ING Direct 2013 Annual Report Download - page 420

SOLVENCY II
Solvency II is a fundamental review of the prudential regime for
insurance and reinsurance undertakings in the European Union.
Solvency II must lead to a new solvability framework based on a
market consistent valuation, in which the capital requirements
adequately reflect the risks run by the insurer. It is still under
discussion and is not expected to come into force before 1 January
2016.
STRESS TESTING
Stress testing examines the effect of exceptional but plausible
scenarios on the capital position of ING. Stress testing can be
initiated internally or by external parties such as the Dutch central
bank.
STRUCTURED ENTITY
An entity that has been designed so that voting or similar rights are
not the dominant factor in deciding who controls the entity, such as
when any voting rights relate to administrative tasks only and the
relevant activities are directed by means of contractual
arrangements.
SUB-PRIME MORTGAGES
Mortgage loans made to borrowers who cannot get a regular
mortgage because they have a bad credit history or limited income.
SUBSIDIARY
An entity that is controlled by another entity.
SURRENDER
The termination of a life or retirement contract at the request of the
policyholder after which the policyholder receives the cash
surrender value, if any, on the contract.
SWAP CONTRACTS
Commitments to settle in cash at a specified future date, based on
differentials between specified financial indices as applied to a
notional principal amount. Generally, no cash is exchanged at the
outset of the contract and no principal payments are made by
either party.
TIER-1 CAPITAL
Tier-1 capital comprises paid up share capital, reserves excluding
revaluation reserves, retained earnings, minority interests and
hybrid capital. Where a reference is made to Basel III, we follow the
definition of the Basel Committee on Banking Supervision, which
means that revaluation reserves are included, but goodwill,
intangibles, defined benefit pension fund assets and part of the
deferred tax assets and minority interests are excluded.
TIER-1 RATIO
Reflecting the Tier 1 capital of ING Bank as a percentage of its
total risk weighted assets. The minimum set by the Dutch central
bank is 4%.
TIER-2 CAPITAL
Tier-2 capital, or supplementary capital, consists of mainly
subordinated debt meeting the conditions set by the Basel
Commission and is a constituent of ING Bank’s capital base. The
Basel III accord sets tighter conditions which ING Bank’s current
Tier-2 capital instruments do not meet. However these instruments
will be grandfathered under the Basel III accord in descending
degree over the years 2013-2022.
TRADING PORTFOLIO
Comprises those financial instruments which are held to obtain
short-term transaction results, to facilitate transactions on behalf of
clients or to hedge other positions in the trading portfolio.
TRANSFER RISK
Probability of loss due to currency conversion (exchange) restrictions
imposed by a foreign government that make it impossible to move
money out of the country.
TREASURY BILLS
Generally short-term debt certificates issued by a central
government. Dutch Treasury Certificates are regarded as Dutch
Treasury bills.
TREASURY SHARES
An entity’s own equity instruments, held by the entity or other
members of the consolidated group.
UNDERLYING RESULT
Underlying result is a measure to evaluate the result of the
segments. It is derived from the result in accordance with IFRS-EU
by excluding the impact of divestments, discontinued operations
and special items.
UNIT LINKED
A unit linked insurance product functions as a savings product but
also offers coverage for specific life events. The policy holder invests
in ‘units’ (stock, bonds, or mutual funds) and its return depends on
the performance of these units. The insurance company may decide
to provide guarantees on the return of the units.
VALUE AT RISK (VAR)
Quantifies, with a one-sided confidence level of at least 99%, the
maximum overnight loss in Net Present Value that could occur due
to changes in risk factors (e.g. interest rates, foreign exchange rates,
equity prices, credit spreads, implied volatilities) if positions remain
unchanged for a time interval of one day. Statistically, a loss larger
than the VaR figure can only occur once in every 100 days.
VALUE IN USE
The present value of estimated future cash flows expected to arise
from the continuing use of an asset and from its disposal at the end
of its useful life.
VARIANCE-COVARIANCE
A model to calculate Value at Risk, assuming that changes in risk
factors are (jointly) normally distributed and that the change in
portfolio value is linearly dependent on all risk factor changes.
Financial glossary continued
418 ING Group Annual Report 2013