Voya 2013 Annual Report Download - page 98

may prove ineffective or that unexpected policyholder experience, alone or in combination with unfavorable
market events, may produce losses or unanticipated cash needs beyond the scope of the risk management
strategies employed. The Variable Annuity Hedge Program assumes that hedge positions can be rebalanced
during a market shock and that the performance of the derivative contracts reasonably matches the performance
of the contract owners’ variable fund returns. In addition, our Variable Annuity Hedge Program does not hedge
certain non-market risks inherent in this segment, including business, credit, insurance and operational risks; any
of these risks could cause us to experience unanticipated losses or cash needs. For example, hedging
counterparties may fail to perform their obligations resulting in unhedged exposures and losses on positions that
are not collateralized. Finally, the cost of the Variable Annuity Hedge Program itself may be greater than
anticipated as adverse market conditions can limit the availability and increase the costs of the hedging
instruments we employ, and such costs may not be recovered in the pricing of the underlying products being
hedged. For example, the cost of hedging guaranteed minimum benefits increases as market volatilities increase
and/or interest rates decrease, resulting in a reduction to net income.
Risks Related to Regulation
Our businesses and those of our majority shareholder and its affiliates are heavily regulated and changes in
regulation or the application of regulation may reduce our profitability.
We are subject to detailed insurance, asset management and other financial services laws and government
regulation. In addition to the insurance, asset management and other regulations and laws specific to the
industries in which we operate, regulatory agencies have broad administrative power over many aspects of our
business, which may include ethical issues, money laundering, privacy, recordkeeping and marketing and sales
practices. Also, bank regulators and other supervisory authorities in the United States and elsewhere continue to
scrutinize payment processing and other transactions under regulations governing such matters as money-
laundering, prohibited transactions with countries subject to sanctions, and bribery or other anti-corruption
measures. The financial market dislocations we have experienced have produced, and are expected to continue to
produce, extensive changes in existing laws and regulations applicable to our businesses.
Compliance with applicable laws and regulations is time consuming and personnel-intensive, and changes in
laws and regulations may materially increase the cost of compliance and other expenses of doing business. There
are a number of risks that may arise where applicable regulations may be unclear, subject to multiple
interpretations or under development or where regulations may conflict with one another, where regulators revise
their previous guidance or courts overturn previous rulings, which could result in our failure to meet applicable
standards. Regulators and other authorities have the power to bring administrative or judicial proceedings against
us, which could result, among other things, in suspension or revocation of our licenses, cease and desist orders,
fines, civil penalties, criminal penalties or other disciplinary action which could materially harm our results of
operations and financial condition. If we fail to address, or appear to fail to address, appropriately any of these
matters, our reputation could be harmed and we could be subject to additional legal risk, which could increase the
size and number of claims and damages asserted against us or subject us to enforcement actions, fines and
penalties. See “Item 1. Business—Regulation” for further discussion of the impact of regulations on our
businesses.
The Health Care Act significantly impacts how employers provide health care to employees and how
individuals obtain health care insurance. There is uncertainty surrounding the impact of the Health Care Act on
insurers which may create risks to products we offer, including Stop Loss Insurance sold to employers offering
self-insured health plans. In addition, should the Treasury Department issue guidance concluding that insurers
offering Stop Loss Insurance are considered health care providers, we may face adverse tax or other financial
consequences.
As long as we remain affiliated with ING Group, we may be subject to laws, regulations, disclosures and
restrictions to which we would not be subject as a standalone enterprise. These restrictions could be extensive
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