ING Direct 2011 Annual Report Download - page 272

Risk management continued
ING Insurance US
Model governance
During 2011 new models with regard to the disclosed metrics were approved by the Insurance Model Committee at the ING Group level.
Under the new governance structure this will be the responsibility of the ING Insurance US Model Committee.
ING INSURANCE US RISK FRAMEWORK
In order to manage the risk on a day-to-day basis and balance value, earnings and capital decisions, ING Insurance US has implemented
arisk limit framework. The risk limit framework follows a top down approach.
Description
Risk Appetite A qualitative measure defining the playing field ING Insurance US wants to act in. Driven by ING Insurance
US’scapital rating targets and local capital restrictions, and business strategy.
Risk Tolerance A quantitative boundary intended to limit the risks taken, driven by the risk appetite.
Risk Limits Limit setting to a granular level for business units throughout the organisation.
The risk appetite is managed by the following risk tolerance metrics:
• US Regulatory Capital Requirements- Defined as a multiple of the minimum capital required by the National Association of Insurance
Commissioners (NAIC) with consideration of the capital requirements deemed appropriate to maintain the ratings level issued to the
operating companies by various rating agencies, excluding entities that are not US domiciled;
• IFRS Earnings;
• Targets are set on the current ratio values, limits are set on these ratios after considering a moderate stress scenario; and
• ING Insurance US is considering the implementation of additional risk tolerance metrics, potentially including US GAAP Earnings,
capitalsensitivities that include non-US domiciled entities and a US management version of Economic Capital (which may not fully
align with Solvency II).
Financial Risks
For financial risks, the risk tolerance is translated to risk limits on several sensitivities assuming a moderate stress scenario.
• US Regulatory Capital Requirements sensitivities
The potential reduction, under a moderately adverse market and credit stress scenario, of the excess of available statutory capital above
the minimum required under the US regulatory Risk Based Capital (RBC) methodology. The RBC methodology is prescribed by the
National Association of Insurance Commissioners (NAIC) and applies to US domiciled regulated insurance entities. The amount of excess
capital targeted is also dependent on rating agency models and requirements.
• IFRS Earnings sensitivities
The sensitivity of realised pre tax earnings of the insurance operations over a 12 month period to moderate shocks to underlying risk factors.
Other than this, several other limit structures are put in place on corporate and business unit level. Examples include but are not limited to
the following:
• Issuer concentration limits
• Mortality concentration limits
• Catastrophe and mortality exposure retention
• Minimum liquidity requirements
• Investment and derivatives guidelines and limits
Financial Risk Dashboard
The Financial Risk Dashboard (FRD) is a quarterly report that is a quarterly report that is discussed at the Risk Committee of the MB AIH
and the Financial Risk Committee. The FRD provides a quarterly overview of the main financial risk metrics (IFRS earnings and Regulatory
Capital sensitivities) compared to the limits set by management in alignment with the risk appetite.
Non-Financial Risks
To ensure robust non-financial risk management, which also reflects the risk tolerance levels, ING Insurance US monitors the full
implementation of ING Insurance US’s risk policies, minimum standards and implementation guidelines. Business units have to
demonstrate that the appropriate steps have been taken to control their operational and compliance risk. ING Insurance US applies
scorecards to measure the quality of the internal control within a business unit. Scoring is based on the ability to demonstrate that the
required risk management processes are in place and effective within the business units.
270 ING Group Annual Report 2011