ING Direct 2009 Annual Report Download - page 227

ING Insurance
ING INSURANCE
ING is engaged in selling a broad range of life and non-life insurance products. Risks from these products arise with respect to the
adequacy of insurance premium rate levels and provisions for insurance liabilities and capital position, as well as uncertainty as to the
future returns on investments of the insurance premiums. Risks are classified as insurance risk (actuarial and underwriting), market risk,
liquidity risk, credit risk, business risk and operational risk.
The Insurance Management Board is responsible for managing risks associated with the activities of ING Insurance. The responsibility for
measurement and management of credit risk and operational risk resides with Corporate Credit Risk Management (CCRM) and Corporate
Operational Risk Management (CORM) respectively. Corporate Insurance Risk Management (CIRM) is responsible for insurance risk
(actuarial and underwriting) market risk and liquidity risk measurement and management, business risk measurement, as well as ensuring
that investment mandates adequately address credit portfolio risk.
Risk management governance
ING’s Insurance Risk Management (IRM) is organised along a functional line comprising three levels within the organisation: the corporate,
business line and business unit levels. The General Manager of CIRM, the Chief Insurance Risk Officer, heads the functional line and reports
to the Corporate CRO. Each of the business lines and business units has a similar function headed by a Chief Insurance Risk Officer (business
line and business unit CIRO). This layered, functional approach ensures consistent application of guidelines and procedures, regular reporting
and appropriate communication vertically through the risk management function, as well as providing ongoing support for the business.
The scope, roles, responsibilities and authorities of the risk management function at different levels are clearly described in an Insurance Risk
Management Governance Framework to which all consolidated business units and business lines must adhere.
The objective of the insurance risk management function is to provide the business a sustainable competitive advantage by fully integrating
risk management into the tactical daily business activities as well as ING’s broader business strategy. Insurance Risk Management
accomplishes this through four core activities. First, the IRM function ensures that products and portfolios are structured, underwritten,
priced, approved and managed appropriately in compliance with internal and external rules and guidelines. Second, IRM ensures that the
ING Insurance risk profile is transparent and well understood by management and stays within delegated authorities, with a ‘no surprises’
approach to reporting and monitoring risks. Third, IRM ensures that both risk and reward are adequately considered in the development
of business strategy, for example by supporting the planning and allocation of Economic Capital and limits during the strategic planning
process. Finally, IRM ensures that these steps are understood by ING’s stakeholders, including shareholders, rating agencies, regulators
and policy holders.
Risk management policies and tools
To ensure appropriate risk management, CIRM in close co-operation with the business line CIROs, has developed Standards of Practice
guidelines and tools to manage risks. While these standards are principle based, they include mandatory requirements to which the
business unit CIROs must adhere.
A critical aspect of risk management is that all new products are designed, underwritten and priced appropriately. This is explicitly covered
by the Standard of Practice for the Product Approval and Review Process (PARP). This standard includes requirements related to risk profile,
traditional and value-oriented pricing metrics and targets, and documentation. As part of the Back to Basics strategy, Customer Suitability
is integral part of the PARP requirements since December 2009. In addition to insurance and market risks, the requirements refer to
operational risk, legal and compliance risk, etc. For these risks, the IRM network works closely together with the other relevant risk
departments. The PARP also includes requirements to assess sensitivities to changes in financial markets, insurance risk (e.g. mortality
and claims development), compliance risks and operational risks, as well as assessment of the administration and accounting aspects
of the product.
Other standards prescribe quarterly insurance risk reporting, ALM procedures and reporting, actuarial and economic assumption setting,
reserve adequacy testing and embedded value measurement and reporting, amongst others.
ING Insurance has developed an Economic Capital approach similar to that used within ING Bank as one of its core risk measurement
tools. More details on the Economic Capital model are described below. In 2007, ING Insurance introduced ECAPS, a new intranet-based
Economic Capital reporting system which is based on replicating portfolio techniques. The ECAPS system provides a well controlled and
automated basis for Economic Capital and risk reporting, and also provides greatly enhanced market risk analysis tools for the insurance
group and corporate reporting purposes. ECAPS relies on an innovative replicating portfolio methodology. CIRM expects this system to be
the foundation of its internal fair value and solvency model, including the calculation of capital requirements following the introduction of
Solvency II. Through 2009 the system has been enhanced and functionality expanded.
2.1 Consolidated annual accounts
Risk management (continued)
ING Group Annual Report 2009 225