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The following glossary includes definitions of
words and expressions that are commonly found in ING's financial
press releases and annual report. The glossary is offered to
enhance your understanding of ING's business and results, but is by
no means complete. If you can't find a certain definition, please
feel free to
contact us.
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Actuarial and underwriting risks
Actuarial and underwriting risks emerge from the pricing and
acceptance of insurance contracts. Actuaries play a key role in
determining insurance premium rate levels and in ensuring that
insurance companies have set aside enough provisions to pay claims.
Actuarial risk is the risk that assumptions of actuaries included
in models to determine premium rate levels and provisions may turn
out somewhat inaccurate. Underwriting risk is the risk that an
issuer will receive a claim under an insurance policy it issues.
Maximum underwriting exposures are limited through exclusions,
cover limits and reinsurance.
Alt-A mortgage
A type of US residential mortgage which is considered riskier than
‘ prime’ and less risky than ‘sub-prime’ mortgages. Parameters
generally taken into account are borrower credit scores,
residential property values and loan-to-value ratios. Alt-A
mortgages are further characterised by a limited degree of income
and/or asset verification.
Annuity
An income receivable for a specified period of time or during the
life of the annuitant (person receiving the annuity).
Asset and Liability Committee (ALCO)
A committee that manages the balance sheet of ING, especially with
regard to the strategic non-trading risk. These risks comprise
interest rate exposures, equity risk, real estate risk, liquidity,
solvency and foreign exchange risk and fluctuations.
Asset and Liability Management (ALM)
The practice of managing a business such that decisions on assets
and liabilities are coordinated. It involves the ongoing process of
formulating, implementing, monitoring and revising strategies
relates to assets and liabilities.
Asset backed security (ABS)
A type of bond or note that is based on pools of assets, or
collateralised by the cash flows from a specified pool of
underlying assets.
Associate
An entity over which the Group has significant influence, generally
accompanying a shareholding of between 20% and 50% of the voting
rights, and that is neither a subsidiary nor a joint
venture.
Audit Committee
The Audit Committee advises the Supervisory Board in exercising its
responsibility to ensure that ING Group's financial systems provide
accurate and up-to-date information on its financial position and
that the published financial statements represent a true and fair
reflection of this position. The committee also advises the
Supervisory Board in ensuring that appropriate accounting policies,
internal financial controls, and compliance procedures are in
place.
Authorised capital
The maximum amount of share capital that a public limited company
or a private limited company can issue according to its articles of
association. Part of the authorised capital can remain
unissued.
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Basel I
Basel I is the first Basel Accord, which includes recommendations
on banking regulations issued by the Basel Committee on Banking
Supervision. These are, for ING, superseded by Basel II from 2008
onwards.
Basel II
Basel II is the second Basel Accord. Basel II is an international
standard for how much capital banks need to put aside for the
financial and operational risks they face. Basel II introduced the
possibility for banks to measure those risks based on their own
internal models.
Basis risk
The basis risk arises from imperfect correlation in de adjustment
of the rates earned and paid on different financial instruments.
Examples of products in which these risks are inherent are demand
deposits, saving accounts and mortgages with prepayment
options.
BIS ratio
The Bank of International Settlements (BIS), located in Basel, is
an organisation that encourages international monetary and
financial cooperation and that serves as a bank for central banks.
The BIS has set a minimum for the solvency ratio, which is the
ratio between the risk-bearing capital and the risk-weighted
assets. This ratio should be at least 8%.
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Capital base
Capital plus minority interests plus subordinated loans.
Capital-at-Risk (CaR)
The maximum negative impact on ING Group’s economic surplus over a
one-year forward-looking horizon under normal market conditions.
CaR is calculated at a 90% confidence interval.
Capital coverage ratio
Available capital divided by required capital.
Capital Management
Monitoring and managing the capital requirements for ING Bank, ING
Insurance and ING Group and executing all related transactions.
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
Claims, including claims handling expenses, expressed as a
percentage of net earned premiums.
Collateralized debt obligation (CDO)
A type of asset-backed security that provides investors exposure to
the credit risk of a pool of fixed income assets.
Collateralized loan obligation (CLO)
A type of collateralized debt obligation that is backed primarily
by leveraged bank loans.
Combined ratio
The sum of the claims ratio and the cost ratio for a non-life
insurance company or a reinsurance company. A combined ratio.below
100% means that an insurance policy is profitable. A combined ratio
of more than 100% does not necessarily mean that there is a loss on
non-life insurance policies, because the result also includes the
allocated investment income.
Commercial paper
Negotiable short-term debt certificate in bearer form, issued by
companies.
Compliance risk
The risk of impairment of ING Group’s integrity, leading to damage
to ING’s reputation, legal or regulatory sanctions or financial
loss as a result of a failure (or perceived failure) to comply with
applicable laws, regulations and standards.
