Voya 2013 Annual Report Download - page 192

available. As such, changes in, or deviations from the assumptions used in such valuations can significantly
affect our results of operations. Financial markets are subject to significant movements in valuation and liquidity
which can impact our ability to liquidate and the selling price that can be realized for our securities.
Derivatives
Derivatives are carried at fair value, which is determined by using observable key financial data, such as
yield curves, exchange rates, S&P 500 prices, LIBOR, and Overnight Index Swap Rates (“OIS”) or through
values established by third-party sources, such as brokers. Valuations for our futures contracts are based on
unadjusted quoted prices from an active exchange. Counterparty credit risk is considered and incorporated in our
valuation process through counterparty credit rating requirements and monitoring of overall exposure. Our own
credit risk is also considered and incorporated in our valuation process.
We have certain CDS and options that are priced using models that primarily use market observable inputs,
but contain inputs that are not observable to market participants.
We also have investments in certain fixed maturities and have issued certain annuity products that contain
embedded derivatives whose fair value is at least partially determined by, among other things, levels of or
changes in domestic and/or foreign interest rates (short-term or long-term), exchange rates, prepayment rates,
equity markets or credit ratings/spreads. The fair values of these embedded derivatives are determined using
prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair
value measurement. For additional information regarding the valuation of and significant assumptions associated
with embedded derivatives and stand-alone derivatives associated with certain annuity contracts, see “Item 8.
Note 6. Reserves for Future Policy Benefits.”
In addition, we have entered into a coinsurance with funds withheld reinsurance arrangement that contains
an embedded derivative. The fair value of the embedded derivative is based on the change in the fair value of the
underlying assets held in the trust using the valuation methods and assumptions described for our investments
held.
The valuation of derivatives involves considerable judgment, is subject to considerable variability, is
established using management’s best estimate and is revised as additional information becomes available. As
such, changes in, or deviations from these assumptions used in such valuations can have a significant effect on
the results of operations.
For additional information regarding the fair value of our investments and derivatives, see “Item 8. Note 4.
Fair Value Measurements (excluding Consolidated Investment Entities).”
Impairments
We evaluate our available-for-sale general account investments quarterly to determine whether there has
been an other-than-temporary decline in fair value below the amortized cost basis. This evaluation process entails
considerable judgment and estimation. Factors considered in this analysis include, but are not limited to, the
length of time and the extent to which the fair value has been less than amortized cost, the issuer’s financial
condition and near-term prospects, future economic conditions and market forecasts, interest rate changes and
changes in ratings of the security. An extended and severe unrealized loss position on a fixed maturity may not
have any impact on: (a) the ability of the issuer to service all scheduled interest and principal payments and
(b) the evaluation of recoverability of all contractual cash flows or the ability to recover an amount at least equal
to its amortized cost based on the present value of the expected future cash flows to be collected. In contrast, for
certain equity securities, we give greater weight and consideration to a decline in market value and the likelihood
such market value decline will recover.
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