In 2013, SNS Bank, RegioBank and BLG Wonen collectively launched Eurowijs, a teaching package on financial affairs for children between the age of seven to nine in primary education. The package was developed together with partners and meets the educational principles of NIBUD. After the launch at the end of 2013, more than 200 of our employees signed up to give guest lectures. For young people aged between 12 and 25, the Stichting Weet Wat Je Besteedt (Stay on top of your spending Foundation, WWJB) is developing educational initiatives together with partners, and often with the young people themselves. Along with SNS REAAL, SNS Bank is participating in the initiative as the senior partner. SNS Retail Bank forms part of the foundation’s board and made one employee available on a full-time basis in November 2013. Employees of BLG Wonen and RegioBank also contribute to this initiative. In September, WWJB and SNS Retail Bank launched the simulation game MoneyMatters at a lower secondary education school. The game gives young people a taste of financial matters in real life. Four SNS employees act as the experts in the help line videos that can be consulted. See www.wwjb.nl for further information. Safeguarding the customer’s interests The brands of SNS Retail Bank make use of collective service centres and IT platforms. Collective standards and performance indicators for the safeguarding of the customer’s interests have also been in use since 2013. This especially applies to the new product approval process and the regular testing of products that are no longer sold, the use of simple language in product information, the testing of the quality of advisers and independent intermediaries, complaints procedures, customer satisfaction surveys, assessments of employees, and the application of other P&O tools. Customer orientation has become an even more important part of the training of advisers. The criteria for quality and knowledge of franchisees and advisers have been tightened. Each brand has its own complaints management, although the reporting and procedures are largely the same. Since 2013, all the brands have used a continuous list of top five complaints that are addressed with special vigour. SNS REAAL Annual Report 2013 44


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    Also in 2013, the brands tested all their products using the Group-wide SNS REAAL standards to measure whether the customer’s interests were adequately prioritised according to the 'KNVB' criteria, which (in English) are: cost-efficiency, usefulness, security and comprehensibility. The test also assesses whether the brands’ marketing and product communication with customers meets all in-house and external regulations. The use of customer panels for product testing was better organised in 2013, along with more accurate recording of customer contact experiences. The brands of SNS Retail Bank have an active policy of preventing and solving customer problems. When the Cabinet decided to permit a temporary tax-free gift of €100,000 for the repayment of mortgages, SNS Retail Bank was the first to announce that this would be without penalty for our brands. After an appeal from the Minister to follow this example, virtually all Dutch banks scrapped the penalty. This measure contributes to the avoidance of remaining mortgage debts. Dilemma With the introduction of a separate advice fee for complex products, many customers are investigating whether they can purchase such products without taking advice. This is possible, but things can go wrong if the customer’s knowledge and understanding are not as extensive as he thinks. This poses a dilemma for the bank. We want to offer customers what they are asking for, but we also feel responsible for the consequences associated with freedom of choice by the customer. For this reason, our banking brands do not (as yet) sell life insurance and bank savings products without advice. First of all, we want to be more certain regarding the reliability of tests that indicate whether the customer is buying a product that is actually suitable for his situation. Proactive dialogue with stakeholders SNS Retail Bank wishes to enter into a dialogue with interest groups and other external parties regarding the best way to put the Manifesto into practice (stakeholder engagement). In 2013 we had informal consultations with (among others) Vereniging Eigen Huis regarding assistance to mortgage customers experiencing problems with payments, the NIBUD, the senior citizens’ organisation Anbo regarding the retention of ATMs and bank branches in small municipalities, and the Vereniging voor Openbaar Onderwijs regarding financial education in schools. The Manifesto was explained at the Hearing on the Future of Banking in the Dutch House of Representatives in November 2013. On behalf of SNS REAAL, Gerard van Olphen spoke in response to the Wijffels Commission report Towards a Serviceable and Stable Banking System and the Cabinet’s reaction thereto. SNS Retail Bank supports an integrated approach to the reform of the Dutch housing market. SNS Retail Bank argues that there should be a change of behaviour: first save, then borrow. Various lobby discussions took place in this context with the Consumers’ Association, Vereniging Eigen Huis, Bouwend Nederland, VNO-NCW and the Insurers’ Association. Our views were brought to the attention of the political parties and the Ministries of Finance and of Internal Affairs. The House of Representatives organised a Hearing on online payments traffic in May 2013 as a result of several disruptions, including DDoS attacks. An explanation of the methods used to ensure the security and availability of digital funds was given on behalf of SNS Retail Bank. 8.7.2 SNS Bank: customer dialogue improves services The website www.snsbank.nl provides customers with various tools to help them gain a good understanding and awareness of their financial affairs, including a cash book, savings targets, interest rates change messages, automatic replenishment for negative balances, and a savings manager. There were also numerous improvements in 2013, partly thanks to the SNS Community. The mortgages page has been entirely changed. The customer’s requirement is now the central feature instead of the product, with subjects such as The Mortgage Steps Plan, Your First Home, Renewing Your Mortgage and Buying A New Home. Customers can also calculate how much of their own money they need for a purchase, and they can check to see whether their current mortgage could lead to financial problems. SNS Bank also wishes to be accessible for those with a handicap. For several years, SNS Bank has been the only bank in the Netherlands with the Drempelvrij quality mark. The Stichting Waarmerk Drempelvrij gives this quality mark to websites that can be accessed by people with a visual limitation. SNS REAAL Annual Report 2013 45

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