ING Direct 2011 Annual Report Download - page 282

Capital management continued
POLICIES
The activities of Capital Management are executed on the basis of established policies, guidelines and procedures. The main documents
that serve as guidelines for capital planning are the Capital Letter (comprising the approved targets and limits for capital), the Capital
Planning Policy, the Dividend Policy and the Capital Request Policy. For the Corporate Treasury there are additional policies and limits
that guide the management of the balance sheets and the execution of capital market transactions.
The above capital definitions and policies have been approved by the ING Group Executive Board or delegated authorities.
PROCESSES FOR MANAGING CAPITAL
In addition to measuring capital adequacy, Capital Management also ensures that sufficient capital is available through setting targets
and limits relevant to the above mentioned metrics for ING Group, ING Bank, and ING Insurance and ensuring adherence to the set limits
and targets through planning and executing capital management transactions. The process is supplemented by stress testing and scenario
analysis. The ongoing assessment and monitoring of capital adequacy is embedded in Capital Management’s capital planning process and
results in a quarterly capital update report which is presented to both the ING Group Finance and Risk Committee and the ING Group
Executive and Supervisory Boards. The main objective of the assessment is to ensure that ING Group as a whole has sufficient capital
relative to its risk profile both in the short and the medium term.
A key priority of Capital Management is to make sure that strong stand-alone companies are created for banking and insurance
in preparation of the separation. All operating entities need to stay adequately capitalised based on local regulatory and rating
agency requirements and interdependencies should be reduced to a minimum. The entities should also be able to access capital
markets independently.
CAPITAL ADEQUACY ASSESSMENT
During 2011, ING Group, ING Bank and ING Insurance were adequately capitalised.
ING Group’s Capital base
Group Bank Insurance
2011 2010 (1) 2011 2010 2011 2010
Shareholders’ equity (parent) 46,663 40,904 34,367 34,452 23,475 20,159
Core Tier 1 securities 3,000 5,000
Group hybrid capital (2) 9,332 12,039 6,850 8,438 2,604 2,094
Group leverage (3) 7,917 8,462
Total capitalisation 66,912 66,405 41,217 42,890 26,079 22,253
Adjustments to equity:
Revaluation reserve debt securities –4,142 –1,158 213 –19
Revaluation reserve crediting to life policyholders 3,492 1,488
Revaluation reserve cash flow hedge –1,970 –847 822 639 –2,883 –1,567
Goodwill (4) –2,006 –2,908 –1,390 –1,645 –786 –1,425
Revaluation reserves fixed income & other –4,626 –3,425 –355 –1,025 –3,669 –2,992
Revaluation reserves excluded from Tier 1 (5) –2,043 –2,212
Insurance hybrid capital (6) 1,726 2,250
Excess hybrid capital (7) –43 –43
Minority interests 817 749 62 111
Deductions Tier 1 –1,014 –1,069
Tier 1 capital for Bank 38,622 39,333
Other qualifying capital (8) 8,502 9,813
Insurance Group Directive adjustments (9) –2,792 –1,244
Group leverage (core debt) –7,917 –8,462
Total capital (Adjusted Equity for Group, BIS capital
for Bank and IGD capital for Insurance) 54,369 54,475 47,124 49,145 21,406 20,335
(1) These numbers have been restated to reflect the move towards fair value accounting for Guaranteed Minimum Withdrawal Benefits for life in the US closed
block VA as of 1 January 2011. Further details on the restatement are available in the Accounting Policies for the consolidated annual accounts of ING Group
under ‘Changes in accounting policies’.
(2) Tier 1 instruments issued by ING Group (e.g. perpetual debt securities and preference shares) at nominal value. Group hybrid Tier 1 instruments other than
preference shares are provided as hybrid capital to ING Bank or ING Insurance.
(3) Investments in subsidiaries less equity (including core Tier 1 securities) of the Group holding company. This net debt position is provided as equity to ING
Insurance and ING Bank.
(4) According to the regulatory definition
(5) Includes mainly EUR –1,247 million (2010: EUR –1,727 million) in participations (e.g. Kookmin, Bank of Beijing) and other equity investments, EUR –355 million
(2010: EUR –382 million) for Real estate for own use and EUR –441 million (2010: EUR –107 million) for own credit risk. The Dutch banking regulator requires
this deduction to be made from Tier 1 capital. This deduction is added back to Tier 2 capital.
(6) Qualifying dated subordinated debt issued by ING Insurance at nominal value.
(7) Excess Insurance hybrids over the regulatory cap need to be deducted from both Insurance and Group capital.
(8) Consists of EUR 9,516 million (2010: EUR 10,882 million) Tier 2 capital and no Tier 3 (2010: nil), offset by EUR 1,014 million (2010: EUR 1,069 million)
of regulatory deductions.
(9) An adjustment for the Dutch Financial supervision act. A ‘test-of-adequacy’ has to be included in the available capital measurement. The revaluation
reserve debt securities and revaluation reserve crediting to life policyholders are not reversed out of the IGD capital definition.
280 ING Group Annual Report 2011