Voya 2013 Annual Report Download - page 252

ING U.S., Inc.
Notes to the Consolidated Financial Statements
(Dollar amounts in millions, unless otherwise stated)
Several assumptions are considered significant in the estimation of gross profits associated with the Company’s
variable products. One significant assumption is the assumed return associated with the variable account
performance. To reflect the volatility in the equity markets, this assumption involves a combination of near-term
expectations and long-term assumptions regarding market performance. The overall return on the variable
account is dependent on multiple factors, including the relative mix of the underlying sub-accounts among bond
funds and equity funds, as well as equity sector weightings. The Company’s practice assumes that intermediate-
term appreciation in equity markets reverts to the long-term appreciation in equity markets (“reversion to the
mean”). The Company monitors market events and only changes the assumption when sustained deviations are
expected. This methodology incorporates a 9% long-term equity return assumption, a 14% cap and a five-year
look-forward period.
Other significant assumptions used in the estimation of gross profits include mortality and for products with
credited rates include interest rate spreads and credit losses. Estimated gross revenues and gross profits of
variable annuity contracts are sensitive to mortality and estimated policyholder behavior assumptions, such as
surrender, lapse and annuitization rates.
Sales Inducements
DSI represent benefits paid to contract owners for a specified period that are incremental to the amounts the
Company credits on similar contracts without sales inducements and are higher than the contract’s expected
ongoing crediting rates for periods after the inducement. The Company defers sales inducements and amortizes
the DSI over the life of the policy using the same methodology and assumptions used to amortize DAC. The
amortization of sales inducements is included in Interest credited to contract owner account balances in the
Consolidated Statements of Operations. Each year, or more frequently if circumstances indicate a potentially
significant recoverability issue exists, the Company reviews DSI to determine the recoverability of these
balances.
For the years ended December 31, 2013, 2012 and 2011, the Company capitalized $29.7, $35.1 and $39.9,
respectively, of sales inducements. For the years ended December 31, 2013, 2012 and 2011, the Company
amortized $52.7, $62.6 and $14.0, respectively, of DSI.
Future Policy Benefits and Contract Owner Accounts
Future Policy Benefits
The Company establishes and carries actuarially-determined reserves that are calculated to meet its future
obligations. Reserves also include estimates of unpaid claims as well as claims that the Company believes have
been incurred but have not yet been reported as of the balance sheet date. The principal assumptions used to
establish liabilities for future policy benefits are based on Company experience and periodically reviewed against
industry standards. These assumptions include mortality, morbidity, policy lapse, contract renewal, payment of
subsequent premiums or deposits by the contract owner, retirement, investment returns, inflation, benefit
utilization and expenses. Changes in, or deviations from, the assumptions used can significantly affect the
Company’s reserve levels and related results of operations.
Reserves for traditional life insurance contracts (term insurance, participating and non-participating whole
life insurance and traditional group life insurance) and certain accident and health insurance represent the
present value of future benefits to be paid to or on behalf of contract owners and related expenses, less the
present value of future net premiums. Assumptions as to interest rates, mortality, expenses and
persistency are based on the Company’s estimates of anticipated experience at the period the policy is
sold or acquired, including a provision for adverse deviation. Interest rates used to calculate the present
value of these reserves ranged from 2.5% to 8.3%.
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