Voya 2013 Annual Report Download - page 249

ING U.S., Inc.
Notes to the Consolidated Financial Statements
(Dollar amounts in millions, unless otherwise stated)
an identified portion thereof that is attributable to a particular risk (“fair value hedge”) or (b) a hedge of a forecasted
transaction or of the variability of cash flows that is attributable to interest rate risk to be received or paid related to
a recognized asset or liability (“cash flow hedge”). In this documentation, the Company sets forth how the hedging
instrument is expected to hedge the designated risks related to the hedged item and sets forth the method that will be
used to retrospectively and prospectively assess the hedging instrument’s effectiveness and the method that will be
used to measure ineffectiveness. A derivative designated as a hedging instrument must be assessed as being highly
effective in offsetting the designated risk of the hedged item. Hedge effectiveness is formally assessed at inception
and periodically throughout the life of the designated hedging relationship.
•Fair Value Hedge: For derivative instruments that are designated and qualify as a fair value hedge, the
gain or loss on the derivative instrument, as well as the hedged item, to the extent of the risk being
hedged, are recognized in Other net realized capital gains (losses).
•Cash Flow Hedge: For derivative instruments that are designated and qualify as a cash flow hedge, the
effective portion of the gain or loss on the derivative instrument is reported as a component of AOCI
and reclassified into earnings in the same periods during which the hedged transaction impacts earnings
in the same line item associated with the forecasted transaction. The ineffective portion of the
derivative’s change in value, if any, along with any of the derivative’s change in value that is excluded
from the assessment of hedge effectiveness, are recorded in Other net realized capital gains (losses).
When hedge accounting is discontinued because it is determined that the derivative is no longer expected to be
highly effective in offsetting changes in the estimated fair value or cash flows of a hedged item, the derivative
continues to be carried on the Consolidated Balance Sheets at its estimated fair value, with subsequent changes in
estimated fair value recognized immediately in Other net realized capital gains (losses). The carrying value of the
hedged asset or liability under a fair value hedge is no longer adjusted for changes in its estimated fair value due
to the hedged risk, and the cumulative adjustment to its carrying value is amortized into income over the
remaining life of the hedged item. Provided the hedged forecasted transaction is still probable of occurrence, the
changes in estimated fair value of derivatives recorded in Other comprehensive income (loss) related to
discontinued cash flow hedges are released into the Consolidated Statements of Operations when the Company’s
earnings are affected by the variability in cash flows of the hedged item.
When hedge accounting is discontinued because it is no longer probable that the forecasted transactions will
occur on the anticipated date or within two months of that date, the derivative continues to be carried on the
Consolidated Balance Sheets at its estimated fair value, with changes in estimated fair value recognized currently
in Other net realized capital gains (losses). Derivative gains and losses recorded in Other comprehensive income
(loss) pursuant to the discontinued cash flow hedge of a forecasted transaction that is no longer probable are
recognized immediately in Other net realized capital gains (losses).
The Company also has investments in certain fixed maturities and has issued certain annuity products, that
contain embedded derivatives whose fair value is at least partially determined by levels of or changes in domestic
and/or foreign interest rates (short-term or long-term), exchange rates, prepayment rates, equity markets or credit
ratings/spreads. Embedded derivatives within fixed maturities are included with the host contract on the
Consolidated Balance Sheets and changes in fair value of the embedded derivatives are recorded in Other net
realized capital gains (losses) in the Consolidated Statements of Operations. Embedded derivatives within certain
annuity products are included in Future policy benefits on the Consolidated Balance Sheets and changes in the
fair value of the embedded derivatives are recorded in Other net realized capital gains (losses) in the
Consolidated Statements of Operations.
In addition, the Company has entered into a coinsurance with funds withheld arrangement that contains an
embedded derivative, the fair value of which is based on the change in the fair value of the underlying assets held
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