ING Direct 2011 Annual Report Download - page 185

Notes to the consolidated annual accounts of ING Group continued
Amounts recognised in the profit and loss account during the year (Level 3)
2011
Held at balance
sheet date
Derecognised
during the year Total
Assets
Trading assets –364 3–361
Non-trading derivatives 308 3311
Financial assets designated as at fair value through profit and loss 10 10
Available-for-sale investments –160 –69 –229
–206 –63 –269
Liabilities
Trading liabilities 46 46
Non-trading derivatives 194 –11 183
Financial liabilities designated as at fair value through profit and loss 113 113
353 –11 342
Amounts recognised in the profit and loss account during the year (Level 3)
2010
Held at balance
sheet date
Derecognised during
the year Total
Assets
Trading assets 157 36 193
Investments for risk of policyholders –5 –5
Non-trading derivatives –248 –27 –275
Financial assets designated as at fair value through profit and loss 29 –26 3
Available-for-sale investments –264 32 –232
–326 10 –316
Liabilities
Trading liabilities 119 119
Non-trading derivatives –2 2
Financial liabilities designated as at fair value through profit and loss 85 85
Investment contracts (for contracts carried at fair value) –5 –5
202 –3 199
Sensitivities of fair values in Level 3
Reasonably likely changes in the non-observable assumptions used in the valuation of Level 3 assets and liabilities would not have a
significant impact on equity and net result, other than explained below for investments in asset backed securities in the United States.
Asset backed securities in the United States
Level 3 assets include EUR 373 million at 31 December 2011 and EUR 3,362 million at 31 December 2010 for investments in asset backed
securities in the United States. These assets are valued using external price sources that are obtained from third party pricing services and
brokers. In 2011, these asset backed securities in the United States decreased as a result of a transfer from Level 3 to Level 2. 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. Furthermore the
decrease was caused by 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’.
During 2008, the trading volumes in the relevant markets reduced significantly and the market became inactive. The dispersion between
prices for the same security from different price sources increased significantly. In order to ensure that the most accurate and relevant
sources available are used in determining the fair value of these securities, the valuation process was further enhanced during 2008
byusing information from additional pricing sources and enhancing the process of selecting the most appropriate price.
Generally, up to four different pricing services are utilised. Management carefully reviews the prices obtained in conjunction with other
information available, including, where relevant, trades in the market, quotes from brokers and internal evaluations. If the dispersion
between different prices for the same securities is limited, a hierarchy exists that ensures consistent selection of the most appropriate
priceIf the dispersion between different prices for the same security is significant, additional processes are applied to select the most
appropriate price, including an internally developed price validation matrix and a process to challenge the external price source.
Valuation for these securities is inherently complex and subjective. Although each security in the portfolio is priced based on an external
price, without modification by ING Group, and management is confident that it has selected the most appropriate price in the current
market circumstances, the valuation of these portfolios would have been different had different prices been selected. The sensitivity
analysis shows that the highest and the lowest available market prices do not materially impact the valuation of these assets as at
31December 2011.
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
183ING Group Annual Report 2011