Voya 2013 Annual Report Download - page 86

The premium rates and other fees that we charge are based, in part, on the assumption that reinsurance will
be available at a certain cost. Some of our reinsurance contracts contain provisions that limit the reinsurer’s
ability to increase rates on in-force business; however, some do not. If a reinsurer raises the rates that it charges
on a block of in-force business, in some instances, we will not be able to pass the increased costs onto our
customers and our profitability will be negatively impacted. Additionally, such a rate increase could result in our
recapturing of the business, which may result in a need to maintain additional reserves, reduce reinsurance
receivables and expose us to greater risks. If reinsurers raise the rates that they charge on new business, we may
be forced to raise the premiums that we charge, which could have a negative impact on our competitive position.
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.
The NAIC has established regulations that provide minimum capitalization requirements based on RBC
formulas for insurance companies. The RBC formula for life insurance companies establishes capital
requirements relating to asset, insurance, interest rate and business risks, including equity, interest rate and
expense recovery risks associated with variable annuities and group annuities that contain guaranteed minimum
death and living benefits. Each of our insurance subsidiaries is subject to RBC standards and/or other minimum
statutory capital and surplus requirements imposed under the laws of its respective jurisdiction of domicile.
In any particular year, statutory surplus amounts and RBC ratios may increase or decrease depending on a variety
of factors, including the amount of statutory income or losses generated by the insurance subsidiary (which itself is
sensitive to equity market and credit market conditions), the amount of additional capital such insurer must hold to
support business growth, changes in equity market levels, the value and credit ratings of certain fixed-income and
equity securities in its investment portfolio, the value of certain derivative instruments that do not receive hedge
accounting and changes in interest rates, as well as changes to the RBC formulas and the interpretation of the NAIC’s
instructions with respect to RBC calculation methodologies. Many of these factors are outside of our control. Our
financial strength and credit ratings are significantly influenced by statutory surplus amounts and RBC ratios. In
addition, rating agencies may implement changes to their own internal models, which differ from the RBC capital
model, that have the effect of increasing or decreasing the amount of statutory capital we or our insurance subsidiaries
should hold relative to the rating agencies’ expectations. In extreme scenarios of equity market declines, sustained
periods of low interest rates, rapidly rising interest rates or credit spread widening, the amount of additional statutory
reserves that an insurance subsidiary is required to hold for certain types of GICs and variable annuity guarantees and
stable value contracts may increase at a greater than linear rate. This increase in reserves would decrease the statutory
surplus available for use in calculating the subsidiary’s RBC ratios. To the extent that an insurance subsidiary’s RBC
ratios are deemed to be insufficient, we may seek to take actions either to increase the capitalization of the insurer or to
reduce the capitalization requirements. If we were unable to accomplish such actions, the rating agencies may view this
as a reason for a ratings downgrade.
The failure of any of our insurance subsidiaries to meet its applicable RBC requirements or minimum
capital and surplus requirements could subject it to further examination or corrective action imposed by
insurance regulators, including limitations on its ability to write additional business, supervision by regulators or
seizure or liquidation. Any corrective action imposed could have a material adverse effect on our business,
results of operations and financial condition. A decline in RBC ratios, whether or not it results in a failure to meet
applicable RBC requirements, may still limit the ability of an insurance subsidiary to make dividends or
distributions to us, could result in a loss of customers or new business, and could be a factor in causing ratings
agencies to downgrade the insurer’s financial strength ratings, each of which could have a material adverse effect
on our business, results of operations and financial condition.
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