ING Direct 2013 Annual Report Download - page 322

Risk management continued NN Group
Risk mitigation
Policyholder behaviour risk
Policyholder behaviour risks are managed through the product development, product approval and review processes and by ensuring that
appropriate advice is given to the customer, not only at the point of sale but also during the lifetime of the product. The policyholder
behaviour experience of in force policies is assessed at least annually.
As part of its strategy, NN has put several programs in place to own and improve the customer experience. These programs seek to
improve the match between customer needs and the benefits and options provided by NN’s products and, over time, to improve NN’s
understanding and anticipation of the choices policyholders are likely to make, thereby decreasing the risk of a mismatch between actual
and assumed policyholder behaviour.
Expense risk
Several initiatives have been put in place to manage expenses, such as the restructuring of Netherlands Life and NN’s head office in the
Netherlands. These initiatives also seek to convert fixed expenses into variable expenses so that expenses vary in accordance with the size
of the in-force portfolio. This is particularly relevant for the closed blocks of business, the Dutch individual life and the Japan Closed Block
VA businesses.
Risk measurement
The table below sets out NN’s economic capital for business risk as at 31 December 2013 and 2012, respectively.
Economic capital for business risk
2013 2012
Policyholder behaviour 1,096 1,400
Expense 1,388 1,663
Diversification benefit –356 –525
Total 2,128 2,538
The main contributors to policyholder behaviour risk in 2013 are the corporate owned life insurance business in Japan Life, Netherlands
Life, the unit linked business in Europe, and the Japan Closed Block VA. Economic capital for policyholder behaviour risk decreased due to
the increase of the discount curve in Netherlands Life and the weakening JPY.
Over 80% of the expense risk capital is driven by Netherlands Life. The economic capital amount related to expense risk in Netherlands Life
is sensitive to the level of interest rates, and the decrease in the expense risk capital was primarily attributable to the increase of the
discount curve in 2013, together with a decrease in overall expenses.
The diversification in business risk is driven by the fact that policyholder behaviour and expense risk are largely uncorrelated and therefore
receive a benefit given the low likelihood that they will both occur concurrently.
320 ING Group Annual Report 2013