Voya 2013 Annual Report Download - page 76

activity may not be effective in all cases. Although we employ controls and procedures designed to monitor
associates’ business decisions and to prevent us from taking excessive or inappropriate risks, associates may take
such risks regardless of such controls and procedures. Our compensation policies and practices are reviewed by
us as part of our overall risk management program, but it is possible that such compensation policies and
practices could inadvertently incentivize excessive or inappropriate risk taking. If our associates take excessive
or inappropriate risks, those risks could harm our reputation and have a material adverse effect on our results of
operations and financial condition.
The inability of counterparties to meet their financial obligations could have an adverse effect on our results
of operations.
Third parties that owe us money, securities or other assets may not pay or perform under their obligations.
These parties include the issuers or guarantors of securities we hold, customers, reinsurers, trading counterparties,
securities lending and repurchase counterparties, counterparties under swaps, credit default and other derivative
contracts, clearing agents, exchanges, clearing houses and other financial intermediaries. Defaults by one or more of
these parties on their obligations to us due to bankruptcy, lack of liquidity, downturns in the economy or real estate
values, operational failure or other factors, or even rumors about potential defaults by one or more of these parties,
could have a material adverse effect on our results of operations, financial condition and liquidity.
We routinely execute a high volume of transactions such as unsecured debt instruments, derivative
transactions and equity investments with counterparties and customers in the financial services industry,
including brokers and dealers, commercial and investment banks, mutual and hedge funds, institutional clients,
futures clearing merchants, swap dealers, insurance companies and other institutions, resulting in large periodic
settlement amounts which may result in our having significant credit exposure to one or more of such
counterparties or customers. Many of these transactions comprise derivative instruments with a number of
counterparties in order to hedge various risks, including equity and interest rate market risk features within many
of our insurance and annuity products. Our obligations under our products are not changed by our hedging
activities and we are liable for our obligations even if our derivative counterparties do not pay us. As a result, we
face concentration risk with respect to liabilities or amounts we expect to collect from specific counterparties and
customers. A default by, or even concerns about the creditworthiness of, one or more of these counterparties or
customers could have an adverse effect on our results of operations or liquidity. There is no assurance that losses
on, or impairments to the carrying value of, these assets due to counterparty credit risk would not materially and
adversely affect our business, results of operations or financial condition.
We are also subject to the risk that our rights against third parties may not be enforceable in all
circumstances. The deterioration or perceived deterioration in the credit quality of third parties whose securities
or obligations we hold could result in losses and/or adversely affect our ability to rehypothecate or otherwise use
those securities or obligations for liquidity purposes. While in many cases we are permitted to require additional
collateral from counterparties that experience financial difficulty, disputes may arise as to the amount of
collateral we are entitled to receive and the value of pledged assets. Our credit risk may also be exacerbated when
the collateral we hold cannot be realized or is liquidated at prices not sufficient to recover the full amount of the
loan or derivative exposure that is due to us, which is most likely to occur during periods of illiquidity and
depressed asset valuations, such as those experienced during the recent financial crisis. The termination of
contracts and the foreclosure on collateral may subject us to claims for the improper exercise of rights under the
contracts. Bankruptcies, downgrades and disputes with counterparties as to the valuation of collateral tend to
increase in times of market stress and illiquidity.
Requirements to post collateral or make payments related to changes in market value of specified assets may
adversely affect liquidity.
The amount of collateral we may be required to post under short-term financing agreements and derivative
transactions may increase under certain circumstances. Pursuant to the terms of some transactions, we could be
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