Voya 2013 Annual Report Download - page 179

Certain of our reinsurance agreements contain provisions that are linked to the financial strength ratings of
the individual legal entity that entered into the reinsurance agreement. If the insurance subsidiaries’ financial
strength ratings were downgraded in the future, the terms in our reinsurance agreements might be triggered and
counterparties to the credit facility agreements could demand collateralization which could negatively impact
overall liquidity. Based on the amount of credit outstanding as of December 31, 2013 and 2012, a one-notch
downgrade of our insurance subsidiaries would have resulted in an estimated increase in our collateral
requirements by approximately $25.0 million and $24.6 million, respectively. The nature of the collateral that we
may be required to post is principally in the form of cash, highly rated securities or LOC.
Certain of our derivative agreements contain provisions that are linked to the financial strength ratings of the
individual legal entity that entered into the derivative agreement. If insurance subsidiaries’ financial strength
ratings were downgraded in the future, the terms in our derivative agreements might be triggered and
counterparties to the derivative agreements could demand immediate further collateralization which could
negatively impact overall liquidity. Based on the market value of our derivatives as of December 31, 2013 and
2012, a one-notch downgrade of our insurance subsidiaries would have resulted in an estimated increase in our
derivative collateral requirements by approximately $111.0 million and $125.0 million, respectively. The nature
of the collateral that we may be required to post is principally in the form of cash and U.S. Treasury securities.
Based on the market value of our derivatives as of December 31, 2013 and 2012, a two-notch downgrade of
our insurance subsidiaries would have resulted in an estimated increase in the derivative collateral requirements
required by a one-notch downgrade by an additional $1.3 million and $2.5 million, respectively.
The amount of collateral that would be required to be posted is also dependent on the fair value of our
derivative positions. For additional information on our derivative positions, see “Item 8. Note 3. Derivative
Financial Instruments.”
Reinsurance
We have reinsurance treaties covering a portion of the mortality risks and guaranteed death and living
benefits under our life insurance and annuity contracts. We remain liable to the extent our reinsurers do not meet
their obligations under the reinsurance agreements.
We reinsure our business through a diversified group of well capitalized, highly rated reinsurers. We
monitor trends in arbitration and any litigation outcomes with our reinsurers. Collectability of reinsurance
balances are evaluated by monitoring ratings and evaluating the financial strength of its reinsurers. Large
reinsurance recoverable balances with offshore or other non-accredited reinsurers are secured through various
forms of collateral, including secured trusts, funds withheld accounts and irrevocable LOCs.
We utilize indemnity reinsurance agreements to reduce our exposure to losses from unhedged GMDBs in
our annuity insurance business. Reinsurance permits recovery of a portion of losses from reinsurers, although it
does not discharge our primary liability as direct insurer of the risks. We evaluate the financial strength of
potential reinsurers and continually monitor the financial strength and credit ratings of our reinsurers.
The S&P financial strength rating of our reinsurers with the two largest reinsurance recoverable balances are
all AA- rated or better. These reinsurers are Lincoln National Life Insurance Company, Lincoln Life & Annuity
Company of New York and Hannover US and Hannover Re (Ireland) Plc (collectively, “Hannover Re”). Only
those reinsurance recoverable balances where recovery is deemed probable are recognized as assets on our
consolidated balance sheets.
We have a significant concentration of reinsurance arising from the divestment of a block of individual life
business via a reinsurance transaction prior to our acquisition of ILIAC (formerly Aetna Life Insurance and
Annuity Company) in 2000. In 1998, we entered into an indemnity reinsurance agreement with a subsidiary of
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