Voya 2013 Annual Report Download - page 202

Fixed Maturities Credit Quality—Ratings
The Securities Valuation Office (“SVO”) of the NAIC evaluates the fixed maturity security investments of
insurers for regulatory reporting and capital assessment purposes and assigns securities to one of six credit
quality categories called “NAIC designations.” An internally developed rating is used as permitted by the NAIC
if no rating is available. These designations are generally similar to the credit quality designations of the NAIC
acceptable rating organizations (“ARO”) for marketable fixed maturity securities, called rating agency
designations except for certain structured securities as described below. NAIC designations of “1,” highest
quality and “2,” high quality, include fixed maturity securities generally considered investment grade by such
rating organizations. NAIC designations 3 through 6 include fixed maturity securities generally considered below
investment grade by such rating organizations.
The NAIC adopted revised designation methodologies for non-agency RMBS, including RMBS backed by
subprime mortgage loans reported within ABS and for CMBS. The NAIC’s objective with the revised
designation methodologies for these structured securities was to increase the accuracy in assessing expected
losses and to use the improved assessment to determine a more appropriate capital requirement for such
structured securities. The NAIC designations for structured securities, including subprime and Alt-A RMBS, are
based upon a comparison of the bond’s amortized cost to the NAIC’s loss expectation for each security.
Securities where modeling results in no expected loss in all scenarios are considered to have the highest
designation of NAIC 1. A large percentage of our RMBS securities carry a NAIC 1 designation while the ARO
rating indicates below investment grade. This is primarily due to the credit and intent impairments recorded by us
that reduced the amortized cost on these securities to a level resulting in no expected loss in all scenarios, which
corresponds to a NAIC 1 designation. The revised methodology reduces regulatory reliance on rating agencies
and allows for greater regulatory input into the assumptions used to estimate expected losses from such
structured securities. In the tables below, we present the rating of structured securities based on ratings from the
revised NAIC rating methodologies described above (which may not correspond to rating agency designations.)
All NAIC designations (e.g., NAIC 1-6) are based on the revised NAIC methodologies.
As a result of time lags between the funding of investments, the finalization of legal documents and the
completion of the SVO filing process, the fixed maturity portfolio generally includes securities that have not yet
been rated by the SVO as of each balance sheet date, such as private placements. Pending receipt of SVO ratings,
the categorization of these securities by NAIC designation is based on the expected ratings indicated by internal
analysis.
Information about certain of our fixed maturity securities holdings by the NAIC designation is set forth in
the following tables. Corresponding rating agency designation does not directly translate into NAIC designation,
but represents our best estimate of comparable ratings from rating agencies, including Moody’s, S&P and Fitch.
If no rating is available from a rating agency, then an internally developed rating is used.
The fixed maturities in our portfolio are generally rated by external rating agencies and, if not externally
rated, are rated by us on a basis similar to that used by the rating agencies. Ratings are derived from three ARO
ratings and are applied as follows based on the number of agency ratings received:
• when three ratings are received then the middle rating is applied;
• when two ratings are received then the lower rating is applied;
• when a single rating is received, the ARO rating is applied; and
• when ratings are unavailable then an internal rating is applied.
192