Control
The power to govern the financial and operating policies of an
entity so as to obtain benefits from its activities.
Corporate governance
The way in which a company is governed and how it deals with the
various interests of its customers, shareholders, employees,
business partners and society at large.
Corporate governance committee
The primary tasks of this Supervisory Board committee are to
perform an annual evaluation of ING's corporate governance as a
whole, to perform an annual evaluation of the governance of the
Executive Board, to make proposals to the Supervisory Board and to
the General Meeting of Shareholders for improvements and to ensure
that the corporate governance of ING as a whole and the policy on
which it is based is fully transparent and communicated in the
Annual Report and to the annual General Meeting of Shareholders.
Corporate responsibility
ING wants to pursue profit on the basis of sound business ethics
and respect for its stakeholders. Corporate responsibility is
therefore a fundamental part of ING’s strategy: ethical, social and
environmental factors play an integral role in our business
decisions.
Cost ratio
Underwriting costs expressed as a percentage of net premiums
written.
Country risk
The risk that a foreign government will not fulfil its obligations
or obstructs the remittance of funds by debtors, either for
financial reasons (transfer risk) or for other reasons (political
risk).
Credit rating
Credit ratings, as assigned by rating agencies (such as Standard
& Poor’s and Moody’s), are indicators for the likelihood of
timely and complete repayment (by ING) of interest and instalments
of fixed-income securities.
Credit institutions
All institutions which are subject to banking supervision by public
authorities.
Credit risk
The risk of loss through default by borrowers (including bond
issuers) or counterparties. Credit risks arise in ING’s lending,
pre-settlement and investment activities, as well as in its trading
activities. Credit risk management is supported by dedicated credit
risk information systems and internal rating methodologies for
debtors and counterparties.
Cumulative preference shares
Shares that entitle the holder to a fixed annual dividend. In case
of profit distribution, these shares take precedence over ordinary
shares. If profits are insufficient to cover the dividend payment,
the amount of unpaid dividend is carried forward to future years
until the unpaid amount is settled.
Currency risk
The risk that changes in a currency's value may affect the value of
financial instruments or other business assets or liabilities
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Deferred tax liabilities
The amounts of income tax payable in future periods in respect of
taxable temporary differences between carrying amounts of assets or
liabilities in the balance sheet and tax base, based on tax rates
that are expected to apply in the period when the assets are
realised or the liabilities are settled.
Defined benefit plan
Pension scheme with a guaranteed benefit.
Defined contribution plan
A pension scheme for which an enterprise pays fixed contributions
into a separate entity (a fund) and where the benefit depends on
the return.
Depositary receipt for share
For ordinary and preference shares, issued by the ING Trust Office,
in exchange for ordinary and preference shares issued by ING
Group.
Derivatives
Derivatives are financial instruments, such as forwards, futures,
options and swaps, whose value is based on an underlying asset,
index or reference rate.
Discount rate
A rate used to place a current value on future cash flows. It is
needed to reflect the fact that money has a time value. In the
embedded value calculated for ING's insurance operations, the
discount rate is equal to the weighted cost of capital after
taxation of the insurance operations.
Discounted bills
Bills that are sold under deduction of interest giving the owner
the right to receive an amount of money on a given date.
Divestment
Sale of an asset.
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Earnings-at-Risk (EaR)
EaR measures the effect of fluctuations in the market rate on the
profit under IFRS, on the basis of a period of one year.
Economic capital
The minimum amount of capital that is required to absorb unexpected
losses in times of severe stress. Given ING Group’s AA target
rating, ING calculates economic capital requirements at a 99.95%
level of confidence.
Efficiency ratio
A ratio that expresses the total operating expenses as a percentage
of total income of the banking operations. A 68% ratio implies that
a company has to spend 68 cents to earn a revenue of one euro.
Elimination
A process by which intercompany transactions are matched with each
other and deducted, so that the assets, liabilities, income and
expenses are not inflated.
Embedded value
Embedded value is the present value of future cash flows from
existing business plus the part of shareholders’ equity that does
not need to be held to finance existing business.
Employee benefits
All forms of consideration given by a company in exchange for
service rendered by (former) employees.
Ex-dividend
On the day a fund is quoted ex-dividend, the right to the dividend
made available by the company is no longer included in the share
(price) as traded on the stock exchange. The share price is
therefore adjusted accordingly.
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Fair value
The amount for which an asset could be exchanged, or a liability
settled, between knowledgeable, willing parties in an arm’s length
transaction.
Final dividend
The final dividend is the total dividend for the year as approved
by the shareholders in the annual General Meeting less any interim
dividend paid during the year.
