S&P Takes Rating Actions on ING Following Restructuring Plan

October 27, 2009

Standard & Poor’s Ratings Services announced various rating actions on ING Groep N.V. and subsidiaries, following completion of the European Commission (EC) investigation into state aid [See IJ web site – . https://www.insurancejournal.com/news/international/2009/10/26/104811.htm].

S&P outlined the rating actions as follows:
— The ‘A/A-1’ ratings on ING and ‘A+/A-1’ ratings on ING Bank N.V. were affirmed. The outlook is stable.
— The ratings on insurance holding company ING Verzerkeringen N.V. were lowered by one notch to ‘A-/A-2’.
— The outlook on ING Verzekeringen and ING Re (Netherlands) (N.V.) was revised to negative from stable.
— The ratings on ING Groep and ING Verzekeringen hybrids have been raised to ‘BB’ from ‘B’.

S&P noted that “as part of the EC investigation into state aid, ING was required to submit a restructuring plan, which has now been agreed, and is pending formal approval by the EC. The restructuring plan primarily involves disposing of its insurance operations within the next five years.

“These disposal plans have led to the designation of all ING’s insurance operations as ‘not strategically important’ (NSI) under our group rating methodology. The change in status of the insurance operations resulted in the downgrade of various insurance holding companies and the revision of the outlook on various insurance entities to negative.

“The downgrade of ING Verzekeringen follows the change in status of the insurance operations to ‘NSI’ from “core” under our group rating methodology. As a result, we rate ING Verzekeringen two notches below the ‘A+’ operating company rating, which is more in line with standard holding company gapping for European insurers.”

S&P also stated that it has “affirmed the ratings on ING and ING Bank. The ratings on ING Bank prior to today’s announcement by the group did not include any uplift beyond its stand-alone credit profile for the benefits of diversification within a larger group. In line with our criteria for rating bank holding companies, we rate ING one notch below its main operating subsidiaries–which in our view is ING Bank, following today’s announcement of restructuring plans.”

In addition S&P indicated that it considers “The Netherlands to be a government that is supportive of its banking sector, and that it will likely provide further support to ING Bank–a highly systemically important bank–if necessary, although we do not currently anticipate that further support will be required. We now include one notch of support into the long-term counterparty credit rating on ING Bank, reflecting our view of the government’s propensity to support in case of need.”

Credit analyst Mark Button explained that the “negative outlook on ING Verzekeringen and certain operating insurance subsidiaries reflects our view of the significant execution risks associated with the divestment of ING’s insurance operations, and the potential for strategic and operational disruption to the underlying businesses.”

S&P added that it may “lower the ratings if we see evidence that the performance of ING’s insurance business is being impaired by the uncertainty surrounding its divestment. We also anticipate that the capital adequacy and capital quality of divested businesses will be consistent with the current ratings. If this assumption is proven incorrect, this could also lead to a downgrade.”

Button indicated that the “stable outlook on ING Bank and ING reflects our view of the bank’s solid capital position, which we consider will likely be strong enough to absorb near-term earnings pressures arising from its real estate and residual Alt-A portfolios, and the ongoing pressured economic environment, which is weakening asset quality.”

S&P concluded that “ING Bank’s strong domestic market position and good funding position help support the ratings. The ratings on ING Bank could come under pressure if its stand-alone financial profile were to weaken and if we consider that the government is unlikely to provide support. We believe an upgrade within the rating horizon is unlikely.”

Source: Standard & Poor’s รข€” www.standardandpoors.com

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