Variable annuities (VA), sold by
ING Group’s US insurance unit ING America between 2003 and 2009,
have come back to haunt it yet again.
Changes in assumptions relating to
the US VA book, which closed to new business in early-2009, will
result in an estimated earnings charge of between €900,000
($1.25bn) and €1.1bn against fourth-quarter 2011 results, the Dutch
group has announced.
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In addition to the write-down, ING
Group announced that it will provide a contingent funding facility
of about €1.1bn to its US insurance business to ensure compliance
with US regulatory requirements.
ING Group noted that the actions
have been precipitated by a review which revealed that current US
closed book VA policyholder behaviour has diverged from earlier
assumptions. ING Group attributes this primarily to market
uncertainty and volatility which has led to the most significant
adjustment being to assumptions on lapse rates. Other assumption
changes relate to mortality, annuitisation and utilisation
rates.
Commenting on the announcements,
CEO of ING Group Jan Hommen said: “The actions reflect necessary
steps taken in the context of ongoing market turbulence and the
impact that has on US policyholder behaviour.”
Alluding to ING Group’s plans to
float off its US and other insurance operations through two initial
public offers, Hommen added: “Our new management team in the US
insurance business is taking decisive steps to address legacy
issues, improve results and prepare the business for its standalone
future.”
This is not the first big bite the closed US VA book has taken
out of ING Group’s bottom line. The most recent hit was in the
fourth quarter of 2010 when deferred acquisition costs of €975m
were written off. In the third quarter of the same year a charge of
€356m resulted from VA assumption changes in the US and Japan while
in the fourth quarter of 2009 a charge against the US VA book of
$343m was taken.
