Voya 2013 Annual Report Download - page 185

In developing these accounting estimates, we make subjective and complex judgments that are inherently
uncertain and subject to material changes as facts and circumstances develop. Although variability is inherent in
these estimates, we believe the amounts provided are appropriate based upon the facts available upon preparation
of the Consolidated Financial Statements.
The above critical accounting estimates are described in “Item 8. Note 1. Business, Basis of Presentation
and Significant Accounting Policies.”
Reserves for Future Policy Benefits
The determination of future policy benefit reserves is dependent on actuarial assumptions. The principal
assumptions used to establish liabilities for future policy benefits are based on our experience and periodically
reviewed against industry standards. These assumptions include mortality, morbidity, policy lapse, contract
renewal, payment of subsequent premiums or deposits by the contract owner, retirement, investment returns,
inflation, benefit utilization and expenses. The assumptions used require considerable judgments. Changes in, or
deviations from, the assumptions used can significantly affect our reserve levels and related results of operations.
Mortality is the incidence of death amongst policyholders triggering the payment of underlying insurance
coverage by the insurer. In addition, mortality also refers to the ceasing of payments on life-contingent annuities
due to the death of the annuitant. We utilize a combination of actual and industry experience when setting our
mortality assumptions. A lapse rate is the percentage of in-force policies surrendered by the policyholder or
canceled by us due to non-payment of premiums. For certain of our variable products, the lapse rate assumption
varies according to the current account value relative to guarantees associated with the product and applicable
surrender charges. In general, policies with guarantees that are considered “in the money” or where the benefit is
in excess of the account value, are assumed to be less likely to lapse or surrender. Conversely, “out of the
money” guarantees may be assumed to be more likely to lapse or surrender as the policyholder has less incentive
to retain the policy.
See “Item 8. Note 6. Reserves for Future Policy Benefits and Contract Owner Account Balances” and “Item
8. Note 7. Guaranteed Benefit Features” for further information on our reserves for future policy benefits and
product guarantees.
Insurance and Other Reserves
Reserves for traditional life insurance contracts (term insurance, participating and non-participating whole
life insurance and traditional group life insurance) and accident and health insurance represent the present value
of future benefits to be paid to or on behalf of contract owners and related expenses, less the present value of
future net premiums. Assumptions as to interest rates, mortality, expenses and persistency are based upon our
estimates of anticipated experience at the period the policy is sold or acquired, including a provision for adverse
deviation. Interest rates used to calculate the present value of these reserves ranged from 2.5% to 8.3%.
Reserves for payout contracts with life contingencies are equal to the present value of expected future
payments. Assumptions as to interest rates, mortality, and expenses are based on our estimates of experience at
the period the policy is sold or acquired, including a provision for adverse deviation. Such assumptions generally
vary by annuity plan type, year of issue, and policy duration. Interest rates used to calculate the present value of
future benefits ranged from 3.0% to 8.3%.
Although assumptions are “locked-in” upon the issuance of traditional life insurance contracts, certain
accident and health insurance contracts and payout contracts with life contingencies, significant changes in
experience or assumptions may require us to provide for expected future losses on a product by establishing
premium deficiency reserves. Premium deficiency reserves are determined based on best estimate assumptions
that exist at the time the premium deficiency reserve is established and do not include a provision for adverse
deviation.
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