ING Direct 2013 Annual Report Download - page 118

Insurance contracts
Insurance policies which bear significant insurance risk and/or contain discretionary participation features are presented as insurance
contracts. Provisions for liabilities under insurance contracts represent estimates of future payouts that will be required for life and non-life
insurance claims, including expenses relating to such claims. For some insurance contracts the measurement reflects current market
assumptions. Unless indicated otherwise below all changes in the insurance provisions are recognised in the profit and loss account.
Provision for life insurance
The Provision for life insurance is generally calculated on the basis of a prudent prospective actuarial method, taking into account the
conditions for current insurance contracts. Specific methodologies may differ between business units as they may reflect local regulatory
requirements and local practices for specific product features in the local markets.
Insurance provisions on traditional life policies are calculated using various assumptions, including assumptions on mortality, morbidity,
expenses, investment returns and surrenders. Assumptions for insurance provisions on traditional life insurance contracts, including
traditional whole life and term life insurance contracts, are based on best estimate assumptions including margins for adverse deviations.
Generally, the assumptions are set initially at the policy issue date and remain constant throughout the life of the policy.
Insurance provisions for universal life, variable life and annuity contracts, unit-linked contracts, etc. are generally set equal to the balance
that accrues to the benefit of the policyholders. Certain variable annuity products contain minimum guarantees on the amounts payable
upon death and/or maturity. The insurance provisions include the impact of these minimum guarantees, taking into account the difference
between the potential minimum benefit payable and the total account balance, expected mortality and surrender rates.
The as yet unamortised interest rate rebates on periodic and single premium contracts are deducted from the Provision for life insurance.
Interest rate rebates granted during the year are capitalised and amortised in conformity with the anticipated recovery pattern and are
recognised in the profit and loss account.
Provision for unearned premiums and unexpired insurance risks
The provision is calculated in proportion to the unexpired periods of risk. For insurance policies covering a risk increasing during the term of
the policy at premium rates independent of age, this risk is taken into account when determining the provision. Further provisions are
made to cover claims under unexpired insurance contracts, which may exceed the unearned premiums and the premiums due in respect of
these contracts.
Claims provision
The claims provision is calculated on a case-by-case basis or by approximation on the basis of experience. Provisions have also been made
for claims incurred but not reported (IBNR) and for future claims handling expenses. The adequacy of the Claims provision is evaluated
each year using standard actuarial techniques. In addition, IBNR reserves are set to recognise the estimated cost of losses that have
occurred but which have not yet been notified to the Group.
Deferred profit sharing
For insurance contracts with discretionary participation features a deferred profit sharing amount is recognised for the full amount of the
unrealised revaluation on allocated investments. Upon realisation, the profit sharing on unrealised revaluation is reversed and a deferred profit
sharing amount is recognised for the share of realised results on allocated investments that is expected to be shared with policyholders. The
deferred profit sharing amount is reduced by the actual allocation of profit sharing to individual policyholders. The change in the deferred
profit sharing amount on unrealised revaluation (net of deferred tax) is recognised in equity in the Revaluation reserve.
Provisions for life insurance for risk of policyholders
For insurance contracts for risk of policyholders the provisions are generally shown at the balance sheet value of the related investments.
Reinsurance contracts
Reinsurance premiums, commissions and claim settlements, as well as the reinsurance element of technical provisions are accounted for in
the same way as the original contracts for which the reinsurance was concluded. If the reinsurers are unable to meet their obligations, the
Group remains liable to its policyholders for the portion reinsured. Consequently, provisions are made for receivables on reinsurance
contracts which are deemed uncollectable.
Adequacy test
The adequacy of the provision for life insurance, net of unamortised interest rate rebates, DAC and VOBA (the net insurance liabilities), is
evaluated regularly by each business unit for the business originated in that business unit. The test considers current estimates of all
contractual and related cash flows, and future developments. It includes investment income on the same basis as it is included in the profit
and loss account.
If, for any business unit, it is determined, using a best estimate (50%) confidence level, that a shortfall exists, and there are no offsetting
amounts within other business units in the same segment (Business Line), the shortfall is recognised immediately in the profit and loss account.
Notes to the consolidated annual accounts of ING Group continued
116 ING Group Annual Report 2013