ING takes measured risks
Taking measured risks is part of ING’s business. Like other financial services companies, ING faces a number of risks in the areas of credit, interest rates, real estate, equity, insurance and liquidity. Beyond that, there are also operational, information and security risks associated with doing business.
Credit risk is the risk of loss from default by debtors (including bond issuers) or counterparties. ING seeks to maintain an internationally diversified loan and bond portfolio.
As ING is active across many countries and in different currency zones there are also inherent interest rate risks. There is a natural and structural diversification of the interest rate position, particularly in the euro zone and in the US. This is further supported by diversification across currencies and monthly hedging and rebalancing. Banking and insurance together also provide an inherent diversification benefit.
ING’s Insurance and Banking operations are exposed to real estate risk in the event of a market downturn. But this exposure is mitigated due to the highly diversified portfolio of real estate assets. Concentrations within specific geographies are monitored and actively managed.
ING Real Estate, the world’s largest real estate investment manager, is mostly exposed to real estate risk through financing, development and managing property funds. Real estate risk also diversifies the overall risk profile of the Group as there is a limited correlation between real estate risk and other types of risk.
Equity risk is mitigated from time to time by hedging processes, while insurance risk, which combines actuarial and underwriting risks (risks such as mortality, longevity, morbidity, adverse motor or home claims development, etc.) is managed by removing concentrations through reinsurance. The insurance businesses also exclude or limit business in some areas such as terrorism and health reimbursement.
Liquidity risk is the risk that ING or one of its subsidiaries cannot meet its financial liabilities when they fall due, at reasonable costs and in a timely manner. ING’s balance sheet inherently supplies liquidity as a significant proportion of assets are held in cash or liquid market instruments and are capable of providing liquidity as required. ING has developed a liquidity management framework with a preferred order of generating liquidity.
ING is exposed to operational, information and security risks on a daily basis through its client relationships, product offerings, IT infrastructures and daily operations. Operational, information and security risks are managed through a common ING framework that identifies measures and monitors the risks and its mitigating controls in the ING businesses. In 2007 this framework has further matured and the responsible risk functions have been integrated into one functional line throughout ING.