Notes to the consolidated balance sheet (continued)
Liabilities (continued)
17 Insurance and investment contracts, reinsurance contracts
The gross amounts for provisions for insurance and investment contracts, net of reinsurance (i.e. the provision for ING’s own account) is presented in the balance sheet gross under ‘Insurance and investment contracts’ and ‘Reinsurance contracts’.
Insurance and investment contracts, reinsurance contracts
| Provision net of reinsurance | Reinsurance contracts | Insurance and investment contracts |
||||
|---|---|---|---|---|---|---|
| 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | |
| Provision for non-participating life policy liabilities | 67,120 | 70,401 | 4,822 | 4,481 | 71,942 | 74,882 |
| Provision for participating life policy liabilities | 55,266 | 54,645 | 217 | 175 | 55,483 | 54,820 |
| Provision for (deferred) profit sharing and rebates | 147 | 1,601 | 2 | 5 | 149 | 1,606 |
| Provision for life insurance for risk of policyholders | 84,279 | 100,753 | 541 | 639 | 84,820 | 101,392 |
| Life insurance provisions | 206,812 | 227,400 | 5,582 | 5,300 | 212,394 | 232,700 |
| Provision for unearned premiums and unexpired risks | 1,756 | 2,614 | 13 | 99 | 1,769 | 2,713 |
| Reported claims provision | 3,995 | 5,051 | 202 | 475 | 4,197 | 5,526 |
| Claims incurred but not reported (IBNR) | 1,345 | 1,121 | 1,345 | 1,121 | ||
| Claims provisions | 5,340 | 6,172 | 202 | 475 | 5,542 | 6,647 |
| Total provisions for insurance contracts | 213,908 | 236,186 | 5,797 | 5,874 | 219,705 | 242,060 |
| Investment contracts for risk of company | 9,804 | 9,520 | 9,804 | 9,520 | ||
| Investment contracts for risk of policyholders | 11,281 | 14,132 | 11,281 | 14,132 | ||
| Total provisions for investment contracts | 21,085 | 23,652 | 21,085 | 23,652 | ||
| Total | 234,993 | 259,838 | 5,797 | 5,874 | 240,790 | 265,712 |
For insurance contracts with discretionary participation features a deferred profit sharing liability is recognised for the full amount of the unrealised revaluation on allocated investments. Upon realisation, the profit sharing on unrealised revaluation is reversed and a deferred profit sharing liability is recognised for the share of realised results on allocated investments that is expected to be shared with policyholders. The deferred profit sharing liability is reduced by the actual allocation of profit sharing to individual policyholders. The change in the deferred profit sharing liability (net of deferred tax) is recognised in equity in the Revaluation reserve. The deferred profit sharing liability is included in Provision for (deferred) profit sharing and rebates and amounts to EUR –876 million as at 31 December 2008 (2007: EUR 318 million).
Changes in life insurance provisions
| Provision net of reinsurance | Reinsurance contracts | Insurance and investment contracts | ||||
|---|---|---|---|---|---|---|
| 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | |
| Opening balance | 227,400 | 231,946 | 5,300 | 5,773 | 232,700 | 237,719 |
| Changes in the composition of the group | –15,050 | –3,475 | –25 | 2 | –15,075 | –3,473 |
| 212,350 | 228,471 | 5,275 | 5,775 | 217,625 | 234,246 | |
| Current year provisions | 33,078 | 27,224 | 884 | 139 | 33,962 | 27,363 |
| Change in deferred profit sharing liability | –1,169 | –1,546 | –1,169 | –1,546 | ||
| Prior year provisions: | ||||||
| – benefit payments to policyholders | –24,626 | –21,933 | –719 | –82 | –25,345 | –22,015 |
| – interest accrual | 4,059 | 6,794 | –15 | –40 | 4,044 | 6,754 |
| – valuation changes for risk of policyholders | –32,408 | 5,612 | –32,408 | 5,612 | ||
| – effect of changes in discount rate assumptions | –1 | –1 | ||||
| – effect of changes in other assumptions | –32 | 2 | –32 | 2 | ||
| –53,008 | –9,525 | –734 | –122 | –53,742 | –9,647 | |
| Exchange rate differences | 9,918 | –15,583 | 259 | –501 | 10,177 | –16,084 |
| Other changes | 5,643 | –1,641 | –102 | 9 | 5,541 | –1,632 |
| Closing balance | 206,812 | 227,400 | 5,582 | 5,300 | 212,394 | 232,700 |
Changes in the composition of the group in 2008 relate mainly to the sale of ING Life Taiwan. Reference is made to Note 21 ‘Other liabilities’.
Included in Changes in the composition of the group in 2007 is EUR 4,017 million relating to the disposal of portfolios in connection with the sale of the Belgian broker and employee benefit insurance business as disclosed in Note 29 ‘Companies acquired and companies disposed’.
Where discounting is used in the calculation of life insurance provisions, the rate is within the range 3.1% to 6.0% (2007: 2.9% to 6.0%) based on weighted averages.
Insurance provisions include a provision for the estimated cost of the agreement with regard to unit-linked policies. For more information reference is made to Note 30 ‘Legal proceedings’.
ING transferred part of its life insurance business to Scottish Re in 2004 by means of a co-insurance contract. This business continues to be included in Life insurance provisions. The related asset from the co-insurance contract is recognised under Reinsurance contracts. On 23 January 2009, Hannover Re and Scottish Re announced that Hannover Re has agreed to assume the ING individual life reinsurance business originally transferred to Scottish Re in 2004.
