ING Direct 2009 Annual Report Download - page 28

functional approach within business lines to ensure systematic
and consistent implementation of the Group-wide ORM
framework, policies and minimum standards.
ING has developed a comprehensive framework supporting and
governing the process of identifying, mitigating, measuring and
monitoring operational risks. Generic mandatory controls are
described in the ORM policy house. The policies were refined
in 2009.
Clear and accessible policies and minimum standards are
embedded in ING business processes in all business lines.
An infrastructure is in place to enable management to track
incidents and operational risk issues. A comprehensive system
of internal controls creates an environment of continuous
improvement in managing operational risk. ING uses this
knowledge (including lessons learned from incidents) to
improve the control of key processes.
COMPLIANCE RISK MANAGEMENT
ING believes that our compliance risk management practices are
in the best interest of its customers, shareholders and staff, and is
important for the way ING does business. Managing compliance
with relevant laws, regulations and ethical/internal standards, in
both letter and spirit, is essential for maintaining a good reputation.
It also leads to lower operational risk costs and more stable
business processes.
The Executive Board, Management Boards, and senior
management share a clear vision of reputation management that
goes well beyond the compliance and operational risk functions.
They expect the highest levels of personal conduct and integrity
from all employees and managers to safeguard the Group’s
reputation. In 2009, the Non-Financial Risk Dashboard, providing
management with an overview of key risks in their jurisdiction,
became the standard for reporting to the Executive Board. At the
same time, next steps were taken in the realisation of an IT-related
NFRD enabling tool.
In 2009, updates to Financial Economic Crime-related Policies
and Minimum Standards underpinned the importance of
combating money-laundering and the funding of terrorist
and criminal activities.
FURTHER EMBEDDING OF FINANCIAL ECONOMIC
CRIME & EXTRATERRITORIAL REGULATIONS
ING’s commitment to prevent any involvement in criminal activity
was reinforced by the review and updating of the Financial
Economic Crime and Extraterritorial policies. In keeping with our
obligation to provide consistent relevant education a series of
specialised face to face training sessions were held for over 250
Money Laundering Reporting Officers. These global events not
only provided information on the updated policies but also gave
a valuable opportunity to share best practices.
INSURANCE RISK MANAGEMENT
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.
ING INSURANCE – INSURANCE RISKS
Actuarial and underwriting risks are risks such as mortality,
longevity, morbidity, adverse motor or home claims development,
etc., which result from the pricing and acceptance of insurance
contracts. In general, these risks cannot be hedged directly in the
financial markets and tend to be mitigated by diversification across
large portfolios. They are therefore primarily managed at the
contract level through product design requirements as set by
ING’s Insurance Risk Management function, independent product
approval processes, risk limitations and standard underwriting
policies related to insurance policy terms and conditions
agreed with the client.
For portfolio risks which are not mitigated by diversification, the
risks are managed primarily through concentration and exposure
limits and through reinsurance and/or securitisation. For non-life
insurance, risk tolerance levels are set for catastrophic events (e.g.
natural perils such as storms, earthquakes and floods) and for
individual risks.
In order to determine how much reinsurance protection is required,
the risk tolerance levels are compared to the estimated maximum
probable loss resulting from catastrophic events with a 1 in 250
probability of occurrence, which is in line with industry practice.
Overall exposures and concentrations are actively managed within
limits and risk tolerance levels through the purchase of external
reinsurance. Particularly for the property and casualty portfolio, ING
purchases protection which substantially mitigates ING’s exposure
due to natural catastrophes. ING believes that the credit risks to
which it is exposed under reinsurance contracts are minor, with
exposures being monitored regularly.
ING INSURANCE – MARKET RISKS
ING Insurance is exposed to market risk to the extent to which
the market value of surplus can be adversely impacted due to
movements in financial markets; these include interest rates, equity
prices, implied volatilities of options, foreign exchange rates and
real estate prices. Changes in financial market prices impact the
market value of ING’s current asset portfolio and hedging
derivatives directly as well as the calculated market value of
ING’s insurance liabilities.
OPERATIONAL RISK MANAGEMENT (ORM)
ING is exposed to operational risks on a daily basis through its
client relationships, product offerings, IT infrastructure and daily
operations. Operational risk is the risk of direct or indirect loss
resulting from inadequate or failed internal processes, people
and systems or from external events. It includes the related risk
of reputation loss, as well as legal risk. Effective operational risk
management leads to more stable business processes (including IT
systems) and lower operational risk costs. ORM uses a layered
Risk management (continued)
1.2 Report of the Executive Board
ING Group Annual Report 2009
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