Voya 2013 Annual Report Download - page 157

Variable Annuity Guarantee Hedge Program is set based on market consistent valuation techniques for equity
risks and for certain interest rate risks, rather than mitigating earnings volatility. Losses resulting from our
incurred guaranteed benefits and Variable Annuity Guarantee Hedge Program decreased $1,204.0 million due to
lower impacts of policyholder behavior and other assumption changes in 2012 compared to 2011, the impact of
favorable fund returns relative to overall equity market returns in 2012, and a current year decrease in volatility.
The 2012 impact of policyholder behavior assumption changes was a decrease in income of $151.7 million,
which consisted of $114.6 million driven primarily by an update to lapse rates on variable annuity contracts with
lifetime living benefit guarantees and $37.1 million related to changes in cash flow projections and volatility
assumptions on certain products. The prior year impacts of policyholder assumption changes decreased income
by $741.2 million.
Losses on our CHO program, designed to protect regulatory and rating agency capital, increased by
$221.1 million, from $129.9 million to $351.0 million. This was primarily due to an increase in equity markets in
2012, compared to equity markets that were essentially flat in the prior period. In addition, we increased the
notional position of our CHO program in 2012, partly as a result of assumption changes made in late 2011. A
decline in net investment income due primarily to lower yields on assets backing reserves and lower realized
gains on investments contributed to the decrease, in addition to lower fee income and surrender fees from the
continued run-off of the business and higher LOC costs.
Alternative Investment Income
Investment income on certain alternative investments can be volatile due to changes in market conditions.
The following table presents the amount of investment income (loss) on certain alternative investments that is
included on segment Operating earnings before income taxes and the average level of assets in each segment,
prior to intercompany eliminations. These alternative investments are carried at fair value, which is estimated
based on the NAV of these funds. The investment income on alternative investments shown below for the
periods stated excludes the net investment income from Lehman Recovery/LIHTC in the current periods and net
loss on the sale of certain alternative investments during the prior periods.
While investment income on these assets can be volatile, based on current plans, we expect to earn 8% to
9% on these assets over the long-term.
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