To the extent that the assuming reinsurers are unable to meet their obligations, the Group remains liable to its policyholders for the portion reinsured. Consequently, provisions are made for receivables on reinsurance contracts which are deemed uncollectible. The life reinsurance market is highly concentrated and, therefore, diversification of exposure is inherently difficult. To minimise its exposure to significant losses from reinsurer insolvencies, the Group evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographical regions, activities or economic characteristics of the reinsurer. Reference is also made to the ‘Risk management’ section.
As at 31 December 2008, the total Reinsurance exposure, including Reinsurance contracts and Receivables from reinsurers (presented in Other assets) amounted to EUR 6,539 million (2007: EUR 7,044 million) after the provision for uncollectible reinsurance of nil (2007: EUR 5 million).
Changes in provision for unearned premiums and unexpired risks
| Provision net of reinsurance | Reinsurance contracts | Insurance and investment contracts | ||||
|---|---|---|---|---|---|---|
| 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | |
| Opening balance | 2,614 | 2,631 | 99 | 156 | 2,713 | 2,787 |
| Changes in the composition of the group | –643 | –194 | –93 | 3 | –736 | –191 |
| 1,971 | 2,437 | 6 | 159 | 1,977 | 2,596 | |
| Premiums written | 4,747 | 5,780 | 196 | 306 | 4,943 | 6,086 |
| Premiums earned during the year | –4,719 | –5,701 | –190 | –326 | –4,909 | –6,027 |
| Exchange rate differences | –231 | 15 | –1 | –10 | –232 | 5 |
| Other changes | –12 | 83 | 2 | –30 | –10 | 53 |
| Closing balance | 1,756 | 2,614 | 13 | 99 | 1,769 | 2,713 |
Changes in claims provisions
| Provision net of reinsurance | Reinsurance contracts | Insurance and investment contracts | ||||
|---|---|---|---|---|---|---|
| 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | |
| Opening balance | 6,172 | 6,651 | 475 | 600 | 6,647 | 7,251 |
| Changes in the composition of the group | –401 | –667 | –135 | –18 | –536 | –685 |
| 5,771 | 5,984 | 340 | 582 | 6,111 | 6,566 | |
| Additions | ||||||
| – for the current year | 2,934 | 3,356 | –93 | 78 | 2,841 | 3,434 |
| – for prior years | –322 | –282 | –12 | 14 | –334 | –268 |
| – interest accrual of provision | 30 | 32 | 30 | 32 | ||
| 2,642 | 3,106 | –105 | 92 | 2,537 | 3,198 | |
| Claim settlements and claim settlement costs | ||||||
| – for the current year | 1,399 | 1,747 | 8 | –42 | 1,407 | 1,705 |
| – for prior years | 1,209 | 1,343 | 18 | 151 | 1,227 | 1,494 |
| 2,608 | 3,090 | 26 | 109 | 2,634 | 3,199 | |
| Exchange rate differences | –407 | 84 | –26 | –14 | –433 | 70 |
| Other changes | –58 | 88 | 19 | –76 | –39 | 12 |
| Closing balance | 5,340 | 6,172 | 202 | 475 | 5,542 | 6,647 |
ING Group had an outstanding balance of EUR 52 million as at 31 December 2008 (2007: EUR 66 million) relating to environmental and asbestos claims of the insurance operations. In establishing the liability for unpaid claims and claims adjustment expenses related to asbestos related illness and toxic waste clean-up, the management of ING Group considers facts currently known and current legislation and coverage litigation. Liabilities are recognised for IBNR claims and for known claims (including the costs of related litigation) when sufficient information has been obtained to indicate the involvement of a specific insurance policy, and management can reasonably estimate its liability. In addition, liabilities are reviewed and updated regularly.
Where discounting is used in the calculation of the claims provisions, based on weighted averages, the rate is within the range of 3.0% to 4.0% (2007: 3.8% to 4.3%).
Changes in investment contracts liabilities
| 2008 | 2007 | |
|---|---|---|
| Opening balance | 23,652 | 20,750 |
| Changes in the composition of the group | –548 | –277 |
| 23,104 | 20,473 | |
| Current year liabilities | 8,635 | 12,890 |
| Prior year provisions | ||
| – payments to contract holders | –8,472 | –9,697 |
| – interest accrual | 268 | 408 |
| – valuation changes investments | –1,535 | 576 |
| –9,739 | –8,713 | |
| Exchange rate differences | –1,111 | –1,147 |
| Other changes | 196 | 149 |
| Closing balance | 21,085 | 23,652 |
Gross claims development table
| Underwriting year | ||||||
|---|---|---|---|---|---|---|
| 2004 | 2005 | 2006 | 2007 | 2008 | Total | |
| Estimate of cumulative claims: | ||||||
| At the end of underwriting year | 2,023 | 1,891 | 1,889 | 1,898 | 2,851 | |
| 1 year later | 1,785 | 1,754 | 1,821 | 1,798 | ||
| 2 years later | 1,594 | 1,620 | 1,708 | |||
| 3 years later | 1,537 | 1,568 | ||||
| 4 years later | 1,520 | |||||
| Estimate of cumulative claims | 1,520 | 1,568 | 1,708 | 1,798 | 2,851 | 9,445 |
| Cumulative payments | –1,153 | –1,077 | –1,072 | –833 | –1,343 | –5,478 |
| 367 | 491 | 636 | 965 | 1,508 | 3,967 | |
| Effect of discounting | –35 | –51 | –63 | –82 | –125 | –356 |
| Liability recognised | 332 | 440 | 573 | 883 | 1,383 | 3,611 |
| Liability relating to prior underwriting years | 1,931 | |||||
| Total amount recognised in the balance sheet | 5,542 | |||||
The Group applies the exemption provided for in IFRS-EU not to present Gross claims development for annual periods beginning before 1 January 2004 (the date of transition to IFRS-EU) as it is impracticable to obtain such information.
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