Voya 2013 Annual Report Download - page 159

contracts without sales inducements and are higher than the contracts’ expected ongoing crediting rates for
periods after the inducement. We defer sales inducements and amortize them over the life of the contracts using
the same methodology and assumptions employed to amortize DAC. (The amortization of sales inducements is
included in Interest credited and other benefits to contract owners/policyholders). In addition, a URR liability is
recorded related to UL and variable universal life (“VUL”) products and represents policy charges for services to
be provided in future periods. These policy charges are deferred as unearned revenue and amortized over the
expected life of the contracts in proportion to the estimated gross profits in a manner consistent with DAC for
these products. The change in URR is included in Fee income.
Generally, we amortize DAC/VOBA, DSI, and URR related to UL and VUL contracts, variable deferred
annuity contracts and fixed deferred annuity contracts over the estimated lives of the contracts in relation to the
emergence of estimated gross profits. For variable deferred annuity contracts within the CBVA segment, we
amortize DAC, VOBA and DSI in relation to the emergence of estimated gross revenue. Assumptions as to
mortality, persistency, interest crediting rates, returns associated with separate account performance, impact of
hedge performance, expenses to administer the business and certain economic variables, such as inflation, are
based on our experience and our overall short-term and long-term future expectations for returns available in the
capital markets. At each valuation date, actual historical gross profits are reflected and estimated gross profits
and related assumptions, are evaluated for continued reasonableness. Adjustments to estimated gross profits
require that amortization rates be revised retroactively to the date of the contract issuance, which is referred to as
unlocking. As a result of this process, the cumulative balances of DAC, VOBA, DSI, and URR are adjusted with
an offsetting benefit or charge to income to reflect changes in the period of the revision. An unlocking event that
results in a benefit (“favorable unlocking”) generally occurs as a result of actual experience or future
expectations being favorable compared to previous estimates. An unlocking event that results in a charge
(“unfavorable unlocking”) generally occurs as a result of actual experience or future expectations being
unfavorable compared to previous estimates. When unlocking, we unlock assumptions for each of the appropriate
intangibles and refer to the unlocking as “DAC/VOBA and other intangible” unlocking. As a result of unlocking,
the amortization schedules for future periods are also adjusted.
We also review the estimated gross profits for each of these blocks of business to determine the
recoverability of DAC, VOBA and DSI balances each period. These assets are deemed to be unrecoverable if the
estimated gross profits do not exceed these balances and a write-down is recorded that is referred to as loss
recognition. There was no loss recognition for the years ended December 31, 2013, 2012 and 2011.
During the third quarter of 2013, we completed our annual review of assumptions, including projection
model inputs, in each of our segments (except for Investment Management, for which assumption reviews are not
relevant). As a result of this review, we made a number of changes to our assumptions, resulting in a net
favorable impact of $84.8 million to Operating earnings before income taxes in the current period, compared to a
net unfavorable impact of $32.0 million in the third quarter of 2012. In addition, during the fourth quarter of
2013, there was an additional $21.1 million of favorable DAC unlocking in our Annuities segment related to
refinements of projected gross profits. The unlocking related to these assumption reviews is included in DAC/
VOBA and other intangibles unlocking.
The following table summarizes the amount of DAC/VOBA and other intangibles unlocking that is included
in segment Operating earnings before income taxes for the periods indicated:
Years Ended December 31,
($ in millions) 2013 2012 2011
Retirement ........................................................ $ 45.6 $ 5.8 $ 44.2
Annuities ......................................................... 83.3 (86.2) 266.0
Individual Life .................................................... 4.8 3.4 (6.4)
Employee Benefits ................................................. (0.5) — —
Total DAC/VOBA and other intangibles unlocking(1)(2) ......................... $133.2 $(77.0) $303.8
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