Voya 2013 Annual Report Download - page 72

industry and our credit ratings and credit capacity, as well as the possibility that customers or lenders could develop
a negative perception of our long- or short-term financial prospects. Similarly, our access to funds may be limited if
regulatory authorities or rating agencies take negative actions against us. If our internal sources of liquidity prove to
be insufficient, there is a risk that we may not be able to successfully obtain additional financing on favorable terms,
or at all. Any actions we might take to access financing may cause rating agencies to reevaluate our ratings.
Disruptions, uncertainty or volatility in the capital and credit markets, such as that experienced over the past
few years, may also limit our access to capital. Such market conditions may in the future limit our ability to raise
additional capital to support business growth, or to counter-balance the consequences of losses or increased
regulatory reserves and rating agency capital requirements. This could force us to (1) delay raising capital,
(2) reduce, cancel or postpone interest payments on our debt, (3) issue capital of different types or under different
terms than we would otherwise or (4) incur a higher cost of capital than in a more stable market environment.
This would have the potential to decrease both our profitability and our financial flexibility. Our results of
operations, financial condition, liquidity, statutory capital and rating agency capital position could be materially
and adversely affected by disruptions in the financial markets.
The level of interest rates may adversely affect our profitability, particularly in the event of a continuation of
the current low interest rate environment or a period of rapidly increasing interest rates.
Changes in prevailing interest rates may negatively affect our business including the level of net interest
margin we earn. In a period of changing interest rates, interest expense may increase and interest credited to
policyholders may change at different rates than the interest earned on assets. Accordingly, changes in interest
rates could decrease net interest margin. Changes in interest rates may negatively affect the value of our assets
and our ability to realize gains or avoid losses from the sale of those assets, all of which also ultimately affect
earnings. In addition, our insurance and annuity products and certain of our retirement and investment products
are sensitive to inflation rate fluctuations. A sustained increase in the inflation rate in our principal markets may
also negatively affect our business, financial condition and results of operation. For example, a sustained increase
in the inflation rate may result in an increase in nominal market interest rates. A failure to accurately anticipate
higher inflation and factor it into our product pricing assumptions may result in mispricing of our products,
which could materially and adversely impact our results of operations.
During periods of declining interest rates or a prolonged period of low interest rates, life insurance and
annuity products may be relatively more attractive to consumers due to minimum guarantees that are frequently
mandated by regulators, resulting in increased premium payments on products with flexible premium features
and a higher percentage of insurance and annuity contracts remaining in force from year-to-year than we
anticipated in our pricing, potentially resulting in greater claims costs than we expected and asset liability cash
flow mismatches. A decrease in interest rates or a prolonged period of low interest rates may also require
additional provisions for guarantees included in life insurance and annuity contracts, as the guarantees become
more valuable to policyholders. During a period of decreasing interest rates or a prolonged period of low interest
rates, our investment earnings may decrease because the interest earnings on our recently purchased fixed income
investments will likely have declined in parallel with market interest rates. In addition, a prolonged low interest
rate period may result in higher costs for certain derivative instruments that may be used to hedge certain of our
product risks. RMBS and callable fixed income securities in our investment portfolios will be more likely to be
prepaid or redeemed as borrowers seek to borrow at lower interest rates. Consequently, we may be required to
reinvest the proceeds in securities bearing lower interest rates. Accordingly, during periods of declining interest
rates, our profitability may suffer as the result of a decrease in the spread between interest rates credited to
policyholders and contract owners and returns on our investment portfolios. An extended period of declining
interest rates or a prolonged period of low interest rates may also cause us to change our long-term view of the
interest rates that we can earn on our investments. Such a change in our view would cause us to change the
long-term interest rate that we assume in our calculation of insurance assets and liabilities under U.S. GAAP.
This revision would result in increased reserves, accelerated amortization of DAC and other unfavorable
consequences. In addition, certain statutory capital and reserve requirements are based on formulas or models
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