ING Direct 2011 Annual Report Download - page 259

Risk management continued
ING Insurance Eurasia
ECONOMIC CAPITAL
Economic Capital ING Insurance Eurasia (99.5% undiversified) by Risk Category
2011 2010
Mortality 1,203 1,138
Morbidity 591 516
P&C 209 179
Total Insurance Risk 2,003 1,833
Sensitivities
IFRS Earnings sensitivities for Insurance risks
2011 2010
Mortality –34 –30
Morbidity –123 –99
P&C –76 –49
Overall exposure to insurance risks did not change significantly during 2011. Annual review of actuarial assumptions for Insurance risk is
reflected in the numbers.
Mitigation
In general, insurance risk cannot be (easily) hedged directly via the financial markets and are partially mitigated by diversification across
large portfolios. They are therefore managed at the contract level through underwriting policies, product designs requirements,
independent product approval processes and risk limitations related to insurance policy terms and conditions agreed with the client.
Risk not mitigated by diversification is managed through concentration and exposure limits and through reinsurance and/or securitisations:
• Tolerance limits for non-life insurance risk are set by line of business for catastrophic events and individual risk;
• Tolerance limits for life insurance risk are set per insured life and significant mortality events affecting multiple lives such as pandemics;
• Reinsurance is used to manage tolerance levels according to the ING Insurance Eurasia reinsurance credit risk policy. This is mainly done
for property & casualty insurance business;
• Catastrophic losses resulting from events such as terrorism are considered to be uninsurable. ING participates in industry pools in various
countries to mitigate this risk.
BUSINESS RISK
Business risk for insurance is essentially the risk that insurance operations accept as a consequence of participating in the insurance
business. In practice this can be defined as the exposure to the possibility that experience differs from expectations with respect to
expenses, the run-off of existing business (persistency/renewals), future premium rerating, etc.
Model disclosure
The table below shows the main risk categories for business risk within ING Insurance Eurasia. EC numbers are determined using a 99.5%
confidence interval on a one-year horizon.
Description Key Drivers
Persistency The risk that actual persistency in the future of existing business develops
adversely compared to expected persistency of existing business
EC: Less surrenders of policies with in-the-
money guarantees and higher surrender of
policies with higher profitability in Asia
Expense The risk that actual expenses in the future exceed the expected expenses EC: Expense overruns in the Benelux
Premium re-rating The risk that actual premium rate adjustments in the future are less than
the expected premium adjustment
EC: Related to renewable heath riders in
Malaysia
1 Who we are 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information
257ING Group Annual Report 2011