Voya 2013 Annual Report Download - page 135

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011
Net Income (Loss)
Net investment income decreased $270.9 million from $4,968.8 million to $4,697.9 million partially due to a
$91.9 million loss on the sale of certain alternative investments (see table above). Further decreases were due to
lower investment income resulting from investment portfolio changes to improve capital, such as the sale of
CMO-B assets, a decline in average assets in our Closed Block Institutional Spread Products segment and due to
lapses in MYGAs. The decline in the assets of the Closed Block Institutional Spread Products is due to the
continued run-off of this business. Certain MYGAs, mostly sold in 2002, have reached the end of their current
guarantee period in 2012. Most of these MYGAs have high crediting rates and the supporting assets generate
returns below the targets set when the contracts were issued, negatively impacting returns in our Annuities
segment. During the year ended December 31, 2012, approximately $3.0 billion of the MYGAs reached the end
of their current guarantee period, and approximately 66% of those policies up for renewal lapsed. The high lapse
rate was expected as renewal crediting rates offered are lower than the credited rates during the initial term. The
run-off of these MYGA contracts enhanced the results of our Annuities segment during 2012. These decreases
were partially offset by an increase in assets in our Retirement segment driven by positive net flows, including
customer transfers from variable separate accounts as well as improved performance of funds and partnership
income from our Investment Management segment.
Fee income decreased $88.2 million from $3,603.6 million to $3,515.4 million primarily due to a decline in
average AUM in the CBVA segment as well as higher unearned revenue amortization in our Individual Life
segment in 2011 related to the emergence of gross profits for a particular block.
Premiums increased $91.1 million from $1,770.0 million to $1,861.1 million primarily due to growth in
renewal premiums in our Life Insurance Solutions segment.
Net realized capital losses decreased $250.6 million from $1,531.4 million to $1,280.8 million primarily
due to higher net realized investments gains as well as favorable derivative results in our Retirement Solutions
business, offset by changes in fair value of guaranteed benefit derivatives due to nonperformance risk and higher
losses on derivatives from the CBVA segment liability hedges and CHO program. Higher net realized investment
gains were primarily due to a $447.6 million reduction in OTTI in 2012 compared to 2011. The favorable
derivative results in our Retirement Solutions business were driven by $566.1 million in higher gains on
guaranteed benefit derivatives, excluding nonperformance risk. The gains in 2012 on guaranteed benefit
derivatives were mostly due to a reduction in expected future guaranteed interest rates on certain Stabilizer
contracts, compared to losses in 2011 due to declining interest rates.
Partially offsetting these favorable items were changes in fair value of guaranteed benefit derivatives due to
nonperformance risk, changes in fair value of derivatives from the CBVA segment liability hedges, and losses on
the CHO program. Changes in the fair value of guaranteed benefit derivatives in the Retirement, Annuities and
CBVA segments due to nonperformance risk resulted in a decrease in income of $1,053.5 million (from a gain of
$495.7 million in 2011 to a loss of $557.8 million in 2012). The changes in derivative gains (losses) from the
CBVA segment liability hedges reduced income by $2,526.3 million. This decrease was driven by significant
gains in 2011 due primarily to interest rate decreases during that period compared to significant losses in 2012
due primarily to the equity market increase during that period. In addition, an increase in losses on the CHO
program (from a loss of $129.9 million in 2011 to a loss of $351.0 million in 2012) resulted in a decrease to
income of $221.1 million. The higher losses in 2012 were the result of the equity market increase in 2012 and
higher notional amounts for hedging the associated underlying risk, as a result of assumption changes made in
late 2011. The hedge program in the CBVA segment focuses on protecting regulatory and rating agency capital
rather than mitigating earnings volatility and, as a result, the losses in 2012 are more than offset by a
$2,969.4 million in gains (from a loss of $2,135.5 million to a gain of $833.9 million in 2012) from changes in
fair value of guaranteed benefit derivatives, excluding nonperformance risk.
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