ING Direct 2011 Annual Report Download - page 207

Notes to the consolidated annual accounts of ING Group continued
The adequacy of the reserves held for the Insurance US Closed Block VA segment is evaluated on a quarterly basis. The test considers
current estimates of all contractual and related cash flows (including projected performance of the hedge program). The test is conducted
by comparing the present value of the cash flows to the reserves for the business line. If it is determined, using a best estimate (50%)
confidence level, that reserves are insufficient to support the projected cash outflows, the shortfall is established as an additional reserve,
which is in turn recognised immediately in the profit and loss account. There are no offsets considered by any other business line.
There are several key inputs to the reserve adequacy testing. The liability assumptions are based on management’s best estimate of
policyholder behaviour, which is reviewed periodically, but at least annually. Stochastic scenario simulations are incorporated based on
management’s long-term view of equity markets and interest rates. The hedging program is based on our current approach to managing
the risk of the business. Finally, current market conditions impact the results of the test as both reserves and the present value of cash
flows are sensitive to market interest rates. Any changes in the items above may have a potentially material impact to the results of the
reserve adequacy test.
A net reserve inadequacy exists using a prudent (90%) confidence level for the segment Insurance US Closed Block VA. This inadequacy
existed in 2011, 2010 and 2009. This inadequacy was offset by reserve adequacies in other segments, such that at the Group level there is
a net adequacy at the prudent (90%) confidence level.
Effective as of 2011, the estimate for the short-term equity growth assumption used to calculate the amortisation of DAC in the United
States (Insurance US) was changed to a mean reversion assumption. The impact of this change in estimate in 2011 was approximately
EUR14 million lower result before tax.
Operating segments Insurance
2011
Insurance
Benelux
Insurance
CRE Insurance US
Insurance US
Closed Block
VA
Insurance
Asia/
Pacific ING IM
Corporate
Line
Insurance
Total
Insurance
Investment margin 666 76 892 28 73 4 1,739
Fees and premium based revenues 585 458 1,064 168 1,442 868 4,585
Technical margin 315 169 72 28 178 762
Income non-modelled life business 36 9 44 89
Life & ING IM operating income 1,602 712 2,028 224 1,737 872 7,175
Administrative expenses 594 308 742 81 456 676 2,857
DAC amortisation and trail commissions 213 202 625 124 731 3 1,898
Life & ING IM expenses 807 510 1,367 205 1,187 679 4,755
Life & ING IM operating result 795 202 661 19 550 193 2,420
Non-life operating result 179 5 4 188
Corporate Line operating result –402 –402
Operating result 974 207 661 19 554 193 –402 2,206
Gains/losses and impairments –47 –404 –165 260 5 –1 –550
Revaluations 62 –1 158 1–8 6–13 205
Market & other impacts –250 –36 –1,295 –18 52 –1,547
Underlying result before tax 739 –198 618 –1,273 588 204 –364 314
Taxation 69 21 –22 –222 121 72 –20 19
Minority interests 410 –10 4
Underlying net result 666 –229 640 –1,051 467 132 –334 291
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
205ING Group Annual Report 2011