Voya 2013 Annual Report Download - page 368

ING U.S., Inc.
Notes to the Consolidated Financial Statements
(Dollar amounts in millions, unless otherwise stated)
Fair Value Valuation Technique Unobservable Inputs
December 31, 2012
Liabilities:
CLO Notes .................................... $3,829.4 Discounted Cash Flow Default Rate
Recovery Rate
Prepayment Rate
Discount Margin
The following narrative indicates the sensitivity of inputs:
• Default Rate: An increase (decrease) in the expected default rate would likely increase (decrease) the
discount margin (increase risk premium) used to value the CLO investments and CLO notes and, as a
result, would potentially decrease the value of the CLO investments and CLO notes; however, if an
increase in the expected default rates does not have a subsequent change in the discount margin used to
value the CLO investments and CLO notes, then an increase in default rate would potentially increase
the value of the CLO investments and CLO notes as the expected weighted average life (“WAL”) of
the CLO investments and CLO notes would decrease.
• Recovery rate: A decrease (increase) in the expected recovery of defaulted assets would potentially
decrease (increase) the valuation of CLO investments and CLO notes.
• Prepayment Rate: A decrease (increase) in the expected rate of collateral prepayments would
potentially decrease (increase) the valuation of CLO investments and CLO notes as the expected WAL
would increase.
• Discount Margin (spread over LIBOR): An increase (decrease) in the discount margin used to value the
CLO investments and CLO notes and would decrease (increase) the value of the CLO investments and
CLO notes.
VOEs—Private Equity Funds and Single Strategy Hedge Funds (Limited Partnerships)
Limited partnerships, at fair value, primarily represent the Company’s investments in private equity funds and
single strategy hedge funds. The fair value for these investments is estimated based on the NAV from the latest
financial statements of these funds, provided by the fund’s investment manager or third-party administrator.
Valuations of single strategy hedge funds, generally based on the valuations provided by the funds third-party
administrator, are based on a pricing matrix which primarily relies upon prices received from third-party pricing
services. The inputs used by independent commercial pricing services are those that are derived principally from
or corroborated by observable market data. Hence, the fair value measurement of single strategy hedge funds
priced by independent pricing service providers is classified within Level 2 of the fair value hierarchy.
These consolidated investments are mostly private equity funds spread across 35 limited partnerships that focus
on the primary or secondary market. The limited partnerships invest in private equity funds and, at times, make
strategic co-investments directly into private equity companies, including, but not limited to, buyout, venture
capital, distressed and mezzanine.
Private Equity Funds
As prescribed in ASC Topic 820, the unit of account for these investments is the interest in the investee
fund. The Company owns an undivided interest in the fund portfolio and does not have the ability to dispose of
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