Voya 2014 Annual Report Download - page 178

are higher than the contracts’ expected ongoing crediting rates for periods after the inducement. We defer sales
inducements and amortize them over the life of the contracts using the same methodology and assumptions
employed to amortize DAC. The amortization of sales inducements is included in Interest credited and other
benefits to contract owners/policyholders. In addition, a URR liability is recorded related to variable universal
life and UL products and represents policy charges for services to be provided in future periods. These policy
charges are deferred as unearned revenue and amortized over the expected life of the contracts in proportion to
the estimated gross profits in a manner consistent with DAC for these products. The change in URR is included
in Fee income.
Generally, we amortize DAC, VOBA, DSI, and URR related to fixed and variable universal life contracts,
variable deferred annuity contracts and fixed deferred annuity contracts over the estimated lives of the contracts
in relation to the emergence of estimated gross profits. For variable deferred annuity contracts within the CBVA
segment, we amortize DAC, VOBA and DSI over estimated gross revenues. Assumptions as to mortality,
persistency, interest crediting rates, returns associated with separate account performance, impact of hedge
performance, expenses to administer the business and certain economic variables, such as inflation, are based on
our experience and our overall short-term and long-term future expectations for returns available in the capital
markets. At each valuation date, actual historical gross profits are reflected and estimated gross profits and
related assumptions, are evaluated for continued reasonableness. Adjustments to estimated gross profits require
that amortization rates be revised retroactively to the date of the contract issuance, which is referred to as
unlocking. As a result of this process, the cumulative balances of DAC, VOBA, DSI, and URR are adjusted with
an offsetting benefit or charge to income to reflect changes in the period of the revision. An unlocking event that
results in a benefit (“favorable unlocking”) generally occurs as a result of actual experience or future
expectations being favorable compared to previous estimates. Changes in DAC, VOBA, DSI and URR due to
contract changes or contract terminations higher than estimated are also included in “unlocking.” An unlocking
event that results in a charge (“unfavorable unlocking”) generally occurs as a result of actual experience or future
expectations being unfavorable compared to previous estimates. When unlocking, we unlock assumptions for
each of the appropriate intangibles and refer to the unlocking as “DAC/VOBA and other intangibles” unlocking.
As a result of unlocking, the amortization schedules for future periods are also adjusted.
We also review the estimated gross profits for each of these blocks of business to determine the
recoverability of DAC, VOBA and DSI balances each period. These assets are deemed to be unrecoverable if the
estimated gross profits do not exceed these balances and a write-down is recorded that is referred to as loss
recognition. There was no loss recognition for the years ended December 31, 2014, 2013 and 2012.
During the third quarter of 2014, we completed our annual review of the assumptions, including projection
model inputs, in each of our segments (except for Investment Management, for which assumption reviews are not
relevant). As a result of this review, we have made a number of changes to our assumptions resulting in a net
unfavorable impact of $19.3 million to Operating earnings before income taxes in the current period, compared
to a favorable impact of $84.8 million in the third quarter of 2013 and an unfavorable impact of $32.0 million in
the third quarter of 2012. These are included in the DAC/VOBA and other intangibles unlocking.
The following table presents the amount of DAC/VOBA and other intangibles unlocking that is included in
segment Operating earnings before income taxes for the periods indicated:
Year Ended December 31,
($ in millions) 2014 2013 2012
Retirement ........................................................ $(30.0) $ 45.6 $ 5.8
Annuities ......................................................... 26.4 83.3 (86.2)
Individual Life ..................................................... (10.2) 4.8 3.4
Employee Benefits .................................................. (7.8) (0.5) —
Total DAC/VOBA and other intangibles unlocking(1)(2) ......................... $(21.6) $133.2 $(77.0)
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