ING Direct 2008 Annual Report Download - page 213

The following table provides an overview of the Economic Capital for insurance risks, split into mortality risk, morbidity risk and risk
related to P&C products:
Economic Capital Insurance risks
2008 2007
Mortality 781 803
Morbidity 483 2,141
P&C 293 349
Total 1,557 3,293
The mortality risk relates to the potential for increasing deaths (life risk) or decreasing deaths (longevity risk). This risk relates to a potential
mortality catastrophe or to changes in long term mortality rates. As noted, ING manages these risks via limits and external reinsurance.
Morbidity risk relates to disability products in the Netherlands and some health riders sold in Asia. The decrease in morbidity risk capital
relates to the sale of ING Life Taiwan, which had a block of guaranteed health riders providing benefits for 30-60 years into the future.
Finally, property and casualty risk exists primarily in Canada and the Benelux.
Through scenario analyses, ING Insurance measures the sensitivity of pre-tax earnings of the insurance operations to an increase/decrease
of the insurance risk factors over a one year period. These changes to earnings can relate to realised claims or any other profit item that
would be affected by these factors. ING assumes that not all the shifts presented below will happen at the same time.
Earnings sensitivities are defined on a shock scenario at the 90% confidence level on pre-tax IFRS earnings, projected one year forward
from the calculation. Therefore the table below provides earnings sensitivities to an instantaneous shock at the 90% confidence level
projected through to 31 December 2008. The EaR information does not include ING Canada which was divested in January.
Earnings sensitivities for Insurance risks
2008 2007
Mortality –61 –54
Morbidity –105 –124
P&C –49 –132
The table above presents figures after diversification between insurance risks and diversification across business units of ING Insurance.
The largest earnings sensitivity to P&C claims relates to health and P&C claims in the Netherlands.
ING INSURANCE – CREDIT RISKS
The credit risks in the general accounts portfolio within ING Insurance are subject to the same principles, policies, definitions and
measurement as those of the banking operations. The credit risks are measured and monitored by Corporate Credit Risk Management
(CCRM) as well as local credit risk managers within the various locations where credit risk is taken within ING Insurance and ING
Investment Management. Within ING Insurance, the goal is to maintain a low risk, well diversified credit risk portfolio that meets
or exceeds market based benchmark returns.
ING Insurance’s credit exposure arises from the investment of insurance premiums in assets subject to credit risk, largely in the form of
unsecured bond investments, and smaller amounts of residential mortgages and structured finance products. In addition, credit exposure
also arises from derivatives, sell/repurchase transactions, securities lending/borrowing and reinsurance contracts used to hedge the
portfolio. ING Insurance has a policy of maintaining a high quality investment grade portfolio.
Overall portfolio credit risk limits are established and integrated into investment mandates by ALCO Insurance based on asset or
investment category and risk classes. Individual issuer limits are determined based on the obligor’s rating. These limits are managed by
the region where the parent company is domiciled but may be sub-allocated to regional or local portfolios. In addition, each Insurance
company has one or more investment mandates that may differ by insurance portfolio specify credit risk appetite by issuer type and
quality.
The credit risk classification of issuers, debtors and counterparties within the Insurance companies’ credit risk portfolios continues its
transition to the methodology used by the banking operations. Similar to ING Bank, ING Insurance uses risk classes which are calibrated
to the probability of default of the underlying issuer, debtor or counterparty. These ratings are defined based upon the quality of the
issuer in terms of creditworthiness, varying from investment grade to problem grade expressed in S&P equivalents.
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ING Group Annual Report 2008