Voya 2013 Annual Report Download - page 188

We review overall policyholder experience at least annually (including lapse, annuitization, withdrawal and
mortality), and update these assumptions when deemed necessary based on additional information that becomes
available. If actual lapse rates are significantly different from those assumed, such could have a significant effect
on our reserve levels and related results of operation. During 2013 and 2012, we conducted our annual review of
assumptions, including projection model inputs.
We conducted our annual review of assumptions related to our CBVA contracts. Annual assumption
changes implemented during 2013 resulted in a loss of $185.3 million, which included $117.9 million of
unfavorable mortality assumption changes and $85.5 million of unfavorable policyholder behavior assumption
changes. The unlocking related to these assumption reviews is included in DAC/VOBA and other intangibles
unlocking. The 2012 result included a loss of $151.7 million due to annual assumption changes, including
$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.
We increased CBVA reserves in the fourth quarter of 2011 after a comprehensive review of our assumptions
relating to lapses, mortality, annuitization of income benefits and utilization of withdrawal benefits. The review
in 2011 included an analysis of a larger body of actual experience than was previously available, including a
longer period with low equity markets and interest rates, which we believe provided greater insight into
anticipated policyholder behavior for contracts that are in the money. This resulted in an increase in U.S. GAAP
reserves of $741 million and gross U.S. statutory reserves of $2.8 billion in the fourth quarter of 2011.
See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” for additional information
regarding the specific hedging strategies and reinsurance we utilize to mitigate risk for the product guarantees, as
well as sensitivities of the embedded derivative liabilities and the stand-alone derivative to changes in certain
capital markets assumptions.
Deferred Policy Acquisition Costs, Value of Business Acquired and Other Intangibles
DAC represents policy acquisition costs that have been capitalized and are subject to amortization and interest.
Capitalized costs are incremental, direct costs of contract acquisition and certain costs related directly to successful
acquisition activities. Such costs consist principally of commissions, underwriting, sales and contract issuance and
processing expenses directly related to the successful acquisition of new and renewal business. Indirect or
unsuccessful acquisition costs, maintenance, product development and overhead expenses are charged to expense as
incurred. VOBA represents the outstanding value of in force business acquired and is subject to amortization and
interest. The value is based on the present value of estimated net cash flows embedded in the insurance contracts at
the time of the acquisition and increased for subsequent deferrable expenses on purchased policies.
DSI represents benefits paid to contract owners for a specified period that are incremental to the amounts we
credit on similar contracts without sales inducements and are higher than the contract’s expected ongoing
crediting rates for periods after the inducement. URR relates to UL and VUL products and represents policy
charges for benefits or services to be provided in future periods.
Collectively, we refer to DAC, VOBA, DSI and URR as “DAC/VOBA and other intangibles.” See “Item 8.
Note 5. Deferred Policy Acquisition Costs and Value of Business Acquired” for additional information on the
DAC/ VOBA and other intangibles.
Amortization Methodologies
We amortize DAC and VOBA related to certain traditional life insurance contracts and certain accident and
health insurance contracts over the premium payment period in proportion to the present value of expected gross
premiums. Assumptions as to mortality, morbidity, persistency and interest rates, which include provisions for
adverse deviation, are consistent with the assumptions used to calculate reserves for future policy benefits. These
178