ING Direct 2011 Annual Report Download - page 264

Risk management continued
ING Insurance Eurasia
Security lending business
ING Insurance Eurasia entities can enter into agreements to sell and buy back marketable securities. These transactions can take many legal
forms. Repurchase and reverse repurchase agreements, buy/sellback and sell/buyback agreements, and securities borrowing and lending
agreements are the most common. The amount of marketable securities that ING Insurance Eurasia held as collateral under these types of
agreements at 31 December 2011 was EUR 8.4 billion (2010: EUR 9.5 billion). The decrease was due to the reduced security lending
activities. These amounts exclude the cash leg of the respective transactions, as well as any pledges of securities under Tri-Party
agreements (as the underlying is not directly pledged to or owned by ING Insurance Eurasia). As a general rule, the marketable securities
that have been received under these transactions are eligible to be resold or pledged in other (similar) transactions. ING is obliged to return
equivalent securities in such cases.
Mitigation
ING Insurance Eurasia uses different credit risk mitigation techniques, of which the use of ISDA Master Agreements accompanied with
Collateral Agreements for all OTC derivative-transactions is an important example. Other forms of cover are mortgages and guarantees,
both are important to enhance the credit quality of ING Insurance Eurasia’s mortgage portfolios.
Credit Covers
The table below shows the cover values per credit risk category. At ING Insurance Eurasia, cover is a term which is defined as any security,
lien, mortgage, or collateral interest in an asset or guarantee, indemnification or undertaking received (either by contract and/or by law)
that is intended to reduce the losses incurred subsequent to an event of default on an obligation (usually financial in nature) a customer
may have towards ING Insurance Eurasia. Within ING Insurance Eurasia, covers are subdivided into two distinct groups, called collateral and
promises. Reference is made to credit risk management classification as included in the accounting policies for the consolidated annual
accounts for a reconciliation between credit risk outstandings categories and financial assets.
Collateral
Collateral is a security interest in assets. If the customer defaults on its promised performance, the asset is given as collateral or security
forthat obligation is liquidated, such that the proceeds can be applied towards full or partial compensation of the pledgor’s (financial)
obligation to ING Insurance Eurasia. Assets have monetary value and are generally owned by the person or organisation, who gives them
as collateral to ING Insurance Eurasia. Examples of collateral are insurance policies or investment accounts of clients pledged to ING
Insurance Eurasia as collateral for mortgage loans, or payables or funds withheld for reinsurance exposures.
Promises
Promises are defined as a legally binding declaration by persons or organisations that give ING Insurance Eurasia the right to expect and
claim from those persons or organisations if an ING Insurance Eurasia’s customer fails on its obligations to ING Insurance Eurasia. An
example is the guarantee by the Dutch National Mortgage Guarantee scheme (NHG) for residential mortgage loans.
In the tables below the residential mortgage portfolio and the mortgage collateral amount are shown. Please note that the figures shown
are based on credit collateral amounts, meaning the market values of these properties after haircuts.
Outstandings – Cover values including guarantees received
31 December 2011
Outstandings Mortgages Cash Guarantees Other
Total Credit
Covers
Investment Financial Institutions 20,670 183 183
Other 61,334 3 3
Lending Residential Mortgages 5,603 7,062 482 398 7,942
Financial Institutions Lending 777
Commercial Lending 3,086 341 341
Government Lending 280
Other 88
Reinsurance Financial Institutions 531 139 62 201
Other Financial Institutions 5,889 77 45 122
Total 98,258 7,403 216 482 691 8,792
262 ING Group Annual Report 2011