Effect on ING Insurance Effect on ING Insurance 2005 net profit 2005 shareholders’ equity
These limits are further allocated to the ING Insurance business units through MVaR sublimits. These limits are managed by an ALCO Insurance structure on the respective organisational levels. Corporate Insurance Risk Management (CIRM) consolidates and monitors the MVaR exposures of the business lines including diversification effects on a quarterly basis. In 2005 there were no breaches of the overall ING Insurance MVaR limit.
The market risk of ING Insurance is primarily related to interest rate risk and equity risk although it also includes real estate and foreign currency risks. The following sections provide an analysis of the exposures of the different types of market risks.
Increase interest rates by 1% -68 -2,814 Decrease interest rates by 1% -1,743 1,255
The most significant interest rate risk within ING’s insurance businesses exists in Taiwan where ING has material exposure to a sustained low interest rate environment. This is due to long term interest rate guarantees of 6-8% embedded in the life contracts sold by the business until 2001. Since 2002, ING has changed the design of its Taiwan life insurance products, strengthened reserves and increased the internal capital allocation for this business.
ALM risk – equity risk ING’s insurance operations are exposed to changes of prices in equity markets on two levels: 1) business units that have direct equity holdings in their general accounts; and 2) products where the revenues of the insurance operations are linked to the value of underlying equity funds, since this has an impact on the level of charges deducted for unit-linked and variable business.
The main foreign exchange risks of ING Insurance relate to the translation risk from net income and equity from business units in USA and Canada. For net income the impact is mitigated through the usage of average yearly exchange rates.
ALM risk – Real estate risk Real Estate risk exists in some of the investment portfolios of ING Insurance, most significantly in the Netherlands. ING Insurance is exposed to the risk of decreasing real estate prices to the extent these cannot be shared with contract holders in participating insurance plans.
Through scenario analyses ING Insurance measured the potential changes in the earnings of the insurance operations resulting from an instantaneous increase/decrease in real estate markets of 10%. In addition, ING has estimated the impact to the 31 December 2005 shareholders equity of ING Insurance from such a change in real estate markets.
The sensitivities represent an instantaneous increase/decrease in real estate markets as of 31 December 2005. The net profit sensitivity reflects the related immediate effect on net income after tax for the year 2005.
Liquidity risk Liquidity problems arise if an insurance business does not have enough cash or liquid assets to meet its cash obligations. Demands for funds can usually be met through ongoing normal operations, premiums received, the sale of assets or borrowing. Unexpected demands for liquidity may be triggered by a credit-rating downgrade, negative publicity, deterioration of the economy, reports of problems of other companies in the same or similar lines of business, significant unanticipated policy claims, or other unexpected cash demands from policyholders.
CREDIT RISK General ING Insurance is exposed to credit risk through the investment of insurance premiums into assets subject to credit risk. ALCO Insurance sets the constraints for the overall asset allocation of the insurance activities including credit risk. These issuer limits are set by rating class and average credit quality and are translated in economic capital terms. Credit risk is managed through the MVaR limit structure described above. Issuer limits are determined based on the obligor’s rating. These limits are managed in the region where the parent company is domiciled. In addition each insurance company has one or more investment mandates that specify credit-risk appetite by issuer, type and quality.
RISK CLASSES: ING INSURANCE PORTFOLIO BY S&P RATINGS, AS % OF TOTAL OUTSTANDINGS
Rating classes are defined based upon the quality of the exposures in terms of credit worthiness, varying from investment grade to problem grade. Assets are generally rated based on issuer rating. Securitisations are rated based on issue rating The Dutch mortgage portfolio is included with an average credit rating of A in the table above. The category ‘Other’ contains assets rated BB and lower as well as assets that are not rated.
RISK CONCENTRATION: ING INSURANCE PORTFOLIO, BY ECONOMIC SECTOR AS % OF TOTAL OUTSTANDINGS
In the table below a summary is shown of the outstandings in the general account fixed-income portfolios per region of the issuer.
North America 42.8% Western Europe 39.9% Asia 10.2% Latin America 5.1% Central and Eastern Europe 1.8% Other 0.2%
Debtor provisioning For credit risks, a provision for loan losses is maintained that is considered adequate to absorb losses arising from the existing insurance investment portfolios. For 2005, ING Insurance added EUR 21 million to the provision for loan losses compared with a release of EUR 12 million in 2004.
