ING Direct 2011 Annual Report Download - page 275

Risk management continued
ING Insurance US
IFRS Earnings Sensitivities for Market Risks (1) (2)
US Excl. CBVA
2011 2010
Interest Rate Up 72 13
Interest Rate Down –146 –34
Equity –293 –374
Credit-Default –355 –513
Credit-Spread –188 –269
(1) Implied Volatility, FX and Real Estate sensitivities do not have a material impact.
(2) Sensitivities are calculated at business unit level.
Estimated CBVA Immediate Earlings Sensitivities at 31 December 2011 Immediate Change In Equity Market
(EUR Millions)
–25% –15% –5% +15% +15% +25%
Earnings sensitivity before RAT Policy Impact 750 500 100 –250 –600 –900
RAT Policy Impact (RAT50) –950 –600 –200 0 0 0
Total estimated Post Refinement Earnings Sensitivity –200 –100 –100 –250 –600 –900
Improvement in RAT 50 Sufficiency -- - 200 600 950
Due to the lack of excess reserve adequacy, CBVA results may be volatile under certain economic scenarios. This volatility is shown in the
table above which shows the estimated sensitivity of IFRS earnings to immediate changes in equity markets. For, example, as of
31 December, 2011 it is estimated that if equity markets were to increase 25%, CBVA would be exposed to an immediate EUR 0.9 billion
decrease in IFRS Earnings and an increase in the reserve adequacy at the 50% confidence level of EUR 0.95 billion. This immediate
sensitivity is not directly comparable to the 12 month sensitivities shown in the preceding table.
The credit default exposure relates to general account debt securities. Exposure to Asset Backed Securities (ABS) and Residential Mortgage
Backed Securities (RMBS) contributes significantly to the earnings sensitivity.
Mitigation
ING Insurance US manages its risk exposure through contractual adjustment mechanisms such as changes to credited rates, the contractual
terms related to new business, adjusting its capital structure within regulatory constraints, and, where deemed appropriate, hedging
various exposures.
Real Estate
ING Insurance US has a small exposure to direct real estate, which is composed primarily of Home Office real estate and real estate from
foreclosed loans.
Real Estate Exposure
2011 2010
Total 125 121
CREDIT RISK
ING Insurance US credit exposure arises from the investment of insurance premiums in assets subject to credit risk, largely in the form
of unsecured bond investments, investments in private placements and commercial mortgages, as well as in structured finance products.
In addition, ING Insurance US is exposed to credit counterparty risk exposure in derivatives transactions, sell/repurchase transactions,
securities lending/borrowing and in reinsurance contracts.
Within ING Insurance US, the goal is to maintain a low-risk, well diversified credit risk portfolio that meets or exceeds market based
benchmark returns. ING Insurance US has a policy of maintaining a high-quality investment grade fixed income portfolio while avoiding
large risk concentrations. The emphasis is on managing total exposure and concentration risk by means of portfolio level risk limits and
concentration limits for countries, individual borrowers and borrower groups. Counterparty credit risk is mitigated by only transacting
with counterparties that meet minimum credit quality standards as well as by requesting collateral for all larger exposures.
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
273ING Group Annual Report 2011