ING Direct 2011 Annual Report Download - page 276

Risk management continued
ING Insurance US
The table below shows the main risk categories for credit risk within ING Insurance US:
Description Key Drivers
Issuer or Investment Risk – Risk related to the impact of a credit default or rating migration,
plusthe risk that a change in general credit spread levels can
haveonthe market value of these instruments
– Measured at original cost (purchase price) less any prepayments
oramortisations and excluding any accrued and unpaid interest or
theeffects of any impairment.
Investments in public bonds, commercial paper,
securitisations and other publicly traded securities
Lending Risk – Risk related to certain illiquid investments made by ING Insurance US
– Measured at original cost (purchase price) less any prepayments or
amortisations and excluding any accrued and unpaid interest or the
effects of any impairment.
Privately placed bonds and commercial
mortgage loans in the United States.
Pre Settlement Risk – Risk of a counterparty defaulting on a transaction before settlement
and ING Insurance US having to replace the contract by a trade with
another counterparty at the then prevailing (possibly unfavourable)
market price.
– Measured as the replacement value (mark-to-market) plus a potential
future volatility concept, using a 3–7 year historical time horizon and
a97.5% (1.96 standard deviations) confidence level.
Options, swaps, and securities financing
transactions used for hedging purposes
Risk Profile
Risk classes
As a result of the downgrade of the United States Government in August 2011 by S&P, the exposure to AAA rated assets decreased
to16.5%. This resulted in a large “inflow” in the AA category, but that was offset by insurance companies where ING Insurance UShas
(collateralised) reinsurance counterparty risk were downgraded from AA to A. The 17–22 category largely consists of unrated exposures.
The exposure to assets actually rated CCC or below is less than 3% of the portfolio.
Risk Classes: ING Insurance Eurasia portfolio, as % of total outstandings (1)
ING Insurance US
2011 2010
1(AAA) 16.5% 22.3%
2–4 (AA) 13.7% 13.9%
5–7 (A) 25.3% 23.4%
8–10 (BBB) 24.0% 21.3%
11–13 (BB) 3.8% 4.0%
14–16 (B) 3.9% 4.5%
17–22 (CCC & Problem Grade) 12.8% 10.6%
100% 100%
(1) Based on credit risk measurement contained in lending, pre-settlement, money market and investment activities.
The ratings reflect probabilities of default and do not take collateral into consideration and are based on ultimate parent.
The risk concentration per sector remains very similar to last year, with the largest decrease shown for Non-Bank Financial institutions which
decreased by 2.9%. Please note that this category largely consists of special purpose vehicles that issue RMBS, ABS and CMBS securities.
Risk concentration: ING Insurance US portfolio, by economic sector (1)
ING Insurance US
2011 2010
Non-Bank Financial Institutions 38.6% 41.5%
Real Estate 8.5% 7.9%
Central Governments 8.2% 8.4%
Natural Resources 6.9% 5.5%
Utilities 6.0% 5.2%
Commercial Banks 4.4% 3.4%
Food, Beverages & Personal Care 3.6% 3.2%
Chemicals, Health & Pharmaceuticals 3.1% 3.0%
Private Individuals 2.2% 2.3%
Telecom 2.2% 2.1%
General Industries 2.1% 1.6%
Other 14.2% 15.9%
100% 100%
(1) Economic sectors below 2% are not shown separately but grouped in ‘Other’.
ING Insurance US largely invests in financial instruments issued in the United States, as required by regulation. Bonds and private
274 ING Group Annual Report 2011