Voya 2013 Annual Report Download - page 81

priority to unobservable inputs (Level 3), while quoted prices in markets that are not active or valuation
techniques requiring inputs that are observable for substantially the full term of the asset or liability are Level 2.
Factors considered in estimating fair values of securities, and derivatives and embedded derivatives related
to our securities include coupon rate, maturity, principal paydown including prepayments, estimated duration,
call provisions, sinking fund requirements, credit rating, industry sector of the issuer and quoted market prices of
comparable securities. Factors considered in estimating the fair values of embedded derivatives and derivatives
related to product guarantees (collectively, “guaranteed benefit derivatives”) include risk-free interest rates,
long-term equity implied volatility, interest rate implied volatility, correlations among mutual funds associated
with variable annuity contracts, correlations between interest rates and equity funds and actuarial assumptions
such as mortality rates, lapse rates and benefit utilization, as well as the amount and timing of policyholder
deposits and partial withdrawals. The impact of our risk of nonperformance is also reflected in the estimated fair
value of guaranteed benefit derivatives. In many situations, inputs used to measure the fair value of an asset or
liability may fall into different levels of the fair value hierarchy. In these situations, we will determine the level
in which the fair value falls based upon the lowest level input that is significant to the determination of the fair
value.
The determinations of fair values are made at a specific point in time, based on available market information
and judgments about financial instruments, including estimates of the timing and amounts of expected future
cash flows and the credit standing of the issuer or counterparty. The use of different methodologies and
assumptions may have a material effect on the estimated fair value amounts.
During periods of market disruption, including periods of rapidly changing credit spreads or illiquidity, it
has been and will likely continue to be difficult to value certain of our securities, such as certain
mortgage-backed securities, if trading becomes less frequent and/or market data becomes less observable. There
may be certain asset classes that were in active markets with significant observable data that could become
illiquid in a difficult financial environment. In such cases, more securities may fall to Level 3 and thus require
more subjectivity and management judgment in determining fair value. As such, valuations may include inputs
and assumptions that are less observable or require greater estimation, thereby resulting in values that may differ
materially from the value at which the investments may be ultimately sold. Further, rapidly changing and
unprecedented credit and equity market conditions could materially impact the valuation of securities as reported
within the financial statements, and the period-to-period changes in value could vary significantly. Decreases in
value could have a material adverse effect on our results of operations and financial condition. As of
December 31, 2013, 6.6%, 92.3% and 1.1% of our available-for-sale securities were considered to be Level 1, 2
and 3, respectively.
The determination of the amount of allowances and impairments taken on our investments is subjective and
could materially and adversely impact our results of operations or financial condition. Gross unrealized losses
may be realized or result in future impairments, resulting in a reduction in our net income (loss).
We evaluate investment securities held by us for impairment on a quarterly basis. This review is subjective
and requires a high degree of judgment. For fixed income securities held, an impairment loss is recognized if the
fair value of the debt security is less than the carrying value and we no longer have the intent to hold the debt
security; if it is more likely than not that we will be required to sell the debt security before recovery of the
amortized cost basis; or if a credit loss has occurred.
When we do not intend to sell a security in an unrealized loss position, potential credit related
other-than-temporary impairments (“OTTI”) are considered using a variety of factors, including the length of
time and extent to which the fair value has been less than cost, adverse conditions specifically related to the
industry, geographic area in which the issuer conducts business, financial condition of the issuer or underlying
collateral of a security, payment structure of the security, changes in credit rating of the security by the rating
agencies, volatility of the fair value changes and other events that adversely affect the issuer. In addition, we take
into account relevant broad market and economic data in making impairment decisions.
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