ING Direct 2013 Annual Report Download - page 374

Risk factors continued
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.
Our risk management policies and guidelines may prove inadequate for the risks we face.
We have developed risk management policies and procedures and will continue to review and develop these in the future. Nonetheless,
our policies and procedures to identify, monitor and manage risks may not be fully effective, particularly during extremely turbulent times.
The methods we use to manage, estimate and measure risk are partly based on historic market behaviour. The methods may, therefore,
prove to be inadequate for predicting future risk exposure, which may be significantly greater than suggested by historical experience. For
instance, these methods may not predict the losses seen in the stressed conditions in recent periods, and may also not adequately allow
prediction of circumstances arising due to government interventions and stimulus packages, which increase the difficulty of evaluating
risks. Other methods for risk management are based on evaluation of information regarding markets, customers, catastrophic occurrence
or other information that is publicly known or otherwise available to us. Such information may not always be accurate, complete, updated
or properly evaluated. Management of operational, legal and regulatory risks requires, among other things, policies and procedures to
record and verify large numbers of transactions and events. These policies and procedures may not be fully effective.
We are subject to a variety of regulatory risks as a result of our operations in certain countries.
In certain countries in which we operate, judiciary and dispute resolution systems may be less developed. As a result, in case of a breach of
contract, we may have difficulties in making and enforcing claims against contractual counterparties and, if claims are made against us, we
might encounter difficulties in mounting a defence against such allegations. If we become party to legal proceedings in a market with an
insufficiently developed judicial system, it could have an adverse effect on our operations and net results.
In addition, as a result of our operations in certain countries, we are subject to risks of possible nationalisation, expropriation, price
controls, exchange controls and other restrictive government actions, as well as the outbreak of hostilities, in these markets. In addition,
the current economic environment in certain countries in which we operate may increase the likelihood for regulatory initiatives to enhance
consumer protection or to protect homeowners from foreclosures. Any such regulatory initiative could have an adverse impact on our
ability to protect our economic interest, for instance in the event of defaults on residential mortgages.
Holders of NN’s products where the customer bears all or part of the investment risk, or consumer protection organisations
on their behalf, have filed claims or proceedings against NN and may continue to do so. A negative outcome of such claims
and proceedings brought by customers or organisations acting on their behalf, actions taken by regulators or governmental
authorities against NN or other insurers in respect of unit-linked products, settlements or any other actions for the benefit
of customers by other insurers and sector-wide measures could substantially affect NN’s insurance business and, as a result,
may have a material adverse effect on NN’s and ING’s business, reputation, revenues, results of operations, solvency and
financial condition. In addition, claims and proceedings may be brought against NN in respect of other products with one or
more similar product characteristics sold, issued or advised on by NN in and outside the Netherlands. In this risk factor NN
means NN Group N.V. and its subsidiaries.
Since the end of 2006, unit-linked products (commonly referred to in Dutch as ‘beleggingsverzekeringen’) have received negative attention
in the Dutch media, from the Dutch Parliament, the AFM and consumer protection organisations. Costs of unit-linked products sold in the
past are perceived as too high and Dutch insurers are in general being accused of being less transparent in their offering of such unit-
linked products. The criticism on unit-linked products led to the introduction of compensation schemes by Dutch insurance companies that
have offered unit-linked products. In 2008 ING’s Dutch insurance subsidiaries reached an outline agreement with two main consumer
protection organisations to offer compensation to their unit-linked policyholders where individual unit-linked policies had a cost charge in
excess of an agreed maximum and to offer similar compensation for certain hybrid insurance products. At 31 December 2008 costs of the
settlements were valued at EUR 365 million for which adequate provisions have been established and of which a substantial portion has
been paid out. The remaining unpaid part of the provision as per 31 December 2013 is solely available to cover costs relating to the
settlements agreed in 2008. A full agreement on implementation was reached in 2010 with one of the two main consumer protection
organisations, with the second main consumer protection organisation signing its agreement in June 2012. In addition, ING’s Dutch
insurance subsidiaries announced additional measures (flankerend beleid) that comply with the ‘Best in Class’ criteria as formulated on 24
November 2011 by the Dutch Minister of Finance. In December 2011 this resulted in an additional agreement on these measures with the
two main consumer protection organisations. In 2012 almost all unit-linked policyholders were informed about the compensation. The
agreements with the two consumer protection organisations are not binding on policyholders. Consequently, neither the implementation
of the compensation schemes nor the additional measures offered by NN prevent individual policyholders from initiating legal proceedings
against INGs Dutch insurance subsidiaries and making claims for damages.
372 ING Group Annual Report 2013