ING Direct 2002 Annual Report Download - page 75

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Comments with regard to the 2002 change in value can be made as follows:
—A substantial portion of the free surplus is invested in equities. The investment return on free
surplus over the year was EUR -1,212 million primarily as a result of decreases in the equity portfolio.
—The required return of EUR 1,849 million is the rollup of the discount rate on the beginning
value of inforce business and on the value of new business.
—Actual results for 2002 were EUR 2,055 million less than expected. Primary contributors were a
fall in the equity portfolio backing general account liabilities in the Executive Centre ING Europe, a
fall in the equity portfolio backing separate account liabilities in the Executive Centre ING Americas
and credit related losses in the US.
—Discount rates decreased by 0.8% overall to better reflect ING’s weighted average cost of
capital.
—Assumption changes reduced value by EUR 1,817 million. Major assumption changes included
lower assumed investment income, lower assumed separate account growth rates and higher
assumed credit defaults in the Executive Centre ING Americas.
Developing markets new business value increased by 22% over 2001 to EUR 237 million.
Annual Report 2002 · ING Group72
Financial information
CHANGE IN EMBEDDED VALUE OF THE LIFE OPERATIONS
in millions of euros
Reported embedded value 2001 25,827
Investment return on free surplus -1,212
Value of new business 519
Required return 1,849
Experience variances -2,055
Discount rate changes 1,502
Assumption changes -1,817
Currency effects -2,028
(Dividends) and capital injections 225
Other 469
Ending embedded value 2002 23,279
NEW BUSINESS VALUE FROM DEVELOPING MARKETS (1)
amounts in millions of euros
PREMIUMS PREMIUMS
ANNUAL SINGLE IRR (2) VALUE ANNUAL SINGLE IRR (2) VALUE
2002 2001
Central Europe 132 52 12.4% 21 106 12 11.5% 8
Americas 20 175 5.5% -8 59 332 5.8% -8
Asia/Pacific 767 59 17.5% 224 926 65 16.3% 194
ING Group 919 286 15.4% 237 1,091 409 15.8% 194
(1) Countries classified as developing markets are: Central Europe: Czech Republic, Hungary, Poland, Romania, Slovakia;
Americas: Argentina, Chile, Mexico; Asia/Pacific: China, India, Indonesia, Korea, Malaysia, Philippines, Taiwan and Thailand.
(2) IRR = internal rate of return
INDEPENDENT OPINION
Watson Wyatt, an international actuarial consultancy firm, has reviewed the methodology and
assumptions used by ING in the calculation of the embedded value of the life insurance business at
31 December 2002 and the value of new business written during 2002. All material business units in
Europe, the Americas and Asia/Pacific were covered in the review. Watson Wyatt has concluded that
the methodology adopted is appropriate and that the assumptions used are reasonable overall.