Collateral, restructuring, past-due obligations and repossession policy Policies regarding collateral, restructuring, past-due obligations and repossession are similar to those disclosed in the credit risk section relating to ING Bank.
OPERATIONAL RISK The definition of operational risk within ING Insurance is identical to ING Bank. Details regarding operational risk are mentioned in the operational risk section relating to ING Bank.
PARENT COMPANY PROFIT AND LOSS ACCOUNT AMOUNTS IN MILLIONS OF EUROS
Result of group companies after taxation 7,194 5,765 Other results after taxation 16 -10 Net profit for the period 7,210 5,755
– transferred to profit and loss (realised) -663 -663 – unrealised revaluations transferred to deferred profit sharing liabilities and DAC -89 -89 Unrealised revaluations from cash flow hedges
CHANGES IN ACCOUNTING PRINCIPLES ING Group applies IFRS as adopted by the EU as of 2005 for the consolidated annual accounts. For the parent company accounts the principles of valuation and determination of results are similar as those applied to the consolidated annual accounts. The 2004 comparatives have been restated to comply with IFRS-EU. However, as permitted by IFRS 1, ING Group has not restated the 2004 comparatives for the impact of IAS 32, IAS 39 and IFRS 4. Accordingly, comparative information with respect to financial instruments and insurance contracts is prepared under ING Group’s previous accounting policies (ING GAAP). The effects of implementing IFRS-EU are set out below under ‘Impact of changes in accounting principles on net profit and equity’. ING Group has implemented IFRS-EU retrospectively, using the following transitional provisions: – Goodwill is only capitalised on acquisitions after 1 January 2004. Accounting for acquisitions before that date has not been restated; goodwill on those acquisitions was charged directly to shareholders’ equity.
– Hedge accounting is applied to all hedge relationships that were accounted for as a hedge under ING GAAP and meet the IAS 39 criteria for hedge accounting as of 1 January 2005.
Derivatives/hedge accounting/fair value option -977 -977 Loans and advances to customers 465 465 Loan loss provisions 623 623 Venture capital investments 90 90 Foreign currency translation -20 Result on sale of group companies 42
The number of debentures held by group companies as at 31 December 2005 was 2,519 with a balance sheet value of EUR 3 million (2004: 6,377 with a balance sheet value of EUR 6 million).
THE SUPERVISORY BOARD Cor A.J. Herkströter, chairman Eric Bourdais de Charbonnière, vice-chairman Luella Gross Goldberg Paul F. van der Heijden Claus Dieter Hoffman Jan H.M. Hommen Aad G. Jacobs Wim Kok Godfried J.A. van der Lugt Paul J.A. Baron de Meester Karel Vuursteen
THE EXECUTIVE BOARD Michel J. Tilmant, chairman Cees Maas, vice-chairman and Chief Financial Officer Eric F. Boyer de la Giroday Fred S. Hubbell Eli P. Leenaars Alexander H.G. Rinnooy Kan Hans K. Verkoren
Furthermore we have established to the extent of our competence that the report of the executive board is consistent with the parent company annual accounts.
Dividend of EUR 1.18 per ordinary share 174 ING Group Annual Report 2005 2.3 OTHER INFORMATION
PROPOSED PROFIT APPROPRIATION AMOUNTS IN MILLIONS OF EUROS, EXCEPT FOR AMOUNTS PER SHARE
The following statement provides a reconciliation of the shareholders’ equity and net profit on the basis of IFRS-EU to US GAAP.
Tax effect of the adjustments 493 3,521 188 204 Third-party interests in adjustments (after tax) 122 332 99 26 Total adjustments after tax 4,883 11,025 -234 933
Amounts in accordance with US GAAP (excluding effects of changes in accounting principles) 41,619 35,094 6,976 6,688 Cumulative effect of changes in accounting principles -91 Amounts in accordance with US GAAP 41,619 35,094 6,976 6,597
Diluted per share (in euros) in accordance with US GAAP 19.21 16.00 3.22 3.10 176 ING Group Annual Report 2005 2.4 ADDITIONAL FINANCIAL INFORMATION
The timing of the recognition of goodwill may be different under IFRS-EU and US GAAP since IFRS-EU requires that contingent consideration be recorded at the date of acquisition, with subsequent adjustments to contingent consideration reflected in goodwill. Under US GAAP, contingent consideration is only recorded when the contingency is resolved and the consideration is issued or becomes issuable.
