Voya 2013 Annual Report Download - page 292

ING U.S., Inc.
Notes to the Consolidated Financial Statements
(Dollar amounts in millions, unless otherwise stated)
of the fair value of the embedded derivatives. The actuarial and capital market assumptions for each liability are
approved by each product’s Chief Risk Officer (“CRO”), including an independent annual review by the U.S.
CRO. Models used to value the embedded derivatives must comply with the Company’s governance policies.
Quarterly, an attribution analysis is performed to quantify changes in fair value measurements and a sensitivity
analysis is used to analyze the changes. The changes in fair value measurements are also compared to
corresponding movements in the hedge target to assess the validity of the attributions. The results of the
attribution analysis are reviewed by the valuation actuaries, responsible CFOs, Controllers, CROs and/or others
as nominated by management.
Embedded derivative on reinsurance: The carrying value of the embedded derivative is estimated based upon the
change in the fair value of the assets supporting the funds withheld payable under reinsurance agreements
between the Company and Hannover Re (Ireland) Plc. As the fair value of the assets held in trust is based on a
quoted market price (Level 1), the fair value of the embedded derivative is based on market observable inputs
and is classified as Level 2.
Transfers in and out of Level 1 and 2
There were no securities transferred between Level 1 and Level 2 for the years ended December 31, 2013 and
2012. The Company’s policy is to recognize transfers in and transfers out as of the beginning of the reporting
period.
Level 3 Financial Instruments
The fair values of certain assets and liabilities are determined using prices or valuation techniques that require
inputs that are both unobservable and significant to the overall fair value measurement (i.e., Level 3 as defined
by ASC Topic 820), including but not limited to liquidity spreads for investments within markets deemed not
currently active. These valuations, whether derived internally or obtained from a third party, use critical
assumptions that are not widely available to estimate market participant expectations in valuing the asset or
liability. In addition, the Company has determined, for certain financial instruments, an active market is such a
significant input to determine fair value that the presence of an inactive market may lead to classification in
Level 3. In light of the methodologies employed to obtain the fair values of financial assets and liabilities
classified as Level 3, additional information is presented below.
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