Voya 2013 Annual Report Download - page 95

Market movements and actuarial assumption changes (including, with respect to policyholder behavior and
mortality) can result in material adverse impacts to our results of operations, financial condition and liquidity.
Because policyholders have various contractual rights to defer withdrawals, annuitization and/or maturity of their
contracts, the nature and period of contract maturity is subject to policyholder behavior and is therefore
indeterminate. Future market movements and changes in actuarial assumptions can result in significant earnings
and liquidity impacts, as well as increases in regulatory reserve and capital requirements for the CBVA segment.
The latter may necessitate additional capital contributions into the business and/or adversely impact dividend
capacity.
Our CBVA segment is subject to market risks.
Our CBVA segment is subject to a number of market risks, primarily associated with U.S. and other global
equity market values and interest rates. For example, declining equity market values, increasing equity market
volatility, declining interest rates or a prolonged period of low interest rates can result in an increase in the
valuation of future policy benefits, reducing our net income. Declining market values for bonds and equities also
reduce the account balances of our variable annuity contracts, and since we collect fees and risk charges based on
these account balances, our net income may be further reduced.
Declining interest rates, a prolonged period of low interest rates, increased equity market volatility or
declining equity market values may also subject us to increased hedging costs. Market events can cause an
increase in the amount of statutory reserves that our insurance subsidiaries are required to hold for variable
annuity guarantees, lowering their statutory surplus, which would adversely impact their ability to pay dividends
to us. An increase in interest rates could result in decreased fee income associated with a decline in the value of
variable annuity account balances invested in fixed income funds, which also might affect the value of the
underlying guarantees within these variable annuities.
The performance of our CBVA segment depends on assumptions that may not be accurate.
Our CBVA segment is subject to risks associated with the future behavior of policyholders and future
claims payment patterns, using assumptions for mortality experience, lapse rates, GMIB annuitization rates, and
GMWB/GMWBL withdrawal rates. We are required to make assumptions about these behaviors and patterns,
which may not reflect the actual behaviors and patterns we experience in the future.
In particular, we have only minimal experience on policyholder behavior for our GMIB and GMWBL
products and, as a result, future experience could lead to significant changes in our assumptions. Our GMIB
contracts have a ten-year waiting period before annuitization is available, with most of these GMIB contracts
issued during the period 2004 to 2006. These contracts first become eligible to annuitize during the period from
2014 through 2016, but contain significant incentives to delay annuitization beyond the first eligibility date. As a
result, to date we have only a statistically small sample of experience used to set annuitization rates. Therefore,
we anticipate that observable experience data will become statistically credible later this decade, when a large
volume of GMIB benefits begin to reach their maximum benefit over the four-year period from 2019 to 2022. It
is possible, however, that policyholders may choose to annuitize soon after the first annuitization date, rather
than delay annuitization to receive increased guarantee benefits, in which case we may have increasingly
statistically credible experience as early as the period from 2014 through 2016.
Similarly, most of our GMWBL contracts are still in the first four to six policy years, so our assumptions for
withdrawal from contracts with GMWBL benefits may change as experience emerges. In addition, like our GMIB
contracts, many of our GMWBL contracts contain significant incentives to delay withdrawal. We expect customer
decisions on annuitization and withdrawal will be influenced by customers’ financial plans and needs as well as by
interest rate and market conditions over time and by the availability and features of competing products. If emerging
experience deviates from our assumptions on either GMIB annuitization or GMWBL withdrawal, we could
experience gains or losses and a significant decrease or increase to reserve and capital requirements.
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