ING Direct 2008 Annual Report Download - page 190

2.1 Consolidated annual accounts
Earnings at Risk increased considerably on group level with the rise of ING Bank and ING Insurance similar in magnitude. For ING Bank
this was mainly caused by credit migration and clearly visible in ING Direct and Wholesale Banking. For ING Insurance the EaR impact is
caused by higher impairment risk for listed equity and therefore most notable in the corporate line.
Overall Capital at Risk decreased with a significant decrease in ING Insurance and an increase in ING Bank. Credit migration explains most
of the increase in CaR Wholesale Banking and in ING Direct.
CaR Insurance Americas goes down slightly due to a significant decrease in equity risk (due to lower exposures and de-risking activities).
The sharp decrease in Insurance Asia/Pacific CaR was almost completely the result of the decrease in interest rate risk due to the sale of
ING Life Taiwan. CaR Insurance Europe decreased due to a decrease in equity risk resulting from lower exposures and hedging activities.
Economic Capital ING Group
Since 1999 ING Bank has been disclosing Economic Capital information externally, whereas ING Insurance disclosed Economic Capital
information for the first time in 2007. Although the fundamental principles are the same, ING Bank and ING Insurance Economic Capital
information is currently calculated based on (partly) separately developed models (see Model Disclosure section below) that may differ in
the calculation and aggregation approach due to different market practices and standards used in the banking and insurance industries.
ING’s Group Economic Capital is determined by applying one common aggregation approach to bank and insurance. ING Group Economic
Capital is 15% lower than the sum of the parts (bank and insurance). Three different factors contribute to this consolidation benefit:
1. offsetting positions between bank and insurance: especially on the interest rate risk side, where the long duration assets of the bank
are offset by the long duration liabilities of the Insurance
2. diversification between bank and insurance asset classes based on observed correlations: e.g. less than 1 correlation between
insurance equity positions and bank real estate positions
3. diversification between bank and insurance risk drivers based on expert opinion correlations: e.g. less than perfect correlation between
operational risk incidents at the bank and interest rate risk in insurance
ING has calculated this consolidation benefit to be 15% (2007: 15%).
The table below shows the contribution of the different risk drivers to the consolidation benefit:
Contribution to consolidated Benefit
Interest Rate risk 60%
Equity risk 7%
Foreign Exchange risk 1%
Real Estate risk 4%
Credit risk 3%
Other risks* 25%
Total 100%
* Other risks includes operational risk as well as business risk.
The table below shows the build up of ING Group Economic Capital. Please refer to the bank and insurance paragraphs below for further
explanation on the respective EC numbers.
Group Economic Capital (in EUR billion)
2008 2007*
ING Bank 22.4 18.7
ING Insurance 13.7 23.2
Consolidated Benefit –5.4 –5.9
Total ING Group Economic Capital 30.7 36.0
* In 2007 a group add-on of EUR 0.8 billion related to investments backing Bank Equity was added at Group Level and is now included in Bank EC. The remaining
EUR 0.2 billion add-on in 2007 is no longer applicable in 2008 (for comparison it was included in the diversification benefit).
The potential risk capital impact for ING Group of the ING employee pension liability is currently not included in the aggregated group
risk metrics. The standalone Economic Capital impact for ING employee pension liabilities is calculated separately, and from a capital
management perspective there is currently no need to reserve any additional capital for ING pension liabilities.
Risk management (continued)
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