ING Direct 2011 Annual Report Download - page 277

Risk management continued
ING Insurance US
placements issued by Western European corporations account for the majority of the non-US exposure. The decrease in exposures to the
Netherlands is partially related to a reduction in the exposure to the Dutch state.
Largest economic exposures: ING Insurance US portfolio, by geographic area (1)
ING Insurance US
2011 2010
United States 77.4% 77.7%
Netherlands 5.7% 8.2%
Rest of Europe 9.3% 6.8%
Rest of Americas 4.4% 4.2%
Asia/Pacific 3.0% 3.0%
Rest of World 0.2% 0.1%
Total 100% 100%
(1) Country is based on the country of residence of the obligor.
Securities Lending Business
As part of its securities financing business, ING Insurance US entities actively 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 US held as collateral under these types of agreements was EUR 0.8 billion in 2011 and EUR 2 billion in 2010. The change is
largely due to a decrease in repurchase agreements and the elimination of the Cash Release securities lending program. 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 US). 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
Credit Risk in ING Insurance US portfolio is partially mitigated by collateral it has received.
• The entire block of commercial mortgages (EUR 6.7 billion) is collateralised with mortgages on real estate properties. The weighted
average loan to (most recent) value of this portfolio was 55% as per 31 December 2011.
• The EUR 10 billion private placement portfolio is partially collateralised with assets pledged to the consortium of lenders.
• The EUR 1.7 billion policy loan portfolio is fully collateralised by the cash value of the underlying insurance policies.
• The gross counterparty risk exposure to reinsurance companies (EUR 5.8 billion per 31 December 2011) is largely collateralised with
assets held in trust (EUR 4.0 billion), letters of credit (EUR 1.8 billion), or funds withheld (EUR 1.1 billion). Please note however that some
exposures are over collateralised and that there is a total of EUR 1.7 billion of uncollateralised reinsurance counterparty risk exposure.
• Exposure to financial institutions related to OTC derivative-transactions is largely collateralised, in line with ISDA Master Agreements
accompanied by Collateral Support Agreements that have been signed with these counterparties. As per 31 December 2011, ING
Insurance US was holding net collateral of EUR 0.35 billion supporting a net market value exposure of EUR 0.5 billion.
Exposures related to Securities Lending, Reverse Repo, and exchange traded instruments are obviously also collateralised.
Problem Loans
ING Insurance US does not have any material past-due or impaired loans. The only type of investments that fall into the loan category are
commercial mortgage loans. As soon as such loans become non-performing, the collateral is typically liquidated or the loan is sold.
Impaired loans and provisions
ING Insurance US mainly has bond investments. The amount of impaired loans in its portfolio is very small and limited to commercial
mortgage loans.
LIQUIDITY RISK
Liquidity risk refers to the risk that a company is unable to settle financial obligations when they come due, at reasonable cost and in a
timely manner. Liquidity risk can materialise both through trading and non-trading positions. As with other market risks, liquidity risk falls
under the supervision of the Risk Committee function. Under the volatile market circumstances in 2011, funding and liquidity risk remains
an important topic on the agenda of senior management and the Risk Committee, that needs continuous monitoring and management.
External market and regulatory developments and internal financial developments are closely monitored. Regular stress testing and
measurement of early warning indicators are, among others, used to provide additional management information.
ING Insurance US defines two levels of Liquidity Management. Short-term liquidity, or cash management covers the day-to-day cash
requirements under normally expected or likely business conditions. Long-term liquidity management takes into consideration various
expected and adverse business conditions, which might result in the inability of realising the current market values of the assets. The assets
may only be sold at a further distressed price simply due to the lack of liquidity. Stress liquidity management looks at the company’s ability
to respond to a potential crisis situation. The day-to-day and ongoing cash management allows for a more proactive response to potential
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
275ING Group Annual Report 2011