Effective interest on prepayment sensitive assets Under IFRS-EU, in applying the effective yield method to determine amortised cost of prepayment sensitive assets, the original effective yield is maintained and any recognised adjustment, based on changes in future cash flow estimates, is made to the carrying amount of the asset (cumulative catch-up method). Under US GAAP, for beneficial interests in recognised assets that are not of high credit quality, a prospective method is used which requires changing the existing yield to a new yield based on actual cash flows to date and the latest expected future cash flow profile of the assets. For other prepayment sensitive assets a new yield and retrospective adjustment is required.
Foreign currency translation Under IFRS-EU, foreign currency translation results on translating the amortised cost of available-for-sale debt securities is included in the profit and loss account. The difference between fair value and amortised cost as translated into the functional currency is included in the revaluation reserve in equity. Under US GAAP all foreign currency translation results on available-forsale debt securities are recognised in equity attributable to equity holders of the company as part of the fair value adjustment (revaluation reserve).
Reversals of impairments Under IFRS-EU, prior impairments on debt securities may be reversed if there is an increase in fair value that can be objectively related to a new event. Under US GAAP, impairments on debt securities are not reversed.
DEBT SECURITIES (2004) Valuation of fixed-interest securities Under IFRS-EU excluding IAS 39 (2004), investments in fixed-interest securities are carried at redemption value. Differences between redemption value and cost are amortised to the profit and loss account over the remaining term of the investments concerned. Under US GAAP, securities which are available for sale are stated at fair value. Unrealised movements in the fair value are recognised in Equity attributable to equity holders of the company. Realised results on disposal are recognised immediately in the profit and loss account.
Realised gains/losses on disposal of investments in fixed-interest securities Under IFRS-EU excluding IAS 39 (2004), the result on disposal of investments in fixed-interest securities, i.e. the difference between the proceeds from sale and the book value, is treated as a yield difference. These yield differences are taken to the profit and loss account over the remaining term of the investment portfolio. Under US GAAP, the result on disposal is immediately recognised in the profit and loss account.
VALUATION OF EQUITY SECURITIES (2004) Under IFRS-EU excluding IAS 39 (2004) and US GAAP, unrealised losses on equity securities are recorded in the revaluation reserve, unless the securities are considered to be impaired. Impairments are charged to the profit and loss account. The determination of impairment involves various assumptions and factors, including the period of time and the extent to which the unrealised loss has existed and general market conditions, but is primarily based on the financial condition of the issuer in the long-term; ING has the intention and ability to hold securities with unrealised losses to full recovery. Under US GAAP, unrealised losses that are considered “other than temporary” are charged to the profit and loss account. The determination of “other than temporary” is primarily based on the duration and extent to which the market value has been below cost.
DERIVATIVES AND HEDGE ACCOUNTING (2005) Under IFRS-EU, hedge accounting is applied where possible. Accordingly, under IFRS-EU gains and losses on derivatives are deferred in equity when hedging relationships are designated as cash flow hedges. Adjustments are made to hedged items when hedging relationships are designated as fair value hedges. Under US GAAP, the Group has opted to not apply hedge accounting subject to items specifically designated as a hedge under US GAAP (including certain hedges of net investments in foreign operations). Accordingly, under US GAAP all derivatives other than those designated as hedges are marked-to-market through the income statement and no adjustments to hedged items are recognised.
