Voya 2014 Annual Report Download - page 101

collateral. If these steps are unsuccessful, or if unaffiliated non-accredited reinsurers that have reinsured business
from our insurance subsidiaries are unsuccessful in obtaining sources of qualifying reinsurance collateral, our
insurance subsidiaries might not be able to obtain full statutory reserve credit. Loss of reserve credit by an
insurance subsidiary would require it to establish additional statutory reserves and would result in a decrease in
the level of its capital, which could have a material adverse effect on our profitability, results of operations and
financial condition.
We had $284.4 million and $176.6 million of unsecured unaffiliated reinsurance recoverable balances as of
December 31, 2014 and 2013, respectively. These reinsurance recoverable balances are periodically assessed for
uncollectability and there were no significant allowances for uncollectible reinsurance as of December 31, 2014
and December 31, 2013.
The collectability of reinsurance recoverables is subject to uncertainty arising from a number of factors,
including whether the insured losses meet the qualifying conditions of the reinsurance contract, whether
reinsurers or their affiliates have the financial capacity and willingness to make payments under the terms of the
reinsurance contract, and the degree to which our reinsurance balances are secured by sufficient qualifying assets
in qualifying trusts or qualifying LOCs issued by qualifying lender banks. Although a substantial portion of our
reinsurance exposure is secured by assets held in trusts or LOCs, the inability to collect a material recovery from
a reinsurer could have a material adverse effect on our profitability, results of operations and financial condition.
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. (For
additional discussion of possible updates to how the NAIC calculates RBC ratios, see “Item 1. Business—
Regulation—Regulation Affecting Voya Financial, Inc.—Financial Regulation—Risk-Based Capital.”)
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
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