ING Direct 2011 Annual Report Download - page 183

Notes to the consolidated annual accounts of ING Group continued
Level 3 – Valuation technique supported by unobservable inputs
This category includes financial instruments whose fair value is determined using a valuation technique (e.g. a model) for which more than
an insignificant part of the inputs in terms of the overall valuation are not market observable. This category also includes financial assets
and liabilities whose fair value is determined by reference to price quotes but for which the market is considered inactive. Level 3 Available-
for-sale investments include mainly asset backed securities in the United States as described above under ‘Debt securities’. Level 3 Trading
assets, Non-trading derivatives and Assets designated at fair value through profit and loss and Level 3 Financial liabilities at fair value
through profit and loss include financial instruments with different characteristics and nature, which are valued on the basis of valuation
techniques that feature one or more significant inputs that are unobservable. An instrument in its entirety is classified as valued using
significant unobservable inputs if a significant portion of the instrument’s fair value is driven by unobservable inputs. Unobservable in
thiscontext means that there is little or no current market data available from which the price at which an arm’s length transaction would
be likely to occur can be derived. More details on the determination of the fair value of these instruments is included above under
‘Derivatives’, ‘Debt securities’ and ‘Loans and advances to customers’.
Changes in Level 3 Assets
2011 Trading assets
Investments for
risk of
policyholders
Non-trading
derivatives
Financial assets
designated as
at fair value
through profit
and loss
Available-
for-sale
investments Total
Opening balance 2,132 136 635 1,846 6,104 10,853
Amounts recognised in the profit and loss account
during the year –361 311 10 –229 –269
Revaluation recognised in equity during the year –72 –72
Purchase of assets 786 123 143 1,112 1,461 3,625
Sale of assets –582 –99 –76 –271 –781 –1,809
Maturity/settlement –441 –75 –100 –783 –1,399
Transfers into Level 3 95 413 224 920 1,256
Transfers out of Level 3 –245 –6 –2 –2,248 –2,501
Exchange rate differences –2 –17 859 957
Changes in the composition of the group and other
changes 8 1,343 1,351
Closing balance 1,382 141 959 2,886 5,724 11,092
Main changes in fair value hierarchy (2011 compared to 2010)
The classification was impacted in 2011 by a transfer of available-for-sale investments of EUR 2.0 billion from Level 3 to Level 2, relating
tomortgage backed securities in the United States. Previously these were classified in Level 3 because of the dispersion between prices
obtained for the same security from different price sources. In 2011 prices supported by market observable inputs became available and
were used in determining the fair value.
Changes in the composition of the group and other changes includes the decrease of the Level 3 assets in relation to the classification of
ING Direct USA as a disposal group held for sale. Reference is made to Note 11 ‘Assets and liabilities held for sale’. Furthermore Changes in
the composition of the group and other changes includes the increase of the Level 3 assets in relation to shares in real estate investment
funds; this increase includes mainly the reclassification of associates to investments available-for sale as disclosed in Note 6 ‘Investments in
associates’, as well as the reclassification of equity securities in certain real estate companies into Level 3.
Transfers into Level 3 includes certain bonds which were transferred to Level 3 in 2011 as a result of reduced market liquidity and/or pricing
sources that could no longer be classified as market observable.
1 Who we are 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information
181ING Group Annual Report 2011