ING Direct 2009 Annual Report Download - page 279

and may decide on a downgrade at any time. In the event of a downgrade the cost of issuing debt will increase, having an adverse effect
on net results. Certain institutional investors may also be obliged to withdraw their deposits from ING following a downgrade, which could
have an adverse effect on our liquidity. Following the announcement of the Restructuring Plan, several of our subsidiaries have been
downgraded or put on credit watch by rating agencies.
Claims paying ability, at the Group or subsidiary level, and financial strength ratings are factors in establishing the competitive position of
insurers. A rating downgrade could elevate lapses or surrenders of policies requiring cash payments, which might force us to sell assets at a
price that may result in realised investment losses. Among others, total invested assets decreases and deferred acquisition costs might need
to be accelerated, adversely impacting earnings. A downgrade may adversely impact relationships with distributors of our products and
services and customers, which may affect new sales and our competitive position.
Furthermore, ING Bank’s assets are risk weighted. Downgrades of these assets could result in a higher risk weighting which may result in
higher capital requirements. This may impact net earnings and the return on capital, and may have an adverse impact on our competitive
position.
Capital requirements for ING’s insurance businesses in a number of jurisdictions, such as the US and the EU, are based on a risk-based
capital model. A downgrade of assets in these markets could result in a higher risk weighting which may lead to higher capital
requirements.
Our business may be negatively affected by a sustained increase in inflation.
A sustained increase in the inflation rate in our principal markets would have multiple impacts on us and may negatively affect our
business, solvency position and results of operations. For example, a sustained increase in the inflation rate may result in an increase in
market interest rates which may (1) decrease the value of certain fixed income securities we hold in our investment portfolios resulting in
reduced levels of unrealised capital gains available to us which could negatively impact our solvency position and net income, (2) result in
increased surrenders of certain life & savings products, particularly, those with fixed rates below market rates, and (3) require us, as an
issuer of securities, to pay higher interest rates on debt securities we issue in the financial markets from time to time to finance our
operations which would increase our interest expenses and reduce our results of operations. A significant and sustained increase in
inflation has historically also been associated with decreased prices for equity securities and sluggish performance of equity markets
generally. A sustained decline in equity markets may (1) result in impairment charges to equity securities that we hold in our investment
portfolios and reduced levels of unrealised capital gains available to us which would reduce our net income and negatively impact our
solvency position, (2) negatively impact performance, future sales and surrenders of our unit-linked products where underlying investments
are often allocated to equity funds, and (3) negatively impact the ability of our asset management subsidiaries to retain and attract assets
under management, as well as the value of assets they do manage, which may negatively impact their results of operations. In addition, in
the context of certain property & casualty risks underwritten by our insurance subsidiaries (particularly ‘long-tail’ risks), a sustained increase
in inflation with a resulting increase in market interest rates may result in (1) claims inflation (i.e., an increase in the amount ultimately paid
to settle claims several years after the policy coverage period or event giving rise to the claim), coupled with (2) an underestimation of
corresponding claims reserves at the time of establishment due to a failure to fully anticipate increased inflation and its effect on the
amounts ultimately payable to policyholders, and, consequently, (3) actual claims payments significantly exceeding associated insurance
reserves which would negatively impact our results of operations. In addition, a failure to accurately anticipate higher inflation and factor it
into our product pricing assumptions may result in a systemic mispricing of our products resulting in underwriting losses which would
negatively impact our results of operations.
Operational risks are inherent in our business.
Our businesses depend on the ability to process a large number of transactions efficiently and accurately. Losses can result from
inadequate personnel, IT failures, inadequate or failed internal control processes and systems, regulatory breaches, human errors,
employee misconduct including fraud, or from external events that interrupt normal business operations. We depend on the secure
processing, storage and transmission of confidential and other information in our computer systems and networks. The equipment and
software used in our computer systems and networks may be at or near the end of their useful lives or may not be capable of processing,
storing or transmitting information as expected. Certain of our computer systems and networks may also have insufficient recovery
capabilities in the event of a malfunction or loss of data. In addition, such systems and networks may be vulnerable to unauthorised
access, computer viruses or other malicious code and other external attacks or internal breaches that could have a security impact and
jeopardize our confidential information or that of our clients or our counterparts. These events can potentially result in financial loss, harm
to our reputation and hinder our operational effectiveness. We also face the risk that the design of our controls and procedures prove to
be inadequate or are circumvented. We have suffered losses from operational risk in the past and there can be no assurance that we will
not suffer material losses from operational risk in the future. Furthermore, while recent widespread outbreaks of communicable diseases,
such as the outbreak of the H1N1 influenza virus, also known as ‘swine flu,’ experienced world-wide in 2009, have not adversely affected
us thus far, a worsening of this outbreak, or the occurrence of another outbreak of a different communicable disease, may impact the
health of our employees, increasing absenteeism, or may cause a significant increase in the utilisation of health benefits offered to our
employees, either or both of which could adversely impact our business.
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2.X Section header
Risk factors (continued)
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2.4 Additional information