DEFERRED ACQUISITION COSTS (2005 AND 2004) Under IFRS-EU, acquisition costs of certain life insurance business involving the receipt of regular premiums are recognised and amortised to the profit and loss account in proportion to future premiums. Under US GAAP, deferred acquisition costs of traditional insurance contracts are likewise amortised in proportion to future premiums. For universal-life type contracts, investment contracts and for participating individual life insurance contracts, deferred acquisition costs are amortised at a constant rate based on the present value of the estimated gross profit margins expected to be realised over the life of the book of contracts. Changes in estimated gross profits result in a retroactive adjustment recorded in the period the estimate of future gross profits change. Both under IFRS-EU and US GAAP deferred acquisition costs are adjusted, where applicable, (through equity) to reflect changes that would have been necessary if unrealised investment gains and losses related to available-for-sale securities had been realised. However, the amounts may be different due to differences in underlying accounting principles.
Investment contracts (2005) Under IFRS-EU, certain contracts that do not contain significant insurance risk are measured and presented as financial instruments and not as insurance contracts. Under US GAAP, these contracts are measured and presented as insurance contracts.
Accumulated benefit obligation in excess of the fair value of the plan assets Under US GAAP, an additional liability is recognised immediately in a situation where the accumulated benefit obligation exceeds the fair value of the plan assets and that exceeds the amount of the recorded unfunded accrued pension cost. The accumulated benefit obligation differs from the projected benefit obligation in that it does not take into account future salary increases. Under IFRS-EU, such additional liability is not recognised.
EQUITY INSTRUMENTS (2005) Under IFRS-EU, instruments with the legal form of equity but with fixed or determinable repayments or dividends are classified as ‘liabilities’. Under US GAAP, these instruments are classified as ‘equity’.
PROVISION FOR RESTRUCTURING (2005 AND 2004) Under IFRS-EU, certain restructuring costs relating to employee terminations are recognised when a restructuring plan has been announced. Under US GAAP, liabilities related to termination benefits are recognised when incurred. Employee termination costs are generally considered to be incurred when certain criteria have been met and the plan has been communicated to employees (communication date). Liabilities are recognised on the communication date unless further service (beyond a minimum retention period) is required from the employee in which case costs are recognised as benefits are earned.
ASSOCIATES AND OTHER EQUITY INVESTMENTS (2005) Differences arise between US GAAP and IFRS-EU for associates for which equity accounting is applied due to underlying differences between IFRS-EU and US GAAP in the associates’ equity and profit and loss. These mainly relate to underlying differences in the accounting treatment for real estate.
The criteria for the recognition of gains and losses on the sale of certain equity investments are more stringent under US GAAP. As a result, profit on sale is not always recognised in the same accounting period.
LOAN LOSS PROVISIONING (2005) Under IFRS-EU, loan loss provisions are determined under a revised methodology based on a narrow interpretation of an incurred loss model. The application of the IFRS-EU methodology has reduced the amount of the unallocated provision for loan losses that ING Group provided in prior years to adequately capture various subjective and judgmental aspects of credit risk assessment which were not considered on an individual basis. Accordingly, the alignment of US GAAP reporting with the change in estimation process on adoption of IFRS-EU in 2005 has resulted in a release of EUR 623 million (before tax) of the provision through the 2005 US GAAP profit.
OTHER (2005 AND 2004) Other includes the effect of certain other differences between IFRS-EU and US GAAP, which both individually and in aggregate have no significant effect on equity attributable to equity holders of the company and net profit for the period.
ING Bank applies the Risk Adjusted Return on Capital framework (RAROC). This method consistently measures the performance of different activities and has a clear link to shareholder-value creation. The use of RAROC increases focus on risks versus return in the decision-making process, and consequently stimulates the use of scarce capital in the most efficient way. Risk-adjusted pricing tools are also used as a basis for the pricing of certain transactions and as an important determinant in the creditapproval procedures.
Economic capital is defined as the amount of capital required to bear the economic risks created by the activities employed and at the company’s desired level of comfort. The Economic capital is based on detailed calculations for credit, transfer, market, operational and business risk and includes diversification benefit within the bank. ING uses a one-sided confidence interval of 99.95% - consistent with our target debt rating (AA/Aa2 long term) – and a one year time horizon. ING Group continues to develop and refine the models supporting the RAROC calculations that may result in changes and restatements.
