ING Direct 2009 Annual Report Download - page 252

OBJECTIVES
ING Group Capital Management (Capital Management) is responsible for the sufficient capitalisation of ING Group entities at all times in
order to manage the risk associated with ING’s business activities. This involves the management, planning and allocation of capital within
ING Group. ING’s Corporate Treasury is part of Capital Management. It executes the necessary capital market transactions, term (capital)
funding and risk management transactions. Capital Management monitors and plans capital adequacy on a consolidated basis at three
levels: ING Group, ING Insurance and ING Bank. The rating objective for these three entities is AA. Capital Management takes into account
the metrics and requirements of regulators (EU Solvency, Tier 1 and BIS ratios and limits for hybrid capital), rating agencies (leverage ratios,
Adjusted Equity) and internal models such as the economic capital and market value balance sheets approach for ING Insurance including
Available Financial Resources (AFR).
ING applies three main capital definitions:
Adjusted Equity (ING Group and ING Insurance) – This rating agency concept is defined as shareholders’ equity plus core Tier 1 •
securities, hybrid capital, prudential filters and an adjustment for Value in Force and Deferred Acquisition Cost. See ‘Capital Base’
disclosures in this section. This capital definition is applied in comparing available capital to core debt (leverage) for ING Group and ING
Insurance;
Core Tier 1 capital, Tier 1 capital and total BIS capital (ING Bank) – Tier 1 capital is defined as shareholders’ equity including core Tier 1 •
securities plus hybrid capital less certain prudential filters and deductible items. Tier 1 and BIS capital divided by risk weighted assets
equals the Tier 1 and BIS ratio respectively. Core Tier 1 capital is equal to Tier 1 capital excluding hybrid capital;
AFR (ING Insurance) – This is a market value concept, defined as market value of assets (MVA) less the market value of liabilities (MVL) •
on the balance sheet. The liabilities do not include perpetual hybrid capital which are included in AFR as equity. The valuation of ING
Insurance includes an adjustment for portfolio illiquidity. AFR is used as the measure of available capital in comparison with EC
employed. EC, or Economic Capital, is the amount of capital that is required to absorb unexpected losses in times of severe stress given
the ‘AA’ target rating of ING Insurance.
In prior years, ING also measured AFR for ING Bank and ING Group. However, during 2009, the management focus shifted mainly to
regulatory and rating agency metrics for ING Bank (core Tier 1, Tier 1, BIS) and ING Group (debt/equity). For ING Insurance, AFR continues
to be important but is a lower priority than in prior years. For ING Insurance, the main focus is now on ensuring operating entities are
adequately capitalized based on local regulatory and rating agency requirements and ensuring that on a consolidated basis, the leverage
of ING Insurance (debt/equity) is appropriate.
DEVELOPMENTS
In 2009 Capital Management’s main focus was to strengthen the capital position of ING Group, ING Bank and ING Insurance. To achieve
this ING Group did not pay dividend in 2009 and launched a rights issue in November of EUR 7.5 billion. The proceeds of the rights issue
were largely used to repay EUR 5 billion of the core Tier 1 securities issued in November 2008 to the Dutch State and to provide for
additional pre-tax EUR 1.3 billion future payments to the Dutch State for the Illiquid Assets Back-up Facility (IABF) as agreed with the
European Commission.
POLICIES
The activities of Capital Management are executed on the basis of established policies, guidelines and procedures. The main documents
that serve as guidelines for capital planning are the Capital Letter (comprising the approved targets and limits for capital), the Capital
Planning Policy, the Dividend Policy and the Capital Request Policy. For the Corporate Treasury there are many policies and limits that guide
the management of the balance sheets and the execution of capital market transactions.
The above capital definitions and policies have been approved by the ING Group Executive Board or delegated authorities.
PROCESSES FOR MANAGING CAPITAL
In addition to measuring capital adequacy, Capital Management also ensures that sufficient capital is available through setting targets and
limits relevant to the above mentioned metrics for ING Bank, ING Insurance and ING Group and ensuring adherence to the set limits and
targets through planning and executing capital management transactions. The process is supplemented by stress testing and scenario
analysis. The ongoing assessment and monitoring of capital adequacy is embedded in Capital Management’s capital planning process and
results in a quarterly Capital Adequacy Assessment Report which is presented to both the ING Group Finance and Risk Committee and the
ING Group Executive and Supervisory Boards. The main objective of the assessment is to ensure that ING Group as a whole has sufficient
capital relative to its risk profile both in the short and the medium term.
CAPITAL ADEQUACY ASSESSMENT
As at 31 December 2009 and 2008, ING Group, ING Bank and ING Insurance met all key target capital ratios and metrics and regulatory
requirements. As at 31 December 2009 and 2008, ING Group, ING Bank and ING Insurance were adequately capitalised in relation to their
risk profile and strategic objectives.
ING Group Annual Report 2009
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Capital management
amounts in millions of euros, unless stated otherwise
2.1 Consolidated annual accounts