Voya 2013 Annual Report Download - page 254

ING U.S., Inc.
Notes to the Consolidated Financial Statements
(Dollar amounts in millions, unless otherwise stated)
The Company also calculates a benefit ratio for each block of business that meets the requirements for additional
reserves and calculates an additional reserve by accumulating amounts equal to the benefit ratio multiplied by the
assessments for each period, reduced by excess benefits during the period. The additional reserve is accumulated
at interest rates consistent with the DAC model for the period. The calculated reserve includes a provision for UL
contracts with patterns of cost of insurance charges that produce expected gains from the insurance benefit
function followed by losses from that function in later years. Additional reserves are recorded in Future policy
benefits on the Consolidated Balance Sheets.
URR relates to UL and VUL products and represents policy charges for benefits or services to be provided in
future periods (see the “Recognition of Insurance Revenue and Related Benefits” section below). The URR
balance is recorded in Future policy benefits on the Consolidated Balance Sheets.
GMDB and GMIB: Reserves for annuity guaranteed minimum death benefits (“GMDB”) and guaranteed
minimum income benefits (“GMIB”) are determined by estimating the value of expected benefits in excess of the
projected account balance and recognizing the excess ratably over the accumulation period based on total
expected assessments. Expected experience is based on a range of scenarios. Assumptions used, such as the long-
term equity market return, lapse rate and mortality, are consistent with assumptions used in estimating gross
revenues for purposes of amortizing DAC. The assumptions of investment performance and volatility are
consistent with the historical experience of the appropriate underlying equity index, such as the Standard &
Poor’s (“S&P”) 500 Index. In addition, the reserve for the GMIB incorporates assumptions for the likelihood and
timing of the potential annuitizations that may be elected by the contract owner. In general, the Company
assumes that GMIB annuitization rates will be higher for policies with more valuable guarantees (“in the money”
guarantees where the notional benefit amount is in excess of the account value). Reserves for GMDB and GMIB
are recorded in Future policy benefits on the Consolidated Balance Sheets. Changes in reserves for GMDB and
GMIB are reported in Policyholder benefits in the Consolidated Statements of Operations.
Most contracts issued on or before December 31, 1999 with enhanced death benefit guarantees were reinsured to
third-party reinsurers to mitigate the risk associated with such guarantees. For contracts issued after
December 31, 1999, the Company instituted a variable annuity guarantee hedge program to mitigate the risks
associated with these guarantees, which do not qualify for hedge accounting. The variable annuity guarantee
hedge program is based on the Company entering into derivative positions to offset such exposures to GMDB
and GMIB due to adverse changes in the equity markets.
GMAB, GMWB, GMWBL and FIA: The Company also issues certain products which contain embedded
derivatives that are measured at estimated fair value separately from the host contracts. These products include
annuity guaranteed minimum accumulation benefits (“GMAB”), guaranteed minimum withdrawal benefits
(“GMWB”), guaranteed minimum withdrawal benefits with life payouts (“GMWBL”) and FIAs. Embedded
derivatives associated with GMABs, GMWBs and GMWBLs are recorded in Future policy benefits on the
Consolidated Balance Sheets. Embedded derivatives associated with FIAs are recorded in Contract owner
account balances on the Consolidated Balance Sheets. Changes in estimated fair value, along with attributed fees
collected or payments made, are reported in Other net realized capital gains (losses) in the Consolidated
Statements of Operations.
At inception of the GMAB, GMWB and GMWBL contracts, the Company projects a fee to be attributed to the
embedded derivative portion of the guarantee equal to the present value of projected future guaranteed benefits.
After inception, the estimated fair value of the GMAB, GMWB and GMWBL contracts is determined based on the
present value of projected future guaranteed benefits, minus the present value of projected attributed fees. A risk
neutral valuation methodology is used under which the cash flows from the guarantees are projected under multiple
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