ING Direct 2011 Annual Report Download - page 322

FOREIGN EXCHANGE RATE RISK
Probability of loss occurring from an adverse movement in foreign
exchange rates.
FORWARD CONTRACTS
Commitments to exchange currencies or to buy or sell other
financial instruments at specified future dates.
FUTURE CONTRACTS
Commitments to exchange currencies or to buy or sell other
financial instruments at specified future dates. Exchanges
act as intermediaries and require daily cash settlement and
collateral deposits.
GROSS PREMIUMS WRITTEN
Total premiums (whether or not earned) for insurance contracts
written or assumed (including deposits for investment contracts
with limited or no life contingencies written) during a specific
period, without deduction for premiums ceded.
HELD-TO-MATURITY INVESTMENTS
Non-derivative financial assets with fixed or determinable payments
and fixed maturity that ING Group has the positive intention and
ability to hold to maturity other than:
a. those that ING Group upon initial recognition designates as at
fair value through profit and loss;
b. those that ING Group designates as available-for-sale; and
c. those that meet the definition of loans and receivables.
HISTORICAL SIMULATION
A model to calculate Value at Risk, assuming that future changes in
risk factors will have the same distribution as they had in the past
taking into account the non-linear behaviour of financial products.
IMPAIRMENT LOSS
The amount by which the carrying amount of an asset exceeds its
recoverable amount.
INTEREST BEARING INSTRUMENT
A financial asset or a liability for which a time-proportionate
compensation is paid or received in relation to a notional amount.
INTERNAL RATE OF RETURN (IRR)
Internal rate of return is the discount rate at which the present
value of distributable earnings from new business equals the
investment in new business (i.e. the projected return on the
investment in new business) is calculated.
INTEREST-RATE REBATES
Profit sharing for group life insurance business. A rebate granted
to policyholders based on the discounted value of the difference
between the interest rate used to calculate the premiums and
the expected yield on investment. The profit sharing is granted
by means of a premium discount related to the yield on
government bonds.
INTEREST RATE RISK
Probability that the market interest rates will rise significantly higher
than the interest rate earned on investments such as bonds,
resulting in their lower market value.
IN THE MONEY
A call option is said to be in the money if the exercise price is lower
than the price of the underlying value; a put option is said to be in
the money if the exercise price is higher than the price of the
underlying value.
INVESTMENT RISK
Investment risk is the credit default and risk rating migration risk
that is associated with ING Group’s investments in bonds,
commercial paper, securitisations, and other similar publicly traded
securities. Investment risk arises when ING purchases a (synthetic)
bond with the intent to hold the bond for a longer period of time
(generally through maturity).
INVESTMENT PORTFOLIO
Comprises those assets which are intended for use on a continuing
basis, and have been identified as such. These investments are held
in order to cover the insurance provisions and to manage interest
rate, capital and liquidity risks.
IRREVOCABLE FACILITIES
Mainly constitute unused portions of irrevocable credit facilities
granted to corporate clients and commitments made to purchase
securities to be issued by governments and private issuers.
IRREVOCABLE LETTERS OF CREDIT
Concerns an obligation on behalf of a client to pay an amount
ofmoney under submission of a specific document or to accept
abill of exchange, subject to certain conditions. An irrevocable
letter of credit cannot be cancelled or adjusted by the bank that
hasgranted it during the duration of the agreement unless all
thoseconcerned agree.
JOINT VENTURE
A contractual arrangement whereby two or more parties undertake
an economic activity which is subject to joint control.
LEGAL RISK
Legal risk is the risk related to:
• a failure (or perceived failure) to adhere to applicable laws,
regulations and standards;
• contractual liabilities or contractual obligations that are defaulted
or cannot be enforced as intended, or are enforced in an
unexpected or adverse way; and
• liability (tort) towards third parties due to an act or omission
contributable to ING; (potentially) resulting in impairment of
ING’s integrity, leading to damage to ING’s reputation, legal
or regulatory sanctions, or financial loss.
LENDING RISK
Lending risk arises when ING Group grants a loan to a customer,
or issues guarantees on behalf of a customer. This is the most
common risk category, and includes term loans, mortgages,
revolving credits, overdrafts, guarantees, letters of credit, etc. The
risk is measured at the notional amount of the financial obligation
that the customer has to repay to ING, excluding any accrued and
unpaid interest, or discount/premium amortisations or impairments.
Financial glossary continued
320 ING Group Annual Report 2011