Voya 2014 Annual Report Download - page 176

corresponding Interest credited and other benefits to contract owners/policyholders. The increase in annuitization
of life contingent contracts is partially due to the guaranteed minimum income benefit (“GMIB”) enhanced
annuitization offer completed during the current period, where contract owners elected to annuitize both GMIB
life contingent contracts and non-life contingent contracts.
Closed Blocks Variable Annuity—Year Ended December 31, 2013 Compared to Year Ended December 31,
2012
Loss before income taxes increased $517.0 million from $692.3 million to $1,209.3 million. Annual
assumption changes implemented during the current period resulted in a loss of $185.3 million, which included
$117.9 million of unfavorable mortality assumption changes and $85.5 million of unfavorable policyholder
behavior assumption changes. The prior period result included a loss of $151.7 million due to annual assumption
changes, which consisted of $114.6 million driven primarily by an update to lapse rates on variable annuity
contracts with lifetime living benefit guarantees and $37.1 million related to changes in cash flow projections and
volatility assumptions on certain products.
Net losses related to the incurred guaranteed benefits and our guarantee hedge and CHO program increased
to $1,674.3 million in the current period compared to $1,209.3 million in the prior period. The $465.0 million
increased loss was primarily due to higher equity market returns, as our guarantee hedges backing reserves are
more sensitive to changes in equity markets than those reserves, as well as higher unfavorable impacts of
assumption changes in the current period compared to the prior period, as described above. The focus in
managing our CBVA segment is on protecting regulatory and rating agency capital, and our hedging program is
primarily designed to mitigate the impacts of market scenarios on capital resources, rather than mitigating
earnings volatility. The current period result also included a loss of $494.5 million due to changes in the fair
value of guaranteed benefit derivative related to nonperformance risk, compared to a loss of $443.6 million in the
prior period.
Alternative Investment Income
Investment income on certain alternative investments can be volatile due to changes in market conditions.
The following table presents the amount of investment income (loss) on certain alternative investments that is
included on segment Operating earnings before income taxes and the average level of assets in each segment,
prior to intercompany eliminations. These alternative investments are carried at fair value, which is estimated
based on the net asset value (“NAV”) of these funds. The investment income on alternative investments shown
below for the periods stated excludes the net investment income from Lehman Recovery/LIHTC and net loss on
the sale of certain alternative investments during the prior periods.
While investment income on these assets can be volatile, based on current plans, we expect to earn 8% to
9% on these assets over the long-term.
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