ING Direct 2009 Annual Report Download - page 204

ING Group
Committee membership is organised such that specific business know-how and expertise relating to the activities of ING and the subject
matter of the committees is available. The CRO attends the meetings of the Audit Committee and the Risk Committee.
The CRO makes sure that the boards are well informed and understand ING Group’s risk position at all times. Every quarter the CRO
reports to the board committees on ING’s risk appetite levels and on ING Group’s risk profile. In addition the CRO briefs the board
committees on developments in internal and external risk related issues and makes sure the board committees understand specific
risk concepts.
ING has integrated its risk management into the annual strategic planning process. This process aligns strategic goals, business strategies
and resources throughout ING Group. The process is such that the Executive Board issues a Planning Letter which provides the
organisation with the corporate strategic direction, and addresses key risk issues. Based on this Planning Letter the business lines and
business units develop their business plans which align with the Group’s strategic direction. The process includes a qualitative and
quantitative assessment of the risks involved in the plans. It is part of the process to explicitly discuss strategic limits and group risk appetite
levels. At each level, strategies and metrics are identified to measure success in achieving objectives and to assure adherence to the
strategic plan. Based on the business unit and line of business plans, the Executive Board formulates the Group Strategic Plan which is
submitted to the Supervisory Board for approval.
Group risk policies
ING has a framework of risk management policies, procedures and standards in place to create consistency throughout the organisation,
and to define minimum requirements that are binding on all business units. The governance framework of the business units aligns with
the Group level framework and meets local (regulatory) requirements. Senior Management is responsible to ensure policies, procedures
and standards are implemented and adhered to. Employees globally have access to the Group’s governance framework through an internal
website. Policies, procedures and standards are regularly reviewed and updated via the relevant risk committees to reflect changes in
markets, products and emerging best practices.
ING GROUP FINANCIAL RISK PROFILE
ING Group uses an integrated risk management approach. The risk dashboard captures the risks in all Banking and Insurance business lines
in terms of Earnings at Risk and Capital at Risk, and shows the impact of diversification across the Group. The Executive Board uses the risk
dashboard to monitor and manage the actual risk profile in relation to the Group risk appetite. It enables the Executive Board to identify
possible risk concentrations and to support strategic decision making. The risk dashboard is reported to the Executive Board on a quarterly
basis and is subsequently presented to the Risk Committee.
ING Group’s risk appetite is defined by the Executive Board as part of the strategic planning process. Strict boundaries are established with
regard to acceptable risk types and levels. ING’s ‘three lines of defence’ governance framework ensures that risk is managed in line with
the risk appetite as defined by the Executive Board. Risk appetite is cascaded throughout the Group, thereby safeguarding controlled risk
taking. The role of the business lines is to maximise the value within established risk boundaries. Each quarter, the Executive Board
monitors that the financial and non-financial risks are within the boundaries of the risk appetite as set in the strategic planning process.
During 2009 the risk appetite framework for ING Group was revised, and approved by the Executive Board. It now more closely aligns the
risk appetite setting with the capital management targets for the capital ratios. This new framework will be implemented in 2010.
ING Group risk metrics in 2009
The Group’s risk appetite is captured in three different metrics which are disclosed below:
Earnings at Risk: the potential reduction in IFRS earnings over the next year, during a moderate (i.e. ‘1 in 10’) stress scenario. Maintaining •
a high quality of earnings helps ING to safeguard against being downgraded by the rating agencies;
Capital at Risk: the potential reduction of the current net asset value (based on fair values) over the next year, during a moderate •
(i.e. ‘1 in 10’) stress scenario;
Economic Capital: the amount of capital that is required to absorb unexpected losses in times of a severe (i.e. ‘1 in 2000’) stress scenario •
given ING Group’s ‘AA’ target rating.
ING Group’s risk metrics cover the most important aspects in terms of different severities (moderate vs. extreme stress) and performance
measures where risk can materialise (value vs. earnings). The Earnings and Capital at Risk metrics are important metrics from a shareholder
point of view since they provide insight in the level of risk ING takes under ‘moderate stress’ market expectations to generate return. From
the debt and policy holder point of view, Economic Capital is more important since it is the buffer against extreme losses.
Risk management (continued)
2.1 Consolidated annual accounts
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