ECONOMIC CAPITAL – ING BANK ING assesses internal capital requirements by using its own risk-based methodologies. For ING Bank the economic capital model is used. Economic capital is defined as the amount of capital required to cover for the economic risks created by the activities of the company and at the company’s desired level of comfort. ING Bank uses a one-sided confidence interval of 99.95% – consistent with our target debt rating (AA/Aa2 long term) – and a one year time horizon. The total amount of Economic capital can be regarded as the minimum level of capital that is required to absorb all future unexpected losses in times of severe stress.
Measurement ING believes that its new internal insurance capital model is considered an improvement over current EU capital requirements as more risk factors are considered. ING continues to refine economic capital models and allocation of capital to business units.
The European Embedded Value (EEV) Principles were published in May 2004 by the CFO Forum, a group representing the Chief Financial Officers of major European insurers. The Principles and associated guidance provide a framework for calculating and reporting supplementary embedded value information. The year-end 2005 results provided below are in accordance with the EEV Principles.
At the end of 2005, the total embedded value of ING’s life insurance operations was EUR 27,586 million compared to EUR 22,451 million at year-end 2004. This is after EUR 474 million in capital injections/dividends to the Group. Before capital injections/dividends, the increase in embedded value was EUR 5,610 million. Both the 2004 and 2005 figures are before deduction for the life insurance pension deficit. In 2005, this deficit was EUR 1,273 million which is offset by EUR 132 million already included in the expense assumptions in the embedded value calculations.
The embedded value result reflects increases due to an increase in the value of new business, favourable variances and currency effects. Changes in economic assumptions, particularly in Asia/Pacific, had an adverse impact on embedded value. Dividend payment from the life operations also reduce the embedded value result.
Premiums Value VNB/PV Premiums Value VNB/PV Annual single IRR(1) of new premiums(2) Annual single IRR(1) of new premiums(2)
(1) IRR = internal rate of return adjusted for expected currency movements relative to the euro. (2) VNB/PV Premiums = value of new business divided by the present value of new business.
Present value of future (statutory) book profits 16,431 14,571 Cost of holding required capital -4,810 -4,227 Value of in force covered business 11,622 10,344 Embedded value 27,586 22,451
Belgium/Luxembourg 1,077 871 Central Europe & Spain 2,552 2,163 Insurance Europe 14,929 12,258
United States 9,911 7,270 Latin America 947 847 Insurance Americas 10,858 8,118
Required return 1,907 Investment return on free surplus 530 Discount rate changes 804 Economic assumption changes -2,030 Embedded value of business acquired 36 (Dividends and) capital injections -474 Ending embedded value 2005 27,586
Major drivers of change in EV 2005 are: – Favourable currency movements added EUR 1,575 million to embedded value (compared with a negative impact of
EUR 529 million in 2004), primarily due to strengthening of the US dollar against the Euro; – Experience variances, especially due to investment performance in Netherlands, increased Embedded Value by EUR 1,399 million; – Operating assumption changes, particularly in Insurance Asia/Pacific, increased EV by EUR 50 million; – Net impact of economic assumption changes (EUR 2,030 million negative) and corresponding discount rate adjustments (EUR
804 million) was EUR 1,226 million negative, primarily due to downward adjusted new money assumptions in Taiwan; – Value of new business of EUR 805 million, an improvement of 27.4% compared to 2004; most businesses contributed to this increase, in particular South Korea, Central Europe, USFS, and Netherlands; – Required return on beginning in-force (unwind of discount rate) of EUR 1,907 million; – Other items primarily investment return on free surplus (due to higher equity performance) and net dividends/capital injections explain remaining differences from total EV 2004 (in total EUR 626 million).
Sensitivity embedded value to economic assumptions The tables below show the outcomes of sensitivity analysis of the Embedded Value as at 31 December 2005 to: – One percentage point decrease and increase in new-money interest rates; – One percentage point decrease and increase in the discount rates; – New money rates based on implied market forward rates derived from the swap rates as at 31 October 2005. The discount rate is adjusted accordingly.
In each sensitivity calculation, all other assumptions remain unchanged except – where they are directly affected by the revised economic conditions; for example, future bonus crediting rates are automatically adjusted to reflect sensitivity changes to future investment returns; and – when indicated above that the risk discount rate is adjusted accordingly; in this case the risk margin remains unchanged.
