ING Direct 2011 Annual Report Download - page 313

Our risk management policies and guidelines may prove inadequate for the risks we face.
The methods we use to manage, estimate and measure risk are partly based on historic market behaviour. The methods may, therefore,
prove to be inadequate for predicting future risk exposure, which may be significantly greater than what is suggested by historic
experience. For instance, these methods may not predict the losses seen in the stressed conditions in recent periods, and may also not
adequately allow prediction of circumstances arising due to the government interventions and stimulus packages, which increase the
difficulty of evaluating risks. Other methods for risk management are based on evaluation of information regarding markets, customers
orother information that is publicly known or otherwise available to us. Such information may not always be correct, updated or
correctlyevaluated.
We are subject to a variety of regulatory risks as a result of our operations in certain countries.
In certain countries in which we operate, judiciary and dispute resolution systems may be less developed. As a result in case of a breach
of contract we may have difficulties in making and enforcing claims against contractual counterparties and, if claims are made against us,
we might encounter difficulties in mounting a defence against such allegations. If we become party to legal proceedings in a market with
an insufficiently developed judiciary system, it could have an adverse effect on our operations and net result.
In addition, as a result of our operations in certain countries, we are subject to risks of possible nationalisation, expropriation, price
controls, exchange controls and other restrictive government actions, as well as the outbreak of hostilities, in these markets. In addition,
the current economic environment in certain of these countries in which we operate may increase the likelihood for regulatory initiatives
to enhance consumer protection or to protect homeowners from foreclosures. Any such regulatory initiative could have an adverse impact
on our ability to protect our economic interest in the event of defaults on residential mortgages.
Because we are continually developing new financial products, we might be faced with claims that could have an adverse
effect on our operations and net result if clients’ expectations are not met.
When new financial products are brought to the market, communication and marketing aims to present a balanced view of the product
(however, there is a focus on potential advantages for the customers). Whilst we engage in a due diligence process when we develop
products, if the products do not generate the expected profit, or result in a loss, or otherwise do not meet expectations, customers may
file mis-selling claims against us. Mis-selling claims are claims from customers who allege that they have received misleading advice or
other information from either ING internal or external advisors (even though ING does not always have full control over the external
advisors). Complaints may also arise if customers feel that they have not been treated reasonably or fairly, or that the duty of care has
not been complied with. While a considerable amount of time and money has been invested in reviewing and assessing historic sales
practices, and in the maintenance of risk management, legal and compliance procedures to monitor current sales practices, there can be
no assurance that all of the issues associated with current and historic sales practices have been or will be identified, nor that any issues
already identified will not be more widespread than presently estimated. The negative publicity associated with any sales practices, any
compensation payable in respect of any such issues and/or regulatory changes resulting from such issues could have a material adverse
effect on our reputation, operations and net result. Customer protection regulations as well as changes in interpretation and perception
by both the public at large and governmental authorities of acceptable market practices might influence client expectations.
Ratings are important to our business for a number of reasons. Downgrades could have an adverse impact on our
operations and net results.
We have credit ratings from Standard & Poor’s Ratings Service, Moody’s Investor Service and Fitch Ratings. Each of the rating agencies
reviews its ratings and rating methodologies on a recurring basis and may decide on a downgrade at any time. In the event of a
downgrade the cost of issuing debt will increase, having an adverse effect on net results. Certain institutional investors may also be
obliged to withdraw their deposits from ING following a downgrade, which could have an adverse effect on our liquidity.
Claims paying ability, at the Group or subsidiary level, and financial strength ratings are factors in establishing the competitive position of
insurers. A rating downgrade could elevate lapses or surrenders of policies requiring cash payments, which might force us to sell assets at
a price that may result in realised investment losses. Among others, total invested assets decreases and deferred acquisition costs might
need to be accelerated, adversely impacting earnings. A downgrade may adversely impact relationships with distributors of our products
and services and customers, which may affect new sales and our competitive position.
Furthermore, ING Bank’s assets are risk weighted. Downgrades of these assets could result in a higher risk weighting which may result in
higher capital requirements. This may impact net earnings and the return on capital, and may have an adverse impact on our competitive
position. For ING’s insurance businesses in a number of jurisdictions, such as the US and the EU, downgrades of assets will similarly affect
the capital requirements for ING Insurance in those jurisdictions.
Risk factors continued
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
311ING Group Annual Report 2011