Voya 2013 Annual Report Download - page 97

$185.3 million, which included $117.9 million of unfavorable mortality assumption changes and $85.5 million of
unfavorable policyholder behavior assumption changes. As a result of the 2012 review, we recorded a loss of
$151.7 million, of which $114.6 million was driven primarily by an update to lapse rates on variable annuity
contracts with lifetime living benefit guarantees and $37.1 million was related to changes in cash flow
projections and volatility assumptions on certain products. These changes in lapse assumptions, taken together
with the update to lapse assumptions we made in late 2011, moved our assumptions to be in line with lapse
experience over the study period of 2006 to present. Although we believe it is appropriate to consider actual
experience over that entire period in setting our assumptions, this recent change also causes our assumption to
move considerably closer to our actual lapse experience for the period from mid-2009 to present. However, as
described in the previous paragraph, future reserve increases in connection with experience updates could be
material and adverse to the results of operations or financial condition of the Company. Any such increase to
reserves could require us to make material additional capital contributions to one or more of our insurance
company subsidiaries or could otherwise be material and adverse to the results of operations or financial
condition of the Company. We will continue to monitor the emergence of experience. We review our
assumptions at least annually, and, if necessary, update our assumptions more frequently as additional
information becomes available. If adjustments to policyholder behavior assumptions (e.g., lapse, annuitization
and withdrawal) are necessary, which is ordinary course for interest-sensitive long-dated liabilities, we anticipate
that the financial impact of such a change will likely be in a range, either up or down, that is generally consistent
with the impact experienced in the past two years.
Our Variable Annuity Hedge Program currently focuses on the protection of regulatory and rating agency
capital from market movements and less on the U.S. GAAP earnings impact of this block, which could result
in materially lower or more volatile U.S. GAAP earnings.
Our Variable Annuity Hedge Program currently focuses on the protection of regulatory and rating agency
capital from equity market movements and less on the U.S. GAAP earnings impact of this block. U.S. GAAP
accounting differs from the methods used to determine regulatory and rating agency capital measures. Therefore
our Variable Annuity Hedge Program may create earnings volatility in our U.S. GAAP financial statements, or
produce lower U.S. GAAP income or even U.S. GAAP losses compared to what our unhedged results would
have been. In general, in any given period rising equity market values can produce losses in our Variable Annuity
Hedge Program that substantially exceed the benefit we derive from the associated decrease in valuation of the
future policy benefits associated with CBVA products on a U.S. GAAP basis, and the impact of declining equity
markets can produce gains in our Variable Annuity Hedge Program that substantially exceed the loss we derive
from the associated increase in valuation of the future policy benefits on a U.S. GAAP basis. We recorded net
gains (losses) related to incurred guaranteed benefits and guaranteed benefit hedging, including the CHO
program, but excluding the effect of nonperformance risk, of ($1,674.3) million, ($1,209.3) million, and
($2,192.2) million for the years ended December 31, 2013, 2012, and 2011, respectively. See “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of
Operations—Company Consolidated.”
As stated above, the primary focus of the hedge program is to protect regulatory and rating agency capital
from equity market movements. Hedge ineffectiveness, along with other aspects not directly hedged (including
unexpected policyholder experience), may cause losses of regulatory or rating agency capital. Regulatory and
rating agency capital requirements may move disproportionately (i.e., they may change by different amounts as
market conditions and other factors change), and, therefore, this could also cause our hedge program to not
realize its key objective of protecting both regulatory and rating agency capital from equity market movements.
Our Variable Annuity Hedge Program may not be effective and may be more costly than anticipated.
We periodically re-evaluate our Variable Annuity Hedge Program to respond to changing market conditions
and balance the trade-offs among several important factors, including regulatory reserves, rating agency capital,
underlying economics, earnings and other factors. While our Variable Annuity Hedge Program is intended to
balance numerous critical metrics, we are subject to the risk that our strategies and other management decisions
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