ING Direct 2011 Annual Report Download - page 312

ING Group may be unable to retain key personnel.
As a financial services enterprise with a decentralised management structure, ING Group relies to a considerable extent on the quality of
local management in the various countries in which ING Group operates. The success of ING Group’s operations is dependent, among
other things, on ING Group’s ability to attract and retain highly qualified professional personnel. Competition for key personnel in most
countries in which ING Group operates is intense. ING Group’s ability to attract and retain key personnel, in particular senior officers,
experienced portfolio managers, mutual fund managers and sales executives, is dependent on a number of factors, including prevailing
market conditions and compensation packages offered by companies competing for the same talent.
As a part of the responses of the European Commission and governments throughout Europe to the financial crisis in 2008, there have
been various legislative initiatives, including those set out in Directive 2010/76/EU (CRD III), the Guidelines on Remuneration Policies and
Practices published by (the predecessor of) the European Banking Authority (EBA) and the Regulation of the Dutch Central Bank on Sound
Remuneration Policies (Regeling beheerst beloningsbeleid Wft 2011) and the Dutch legislative proposal to prohibit the payment of variable
remuneration to board members and day-to-day policy makers of financial institutions that receive state aid in the future, to ensure that
financial institutions’ remuneration policies and practices are consistent with and promote sound and effective risk management, and that
impose restrictions on the remuneration of personnel, in particular senior management, with a focus on risk alignment of performance-
related remuneration. These restrictions have had and will have an impact on existing ING Group’s remuneration policies and individual
remuneration packages of personnel.
These restrictions, alone or in combination with the other factors described above, could adversely affect ING Group’s ability to retain or
attract qualified employees.
Because we use assumptions about factors, the use of different assumptions about these factors may have an adverse
impact on our results of operations.
The establishment of insurance provisions, including the impact of minimum guarantees which are contained within certain variable
annuity products, the adequacy test performed on the provisions for life policies and the establishment of Deferred Acquisition Costs
(DAC) and Value of Business Acquired (VOBA) are inherently uncertain processes involving assumptions about factors such as court
decisions, changes in laws, social, economic and demographic trends, inflation, investment returns, policyholder behaviour (e.g., lapses,
persistency, etc.) and other factors, and, in the life insurance business, assumptions concerning mortality, longevity and morbidity trends.
The use of different assumptions about these factors could have a material effect on insurance provisions and underwriting expense.
Changes in assumptions may lead to changes in the insurance provisions over time. Furthermore, some of these assumptions can
be volatile.
Because we use assumptions to model client behaviour for the purpose of our market risk calculations, the difference
between the realisation and the assumptions may have an adverse impact on the risk figures and future results.
We use assumptions in order to model client behaviour for the risk calculations in our banking and insurance books. Assumptions are used
to determine insurance liabilities, the price sensitivity of savings and current accounts and to estimate the embedded optional risk in the
mortgage and investment portfolios. The realisation or use of different assumptions to determine the client behaviour could have material
adverse effect on the calculated risk figures and ultimately future results.
ING Insurance has a significant exposure to the take up of policy options by policyholders. The exposure is greatest for variable annuity
business with guarantees deeply in-the-money, policyholder behaviour is difficult to predict and small changes in the proportion of
policyholders taking up an option can have a significant financial impact. Furthermore, assumptions about policyholder behaviour are
sometimes made for new insurance business without a substantial amount of experiential data. These assumptions may prove imperfect,
which can have a material impact on results. See- ‘Because we use assumptions about factors, the use of different assumptions about
these factors may have an adverse impact on our results of operations’ –for a discussion of US variable annuity-related charges taken in
the fourth quarter of 2011.
We may incur further liabilities in respect of our defined benefit retirement plans if the value of plan assets is not sufficient
to cover potential obligations, including as a result of differences between results and underlying actuarial assumptions
andmodels.
ING Group companies operate various defined benefit retirement plans covering a significant number of our employees. The liability
recognised in our consolidated balance sheet in respect of our defined benefit plans is the present value of the defined benefit obligations
at the balance sheet date, less the fair value of each plan’s assets, together with adjustments for unrecognised actuarial gains and losses
and unrecognised past service costs. We determine our defined benefit plan obligations based on internal and external actuarial models
and calculations using the projected unit credit method. Inherent in these actuarial models are assumptions including discount rates, rates
of increase in future salary and benefit levels, mortality rates, trend rates in health care costs, consumer price index, and the expected
return on plan assets. These assumptions are based on available market data and the historical performance of plan assets, and are
updated annually. Nevertheless, the actuarial assumptions may differ significantly from actual results due to changes in market conditions,
economic and mortality trends and other assumptions. Any changes in these assumptions could have a significant impact on our present
and future liabilities to and costs associated with our defined benefit retirement plans.
Risk factors continued
310 ING Group Annual Report 2011