Voya 2013 Annual Report Download - page 245

ING U.S., Inc.
Notes to the Consolidated Financial Statements
(Dollar amounts in millions, unless otherwise stated)
Interest income on fixed maturities is recorded when earned using an effective yield method, giving effect to
amortization of premiums and accretion of discounts. Dividends on equity securities are recorded when declared. Such
dividends and interest income are recorded in Net investment income in the Consolidated Statements of Operations.
Included within fixed maturities are loan-backed securities, including residential mortgage-backed securities
(“RMBS”), commercial mortgage-backed securities (“CMBS”) and asset-backed securities (“ABS”).
Amortization of the premium or discount from the purchase of these securities considers the estimated timing and
amount of prepayments of the underlying loans. Actual prepayment experience is periodically reviewed and
effective yields are recalculated when differences arise between the prepayments originally anticipated and the
actual prepayments received and currently anticipated. Prepayment assumptions for single class and multi-class
mortgage-backed securities (“MBS”) and ABS are estimated by management using inputs obtained from third
party specialists, including broker-dealers, and based on management’s knowledge of the current market. For
prepayment-sensitive securities such as interest-only, principal-only strips, inverse floaters and credit-sensitive
MBS and ABS securities, which represent beneficial interests in securitized financial assets that are not of high
credit quality or that have been credit impaired, the effective yield is recalculated on a prospective basis. For all
other MBS and ABS, the effective yield is recalculated on a retrospective basis.
Short-term Investments: Short-term investments include investments with remaining maturities of one year or
less, but greater than three months, at the time of purchase. These investments are stated at fair value.
Assets Held in Separate Accounts: Assets held in separate accounts are reported at the fair values of the
underlying investments in the separate accounts. The underlying investments include mutual funds, short-term
investments, cash and fixed maturities.
Mortgage Loans on Real Estate: The Company’s mortgage loans on real estate are all commercial mortgage
loans, which are reported at amortized cost, less impairment write-downs and allowance for losses. If a mortgage
loan is determined to be impaired (i.e., when it is probable that the Company will be unable to collect all amounts
due according to the contractual terms of the loan agreement), the carrying value of the mortgage loan is reduced
to the lower of either the present value of expected cash flows from the loan discounted at the loan’s original
purchase yield or fair value of the collateral. For those mortgages that are determined to require foreclosure, the
carrying value is reduced to the fair value of the underlying collateral, net of estimated costs to obtain and sell at
the point of foreclosure. The carrying value of the impaired loans is reduced by establishing a permanent write-
down recorded in Other net realized capital gains (losses) in the Consolidated Statements of Operations. Property
obtained from foreclosed mortgage loans is recorded in Other investments on the Consolidated Balance Sheets.
Mortgage loans are evaluated by the Company’s investment professionals, including an appraisal of loan-specific
credit quality, property characteristics and market trends. Loan performance is continuously monitored on a loan-
specific basis throughout the year. The Company’s review includes submitted appraisals, operating statements,
rent revenues and annual inspection reports, among other items. This review evaluates whether the properties are
performing at a consistent and acceptable level to secure the debt.
Mortgages are rated for the purpose of quantifying the level of risk. Those loans with higher risk are placed on a
watch list and are closely monitored for collateral deficiency or other credit events that may lead to a potential
loss of principal or interest. The Company defines delinquent mortgage loans consistent with industry practice as
60 days past due.
The Company’s policy is to recognize interest income until a loan becomes 90 days delinquent or foreclosure
proceedings are commenced, at which point interest accrual is discontinued. Interest accrual is not resumed until
the loan is brought current.
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