Voya 2013 Annual Report Download - page 34

The goal of our Individual Life distribution model is to be a full-service provider of life insurance products
with a broad footprint, offering customers multiple ways to purchase products from our diverse portfolio.
Achieving this goal has allowed us to penetrate affluent markets with our non-term portfolio, while building
scale through policy count with sales of term and lower face non-term products in the middle market.
Competition
The Individual Life segment competes with large, well-established life insurance companies in a mature
market, where price and service are key drivers. Primary competitors include Lincoln, MetLife, Prudential,
American General, Principal Financial Group, John Hancock, Transamerica and Pacific Life. Individual Life
primarily competes based on service and distribution channel relationships, price, brand recognition, financial
strength ratings of our insurance subsidiaries and financial stability. We have strong capabilities to monitor
competition and we utilize advanced models to benchmark our product offerings against others in the industry.
Factors that could influence our ability to competitively price products while achieving targeted returns
include the cost and availability of statutory reserve financing required for certain term and universal life
insurance policies, internal capital funding requirements and an extended low interest rate environment.
Underwriting and Pricing
We set prices for many of our insurance products based upon expected mortality over the life of the product.
We base the pricing of our life insurance products in part upon expected persistency of these products, which is the
probability that a policy will remain in force from one period to the next. We base premiums and policy charges for
individual life insurance on expected death benefits, surrender benefits, expenses and required reserves. We use
assumptions for mortality, interest, expenses, policy persistency and premium payment pattern in pricing policies.
In addition, certain of our insurance products that include guaranteed returns or crediting rates underwrite equity
market or interest rate risks. We seek to maintain a spread between the return on our general account invested assets
and the interest we credit on our policyholder accounts. Our underwriting and risk management functions adhere to
prescribed underwriting guidelines, while maintaining a competitive suite of products priced consistent with our
mortality assessment. We generally manage mortality risks by enforcing strict underwriting standards and
maintaining sufficient scale so that the incidence of risk occurrence is likely to match statistical modeling.
With respect to our universal life secondary guarantee business, we seek to mitigate risk by pricing conservatively
to recognize the interest rate risk and are willing to forgo sales in order to maintain our profit and risk profile.
Reinsurance
In general, our reinsurance strategy is designed to limit our mortality risk and volatility. We partner with
highly rated, well regarded reinsurers and set up pools to share our excess mortality risk.
As of January 1, 2013, we revised the amount of risk we retain on a life for new business issued after
January 1, 2013. For term business, we continue to retain the first $3 million of risk and the excess risk is shared
among a pool of reinsurers. For most of our universal life product portfolio, we retain the first $5 million of risk
and reinsure the 100% of the excess over $5 million among a pool of reinsurers. Our maximum overall retained
risk on any one life is $5 million.
Prior to January 1, 2013, for term business, we retained the first $3 million of risk and the excess risk was
shared among a pool of reinsurers. For most of our universal life product portfolio, we retained the first $5 million
of risk and reinsured a portion of the excess over $5 million into a pool until we reached our limit of $10 million of
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