Voya 2013 Annual Report Download - page 248

ING U.S., Inc.
Notes to the Consolidated Financial Statements
(Dollar amounts in millions, unless otherwise stated)
• Additional considerations are made when assessing the unique features that apply to certain structured
securities such as subprime, Alt-A, non-agency, RMBS, CMBS and ABS. These additional factors for
structured securities include, but are not limited to: the quality of underlying collateral; expected
prepayment speeds; loan-to-value ratios; debt service coverage ratios; current and forecasted loss
severity; and the payment priority within the tranche structure of the security.
• When determining the amount of the credit loss for U.S. and foreign corporate securities, foreign
government securities and state and political subdivision securities, the Company considers the
estimated fair value as the recovery value when available information does not indicate that another
value is more appropriate. When information is identified that indicates a recovery value other than
estimated fair value, the Company considers in the determination of recovery value the same
considerations utilized in its overall impairment evaluation process, which incorporates available
information and the Company’s best estimate of scenarios-based outcomes regarding the specific
security and issuer; possible corporate restructurings or asset sales by the issuer; the quality and
amount of any credit enhancements; the security’s position within the capital structure of the issuer;
fundamentals of the industry and geographic area in which the security issuer operates, and the overall
macroeconomic conditions.
• The Company performs a discounted cash flow analysis comparing the current amortized cost of a
security to the present value of future cash flows expected to be received, including estimated defaults
and prepayments. The discount rate is generally the effective interest rate of the fixed maturity prior to
impairment.
In periods subsequent to the recognition of the credit related impairment components of OTTI on a fixed
maturity, the Company accounts for the impaired security as if it had been purchased on the measurement date of
the impairment. Accordingly, the discount (or reduced premium) based on the new cost basis is accreted into net
investment income over the remaining term of the fixed maturity in a prospective manner based on the amount
and timing of estimated future cash flows.
Derivatives
The Company’s use of derivatives is limited mainly to economic hedging to reduce the Company’s exposure to
cash flow variability of assets and liabilities, interest rate risk, credit risk, exchange rate risk and market risk. It is
the Company’s policy not to offset amounts recognized for derivative instruments and amounts recognized for
the right to reclaim cash collateral or the obligation to return cash collateral arising from derivative instruments
executed with the same counterparty under a master netting arrangement.
The Company enters into interest rate, equity market, credit default and currency contracts, including swaps,
futures, forwards, caps, floors and options, to reduce and manage various risks associated with changes in value,
yield, price, cash flow or exchange rates of assets or liabilities held or intended to be held, or to assume or reduce
credit exposure associated with a referenced asset, index or pool. The Company also utilizes options and futures
on equity indices to reduce and manage risks associated with its annuity products. Open derivative contracts are
reported as Derivatives assets or liabilities on the Consolidated Balance Sheets at fair value. Changes in the fair
value of derivatives are recorded in Net realized capital gains (losses) in the Consolidated Statements of
Operations.
To qualify for hedge accounting, at the inception of the hedging relationship, the Company formally documents its
risk management objective and strategy for undertaking the hedging transaction, as well as its designation of the
hedge as either (a) a hedge of the exposure to changes in the estimated fair value of a recognized asset or liability or
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