ING Direct 2008 Annual Report Download - page 281

PROJECTED UNIT CREDIT METHOD
An actuarial valuation method that considers each period of service as
giving rise to an additional unit of benefit entitlement and measures each
unit separately to build up the final obligation.
QUALIFYING ASSET (WITHIN THE MEANING OF BORROWING
COSTS)
An asset that necessarily takes a substantial period of time to get ready for
its intended use or sale.
RECOGNITION
The process of incorporating in the balance sheet or profit and loss
account an item that meets the definition of an element and satisfies the
following criteria for recognition:
it is probable that any future economic benefit associated with the item •
will flow to or from the enterprise; and
the item has a cost or value that can be measured reliably.•
RECOVERABLE AMOUNT
The higher of an asset’s net selling price and its value in use.
REDEMPTION VALUE
With respect to investments in fixed-interest securities, the amount
payable on the maturity date.
REINSURANCE
The practice whereby one party, called the reinsurer, in consideration for a
premium paid to him, agrees to indemnify another party, called the
reinsured or ceding company, for part or all of the liability assumed by the
reinsured under a contract or contracts of insurance which the reinsured
has issued. The reinsured may also be referred to as the original or primary
insurer, the direct writing company, or the ceding company.
RETURN ON EQUITY (ROE)
The return on equity is the net result as percentage of the average equity.
RISK ADJUSTED RETURN ON CAPITAL (RAROC)
A performance indicator that measures revenues in the perspective of the
risks that had to be taken to obtain that revenue. RAROC is calculated by
dividing the risk-adjusted-return by economic capital. In the RAROC
calculation, the actual credit-risk provisioning is replaced by statistically
expected losses reflecting the average credit losses over the entire
economic cycle.
RISK-WEIGHTED ASSETS (‘RWA‘ UNDER BASEL I)
Assets which are weighted for credit risk according to a formula used by
the Dutch central bank (De Nederlandsche Bank), which conforms to the
capital adequacy guidelines of the BIS (Bank of International Settlements).
On and off-balance-sheet items are weighted for risk, with off-balance-
sheet items converted to balance-sheet equivalents (using credit-
conversion factors) before being allocated a risk weight.
RISK-WEIGHTED ASSETS (‘RWA’ UNDER BASEL II)
Assets which are weighted for credit and market risk in accordance with
the Basel II methodology. The risk-weighted assets are calculated using
internal models approved by The Dutch central bank (De Nederlandsche
Bank). Regulatory capital requirements for operational risk are calculated
without use of risk-weighted assets.
SETTLEMENT RISK
Arises when there is an exchange of value (funds, instruments or
commodities) for the same or different value dates or times and receipt is
not verified or expected until ING has paid or delivered its side of the trade.
The risk is that ING delivers, but does not receive delivery from the
counterparty.
PLAN ASSETS
Comprise assets held by a long-term employee benefit fund and qualifying
insurance policies. Assets held by a long-term employee benefit fund are
assets (other than non-transferable financial instruments issued by the
reporting enterprise) that:
are held by an entity (a fund) that is legally separate from the reporting •
enterprise and exists solely to pay or fund employee benefits; and
are available to be used only to pay or fund employee benefits, are not •
available to the reporting enterprise’s own creditors (even in
bankruptcy), and cannot be returned to the reporting enterprise, unless
either the remaining assets of the fund are sufficient to meet all the
related employee benefit obligations of the plan or the reporting
enterprise or the assets are returned to the reporting enterprise to
reimburse it for employee benefits already paid.
A qualifying insurance policy is an insurance policy issued by an insurer that
is not a related party of the reporting enterprise, if the proceeds of the
policy:
can be used only to pay or fund employee benefits under •
a defined benefit plan; and
are not available to the reporting enterprise’s own creditors (even in •
bankruptcy) and cannot be paid to the reporting enterprise, unless
either the proceeds represent surplus assets that are not needed for the
policy to meet all the related employee benefit obligations or the
proceeds are returned to the reporting enterprise to reimburse it for
employee benefits already paid.
POST-EMPLOYMENT BENEFIT PLANS
Formal or informal arrangements under which a company provides
post-employment benefits for one or more employees. Post-employment
benefits are employee benefits other than termination benefits and equity
compensation benefits, which are payable after the completion of
employment.
PREFERENCE SHARE
Similar to an ordinary share but carries certain preferential rights. These
rights usually concern the guarantee of a fixed (cumulative) return to the
shareholder or a guaranteed return on the investment.
PREMIUMS EARNED
The portion of net premiums written in current and past periods which
applies to the expired portion of the policy period, calculated by
subtracting movements in unearned premium reserves from net premiums.
PRE-SETTLEMENT RISK
Pre-settlement risk arises when a counterparty defaults on a transaction
before settlement and ING has to replace the contract by a trade with
another counterparty at the then prevailing (possibly unfavourable) market
price. The pre-settlement risk (potential or expected risk) is the cost of ING
replacing a trade in the market. This credit risk category is associated with
dealing room products such as options, swaps, and securities financing
transactions. Where there is a mutual exchange of value, the amount of
outstanding is generally based on the replacement value (mark-to-market)
plus potential future volatility concept, using an historical 7 year time
horizon and a 99% confidence level.
PRESSURISED ASSETS
Pressurised assets have been defined as subprime ABS exposures, Alt-A
ABS exposures, CDO/CLOs, SIVs, ABCP investment, leveraged finance and
exposures on monoliners.
PRIVATE LOAN
Loans to governments, other public bodies, public utilities, corporations,
other institutions or individuals with a loan agreement as the only
instrument of title.
PRIVATE PLACEMENT
A placement in which newly issued shares or debentures come into
possession of a limited group of subscribers who are prepared to buy the
new securities.
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ING Group Annual Report 2008