As reported – Embedded Value (net of tax) 14,929 10,858 1,799 27,586 1% decrease in new-money rates -449 -410 -2,029 -2,888 1% increase in new-money rates 436 150 2,047 2,633
1% decrease in new-money and 1% decrease in discount rates 467 174 -1,374 -734 1% increase in new-money and 1% increase in discount rates -336 -368 1,506 802
Developing markets new business value of EUR 375 million, increased by 39.9% from 2004 primarily due to Central Europe and Asia/Pacific.
INDEPENDENT OPINION Watson Wyatt Limited (“Watson Wyatt”), an international firm of consulting actuaries, has reviewed the calculation of the Embedded Value of ING as at 31 December 2005 and the Value of its New Business written during 2005. All material business units were included in the review. The covered business included all life insurance and other material long-term business lines.
Watson Wyatt has concluded that the methodology and assumptions used comply with the European Embedded Value Principles and Guidance.
ING INSURANCE – short term A-1 P-1 – long term AA- Aa3
(1) The Standard & Poor’s ratings as well as the Moody’s ratings all have a stable outlook.
Profit retention and distribution policy ING Group’s profit retention and distribution policy is dictated by its internal financing requirements and its growth opportunities on the one hand and the capital providers’ dividend expectations on the other. ING Group’s internal funding needs are determined partly by statutory solvency requirements and capital ratios, compliance with which is essential to its existence. No less important to ING Group are its credit ratings, which directly affect its financing costs and hence its profitability. For their part, the capital providers expect a dividend which reflects ING Group’s financial results and is relatively predictable.
Corporate governance The introduction of a new corporate governance structure in 2003 had a very visible effect on the annual General Meeting of Shareholders in April 2004 and even more so on the 2005 Shareholders’ Meeting. Many ING shareholders and holders of depositary receipts exercised their voting rights by means of proxy voting. Proxy voting increased from 8% in 2003 to approximately 37% in 2005 (including votes from preference shareholders). One of the items discussed and agreed upon at the 2005 Shareholders’ Meeting was the adaptation of the so-called Tabaksblat Code (the Dutch corporate governance code) and how ING would deal with it.
Shareholders with stakes of 5% or more Under the Dutch Act on the Disclosure of Significant Interests, three holders of depositary receipts with an interest or potential interest of between 5% and 10% in ING Group were known as at 31 December 2005. They were ABN AMRO, Aegon and Fortis.
Euronext Amsterdam Stock Exchange, in euros 2005 2004 2003 2002 2001 * Based on the share price at the end of December and operating/underlying net profit per ordinary share for the financial year. Price/earnings ratio 2005 and 2004 are IFRS-based.
(Depositary receipts for) ordinary shares of EUR 0.24 nominal value 2,204.9 2,204.7 (Depositary receipts for) preference shares of EUR 1.20 nominal value 87.1 87.1
(Depositary receipts for) own ordinary shares held by ING Group and its subsidiaries 38.7 29.5
Investors and financial analysts may contact: Investor Relations (IH 07.432) P.O. Box 810 1000 AV Amsterdam The Netherlands
AMORTISED COST The amount at which the financial asset or liability is measured at initial recognition minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, and minus any reduction for impairment or uncollectability.
ASSOCIATE Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights.
CLAIM A demand for payment of a policy benefit because of the occurrence of an insured event, such as the death or disability of the insured or the maturity of an endowment, the incurrence of hospital or medical bills, the destruction or damage of property and related deaths or injuries, defects in, liens on, or challenges to the title to real estate, or the occurrence of a surety loss.
CLAIMS RATIO The claims ratio is the claims, including claims handling expenses, expressed as a percentage of net earned premiums.
CONCENTRATIONS Concentrations of credit risk exist when changes in economic, industry or geographical factors similarly affect groups of counterparties whose aggregate exposure is material in relation to ING Group’s total exposure.
CONVERTIBLE DEBENTURE Convertible debentures are debentures with embedded options issued by corporations. The holder has the right to exchange a convertible debenture for equity in the issuing company at certain times in the future according to a certain exchange ratio. Very often, the conversion is callable. This means that it can be repurchased by the issuer at a certain price at certain times in the future. Once the debentures have been called, the holder can always choose to convert prior to repurchase.
