Voya 2013 Annual Report Download - page 182

Captive Reinsurance Subsidiaries
Our captive reinsurance subsidiaries provide reinsurance to the Company’s insurance subsidiaries in order to
facilitate the financing of statutory reserves including those associated with Regulation XXX or AG38. A portion of
this reinsurance was, until January 1, 2014, also provided by a special purpose life reinsurance captive insurance
subsidiary domiciled in South Carolina and was novated to one of the captive reinsurance subsidiaries on that date.
Each of the captive reinsurance subsidiaries in operation as of December 31, 2013 is a wholly owned direct or
indirect subsidiary of one of the Principal Insurance Subsidiaries. Each of the captive reinsurance subsidiaries is
subject to specific minimum capital requirements set forth in the insurance statutes of the State of Missouri, its state
of domicile, and is required to prepare statutory financial statements in accordance with statutory accounting
practices prescribed in the insurance statutes or permitted by the Insurance Department of the State of Missouri, its
state of domicile. There are no prescribed practices material to the captive reinsurance subsidiaries, except that
certain of these subsidiaries have included the value of letters of credit, surplus notes and trust notes as admitted
assets supporting the statutory reserves ceded to such subsidiaries. The effect of these prescribed practices was to
increase statutory capital and surplus by $1,612.0 million and $1,339.0 million as of December 31, 2013 and 2012,
respectively. The aggregate statutory capital and surplus, including the aforementioned prescribed practices, was
$616.6 million and $596.6 million as of December 31, 2013 and 2012, respectively.
Our Arizona captive, SLDI, provides reinsurance to the Company’s insurance subsidiaries in order to
facilitate the financing of statutory reserves including those associated with Regulation XXX or AG38 and to
fund certain statutory annuity reserve requirements. On December 20, 2013, SLDI redomesticated from the
Cayman Islands to the State of Arizona. Arizona state insurance statutes and regulations require SLDI to file
financial statements with the ADOI and allow the filing of such financial statements on a U.S. GAAP basis
modified for certain prescribed practices outlined in the Arizona insurance statutes that are applicable to all U.S.
GAAP filers. These prescribed practices had no impact on SLDI’s Shareholder’s equity as of December 31,
2013. In addition, SLDI has obtained approval from the ADOI for certain permitted practices, including taking
reinsurance credit for certain ceded reserves where the assets backing the liabilities are held by a wholly owned
Principal Insurance Subsidiary of ING U.S., Inc. SLDI has recorded a receivable for these assets. The effect of
the permitted practice was to increase SLDI’s Shareholder’s equity by $490.6 million as of December 31, 2013,
but has no effect on our consolidated Total shareholders’ equity. In the unlikely event that the permitted practice
is suspended in the future, the Company has various alternatives which could be executed to allow the
reinsurance credit for these ceded reserves.
The captive reinsurance subsidiaries may not declare or pay any dividends other than in accordance with
their respective insurance reserve financing transaction agreements and their respective governing licensing
orders. Likewise, SLDI may not declare or pay dividends other than in accordance with its annual capital and
dividend plan as approved by the ADOI, which includes a minimum capital requirement. SLDI does not expect
to make any dividend payments during calendar year 2014.
Uncertainties associated with our continued use of affiliated captive reinsurance subsidiaries and our
Arizona captive are primarily related to potential regulatory changes. In October 2011, the NAIC established a
subgroup to study insurers’ use of captives and special purpose vehicles to transfer insurance risk in relation to
existing state laws and regulations, and to establish appropriate regulatory requirements to address concerns
identified in the study. In June 2013, the NYDFS released a report critical of certain captive reinsurance
structures and calling, in part, for other state regulators to adopt a moratorium on approving such structures
pending further review by state and federal regulators. In December 2013, the FIO issued a report on how to
modernize and improve the system of insurance regulation in the United States, recommending, in part, that
states develop a uniform capital requirement for reinsurance captives, including a prohibition on transactions that
do not constitute a legitimate risk transfer. We are currently unable to predict what actions and regulatory
changes will result from the NAIC study, the NYDFS report or the FIO report.
Although we do not believe it to be likely, a potential outcome of the NAIC study, the NYDFS report and
the FIO report is that we will be prohibited from continuing our use of captive reinsurance subsidiaries,
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