ING Direct 2011 Annual Report Download - page 279

Risk management continued
ING Insurance US
Main Compliance developments in 2011
• Policies & Procedures: ING Insurance US Compliance reviewed and prepared drafts of an updated Code of Business Conduct and
Ethics, along with new or refreshed Corporate Compliance Policies tailored to the US business and regulatory regime. These will be
issued and implemented in 2012.
• Technology Enhancements: ING Insurance US Compliance enhanced technology and tools to improve compliance risk management
in the areas of anti-money laundering, position reporting and personal trading.
• Enterprise Functions: ING Insurance US Compliance enhanced its organisation by implementing greater focus on consistent
enterprise-wide compliance processes and dedicated teams to support critical functions across all business lines, including advertising
review, customer complaint resolution, branch office compliance inspections and compliance training. Compliance also integrated its
team and processes supporting all of the ING Insurance US wholesale broker-dealers in the Retirement, Insurance and Annuity
Manufacturing business lines to provide more effective and consistent controls.
• Extra-territorial Laws: The UK Bribery Act was effective 1 July 2011 and is deemed applicable to ING’s business globally. Accordingly,
the ING Group Gifts, Entertainment and Anti-Bribery Policy was amended to comply with the UK Bribery Act, and ING Insurance US
adopted and implemented the amended Group policy to enhance ING Insurance US’s existing anti-corruption and anti-bribery policies
and procedures.
• Employee Compliance Training: Continuous education and awareness training was provided through the ING Learning Center, with
four required Corporate Responsibilities Courses for all ING Insurance US employees, in addition to two targeted courses on Privacy and
Anti-Money Laundering for certain designated employees.
REGULATORY CAPITAL
For the capital adequacy assessment of ING Insurance’s US domiciled regulated insurance businesses, available capital is measured under
US statutory accounting principles and required capital is measured under the US regulatory Risk Based Capital (RBC) methodology defined
by the National Association of Insurance Commissioners (NAIC). Commonly in the US an insurer’s financial strength and ability to meet
policyholder obligations is measured in terms of the amount of statutory capital held in relation to the ‘Company Action Level’ RBC
defined by the NAIC framework. Note that the level of capital required by rating agencies to maintain an acceptable claims paying ability
rating is well above the regulatory minimum defined by Company Action Level RBC. Consequently, ING Insurance US manages its available
capital primarily with respect to capital metrics that are aligned with the models of the various rating agencies.
The relevant capital requirements of the ING US business units consist of statutory Risk Based Capital requirements (RBC) for its US
domiciled business, along with additional requirements for the Cayman Islands based subsidiary Security Life of Denver International (SLDI).
ING US targets a RBC ratio of 425% for its US-domiciled business.
The asset target for variable annuity (VA) business within SLDI is based on Actuarial Guideline 43 (AG 43), a reserve standard written by
the US National Association of Insurance Commissioners. AG 43 prescribes reserves based on applying standardised economic scenarios
under the Conditional Tail Expectation (CTE) approach, a scenario testing methodology. For rating agency purposes, ING US targets assets
satisfying the CTE requirement in excess of the 95% confidence level.
Since Regulatory filings still need to be completed, the actual targets are not available yet, but the total US target is estimated at EUR 7.0 billion.
Regulatory Capital Sensitivities
The ING Insurance US calculates regulatory capital sensitivities on the Risk-Based Capital model in order to provide insight into how the
amount of available capital in excess of regulatory required capital is sensitive to an increase or decrease in different market and credit risk
factors under a moderate stress scenario which corresponds approximately with a 1-in-10 event. Regulatory capital sensitivities are
calculated in aggregate for the US domiciled regulated insurance entities, and exclude any effects of the sensitivities on the capital of
non-US domiciled entities.
The sensitivities shown are calculated at business unit level and cover US domiciled insurance entities. The sensitivities are based on
moderate and simple to explain shocks to underlying risk factors. The following risk factors are taken into account:
• Interest rates;
• Equity;
• Credit (credit default and credit spread risk);
• Implied volatility (equity & interest rates);
• Foreign exchange;
• Real Estate.
The Model Disclosure table previously shown in Market Risk section for Earnings at Risk is the same overview of the shock scenarios
applied for regulatory capital sensitivities.
The regulatory capital sensitivity in aggregate is calculated by combining the joint impact of the various market stress events calculated by
taking into account the correlations between risk types.
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
277ING Group Annual Report 2011