Voya 2013 Annual Report Download - page 213

Certain forwards are acquired to hedge certain CMO assets held by us against movements in interest rates,
particularly mortgage rates. On the settlement date, we will either receive a payment (interest rate decreases on
purchased forwards or interest rate rises on sold forwards) or will be required to make a payment (interest rate
rises on purchased forwards or interest rate decreases on sold forwards).
CDS are used to reduce the credit loss exposure with respect to certain assets that we own, or to assume
credit exposure on certain assets that we do not own. Payments are made to or received from the counterparty at
specified intervals and amounts for the purchase or sale of credit protection. In the event of a default on the
underlying credit exposure, we will either receive an additional payment (purchased credit protection) or will be
required to make an additional payment (sold credit protection) equal to par minus recovery value of the swap
contract.
Sale of Certain Alternative Investments
On June 4, 2012, certain insurance company subsidiaries of ours entered into an agreement to sell certain
general account private equity limited partnership investment interest holdings (“sale of certain alternative
investments”) with a carrying value of $812.2 million as of March 31, 2012 included in Assets related to
consolidated investment entities. These assets were sold to a group of private equity funds that are managed by
Pomona Management LLC, also a subsidiary of ours. The transaction resulted in a net pre-tax loss of
$91.9 million in the second quarter of 2012. The transaction closed in two tranches with the first tranche having
closed on June 29, 2012 and the second tranche closed on October 29, 2012. As of June 30, 2012, the fair value
of the alternative investments in the second tranche was reduced to $412.5 million, which represented the sale
price of the remaining alternative investments involved in this transaction. We sold these assets as part of our
periodic portfolio and capital management review.
European Exposures
We closely monitor our exposures to European sovereign debt in general, with a primary focus on the
sovereign debt of Greece, Ireland, Italy, Portugal and Spain (which we refer to as “peripheral Europe”), as these
countries have applied for support from the European Financial Stability Facility or received support from the
European Central Bank via government bond purchases in the secondary market.
The financial turmoil in Europe continues to be a potential threat to global capital markets and remains a
challenge to global financial stability. Additionally, the possibility of capital market volatility spreading through
a highly integrated and interdependent banking system remains. Despite signs of continuous improvement in the
region, it is our view that the risk among European sovereigns and financial institutions still warrants scrutiny, in
addition to our customary surveillance and risk monitoring, given how highly correlated these sectors of the
region have become.
We quantify and allocate our exposure to the region, as described in the table below, by attempting to
identify all aspects of the region or country risk to which we are exposed. Among the factors we consider are the
nationality of the issuer, the nationality of the issuer’s ultimate parent, the corporate and economic relationship
between the issuer and its parent, as well as the political, legal and economic environment in which each
functions. By undertaking this assessment, we believe that we develop a more accurate assessment of the actual
geographic risk, with a more integrated understanding of all contributing factors to the full risk profile of the
issuer.
In the normal course of our ongoing risk and portfolio management process, we closely monitor compliance
with a credit limit hierarchy designed to minimize overly concentrated risk exposures by geography, sector and
issuer. This framework takes into account various factors such as internal and external ratings, capital efficiency
and liquidity and is overseen by a combination of Investment and Corporate Risk Management, as well as
insurance portfolio managers focused specifically on managing the investment risk embedded in our portfolio.
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