Voya 2013 Annual Report Download - page 77

required to make payment to our counterparties related to any change in the market value of the specified
collateral assets. Such requirements could have an adverse effect on liquidity. Furthermore, with respect to any
such payments, we may have unsecured risk to the counterparty as these amounts may not be required to be
segregated from the counterparty’s other funds, may not be held in a third-party custodial account and may not
be required to be paid to us by the counterparty until the termination of the transaction. Additionally, the
implementation of the Dodd-Frank Act and the resultant changes in collateral requirements may increase the
need for liquidity and eligible collateral assets in excess of what is already being held.
For a discussion on certain obligations we have with respect to the posting of collateral upon the occurrence
of certain events, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Liquidity and Capital Resources—Potential Impact of a Ratings Downgrade.”
Our investment portfolio is subject to several risks that may diminish the value of our invested assets and the
investment returns credited to customers, which could reduce our sales, revenues, AUM and results of
operations.
Fixed income securities represent a significant portion of our investment portfolio. We are subject to the risk
that the issuers, or guarantors, of fixed income securities we own may default on principal and interest payments
they owe us. We are also subject to the risk that the underlying collateral within ABS, including
mortgage-backed securities, may default on principal and interest payments causing an adverse change in cash
flows. The occurrence of a major economic downturn, acts of corporate malfeasance, widening mortgage or
credit spreads, or other events that adversely affect the issuers, guarantors or underlying collateral of these
securities could cause the estimated fair value of our fixed income securities portfolio and our earnings to decline
and the default rate of the fixed income securities in our investment portfolio to increase. A ratings downgrade
affecting issuers or guarantors of securities in our investment portfolio, or similar trends that could worsen the
credit quality of such issuers, or guarantors could also have a similar effect. Similarly, a ratings downgrade
affecting a security we hold could indicate the credit quality of that security has deteriorated and could increase
the capital we must hold to support that security to maintain our RBC ratio. See “—A decrease in the RBC ratio
(as a result of a reduction in statutory surplus and/or increase in RBC requirements) of our insurance subsidiaries
could result in increased scrutiny by insurance regulators and rating agencies and have a material adverse effect
on our business, results of operations and financial condition.” We are also subject to the risk that cash flows
resulting from the payments on pools of mortgages that serve as collateral underlying the mortgage-backed
securities we own may differ from our expectations in timing or size. Cash flow variability arising from an
unexpected acceleration in mortgage prepayment behavior can be significant, and could cause a decline in the
estimated fair value of certain “interest-only” securities within our mortgage-backed securities portfolio. Any
event reducing the estimated fair value of these securities, other than on a temporary basis, could have a material
adverse effect on our business, results of operations and financial condition.
We derive operating revenues from providing investment management and related services. Our revenues
depend largely on the value and mix of AUM. Our investment management related revenues are derived primarily
from fees based on a percentage of the value of AUM. Any decrease in the value or amount of our AUM because of
market volatility or other factors negatively impacts our revenues and income. Global economic conditions, changes
in the equity markets, currency exchange rates, interest rates, inflation rates, the yield curve, defaults by derivative
counterparties and other factors that are difficult to predict affect the mix, market values and levels of our AUM.
The funds we manage may be subject to an unanticipated large number of redemptions as a result of such events,
causing the funds to sell securities they hold, possibly at a loss, or draw on any available lines of credit to obtain
cash, or use securities held in the applicable fund, to settle these redemptions. We may, in our discretion, also
provide financial support to a fund to enable it to maintain sufficient liquidity in such an event. Additionally,
changing market conditions may cause a shift in our asset mix towards fixed-income products and a related decline
in our revenue and income, as we generally derive higher fee revenues and income from equity products than from
fixed-income products we manage. Any decrease in the level of our AUM resulting from price declines, interest rate
volatility or uncertainty, increased redemptions or other factors could negatively impact our revenues and income.
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