Voya 2013 Annual Report Download - page 226

Variance swaps and equity options are used to mitigate the impact of changes in equity volatility on the
economic liabilities associated with certain minimum guaranteed living benefits. This program began in the
second quarter of 2012.
Foreign exchange forwards are used to mitigate the impact of policyholder-directed investments in
international funds with exposure to fluctuations in exchange rates of certain foreign currencies. Rebalancing is
performed based on pre-determined notional exposures to the specific currencies.
Variable Annuity Capital Hedge Overlay Program
CBVA guaranteed benefits are hedged based on their economic or fair value; however, the statutory
reserves and rating agency required assets are not based on a market value. When equity markets decrease, the
statutory reserve and rating agency required assets for the CBVA guaranteed benefits can increase more quickly
than the value of the derivatives held under the Variable Annuity Guarantee Hedge Program. This causes
regulatory reserves to increase and rating agency capital to decrease. The CHO program is intended to mitigate
equity risk to the regulatory and rating agency capital of the Company. The hedge is executed through the
purchase and sale of equity index derivatives and is designed to limit the uncovered reserve and rating agency
capital increases in an immediate down equity market scenario to an amount we believe prudent for a company
of our size and scale. This amount will change over time with market movements, changes in regulatory and
rating agency capital, available collateral and our risk tolerance.
The following table summarizes the estimated net impacts to funding our regulatory reserves to our CBVA
segment, after giving effect to our CHO program and the Variable Annuity Guarantee Hedge Program for various
shocks in equity markets and interest rates. This reflects the hedging we had in place as well as any collateral (in
the form of LOC) or change in underlying asset values that would be used to achieve credit for reinsurance for
the segment of liabilities reinsured to our Arizona captive at the close of business on December 31, 2013 in light
of our determination of risk tolerance and available collateral at that time, which, as noted above, we assess
periodically.
As of December 31, 2013
($ in millions) Equity Market (S&P 500) Interest Rates
-25% -15% -5% +5% +15% +25% -1% +1%
Decrease/(increase) in regulatory
reserves ....................... $(3,800) $(2,150) $(550) $ 600 $ 1,300 $ 1,800 $(800) $ 50
Hedge gain/(loss) immediate impact . . 2,700 1,350 350 (400) (1,050) (1,500) 550 (450)
Increase/(decrease) in Market Value of
Assets ........................ — — — — — — 300 (300)
Increase/(decrease) in LOCs ......... 1,100 800 250 — — — — 650
Net impact ...................... $ — $ — $ 50 $200 $ 250 $ 300 $ 50 $ (50)
The foregoing sensitivities illustrate the estimated impact of the indicated shocks beginning on the first
market trading day following December 31, 2013 and give effect to rebalancing over the course of the shock
event. The estimates of equity market shocks reflect a shock to all equity markets, domestic and global, of the
same magnitude. The estimates of interest rate shocks reflect a shock to rates at all durations (a “parallel” shift in
the yield curve). Decrease / (increase) in regulatory reserves includes statutory reserves for policyholder account
balances, AG43 reserves and additional cash flow testing reserves related to the CBVA segment. Hedge Gain /
(Loss) includes both the Variable Annuity Guarantee Hedge Program and the CHO program and assumes that
hedge positions can be rebalanced during the market shock and that the performance of the derivative contracts
reasonably matches the performance of the contract owners’ variable fund returns. Increase / (decrease) in LOCs
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