ING Direct 2011 Annual Report Download - page 182

Notes to the consolidated annual accounts of ING Group continued
incorporate inputs which are unobservable and which have a more than insignificant impact on the fair value of the instrument (Level 3).
Financial assets in Level 3 include for example illiquid debt securities, complex OTC and credit derivatives, certain complex loans (for which
current market information about similar assets to use as observable, corroborated data for all significant inputs into a valuation model is
not available) and asset backed securities for which there is no active market and a wide dispersion in quoted prices.
Observable inputs reflect market data obtained from independent sources. Unobservable inputs are inputs which are based on the
Group’s own assumptions about the factors that market participants would use in pricing an asset or liability, developed based on
thebestinformation available in the circumstances. Unobservable inputs may include volatility, correlation, spreads to discount rates,
default rates and recovery rates, prepayment rates and certain credit spreads.
The fair values of the financial instruments carried at fair value were determined as follows:
Methods applied in determining fair values of financial assets and liabilities
2011 Level 1 Level 2 Level 3 Total
Assets
Trading assets 32,903 89,403 1,382 123,688
Investments for risk of policyholders 111,203 5,094 141 116,438
Non-trading derivatives 1,477 14,723 959 17,159
Financial assets designated as at fair value through profit and loss 251 2,300 2,886 5,437
Available-for-sale investments 120,889 81,926 5,724 208,539
266,723 193,446 11,092 471,261
Liabilities
Trading liabilities 20,308 86,434 940 107,682
Non-trading derivatives 1,175 18,808 2,182 22,165
Financial liabilities designated as at fair value through profit and loss 1,150 7,599 4,272 13,021
Investment contracts (for contracts carried at fair value) 3,279 3,648 12 6,939
25,912 116,489 7,406 149,807
Methods applied in determining fair values of financial assets and liabilities
2010 Level 1 Level 2 Level 3 Total
Assets
Trading assets 49,644 73,899 2,132 125,675
Investments for risk of policyholders 115,102 5,243 136 120,481
Non-trading derivatives 90 10,997 635 11,722
Financial assets designated as at fair value through profit and loss 1,143 3,027 1,846 6,016
Available-for-sale investments 113,9 94 101,816 6,104 221,914
279,973 194,982 10,853 485,808
Liabilities
Trading liabilities 33,293 73,316 1,441 108,050
Non-trading derivatives 878 15,028 1,876 17,78 2
Financial liabilities designated as at fair value through profit and loss 1,834 7,6 4 8 3,225 12,707
Investment contracts (for contracts carried at fair value) 2,879 3,088 17 5,984
38,884 99,080 6,559 144,523
Level 1 – Quoted prices in active markets
This category includes financial instruments whose fair value is determined directly by reference to published quotes in an active market. A
financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer,
broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions
on an arm’s length basis.
Level 2 – Valuation technique supported by observable inputs
This category includes financial instruments whose fair value is determined using a valuation technique (e.g. a model), where inputs in the
model are taken from an active market or are observable. If certain inputs in the model are unobservable, the instrument is still classified in
this category, provided that the impact of those unobservable inputs on the overall valuation is insignificant. Included in this category are
items whose value is derived from quoted prices of similar instruments, but for which the prices are modified based on other market
observable external data.
180 ING Group Annual Report 2011