ING Groep NV (INGA), the biggest Dutch financial-services company, is taking a charge of as much as 1.1 billion euros ($1.5 billion) as lower interest rates and stock markets hurt a U.S. annuity business the firm is winding down.
The shares fell the most in two weeks in Amsterdam trading. ING updated its assumptions about the business to reflect market conditions and the behavior of about 500,000 annuity holders, who are retaining their contracts for longer than expected, Chief Executive Officer Jan Hommen said today.
The company, which continues to prepare initial public offerings for its insurance units, said the charge has no material impact on the results of ING Bank or ING Insurance EurAsia. ING plans to provide a contingent funding facility of about 1.1 billion euros to its U.S. insurance business to ensure compliance with regulatory requirements.
“This is part of the preparation for the initial public offering of the U.S. insurance business,” said Tom Muller, an analyst at Theodoor Gilissen Bankiers in Amsterdam, who advises investors to “hold’” the shares. “Market circumstances haven’t improved, interest rates are far too low for insurers, and mortality tables are revised as life expectancy increases.”
ING dropped 29.6 cents, or 4.7 percent, to 6.01 euros in Amsterdam today, after earlier sliding as much as 8.2 percent. The company has a market value of 23 billion euros.
Closed variable annuities tie payouts from life insurance retirement contracts to the performance of an investment portfolio. ING won’t “rule out” selling the closed block of business, which has an account value of $45 billion, Hommen said on a conference call.
“It is very annoying to announce this kind of news,” said Hommen, adding that ING is running off the book after stopping sales in 2009. The charge, to be taken in the fourth quarter, will be at least 900 million euros, ING said.
ING said it also conducted a review of the policyholder behavior assumptions for its variable annuity business in Japan, which resulted in “non-material adjustments.”
Today’s announcement doesn’t change ING’s plan for the sale of the insurance units, Hommen said today. The firm has to divest the operations before the end of 2013 as a condition of European Union approval for a taxpayer-funded bailout in 2008 and 2009.
“At this moment our best guess is still that we will be tracking the plan we’ve set, so no delays, no change,” he told analysts on a conference call. ING will give an update on its plans at an investor event in January, Hommen said.
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