ING Direct 2011 Annual Report Download - page 261

Risk management continued
ING Insurance Eurasia
ECONOMIC CAPITAL
Economic Capital ING Insurance Eurasia (99.5% undiversified) by Risk Category
2011 2010
Market Risk 7,651 9,411
Economic capital mainly reduced due to a decrease in equity risk caused by market conditions and additional hedges which were put in
place for the direct equity holdings in the Benelux. In addition credit spread risk reduced as Southern European government bonds were
replaced by Dutch, Japanese and German government bonds.
Sensitivities
Sensitivities for market risks
AFR
2011
IFRS
Earnings
2011
AFR
2010
IFRS
Earnings
2010
Interest Rate Up 746 –220 601 –170
Interest Rate Down –1,601 405 –1,462 251
Equity –823 308 –1,720 –85
FX –972 –89 –877 –113
Implied Volatility –432 –116 –463 n/a
Credit Spread –180 –35 –1,912 0
Real Estate –790 –782 –798 –791
The Available Financial Resources are currently mainly sensitive to downward interest rates movements and declining equity and real estate
prices. Compared to 2010 the downward interest rate sensitivity was reduced by hedges put in place in the Benelux. The sensitivity to equity
prices was reduced because of hedges put in place in the Benelux to protect the direct equity exposure. Credit Spread reduced significantly
compared to 2010 due to an increased offsetting effect of liquidity premium present in spreads.
The IFRS earnings are mainly sensitive to interest rate movements and a decline in real estate prices. During 2011 the sensitivities for Real
Estate risk remained fairly stable. The Interest rates sensitivities compared to 2010 are mainly influenced by the additional hedges put in
place in the Benelux. IFRS sensitivities for implied volatility of interest rates and of equity are disclosed since 2011.
REAL ESTATE
Real estate price risk arises from the possibility that the value of real estate assets fluctuates because of a change in earnings related to real
estate activities and/or a change in required investor yield. Real estate exposure is mainly present in Europe, more specifically Benelux.
ING Insurance Eurasia has two different categories of real estate exposure on its insurance books. First, ING Insurance Eurasia owns buildings
it occupies. Second, ING Insurance Eurasia has invested capital in several real estate funds and direct real estate assets. A decrease in real
estate prices will cause the value of this capital to decrease and as such ING Insurance is exposed to real estate price shocks.
The second category can be divided on the one hand in stakes in real estate assets that are revalued through equity and ontheother hand
stakes in funds and direct real estate revalued through P&L. Only for the last category will real estate price shocks haveadirect impact on
reported net profit.
Real Estate Exposure Profile by Sector Type
Sector
Revalued
through P&L
2011
Not revalued
through P&L
2011
Revalued
through P&L
2010
Not revalued
through P&L
2010
Residential 109 967 349 785
Office 886 605 1,321 199
Retail 1,596 379 1,933 0
Industrial 440 0422 0
Other 212 518 166 502
Total 3,243 2,469 4,191 1,486
As at 31 December 2011, ING Insurance Eurasia has EUR 3.6 billion of real estate related investments (excluding leverage). ING Insurance
Eurasia’s real estate exposure (i.e. including leverage) is EUR 5.7 billion of which EUR 3.2 billion is recognised at fair value through P&L and
EUR2.5billion is not revalued through P&L, but is either booked at cost or is revalued through equity (with impairments going through
P&L). In total, real estate exposure increased by EUR 35 million, mainly as a result of positive fair value changes (EUR 22 million), net
investments (EUR 126 million) and FX revaluation (EUR 8 million) offset by divestments (EUR 87 million) and impairments (EUR 34 million).
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
259ING Group Annual Report 2011