ING Direct 2011 Annual Report Download - page 285

Capital management continued
For ING Insurance in total, the capital base for financial leverage purposes is fully based on IFRS accounting, whereas the IGD capital
is corrected for some regulatory adjustments. The table below provides a reconciliation.
Reconciliation between IGD capital and Capital base
2011 2010
IGD Capital 21,406 20,335
Hybrids issued by ING Group –2,604 –2,094
Hybrids issued by ING Insurance –1,726 –2,207
Revaluation reserve debt securities –4,379 –1,164
Revaluation reserve crediting to life policyholders 3,493 1,488
Required regulatory adjustments 2,791 1,244
Capital base 18,981 17,6 02
For ING Insurance Eurasia, Available Financial Resources (AFR) continues to be important, especially as an evolving proxy for the Own Funds
derivation from our internal model under Solvency II. The following table presents the reconciliation from the 2010 AFR and EC for Insurance
excluding US as reported in the Annual Accounts 2010, to the comparable basis for Eurasia 2011. This reflects the changes in scope
andmethodology.
2010 AFR and EC reconciliation
amounts in billions of euros AFR EC
As reported for ING Insurance excluding US in 2010 19.7 10.4
Excluding non-ING Insurance Eurasia AFR and EC 1.4 –2.0
ING Insurance Eurasia 2010, before changes 21.1 8.4
Change pension funds fee business to statutory basis –1.5 –0.1
Change in models and methodology –1.0 3.0
ING Insurance Eurasia 2010, on a basis comparable
to 2011 18.6 11.3
The exclusion of non-ING Insurance Eurasia AFR and EC mainly relate to the business in Latin America and the financial leverage of ING
Insurance excluding US that was considered in last year’s AFR position and EC requirement. The capital structure of Eurasia underlying
the AFR does not include any senior debt.
The fee-based pension funds business in Central and Eastern Europe are regulated by local sectoral rules rather than by Solvency II
regulations for insurance entities. AFR and EC of the fee-based pensions administration business were previously calculated using market
consistent valuation approach. This has been replaced by using the statutory net equity and required capital of the pension funds
administration companies. The impact on AFR is EUR 1.5 billion and on EC EUR 0.1 billion.
ING Insurance Eurasia has carried out a review of the internal model in the context of a Solvency II gap analysis. In that review we
benchmarked our models against the Solvency II Standard Formula, the EIOPA consultation papers and commentary of expert groups like
CRO Forum and Groupe Consultatif. In the Annual Report 2010 it was estimated that these changes would result in a material increase of
EC, between EUR 1 billion and EUR 2 billion. During 2011 further refinements and analyses took place which on a comparable basis would
lead to an increase in the EC of 2010 of EUR 3.0 billion. The changes are related to equity risk (EUR 0.6 billion), operational risk (EUR 0.1
billion), credit spread and illiquidity premium risk (EUR 1.3 billion), business risk (EUR 0.1 billion) and less diversification (EUR 0.8 billion). The
changes mainly due to new illiquidity premium method resulted in an AFR decrease of EUR 1.0 billion. The Solvency II legislative process is
still ongoing. In particular, aspects determining the valuation of the policyholder liabilities and thereby the sensitivity to market and other
risk factors on the own funds are not yet settled. The Economic Capital model will continue to be updated to reflect most recent market
data, developments in best practices, and Solvency II legislation
At the end of 2010 the AFR for ING Insurance Eurasia was EUR 18.5 billion. As described in the Risk Paragraph. EC, based on 99.5%
confidence interval was EUR 11.4 billion, which leads to excess of AFR over EC for 2010 of EUR 7.1 billion. For 2011 the AFR is EUR 17.3
billion, EC is EUR 10.5 billion and the excess of AFR over EC is EUR 6.8 billion.
For the capital adequacy assessment of ING Insurance’s US domiciled regulated insurance business, available capital is measured under US
statutory accounting principles and required capital is measured under the US regulatory Risk Based Capital (RBC) methodology as
prescribed by the National Association of Insurance Commissioners (NAIC). For ING’s US domiciled regulated insurance business, the
consolidated RBC ratio (available capital/required capital) is estimated to be approximately 488% for the period ended 31 December 2011.
The actual US consolidated RBC ratio may be different from the estimate since the statutory results are not final until filed with the
regulators. For ING Insurance’s US domiciled regulated insurance business, the RBC ratio was 426% at the end of 2010.
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
283ING Group Annual Report 2011