ING Direct 2008 Annual Report Download - page 277

Financial glossary
ACTUARIAL AND UNDERWRITING RISK
These risks (mortality, longevity, morbidity, adverse motor or home claims,
etc.), result from the pricing and acceptance of insurance contracts.
Actuarial risk is the risk that premium levels and provisions in respect of
insurance risk may turn out to be (no longer) correct. Underwriting risk is
the risk that an issuer will receive a claim under an insurance policy it
issues/underwrites. Maximum underwriting exposures are limited through
exclusions, cover limits and reinsurance.
ALT-A RESIDENTIAL MORTGAGE BACKED SECURITY (ALT-A RMBS)
A type of US residential mortgage which is considered riskier
than ‘prime’ and less risky than ‘sub-prime’ mortgages. Parameters
generally taken into account are borrower credit scores, residential
property values and loan-to-value ratios. Alt-A mortgages are further
characterised by a limited degree of income and/or
asset verification.
AMORTISED COST
The amount at which the financial asset or liability is measured
at initial recognition less principal repayments, plus or minus the
cumulative amortisation using the effective interest method of any
difference between that initial amount and the maturity amount, and
minus any reduction for impairment or uncollectibility.
ASSET AND LIABILITY COMMITTEE (ALCO)
Manages the balance sheet of ING, especially with regard to strategic
non-trading risk. These risks comprise interest rate exposures, equity risk,
real estate risk, liquidity, solvency and foreign exchange risk and
fluctuations.
ASSET LIABILITY MANAGEMENT (ALM)
The practice of managing a business such that decisions on assets and
liabilities are coordinated. It involves the ongoing process of formulating,
implementing, monitoring and revising strategies related to assets and
liabilities.
ASSET BACKED COMMERCIAL PAPER (ABCP)
A type of commercial paper that is collateralised by other financial assets.
ASSET BACKED SECURITIES (ABS)
A type of bond or note that is based on pools of assets, or collateralised by
the cash flows from a specified pool of underlying assets.
ASSOCIATE
An entity over which the Group has significant influence, generally
accompanying a shareholding of between 20% and 50% of the voting
rights, and that is not a subsidiary not a joint venture.
AVAILABLE FINANCIAL RESOURCES (AFR)
The available financial resources equal the market value of assets minus
market value of liabilities, excluding hybrids issued by ING Group which is
counted as capital. ING’s policy is that the available financial resources
should exceed economic capital for Bank, Insurance and Group.
AVAILABLE-FOR-SALE FINANCIAL ASSETS
Those non-derivative financial assets that are designated as available for
sale or are not classified as
loans and receivables;•
held-to-maturity investments; or•
financial assets at fair value through profit and loss.•
BASEL I
Regulatory requirements issued by the Basel Committee on Banking
Supervision for the solvency calculation, which are superseded by Basel II,
for ING, from 2008 onwards.
BASEL II
Regulatory requirements issued by the Basel Committee on Banking
Supervision for the solvency calculation, which, for ING, apply from 2008
onwards. Basel II is an international standard for calculating the required
capital based on internal models that take into account the financial and
operational risks.
BASIS POINT VALUE (BPV)
The change in the Net Present Value of a cash flow or a pool of cash flows
due to a one basis point change of the yield curve.
BASIS RISK
This risk arises from an imperfect correlation in the adjustment of the rates
earned and paid on different financial instruments. Examples of products
in which these risks are inherent are demand deposits, saving accounts and
mortgages with prepayment options.
BIS
An international organisation which fosters international monetary and
financial co-operation and serves as a bank for central banks. BIS has set a
minimum for the solvency ratio reflecting the relationship between capital
and risk weighted assets. The ratio should be at least 8%.
BUSINESS RISK
The exposure to value loss due to fluctuations in volumes, margins and
costs. These fluctuations can occur because of internal, industry, or wider
market factors. It is the risk inherent to strategy decisions and internal
efficiency.
CAPITAL AT RISK (CAR)
The maximum negative impact on ING Group’s economic surplus over a
one year forward looking horizon under normal market conditions. CaR is
calculated at a 90% confidence interval.
CERTIFICATES OF DEPOSIT
Short-term negotiable bearer debt instruments issued by banks.
CLAIM
A demand for payment of a policy benefit because of the occurrence of an
insured event, such as the death or disability of the insured or the maturity
of an endowment, the incurrence of hospital or medical bills, the
destruction or damage of property and related deaths or injuries, defects
in, liens on, or challenges to the title to real estate, or the occurrence of a
surety loss.
CLAIMS RATIO
Claims, including claims handling expenses, expressed as a percentage of
net earned premiums.
COLLATERALISED DEBT OBLIGATION (CDO)
A type of asset-backed security which provides investors exposure to the
credit risk of a pool of fixed income assets.
COLLATERALISED LOAN OBLIGATION (CLO)
A type of CDO which is backed primarily by leveraged bank loans.
COMBINED RATIO
The sum of the claims ratio and the cost ratio for a non-life insurance
company or a reinsurance company. A combined ratio of more than 100%
does not necessarily mean that there is a loss on non-life insurance
policies, because the result also includes the allocated investment income.
COMMERCIAL PAPER
Promissory note (issued by financial institutions or large firms) with
very-short to short maturity period (usually 2 to 30 days, and not more
than 270 days), and unsecured.
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ING Group Annual Report 2008