ING Group, N.V., Amsterdam, Netherlands, announced in early December an estimated $1.1 billion (EUR $0.9 billion) earnings charge against the fourth quarter results of its U.S. closed variable annuity block of business. The adjustment includes a charge to "restore the reserve adequacy to the 50% confidence level for the US Closed Block VA in line with ING's IFRS-based accounting policy," the company noted in a press statement.
ING adds that it terminated the sale these VA policies in 2009. Thereafter the company undertook decisive action to reduce risk, leverage and expenses. Among the measures: reducing deferred acquisition costs, strengthening reserves, expanding hedging program and increasing transparency by reporting the closed U.S. VA block as a separate business along the ongoing ING insurance U.S. businesses.
Following the announcement, Moody's Investors Service, New York, downgraded to A3 from A2 the insurance financial strength (IFS) ratings of ING USA Annuity and Life Insurance Company and its rated US life insurance affiliates (collectively, ING US). The outlook on these ratings is stable.
Commenting on the downgrade, Moody's says that the reserve charge is "sizable relative to ING US's earnings and capital and weakens the US operation's stand-alone credit quality."
Separately, Moody's adds, the U.S. group faces the challenge and uncertainties of separating from its parent company, particularly in terms of establishing reliable and cost-effective stand-alone financing arrangements, as it moves toward its planned IPO in 2012.
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