Voya 2013 Annual Report Download - page 83

Differences between actual claims experience and reserving assumptions may adversely affect our results of
operations or financial condition.
We establish and hold reserves to pay future policy benefits and claims. Our reserves do not represent an
exact calculation of liability, but rather are actuarial or statistical estimates based on data and models that include
many assumptions and projections, which are inherently uncertain and involve the exercise of significant
judgment, including assumptions as to the levels and/or timing of receipt or payment of premiums, benefits,
claims, expenses, interest credits, investment results (including equity market returns), retirement, mortality,
morbidity and persistency. We periodically review the adequacy of reserves and the underlying assumptions. We
cannot, however, determine with precision the amounts that we will pay for, or the timing of payment of, actual
benefits, claims and expenses or whether the assets supporting our policy liabilities, together with future
premiums, will grow to the level assumed prior to payment of benefits or claims. If actual experience differs
significantly from assumptions or estimates, reserves may not be adequate. If we conclude that our reserves,
together with future premiums, are insufficient to cover future policy benefits and claims, we would be required
to increase our reserves and incur income statement charges for the period in which we make the determination,
which could materially and adversely affect our results of operations and financial condition.
We may face significant losses if mortality rates, morbidity rates, persistency rates or other underwriting
assumptions differ significantly from our pricing expectations.
We set prices for many of our insurance and annuity products based upon expected claims and payment
patterns, using assumptions for mortality rates, or likelihood of death, and morbidity rates, or likelihood of
sickness, of our policyholders. In addition to the potential effect of natural or man-made disasters, significant
changes in mortality or morbidity could emerge gradually over time due to changes in the natural environment,
the health habits of the insured population, technologies and treatments for disease or disability, the economic
environment, or other factors. The long-term profitability of our insurance and annuity products depends upon
how our actual mortality rates, and to a lesser extent actual morbidity rates, compare to our pricing assumptions.
In addition, prolonged or severe adverse mortality or morbidity experience could result in increased reinsurance
costs, and ultimately, reinsurers might not offer coverage at all. If we are unable to maintain our current level of
reinsurance or purchase new reinsurance protection in amounts that we consider sufficient, we would have to
accept an increase in our net risk exposures, revise our pricing to reflect higher reinsurance premiums, or
otherwise modify our product offering.
Pricing of our insurance and annuity products is also based in part upon expected persistency of these
products, which is the probability that a policy will remain in force from one period to the next. Persistency of
our annuity products may be significantly and adversely impacted by the increasing value of guaranteed
minimum benefits contained in many of our variable annuity products due to poor equity market performance or
extended periods of low interest rates as well as other factors. The minimum interest rate guarantees in our fixed
annuities may also be more valuable in extended periods of low interest rates. Persistency could be adversely
affected generally by developments adversely affecting customer perception of us. Results may also vary based
on differences between actual and expected premium deposits and withdrawals for these products. Many of our
deferred annuity products also contain optional benefits that may be exercised at certain points within a contract.
We set prices for such products using assumptions for the rate of election of deferred annuity living benefits and
other optional benefits offered to our contract owners. The profitability of our deferred annuity products may be
less than expected, depending upon how actual contract owner decisions to elect or delay the utilization of such
benefits compare to our pricing assumptions. The development of a secondary market for life insurance,
including stranger-owned life insurance, life settlements or “viaticals” and investor-owned life insurance, and the
potential development of third-party investor strategies in the annuities business, could also adversely affect the
profitability of existing business and our pricing assumptions for new business. Actual persistency that is lower
than our persistency assumptions could have an adverse effect on profitability, especially in the early years of a
policy, primarily because we would be required to accelerate the amortization of expenses we defer in connection
with the acquisition of the policy. Actual persistency that is higher than our persistency assumptions could have
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