CREDIT INSTITUTIONS Credit institutions are all institutions which are subject to banking supervision by public authorities, including mortgage banks, capital market institutions, multilateral development banks and the International Monetary Fund (IMF).
DEFERRED TAX ASSETS The amounts of income tax recoverable in future periods in respect of: – deductible temporary differences; – the carry forward of unused tax losses; and – the carry forward of unused tax credits.
DERIVATIVES Derivatives are financial instruments, which include forwards, futures, options and swaps, whose value is based on an underlying asset, index or reference rate.
FINANCIAL INSTRUMENTS Financial instruments are contracts that give rise to both a financial asset for one company and a financial liability or equity instrument for another company.
FINANCIAL LIABILITY Any liability that is a contractual obligation: – to deliver cash or another financial asset to another company; or – to exchange financial instruments with another company under conditions that are potentially unfavourable.
HELD-TO-MATURITY INVESTMENTS Non-derivative financial assets with fixed or determinable payments and fixed maturity that an entity has the positive intention and ability to hold to maturity other than: a. those that the entity upon initial recognition designates as at fair value through profit and loss; b. those that the entity designates as available for sale; and c. those that meet the definition of loans and receivables.
IMPAIRMENT An impairment is a permanent diminution in value, i.e. the recoverable amount is less than the carrying amount of the asset. In such circumstances a write-down of the asset is necessary.
INTEREST-RATE REBATES Profit sharing for group life insurance business. A rebate granted to policyholders based on the discounted value of the difference between the interest rate used for calculating the premiums and the expected yield on investment. The profit sharing is granted by means of a premium discount related to the yield on government bonds.
INVESTMENT PORTFOLIO The investment portfolio comprises those assets which are intended for use on a continuing basis, and have been identified as such. These investments are held in order to cover the insurance provisions and to manage interest rate, capital and liquidity risks.
IRREVOCABLE FACILITY Irrevocable facilities mainly constitute unused portions of irrevocable credit facilities granted to corporate clients and commitments made to purchase securities to be issued by governments and private issuers.
IRREVOCABLE LETTERS OF CREDIT An irrevocable letter of credit concerns an obligation on behalf of a client to, within certain conditions, pay an amount of money under submission of a specific document or to accept a bill of exchange.
An irrevocable letter of credit cannot be cancelled or adjusted by the bank that has granted it during the duration of the agreement unless all those concerned agree.
NET PREMIUMS WRITTEN Gross premiums written for a given period less premiums ceded to retrocessionaires during such period.
OPTION CONTRACTS Option contracts give the purchaser, for a premium, the right, but not the obligation, to buy or sell within a limited period of time a financial instrument or currency at a contracted price that may also be settled in cash. Written options are subject to market risk, but not to credit risk since the counterparties have already performed in accordance with the terms of the contract by paying a cash premium up front.
PREFERENCE SHARE A preference (or preferred) share is similar to an ordinary share but carries certain preferential rights. These rights usually concern the guarantee of a fixed (cumulative) return to the shareholder or a guaranteed return on the investment.
PREMIUMS EARNED That portion of net premiums written in current and past periods which applies to the expired portion of the policy period, calculated by subtracting movements in unearned premium reserves from net premiums.
PROJECTED UNIT CREDIT METHOD An actuarial valuation method that considers each period of service as giving rise to an additional unit of benefit
SUBSIDIARY A corporation: – in which, by agreement with other holders of voting rights or otherwise, more than half of the voting rights in a general meeting can be exercised by the company or one of its subsidiaries; – of which the company or a subsidiary is a member or shareholder and can appoint or dismiss, by agreement with other holders of voting rights or otherwise, alone or together with others more than half of the executive board or the supervisory board.
SWAP CONTRACTS Swap contracts are 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.
THIRD-PARTY INTERESTS That part of the net results and of net assets of a subsidiary attributable to an interest which is not owned, directly or indirectly, by the parent.
TIER-1 CAPITAL The tier-1 capital is also referred to as the core capital of ING Bank. It comprises paid up share capital, reserves excluding revaluation reserves, fund for general banking risks, retained earnings, third-party interests.
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