--ING U.S. files for long-awaited initial public offering
--IPO could consist of the sale of ING Groep stake and a
secondary offering
--Filing provides fresh look at the scale of the losses that
U.S. life insurers have incurred in recent years
(Adds details and background beginning in first paragraph.)
By Leslie Scism and Erik Holm
ING U.S., the U.S.-based financial-services arm of ING Groep
N.V. (ING, INGA.AE), filed plans for a long-awaited initial public
offering as its Dutch parent continues to divest overseas
operations as required by a 2008 government bailout.
ING executives had been talking about a potential spinoff or
sale of the U.S. insurance unit for years. ING's U.S.
life-insurance business is the fourth-largest seller of term-life
insurance, while its retirement-solutions business is the
second-largest provider of defined-benefit contribution retirement
plans in the country.
The filing with the U.S. Securities and Exchange Commission
didn't set a per-share price for the planned offering, but said the
IPO could consist of the sale of the Dutch parent's stake and a
secondary offering to raise funds for the U.S. company.
ING's filing provides some of the most detailed information yet
on the scale of the losses that U.S. life insurers have incurred
from aggressive campaigns to sell investment products with
lifetime-income guarantees in the years just before stock markets
slid steeply in the 2008-09 global financial crisis.
The guarantees are tied to customers' account balances,
promising lifetime income of a specified minimum amount even if the
underlying funds are depleted.
The filing states that ING's closed block of business containing
these guarantees has posted pretax losses totaling $3.2 billion
since 2009.
The filing with the SEC also provides details on the plans for
just one of many changes for ING Groep, the Netherlands' largest
bank by assets, after being hit hard during the financial crisis in
2008. It required a 10 billion euro ($12.8 billion) capital
injection from the Dutch state.
Its restructuring will transform the company into a
Europe-focused bank, mostly operating in the Netherlands, Belgium
and Germany.
Under a plan outlined in the filing, ING U.S. said it will focus
on strengthening its credit ratings and replacing significant
amounts of financing that are provided or guaranteed by ING Groep
and other related entities.
The filing said the U.S. company was "actively pursuing several
initiatives to improve profitability." They include keeping careful
watch over pricing of new sales, raising prices on blocks of
existing business, and shutting down sales of unprofitable books of
business. The company said recent price increases for some term
life and universal-life products will position them to "earn
double-digit returns."
Dana Ripley, an ING U.S. spokesman, said, "The S-1 filing is a
major milestone in ING U.S.'s separation process" from its Dutch
parent.
The filing, underwritten by Morgan Stanley (MS) and Goldman
Sachs & Co. (GS), leaves out several details for now about the
offering. But it says the underwriters expect to deliver the shares
in 2013.
ING, like many other U.S. life insurers, was a big seller during
the boom years of the 2000s of variable annuities with lifetime
income guarantees. Variable annuities offer individuals a
tax-advantaged way to invest in stock and bond funds. Typically,
the guarantees promise steady streams of annual income for the
buyer's lifetime, even if the underlying fund accounts drop in
value or become depleted.
Financial advisers say that ING's variable annuities were some
of the most generous on the market. The financial crisis
highlighted the risks posed by the guarantees to the insurers and
their shareholders.
Like some other insurers, ING halted sales of the guarantees
after the financial crisis, but still has a big block of business
that it must support with capital to show U.S. insurance regulators
it can make good on its promises to consumers.
ING halted sales of those particular guarantees by early 2010,
its regulatory filing states. Its closed block of variable-annuity
business consists of contracts sold from 2001 to early 2010, and
represented 18% of its assets under management as of June 30, 2012.
The block has suffered pretax losses totaling $3.2 billion since
2009, the filing states.
The U.S. operations had net income of $103 million in 2011 and
$331 million in the first six months of this year, but losses of
$133 million in 2010 and $811 million in 2009.
ING notes in the filing that it continues to offer other types
of income guarantees with other retirement-income products.
The IPO filing comes as U.S. life insurers face multiple
headwinds from the slow economic recovery and ultralow interest
rates. Insurers invest the premium dollars their customers pay,
typically in high-quality corporate and other type bonds, so their
investment yields have been falling over the past several
years.
Low rates also have prompted some insurers to exit entirely, or
reduce sales, of certain products where investment yields play a
large role in the insurer's ability to turn a profit, including
certain types of retirement-income annuities. Low interest rates
drive up the cost of some of the financial-hedging strategies that
insurers employ to reduce their risk of large losses when selling
lifetime income guarantees.
And, the weak economy also means many potential customers don't
have extra money to invest in their retirement-income products, or
to even buy big life-insurance policies.
Earlier this year, ING Groep sold ING Direct USA to Capital One
Financial Corp. (COF) in a $9 billion deal. Its insurance
operations in high-growth markets in Latin America and Asia have
attracted a large number of potential buyers.
ING Groep also has been readying its big insurance franchise in
Europe for a separate IPO.
Earlier this week, ING Groep announced 1,000 job cuts at its
commercial bank, in view of a "challenging business environment"
and more-stringent rules for the industry. ING employs around
94,000 people world-wide.
-Ben Fox Rubin and Maarten van Tartwijk contributed to this
article.
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