ING Direct 2004 Annual Report Download - page 154

The major factors for each of these changes in 2004 are as follows:
– Investment income on free surplus of EUR 96 million;
– New sales in 2004 contributed EUR 632 million to the embedded value;
– The required return of EUR 1,560 million is the rollup of the discount rate on the beginning value of inforce business and
on the value of new business;
– Financial variances in 2004 totalled EUR 431 million. Favourable investment experience across the businesses as well as
favourable fund returns on separate accounts in the U.S. were the drivers of this increase;
– Operational variances increased embedded value by EUR 145 million over 2004, primarily reflecting positive mortality
and morbidity experience in Asia/Pacific;
– Assumption changes increased value by EUR 314 million, reflecting offsetting items. An increase in the assumed long term
interest rate in Taiwan, a reduction in the corporate tax rate in the Netherlands and changes to lapse, mortality, and
morbidity assumptions in Asia/Pacific were partially offset by an increase in expenses included in Nationale-Nederlanden's
projections;
– Currency impacts had a negative effect of EUR 529 million, primarily reflecting the effects of a declining U.S. dollar
compared with the euro;
– Changes to the ING capital model reduced the embedded value by EUR 744 million and impacted all business lines.
The change increased the embedded value for all business lines except Latin America and Asia/Pacific. The latter of which
showed a significant increase in capital;
– The expense associated with financial options and guarantees were incorporated into the embedded value results for
2004, decreasing the value by EUR 616 million. The impact was reflected primarily in the Netherlands and the U.S. results;
– The embedded value was reduced by EUR 1,049 million due to dividends from the life operations paid to ING Group;
– Other amounts contributed EUR 385 million.
NEW BUSINESS VALUE FROM DEVELOPING MARKETS(1)
Premiums Premiums
Annual single IRR(2) Value Annual single IRR(2) Value
2004 2003
Central Europe 138 81 14.2% 33 107 53 13.9% 24
Americas 215 191 14.7% 35 49 77 4.8% -6
Asia/Pacific 717 374 13.2% 201 682 142 16.9% 204
ING Group 1,070 646 13.5% 269 838 272 15.3% 222
(1) Countries classified as developing markets are:
– Central Europe: Bulgaria, Czech Republic, Hungary, Poland, Romania, Slovakia;
– Americas: Argentina, Chile, Mexico, Peru;
– Asia/Pacific: China, Hong Kong, India, Korea, Malaysia, Taiwan and Thailand.
(2) IRR = internal rate of return adjusted for expected currency movements relative to the euro.
Developing markets new business value of EUR 269 million, increased by 21% from 2003 primarily due to the addition of the
Latin America pension funds.
Independent opinion
Watson Wyatt, an international actuarial consultancy firm, has reviewed the methodology and assumptions used by ING in the
calculation of the embedded value of the life insurance business at 31 December 2004 and the value of new business written
during 2004. All material business units in the Americas, Asia/Pacific and Europe were covered by the review.
Watson Wyatt has concluded that the methodology adopted is appropriate and that the assumptions used are reasonable.
In addition Watson Wyatt has concluded that the methodology and assumptions used in the calculation of the embedded
value at 31 December 2004 comply with the European Embedded Value Principles and Guidance.
Watson Wyatt has performed limited high level checks on the results of the calculations and has discovered no material issues.
Watson Wyatt has not, however, performed detailed checks on the models and processes used.
152 ING Group Annual Report 2004
EMBEDDED VALUE
(continued)
2.3
ADDITIONAL FINANCIAL
INFORMATION