Voya 2013 Annual Report Download - page 227

indicates the change in the amount of LOCs used to provide credit for reinsurance at those times when the assets
backing the reinsurance liabilities may be less than the statutory reserve requirement. As of December 31, 2013
the amount of available LOCs was approximately $1.2 billion. Increase / (decrease) in Market Value of Assets is
the estimated potential change in market value of assets supporting the segment of liabilities reinsured to our
Arizona captive from 100 basis point upward and downward shifts in interest rates.
Results of an actual shock to equity markets or interest rates will differ from the above illustration for
reasons such as variance in market volatility versus what is assumed, “basis risk” (differences in the performance
of the derivative contracts versus the contract owner variable fund returns), equity shocks not occurring
uniformly across all equity markets, combined effects of interest rates and equities, additional impacts from
rebalancing of hedges and/or the effects of time and changes in assumptions or methodology that affect reserves
or hedge targets. Additionally, estimated net impact sensitivities vary over time as the market and closed book of
business evolve or if assumptions or methodologies that affect reserves or hedge targets are refined. In February
2014, we purchased equity indexed options in our CHO program and refined the impact of equity movements on
regulatory and rating agency capital to up-market scenarios as a result.
As stated above, the primary focus of the hedge program is to protect regulatory and rating agency capital
from equity market movements. Hedge ineffectiveness, along with other aspects not directly hedged (including
unexpected policyholder behavior), may cause losses of regulatory or rating agency capital. Regulatory and
rating agency capital requirements may move disproportionately (i.e., they may change by different amounts as
market conditions and other factors change), and, therefore, could also cause our hedge program to not realize its
key objective of protecting both regulatory and rating agency capital from equity market movements.
For ING USA, a wholly-owned subsidiary of the Company, our guarantee and overlay equity hedges
resulted in a loss of approximately $2.5 billion for the year ended December 31, 2013, which was offset by the
equity market decrease in AG43 reserves in excess of reserves for cash surrender value of approximately
$3.4 billion for the year ended December 31, 2013. Changes in statutory reserves due to equity and equity hedges
for ING USA include the effects of non-affiliated reinsurance for variable annuity policies, but exclude the effect
of the affiliated reinsurance transaction associated with the GMIB and GMWBL riders. Substantially all of the
CBVA business was written by ING USA. In addition to equity hedge results and change in reserves due to the
impact of equity market movements, statutory income includes fee income, investment income and other income
offset by benefit payments, operating expenses and other costs as well as impacts to reserves and hedges due to
effects of time and other market factors.
As U.S. GAAP accounting differs from the methods used to determine regulatory reserves and rating agency
capital requirements, our hedge programs may result in immediate impacts that may be lower or higher than the
regulatory impacts illustrated above. The following table summarizes the estimated net impacts to U.S. GAAP
earnings pre-tax in our CBVA segment, which is the sum of the increase or decrease in U.S. GAAP reserves and
the hedge gain or loss from our CHO program and the Variable Annuity Guarantee Hedge Program for various
shocks in both equity markets and interest rates. This reflects the hedging we had in place at the close of business
on December 31, 2013 in light of our determination of risk tolerance at that time, which, as noted above, we
assess periodically.
As of December 31, 2013
($ in millions) Equity Market (S&P 500) Interest Rates
-25% -15% -5% +5% +15% +25% -1% +1%
Total estimated earnings sensitivity ............ $850 $350 $100 $(150) $(450) $(650) $(300) $150
The foregoing sensitivities illustrate the impact of the indicated shocks on the first market trading day
following December 31, 2013 and give effect to dynamic rebalancing over the course of the shock events. 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
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