Voya 2014 Annual Report Download - page 161

increase in interest credited due to an increase in FIA account balances. This was partially offset by a decrease in
interest credited, driven by a decline in the Annual Reset/MYGAs. The change in mix of business between
Annual Reset/MYGA and FIA had a favorable impact on total interest credited, since option costs of FIAs are
lower than credited rates on Annual Reset/MYGA.
Operating expenses increased $12.8 million from $127.0 million to $139.8 million primarily due to higher
FIA and mutual fund commissions and increased distribution expenses.
Net amortization of DAC/VOBA increased $45.6 million from $92.9 million to $138.5 million primarily due
to lower favorable DAC/VOBA unlocking in the current period resulting from prospective assumption changes.
Excluding the impact from unlocking, Net amortization of DAC/VOBA decreased primarily due to lower
amortization rates resulting from an update to margin projections in the prior period.
Operating earnings before taxes decreased $31.8 million from $293.8 million to $262.0 million primarily
driven by net investment income from Lehman Recovery/LIHTC in 2013 that did not reoccur and lower
favorable DAC/VOBA and other intangibles unlocking in the current period resulting from prospective
assumption changes. Excluding these impacts, Operating earnings before income taxes increased as a result of
several factors including improved margins related to the change in mix of business between Annual Reset/
MYGA and FIAs, an increase in Fee income from mutual fund custodial products and a lower amortization rate
on DAC/VOBA and other intangibles.
Annuities—Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
Operating revenues
Net investment income and net realized gains (losses) decreased $73.4 million from $1,223.3 million to
$1,149.9 million primarily due to lower general account assets and lower investment income on the CMO-B
portfolio. General account assets decreased as a result of MYGAs lapsing at the end of their initial terms, largely
due to lower renewal crediting rates, which reflect the lower interest rate environment compared to the crediting
rates during their initial term. In addition, investment income on the CMO-B portfolio was lower due to market
conditions in the current period and portfolio restructuring in the prior period. These decreases were partially
offset by $20.3 million of net investment income from Lehman Recovery/LIHTC, higher prepayment fee income
and higher income on alternative investments, as the prior period included a loss on the sale of certain alternative
assets.
Fee income increased $9.6 million from $35.5 million to $45.1 million due to growth in assets of mutual
fund custodial products, which are sold by the annuity distribution force as an alternative retirement product.
Average assets of the mutual fund custodial product increased 38% from $2.1 billion in 2012 to $2.9 billion in
2013 due to positive net flows and market performance.
Operating benefits and expenses
Interest credited and other benefits to contract owners/policyholders decreased $123.2 million from $854.1
million to $730.9 million primarily due to lower option costs of FIAs, a decrease in average crediting rates on
MYGA renewals and lower average account values due to the continuing run-off of MYGAs. Favorable
mortality on annuities with life contingencies also contributed to the decrease.
Net amortization of DAC/VOBA decreased $132.6 million from $225.5 million to $92.9 million primarily
due to favorable changes in unlocking of DAC/VOBA due to prospective assumption changes compared to
unfavorable unlocking in the prior period. Favorable unlocking in the current period was primarily as a result of
updated margin projections for fixed rate annuities. In the prior period, unlocking was primarily due to a decrease
in the projected margins on MYGA policies. Partially offsetting the decrease was higher amortization due to
higher gross profits in the current period.
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