ING Direct 2009 Annual Report Download - page 233

ING Insurance
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.
Risk classes: ING Insurance portfolio, as % of total outstandings (1)
Insurance Americas Insurance Europe Insurance Asia/Pacific Total ING Insurance
2009 2008 2009 2008 2009 2008 2009 2008
1 (AAA) 24.8% 27.5% 39.8% 34.8% 3.5% 5.3% 28.1% 27. 2%
2-4 (AA) 13.1% 19.6% 16.0% 20.2% 21.9% 29.6% 15.4% 21.1%
5-7 (A) 22.7% 18.9% 22.5% 23.5% 56.7% 43.1% 26.9% 23.7%
8-10 (BBB) 20.1% 20.0% 11.7% 9.3% 7.4% 9.6% 15.1% 14.8%
11-13 (BB) 8.0% 5.2% 7. 2% 10.7% 0.8% 0.9% 6.8% 6.6%
14-16 (B) 5.0% 5.0% 1.2% 1.2% 7.1% 9.4% 3.7% 4.2%
17-22 (CCC & Problem Grade) 6.3% 3.8% 1.6% 0.3% 2.6% 2.1% 4.0% 2.4%
100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
( 1 ) Based on credit risk measurement contained in lending, pre-settlement, money market and investment activities.
The ratings reflect probabilities of default and do not take collateral into consideration.
ING Insurance risk class distribution deteriorated during 2009, mostly due to downgrades. The increase in the CCC and Problem Grade
class was largely due to downgraded securitizations. This category also includes unrated private equity investments. The shift from AA to
AAA at Insurance Europe is caused by an increase in outstandings to governments as a result of derisking.
Risk concentration: ING Insurance portfolio, by economic sector (1) (2)
Insurance Americas Insurance Europe Insurance Asia/Pacific Total ING Insurance
2009 2008 2009 2008 2009 2008 2009 2008
Non-Bank Financial Institutions 47.9% 53.3% 23.9% 26.4% 14.0% 18.7% 34.0% 39.1%
Central Governments 12 .1% 3.2% 42.2% 33.7% 39.1% 22.7% 27.7% 16.6%
Commercial Banks 3.8% 6.2% 10.5% 12.8% 15.1% 23.7% 7.9% 10.8%
Private Individuals 3.5% 3.5% 10.1% 10.5% 7.0% 11. 8% 6.6% 7.1%
Real Estate 9.1% 8.7% 0.9% 1.7% 1.3% 2.0% 4.8% 5.4%
Utilities 4.0% 4.0% 1.8% 1.7% 4.4% 4.0% 3.1% 3.2%
Natural Resources 3.6% 3.5% 0.8% 0.6% 2.4% 1.6% 2.3% 2.2%
Other 16.0% 17.6% 9.8% 12.6% 16.7% 15.5% 13.6% 15.6%
100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
(1) Based on credit risk measurement contained in lending, pre-settlement, money market and investment activities.
The ratings reflect probabilities of default and do not take collateral into consideration.
(2) Economic sectors below 2% are not shown separately but grouped in Other.
Overall risk concentrations within ING Insurance shifted towards Central Governments in 2009, especially in Europe. The relative share of
Central Governments in the total portfolio also increased due to drops in other parts of the portfolio, especially mortgage backed securities
at Insurance Americas.
2.1 Consolidated annual accounts
Risk management (continued)
ING Group Annual Report 2009 231