Voya 2013 Annual Report Download - page 44

Foreign exchange forwards are used to mitigate the impact of policyholder-directed investments in
international funds with exposure to fluctuations in exchange rates of certain foreign currencies. Rebalancing is
performed based on pre-determined notional exposures to the specific currencies.
Variable Annuity Capital Hedge Overlay Program. CBVA guaranteed benefits are hedged based on their
economic or fair value; however, the statutory reserves and rating agency required assets are not based on a
market value. When equity markets decrease, the statutory reserve and rating agency required assets for the
CBVA guaranteed benefits can increase more quickly than the value of the derivatives held under the Variable
Annuity Guarantee Hedge Program. This causes regulatory reserves to increase and rating agency capital to
decrease. The CHO program is intended to mitigate equity risk to the regulatory and rating agency capital of the
Company.The hedge is executed through the purchase and sale of equity index derivatives and is designed to
limit the uncovered reserve and rating agency capital increases in an immediate down equity market scenario to
an amount we believe prudent for a company of our size and scale. This amount will change over time with
market movements, changes in regulatory and rating agency capital, available collateral and our risk tolerance.
The following table summarizes the estimated net impacts to funding our regulatory reserves to our CBVA
segment, after giving effect to our CHO program and the Variable Annuity Guarantee Hedge Program for various
shocks in equity markets and interest rates. This reflects the hedging we had in place as well as any collateral (in
the form of a letter of credit (“LOC”)) or change in underlying asset values that would be used to achieve credit
for reinsurance for the segment of liabilities reinsured to our captive reinsurance subsidiary domiciled in Arizona
(referred to in this Annual Report on Form 10-K as “our Arizona captive”) at the close of business on
December 31, 2013 in light of our determination of risk tolerance and available collateral at that time, which, as
noted above, we assess periodically.
As of December 31, 2013
($ in millions) Equity Market (S&P 500) Interest Rates
-25% -15% -5% +5% +15% +25% -1% +1%
Decrease/(increase) in regulatory
reserve ........................ $(3,800) $(2,150) $(550) $ 600 $ 1,300 $ 1,800 $(800) $ 50
Hedge gain/(loss), immediate
impact ........................ 2,700 1,350 350 (400) (1,050) (1,500) 550 (450)
Increase/(decrease) in Market Value of
Assets ........................ — — — — — — 300 (300)
Increase/(decrease) in LOCs ......... 1,100 800 250 — — — — 650
Net impact ...................... $ — $ — $ 50 $200 $ 250 $ 300 $ 50 $ (50)
The foregoing sensitivities illustrate the estimated impact of the indicated shocks beginning on the first
market trading day following December 31, 2013 and give effect to rebalancing over the course of the shock
event. The estimates of equity market shocks reflect a shock to all equity markets, domestic and global, of the
same magnitude. The estimates of interest rate shocks reflect a shock to rates at all durations (a “parallel” shift in
the yield curve). Decrease / (increase) in regulatory reserves includes statutory reserves for policyholder account
balances, AG43 reserves and additional cash flow testing reserves related to the CBVA segment. Hedge Gain /
(Loss) includes both the Variable Annuity Guarantee Hedge Program and the CHO program and assumes that
hedge positions can be rebalanced during the market shock and that the performance of the derivative contracts
reasonably matches the performance of the contract owners’ variable fund returns. Increase / (decrease) in LOCs
indicates the change in the amount of LOCs used to provide credit for reinsurance at those times when the assets
backing the reinsurance liabilities may be less than the statutory reserve requirement. As of December 31, 2013
the amount of available LOCs was approximately $1.2 billion. Increase / (decrease) in Market Value of Assets is
the estimated potential change in market value of assets supporting the segment of liabilities reinsured to our
Arizona captive from 100 basis point upward and downward shifts in interest rates.
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