Voya 2014 Annual Report Download - page 120

and state insurance departments regarding the application of these and other actuarial standards. Such differences
of opinion may lead to a state insurance regulator requiring greater reserves to support insurance liabilities than
management estimated.
We have implemented reinsurance and capital management actions to mitigate the capital impact of XXX
and AG38, including the use of LOCs and the implementation of other transactions that provide acceptable
collateral to support the reinsurance of the liabilities to wholly owned reinsurance captives or to third-party
reinsurers. These arrangements are subject to review and approval by state insurance regulators and review by
rating agencies. In October 2011, the NAIC established a subgroup to study the use of captives and special
purpose vehicles to transfer insurance risk in relation to existing state laws and regulations, and to establish
appropriate regulatory requirements to address concerns identified in the study. Additionally, in June 2013, the
NYDFS released a report critical of certain captive reinsurance structures and calling, in part, for other state
regulators to adopt a moratorium on approving such structures pending further review by state and federal
regulators. Also, in December 2013, FIO issued a report on how to modernize and improve the system of
insurance regulation in the United States, recommending, in part, that states develop a uniform and transparent
solvency oversight regime for the transfer of risk to reinsurance captives and adopt a uniform capital requirement
for reinsurance captives, including a prohibition on transactions that do not constitute legitimate risk transfer.
FIO reiterated its recommendations for captives reform in its 2014 annual report. During 2014, the NAIC
advanced two captives proposals. See “—Our insurance businesses are heavily regulated, and changes in
regulation in the United States, enforcement actions and regulatory investigations may reduce profitability”
above and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—
Liquidity and Capital Resources—Statutory Capital and Risk-Based Capital of Principal Insurance
Subsidiaries—Captive Reinsurance Subsidiaries”. Rating agencies may include a portion of these LOCs or other
collateral in their calculation of leverage calculations, which could increase their assessment of our leverage
ratios and potentially impact our ratings. We cannot provide assurance that we will be able to continue to use
captive reinsurance companies or that there will not be regulatory or rating agency challenges to the reinsurance
and capital management actions we have taken to date or that acceptable collateral obtained through such
transactions will continue to be available or available on a cost-effective basis.
The result of those potential challenges, as well as the inability to obtain acceptable collateral, could require
us to increase statutory reserves, incur higher operating and/or tax costs or reduce sales.
Certain of the reserve financing facilities we have put in place will mature prior to the run off of the
liabilities they support. As a result, we cannot provide assurance that we will be able to continue to implement
actions either to mitigate the impact of XXX and AG38 on future sales of term and universal life insurance
products or maintain collateral support related to our captives or existing third party reinsurance arrangements to
which one of our captive reinsurance subsidiaries is a party. If we are unable to continue to implement those
actions or maintain existing collateral support, we may be required to increase statutory reserves or incur higher
operating costs than we currently anticipate. Because term and universal life insurance are particularly price-
sensitive products, any increase in premiums charged on these products to compensate us for the increased
statutory reserve requirements or higher costs of reinsurance may result in a significant loss of volume and
materially and adversely affect our life insurance business.
Changes in tax laws and interpretations of existing tax law could increase our tax costs, impact the ability of
our insurance company subsidiaries to make distributions to Voya Financial, Inc. or make our insurance,
annuity and investment product less attractive to customers.
Changes in tax laws could increase our taxes and our effective tax rates. For example, the Obama
Administration recently re-proposed modifying the dividends received deduction for life insurance company
separate accounts, and such a modification could significantly reduce or eliminate the dividends received
deduction that we are able to claim for dividends received in separate accounts. As such, the dividend received
deduction is a significant component of the difference between our actual tax expense and the expected tax
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