Voya 2014 Annual Report Download - page 110

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
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. It is possible that future assumption
changes could produce reserve changes that could be material. 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.
In particular, we have only minimal experience on policyholder behavior for our GMIB and as a result,
future experience could lead to significant changes in our assumptions. Our GMIB contracts, most of which were
issued during the period from 2004 to 2006, have a ten-year waiting period before annuitization is available.
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, although we have
increased experience on policyholder behavior for the first opportunity to annuitize, we have only a statistically
small sample of experience used to set annuitization rates beyond the first eligibility date. 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 2015 through 2016.
Similarly, most of our GMWBL contracts are still in the first five to seven 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. Our
experience for GMWBL contracts has become more credible, which resulted in our current best estimate
assumption reflecting meaningfully longer delays in utilization than the previous assumption. It is possible,
however, that policyholders may choose to withdraw sooner or later than the current best estimate assumes. We
expect customer decisions on 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.
We also make estimates of expected lapse rates, which represent the probability that a policy will not remain
in force from one period to the next, for contracts in the CBVA segment. Lapse rates of our variable annuity
contracts may be significantly impacted by the value of guaranteed minimum benefits relative to the value of the
underlying separate accounts (account value or account balance). In general, policies with guarantees that are “in
the money” (i.e., where the notional benefit amount is in excess of the account value) are assumed to be less
likely to lapse. Conversely, “out of the money” guarantees are assumed to be more likely to lapse as the
policyholder has less incentive to retain the policy. Lapse rates could also be adversely affected generally by
developments that affect customer perception of us.
Our variable annuity lapse rate experience has varied significantly over the period from 2006 to the present,
reflecting among other factors, both pre-and post-financial crisis experience. Relative to our current expectations,
actual lapse rates have generally demonstrated a declining trend over the period from 2006 to the present. We
analyze actual experience over that entire period, as we believe that over the duration of the variable annuity
policies we may experience the full range of policyholder behavior and market conditions. However,
Management’s current best estimate of variable annuity policyholder lapse behavior is weighted more heavily
toward more recent experience, as the last three years of data have shown a more consistent trend of lapse
behavior.
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