Voya 2013 Annual Report Download - page 218

Our Risk Committee discusses and approves all risk policies and reviews and approves risks associated with
our activities. This includes volatility (affecting earnings and value), exposure (required capital and market risk)
and insurance risks. Each business has an Asset-Liability Committee that reviews business specific risks and is
governed by the Risk Committee.
We have implemented several limit structures to manage risk. Examples include, but are not limited to, the
following:
• At-risk limits on sensitivities of earnings and regulatory capital to the capital markets provide the
fundamental framework to manage capital markets risks including the risk of asset / liability mismatch;
• Duration and convexity mismatch limits;
• Credit risk concentration limits;
• Mortality concentration limits;
• Catastrophe and mortality exposure retention limits for our insurance risk; and
• Investment and derivative guidelines.
We manage our risk appetite based on two key risk metrics:
• Regulatory and Rating Agency Capital Sensitivities: the potential reduction, under a moderate capital
markets stress scenario, of the excess of available statutory capital above the minimum required under
the NAIC regulatory RBC methodology and of our targeted rating agency capital position; and
• Earnings Sensitivities: the potential reduction in results of operations under a moderate capital markets
stress scenario. Maintaining a consistent level of earnings helps us to finance our operations, support
our capital requirements and provide funds to pay dividends to stockholders.
Our risk metrics cover the most important aspects in terms of performance measures where risk can
materialize and are representative of the regulatory constraints to which our business is subject. The sensitivities
for earnings and statutory capital are important metrics since they provide insight into the level of risk we take
under ‘moderate stress’ scenarios. They also are the basis for internal risk management.
We are also subject to cash flow stress testing pursuant to regulatory requirements. This analysis measures
the effect of changes in interest rate assumptions on asset and liability cash flows. The analysis includes the
effects of:
• the timing and amount of redemptions and prepayments in our asset portfolio;
• our derivative portfolio;
• death benefits and other claims payable under the terms of our insurance products;
• lapses and surrenders in our insurance products;
• minimum interest guarantees in our insurance products; and
• book value guarantees in our insurance products.
We evaluate any shortfalls that our cash flow testing reveals and if needed increase statutory reserves or
adjust portfolio management strategies.
Derivatives are financial instruments whose values are derived from interest rates, foreign currency
exchange rates, financial indices, or other prices of securities or commodities. Derivatives include swaps, futures,
options and forward contracts. Under U.S. insurance statutes, our insurance subsidiaries may use derivatives to
hedge market values or cash flows of assets or liabilities; to replicate cash market instruments; and for certain
limited income generating activities. Our insurance subsidiaries are generally prohibited from using derivatives
for speculative purposes. References below to hedging and hedge programs refer to our process of reducing
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