ING Direct 2011 Annual Report Download - page 116

If, for any business unit, the net insurance liabilities are not adequate using a prudent (90%) confidence level, but there are offsetting
amounts within other Group business units, then the business unit is allowed to take measures to strengthen the net insurance liabilities
over a period no longer than the expected life of the policies. To the extent that there are no offsetting amounts within other Group
business units, any shortfall at the 90% confidence level is recognised immediately in the profit and loss account.
If the net insurance liabilities are determined to be adequate at above the 90% confidence level, no reduction in the net insurance liabilities
is recognised.
As at 31 December 2009, the Closed Block Variable Annuity business in the United States was inadequate at the 90% confidence level.
Asthere were offsetting amounts within other Group business units, the Group remained adequate at the 90% confidence level. In line
with the above policy, specific measures were defined to mitigate the inadequacy in the Closed Block Variable Annuity business in the
United States. These specific measures are effective as of 2010 and result in a limitation of additions to DAC that would otherwise result
from negative amortisation and unlocking. This limitation of DAC is applied on a quarterly basis and in any year if and when a reserve
inadequacy existed at the start of the year. The impact on 2010 was EUR 610 million lower DAC and consequently lower result before tax.
Net result in 2011 includes a charge to restore the adequacy of the Insurance US Closed Block VA segment to the 50% confidence level.
Reference is made to Note 43 ‘Underwriting expenditure’.
Investment contracts
Insurance policies without discretionary participation features which do not bear significant insurance risk are presented as Investment
contracts. Provisions for liabilities under investment contracts are determined either at amortised cost, using the effective interest method
(including certain initial acquisition expenses) or at fair value.
OTHER LIABILITIES
Employee benefits – pension obligations
Group companies operate various pension schemes. The schemes are generally funded through payments to insurance companies or trustee-
administered funds, determined by periodic actuarial calculations. The Group has both defined benefit and defined contribution plans.
A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, usually
dependent on one or more factors such as age, years of service and compensation.
The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit
obligation at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognised actuarial gains and
losses, and unrecognised past service costs. The defined benefit obligation is calculated annually by internal and external actuaries using
the projected unit credit method.
The expected value of the assets is calculated using the expected rate of return on plan assets. Differences between the expected return
and the actual return on these plan assets and actuarial changes in the deferred benefit obligation are not recognised in the profit and loss
account, unless the accumulated differences and changes exceed 10% of the greater of the defined benefit obligation and the fair value
of the plan assets. The excess is recognised in the profit and loss account over employees’ remaining working lives. The corridor was reset
to nil at the date of transition to IFRS-EU.
The value of any plan asset recognised is restricted to the sum of any past service costs not yet recognised and the present value of any
economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan.
For defined contribution plans, the Group pays contributions to publicly or privately administered pension insurance plans on a mandatory,
contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions
arerecognised as staff expenses when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund
orareduction in the future payments is available.
Other post-employment obligations
Some group companies provide post-employment healthcare and other benefits to certain employees and former employees. The
entitlement to these benefits is usually conditional on the employee remaining in service up to retirement age and the completion of a
minimum service period. The expected costs of these benefits are accrued over the period of employment using an accounting methodology
similar to that for defined benefit pension plans.
Other provisions
A provision involves a present obligation arising from past events, the settlement of which is expected to result in an outflow from the
company of resources embodying economic benefits, however the timing or the amount is uncertain. Provisions are discounted when
theeffect of the time value of money is material using a pre-tax discount rate. The determination of provisions is an inherently uncertain
process involving estimates regarding amounts and timing of cash flows.
Accounting policies for the consolidated annual accounts of ING Group continued
114 ING Group Annual Report 2011