ING Direct 2013 Annual Report Download - page 358

Any of the risks described below could have a material adverse effect on the business activities, financial condition, results of operations
and prospects of ING. The market price of ING shares could decline due to any of these risks, and investors could lose all or part of their
investments. Additional risks of which the Company is not presently aware could also affect the business operations of ING and have a
material adverse effect on ING’s business activities, financial condition, results of operations and prospects. In addition, the business of a
multinational, broad-based financial services firm such as ING is inherently exposed to risks that only become apparent with the benefit of
hindsight. The sequence in which the risk factors are presented below is not indicative of their likelihood of occurrence or the potential
magnitude of their financial consequences.
RISKS RELATED TO FINANCIAL CONDITIONS, MARKET ENVIRONMENT AND GENERAL ECONOMIC TRENDS
Because we are a financial services company conducting business on a global basis, our revenues and earnings are affected
by the volatility and strength of the economic, business and capital markets environments specific to the geographic
regions in which we conduct business. The ongoing turbulence and volatility of such factors have adversely affected, and
may continue to adversely affect, the profitability and solvency of our insurance, banking and asset management business.
Factors such as interest rates, securities prices, credit spreads, liquidity spreads, exchange rates, consumer spending, changes in client
behaviour, business investment, real estate values and private equity valuations, government spending, inflation, the volatility and strength
of the capital markets, political events and trends, and terrorism all impact the business and economic environment and, ultimately, our
solvency, liquidity and the amount and profitability of business we conduct in a specific geographic region. In an economic downturn
characterised by higher unemployment, lower family income, lower corporate earnings, higher corporate and private debt defaults, lower
business investments and lower consumer spending, the demand for banking and insurance products is usually adversely affected and
ING’s reserves and provisions typically would increase, resulting in overall lower earnings. Securities prices, real estate values and private
equity valuations may also be adversely impacted, and any such losses would be realised through profit and loss and shareholders’ equity.
Some insurance products contain minimum return or accumulation guarantees. If returns do not meet or exceed the guarantee levels, we
may need to set up additional reserves to fund these future guaranteed benefits. In addition, we may experience an elevated incidence of
claims and lapses or surrenders of policies. Our policyholders may choose to defer paying insurance premiums or stop paying insurance
premiums altogether. Similarly, a downturn in the equity markets causes a reduction in commission income we earn from managing
portfolios for third parties, income generated from our own proprietary portfolios, asset-based fee income on certain insurance products,
and our capital base. We also offer a number of insurance and financial products that expose us to risks associated with fluctuations in
interest rates, securities prices, corporate and private default rates, the value of real estate assets, exchange rates and credit spreads. See
also ‘—Interest rate volatility and other interest rate changes may adversely affect our profitability’, ‘—Continued risk of resurgence of
turbulence and ongoing volatility in the financial markets and the economy generally have adversely affected, and may continue to
adversely affect, our business, financial condition and results of operations’, and ‘—Market conditions observed over the past few years
may increase the risk of loans being impaired. We are exposed to declining property values on the collateral supporting residential and
commercial real estate lending’ below.
In case one or more of the factors mentioned above adversely affects the profitability of our business, this might also result, among other
things, in the following:
• changes in the treatment of deferred acquisition costs (‘DAC’);
• reserve inadequacies, which could ultimately be realised through profit and loss and shareholders’ equity;
• the write-down of tax assets impacting net results and or equity;
• impairment expenses related to goodwill and other intangible assets, impacting net results;
• movements in risk weighted assets for the determination of required capital;
• changes in credit valuation adjustments and debt valuation adjustments; and/or
• additional costs related to maintenance of higher liquidity buffers.
Shareholders’ equity and our net result may be significantly impacted by turmoil and volatility in the worldwide financial markets. Negative
developments in financial markets and/or economies may have a material adverse impact on shareholders’ equity and net result in future
periods, including as a result of the potential consequences listed above. See ‘—Continued risk of resurgence of turbulence and ongoing
volatility in the financial markets and the economy generally have adversely affected, and may continue to adversely affect, our business,
financial condition and results of operations’ below.
Adverse capital and credit market conditions may impact our ability to access liquidity and capital, as well as the cost of
liquidity, credit and capital.
The capital and credit markets have continued to experience substantial volatility and disruption over the past few years, after having
reached unprecedented levels in the second half of 2008 through most of 2010. Adverse capital market conditions may affect the
availability and cost of borrowed funds, thereby impacting our ability to support and/or grow our businesses.
We need liquidity to pay our operating expenses, insurance claims, interest on our debt and dividends on our capital stock, maintain our
securities lending activities and replace certain maturing liabilities. Without sufficient liquidity, we will be forced to curtail our operations
and our business will suffer. The principal sources of our funding are deposit funds, insurance premiums, annuity considerations and cash
flow from our investment portfolio and assets, consisting mainly of cash or assets that are readily convertible into cash. Sources of funding
in normal markets may also include a variety of short- and long-term instruments, including repurchase agreements, commercial paper,
medium- and long-term debt, subordinated debt securities, capital securities and stockholders’ equity.
Risk factors
356 ING Group Annual Report 2013