Financial asset
Any asset that is:
- cash
- an equity instrument of another company
- a contractual right to:
- receive cash or another financial asset from
another company, or
- exchange financial instruments with another
company under conditions that are potentially favourable
- certain contract that will or may be settled in
ING’s own equity instruments.
Financial liability
Any liability that is a contractual obligation:
- to deliver cash or another financial asset to
another company;
- to exchange financial instruments with another
company under conditions that are potentially unfavourable;
- certain contracts that will or may be settled in
ING’s own equity instruments.
Forward contract
Commitments to exchange currencies or to buy or sell other
financial instruments at specified future dates.
Future contract
Commitment to exchange currencies or to buy or sell other financial
instruments at specified future dates. Stock exchanges act as
intermediaries and require daily cash settlement and collateral
deposits.
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Gross premiums written
Total premiums (whether or not earned) for insurance contracts
written or assumed (including deposits for investment contracts
with limited or no life contingencies written) during a specific
period, without deduction of premiums ceded.
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Hedge fund
Investment fund that specialises in a specific trading strategy,
such as currencies, bonds or equities, while hedging the investment
against adverse price developments.
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IFRS
International Financial Reporting Standards. The International
Accounting Standards (IAS) are included in the IFRS.
Impairment loss
The amount by which the carrying amount of an asset exceeds its
recoverable amount. In that case a downward value adjustment of the
asset is necessary.
ING Trust Office
The role of the ING Trust Office is to actively communicate with
shareholders and represent the votes of the depositary-receipt
holders and shareholders.
ING Continuity Foundation
The role of the ING Continuity Foundation is to ensure ING's
continuity. Should a hostile takeover attempt ever occur, this
foundation can exercise its call option right for as many
cumulative preference shares as are necessary in order to hold one
third of the issued share capital.
Interest-bearing instrument
A financial asset or liability for which a time-proportionate
compensation is paid or received, in relation to a notional
amount.
Interest margin
Difference between the averagely received interest on funds lent
and the interest paid by the bank on capital raised.
Interest-rate rebate
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.
Interest risk
The risk of interest fluctuations with regard to guaranteed
interest rates and the reasonable expectations of policyholders
regarding profit sharing.
Interim dividend
The interim dividend is an advance on the final dividend and
distributed before the year-end closing.
IRR
Internal Rate of Return: Interest rate that discounts future cash
flows to zero.
It represents the amount that ING expect to earn on an investment
during the life span of the project.
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
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.
Issued share capital
The share capital issued by a public limited company or a private
limited company; contrary to authorised capital, which indicates
the maximum amount of capital that can be issued.
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Joint venture
A contractual arrangement whereby two or more parties undertake an
economic activity which is subject to joint control.
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Liquidity
The extent to which a company can meet its immediate payment
obligations.
Liquidity risk
The risk that ING Group or one of its subsidiaries cannot meet its
financial liabilities when they fall due, at reasonable costs and
in a timely manner.
Longevity risk
The risk that the insured will live longer than the assumed average
used in calculating the price of a life insurance.
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Managing for Value
Managing for Value brings the financial market perspective into
strategic and operational management decision processes within ING.
In doing so, ING Group aims to realise the financial objective of
creating higher returns for our shareholders than the average of
our peers.
Market risk
The potential loss (value or earnings) due to adverse movements in
market rates, including equity prices, interest rates and foreign
exchange rates.
Market Value at Risk (MVaR)
A calculation method which measures the decrease in the market
value surplus caused by movements in financial markets, at a 99.95%
confidence level over a 1-year horizon.
Minority interest
That part of the profit or loss and net assets of a subsidiary
attributable to an interest which is not owned, directly or
indirectly, by the parent.
Mortgage backed securities
A security of which the cash flows are backed by the principal
and/or the interest payments of a pool of mortgages.
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Net asset value
Used in the equity method of accounting. The initial net asset
value of the investment is determined by the fair value of the
assets and liabilities of the investee. After the initial valuation
of assets and liabilities of the investee at fair value, the assets
and liabilities of the investee are valued in accordance with the
accounting policies of the investor. The profit and loss account
reflects the investor’s share in the results of operations of the
investee.
Net profit
Profit after taxation and third party interests.
Nominal value of share
Dutch shares have a nominal value, which is mentioned on all share
certificates that are issued. Shares must be issued against at
least the nominal value. The nominal value remains fixed, as
opposed to the market value, which fluctuates.
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Operating net profit
Net profit excluding realised capital gains on shares and excluding
non-operating gains.
Operational activities
Activities performed in connection with normal daily business.
Operational risk
The risk of direct and indirect loss resulting from inadequate or
failed internal processes, people and systems or from external
events.
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.
Ordinary share
An equity instrument that is subordinated to all other classes of
equity instruments. Ordinary shares participate in the net profit
for the financial year after other types of shares such as
preference shares.
