--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
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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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