Voya 2013 Annual Report Download - page 251

ING U.S., Inc.
Notes to the Consolidated Financial Statements
(Dollar amounts in millions, unless otherwise stated)
expected gross premiums. Assumptions as to mortality, morbidity, persistency and interest rates, which include
provisions for adverse deviation, are consistent with the assumptions used to calculate reserves for future policy
benefits.
These assumptions are “locked-in” at issue and not revised unless the DAC or VOBA balance is deemed to be
unrecoverable from future expected profits. Recoverability testing is performed for current issue year products to
determine if gross premiums are sufficient to cover DAC or VOBA estimated benefits and expenses. In
subsequent periods, the recoverability of the DAC or VOBA balances are determined by assessing whether future
gross profits are sufficient to amortize DAC or VOBA, as well as provide for expected future benefits and
maintenance costs. If a premium deficiency is deemed to be present, charges will be applied against the DAC and
VOBA balances before an additional reserve is established. Absent such a premium deficiency, variability in
amortization after policy issuance or acquisition relates only to variability in premium volumes.
The Company amortizes DAC and VOBA related to universal life (“UL”) and variable universal life (“VUL”)
contracts and fixed and variable deferred annuity contracts over the estimated lives of the contracts in relation to
the emergence of estimated gross profits. Assumptions as to mortality, persistency, interest crediting rates, fee
income, returns associated with separate account performance, impact of hedge performance, expenses to
administer the business and certain economic variables, such as inflation, are based on the Company’s experience
and overall capital markets. At each valuation date, estimated gross profits are updated with actual gross profits,
and the assumptions underlying future estimated gross profits are evaluated for continued reasonableness.
Adjustments to estimated gross profits require that amortization rates be revised retroactively to the date of the
contract issuance (“unlocking”). For variable deferred annuity contracts within Closed Block Variable Annuity,
the Company amortizes DAC/VOBA and other intangibles in relation to the emergence of estimated gross
revenue.
For UL and VUL contracts and fixed and variable deferred annuity contracts, recoverability testing is performed
for current issue year products to determine if gross revenues are sufficient to cover DAC/VOBA and other
intangibles estimated benefits and expenses. In subsequent years, the Company performs testing to assess the
recoverability of DAC/VOBA and other intangibles on an annual basis, or more frequently if circumstances
indicate a potential loss recognition issue exists. If DAC/VOBA or other intangibles are not deemed recoverable
from future gross profits, changes will be applied against the DAC/VOBA or other intangible balances before an
additional reserve is established.
Internal Replacements
Contract owners may periodically exchange one contract for another, or make modifications to an existing contract.
These transactions are identified as internal replacements. Internal replacements that are determined to result in
substantially unchanged contracts are accounted for as continuations of the replaced contracts. Any costs associated
with the issuance of the new contracts are considered maintenance costs and expensed as incurred. Unamortized
DAC/VOBA and other intangibles related to the replaced contracts continue to be deferred and amortized in
connection with the new contracts. Internal replacements that are determined to result in contracts that are
substantially changed are accounted for as extinguishments of the replaced contracts, and any unamortized DAC/
VOBA and other intangibles related to the replaced contracts are written off to Net amortization of deferred policy
acquisition costs and value of business acquired in the Consolidated Statements of Operations.
Assumptions
Changes in assumptions can have a significant impact on DAC/VOBA and other intangible balances,
amortization rates and results of operations. Assumptions are management’s best estimate of future outcome.
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