Organic growth
Growth generated by the business units excluding the impact of
exchange-rate differences and acquisitions or divestments.
Own shares
Shares that are bought back by de issuing company or the group
company.
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Payout ratio
Percentage of distributable net profit that is paid out as
dividend.
Preference share
A preference 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.
Premium income
The amount paid by the purchaser of an insurance contract less any
commission or brokerage fees payable to an insurance agent. This
represents the gross income of an insurance company.
Private banking
Financial services for affluent individuals.
Private equity
Investment in non-listed companies, with financing taking place
through private capital.
Private loan
Loans to governments, other public bodies, public utilities,
corporations, other institutions or individuals with a loan
agreement as the only instrument of title.
Proxy voting
Voting at a distance. If shareholders cannot attend a general
meeting of shareholders in person, they can vote by proxy. This is
done by filling in a special proxy form.
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Reinsurance
The practice whereby one party, called the reinsurer, in
consideration for a premium paid to him, agrees to indemnify
another party, called the reinsured or ceded party, for part or all
of the liability assumed by the reinsured under a contract or
contracts of insurance which the reinsured has issued. The
reinsured may also be referred to as the original or primary
insurer, the direct writing company, or the ceding company.
Return
Total income or revenues over a certain period of time, in relation
to the invested capital.
Revaluation reserve
Part of the shareholders' equity that arises from changes in the
current value of the fixed assets.
Remuneration and Nomination Committee
A committee that advises the Supervisory Board on compensation
policies and the composition of the Supervisory Board and Executive
Board. The committee also advises the Supervisory Board on the
compensation packages of Executive and Supervisory
Board.members
Risk-adjusted return on capital (RAROC)
An advanced business performance measurement tool that enables
management to view its revenues in the perspective of the risks
that had to be taken to obtain that revenue. RAROC is calculated by
dividing the risk-adjusted return by economic capital.
Risk-weighted assets
The assets of a financial institution multiplied by a weighting
established by the regulatory authorities representing the relative
risk of these assets. Based on the amount of risk-weighted assets,
the amount of minimum capital required by the institution may be
calculated.
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Settlement risk
Arises when there is an exchange of value (funds, instruments or
commodities) for the same or different value dates or times and
receipt is not verified or expected until ING has paid or delivered
its side of the trade. The risk is that ING delivers, but does not
receive delivery from the counterparty.
Shareholders' equity
Capital invested by the shareholders in the company, increased by
the reserves.
Solvency
The ability of a company to meet all its obligations.
Stakeholder
A stakeholder is somebody who has an interest in ING. ING
distinguishes the following stakeholder groups: customers,
shareholders, employees, business partners and society as a
whole.
Subordinated loan
Business loan that in case of a bankruptcy or liquidation is paid
back after all other debts have been settled.
Sub-prime mortgage
Mortgage loans made to borrowers who cannot get a regular mortgage
because they have a bad credit history or limited income.
Subsidiary
A company
- in which the legal entity or one or more of its
subsidiaries, whether or not in accordance with an agreement with
other holders of voting rights, can exercise more than 50% of the
voting rights in de annual general meeting of shareholders;
- of which the legal entity or one or more of its
subsidiaries are member or shareholder and, whether or not in
accordance with an agreement with other holders of voting rights,
who can alone or together appoint or dismiss more than half of the
executive board or supervisory board members.
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.
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Tier-1 capital
Also referred to as the core capital of ING Bank. It comprises
paid-up share capital excluding revaluation reserves, fund for
general banking risks, retained earnings and minority
interests.
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%.
Total shareholder return (TSR)
The return on shares in the form of capital gains and reinvested
dividends.
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
The risk of an entity being unable to settle either temporarily or
permanently amounts due to a cross-boarder creditor as a result of
actions by the government or other regulatory authority of the
country where the entity is resident.
Treasury
Managing the cash flows within a company.
Treasury bill
Generally short-term debt certificates issued by a central
government.
Trust office
A trust office is a body that represents the interests and rights
on behalf of a certain group of people. At ING, this term is used
to refer to the ING Trust Office. This body represents the interest
of ING's depositary-receipt holders.
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Underlying net profit
Total net profit excluding divestments and special items.
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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.
Value creation
Part of the strategy of ING that emphasises the increase in
economic profit (profit after capital costs), better return and
profitable organic growth.
Value of new business
A methodology used in the life insurance business to express the
total expected profits of the business already sold.
Variable annuity
Annuity product that enables clients to benefit from increasing
share prices and that also offers a guaranteed minimum benefit or a
guaranteed pension income.
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Warrant
A financial instrument that gives the holder the right to purchase
ordinary shares.
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- Last updated 17/10/2008
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