Voya 2014 Annual Report Download - page 201

material to the captive reinsurance subsidiaries, except that certain of these subsidiaries have included the value
of letters of credit and trust notes as admitted assets supporting the statutory reserves ceded to such subsidiaries.
The effect of these prescribed practices was to increase statutory capital and surplus by $1,185.0 million and
$1,612.0 million as of December 31, 2014 and 2013, respectively. The aggregate statutory capital and surplus,
including the aforementioned prescribed practices, was $552.5 million and $616.6 million as of December 31,
2014 and 2013, respectively.
Our Arizona captive, SLDI, provides reinsurance to the Company’s insurance subsidiaries in order to
facilitate the financing of statutory reserves including those associated with Regulation XXX or AG38 and to
fund certain statutory annuity reserve requirements. On December 20, 2013, SLDI re-domesticated from the
Cayman Islands to the State of Arizona. Arizona state insurance statutes and regulations require SLDI to file
financial statements with the Arizona Department of Insurance (“ADOI”) and allow the filing of such financial
statements on a U.S. GAAP basis modified for certain prescribed practices outlined in the Arizona insurance
statutes that are applicable to U.S. GAAP filers. These prescribed practices had no impact on SLDI’s
Shareholder’s equity as of December 31, 2014 and 2013. In addition, SLDI has obtained approval from the ADOI
for certain permitted practices, including taking reinsurance credit for certain ceded reserves where the assets
backing the liabilities are held by a wholly owned Principal Insurance Subsidiary of Voya Financial, Inc. SLDI
has recorded a receivable for these assets. The effect of the permitted practice was to increase SLDI’s
Shareholder’s equity by $482.0 million and $490.6 million as of December 31, 2014 and 2013, respectively, but
has no effect on our Consolidated total shareholders’ equity. In the unlikely event that the permitted practice is
suspended in the future, the Company has various alternatives which could be executed to allow the reinsurance
credit for these ceded reserves.
The captive reinsurance subsidiaries may not declare or pay any dividends other than in accordance with
their respective insurance reserve financing transaction agreements and their respective governing licensing
orders. Likewise, SLDI may not declare or pay dividends other than in accordance with its annual capital and
dividend plan as approved by the ADOI, which includes a minimum capital requirement. SLDI does not expect
to make any dividend payments during calendar year 2015.
Uncertainties associated with our continued use of affiliated captive reinsurance subsidiaries and our
Arizona captive are primarily related to potential regulatory changes. In October 2011, the NAIC established a
subgroup to study insurers’ 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. 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. In December 2013, the 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 capital requirement for reinsurance captives, including a prohibition on transactions that
do not constitute a legitimate risk transfer. FIO reiterated its recommendations for captives reform in its 2014
annual report. During 2014, the NAIC advanced two captives proposals. In June 2014, the NAIC adopted a new
regulatory framework set out in the Rector Report for captives assuming XXX and AXXX business. In
December 2014, the NAIC adopted Actuarial Guideline 48 which establishes a new regulatory requirement
applicable to XXX and AXXX reserves ceded to reinsurers, including affiliated reinsurers, as the first step in
implementing the framework set out in the Rector Report. As adopted, Actuarial Guideline 48 limits the type of
assets that may be used as collateral to back the XXX and AXXX statutory reserves. The new guidance will
apply prospectively to existing reinsurance transactions that reinsure policies issued on or after January 1, 2015
and new reinsurance transactions entered into on or after January 1, 2015. The NAIC has charged multiple
working groups with the responsibility to address other aspects of the Rector framework. In March 2014, the
NAIC considered a proposal to require states to apply NAIC accreditation standards, applicable to traditional
insurers, to captive reinsurers. In November 2014, NAIC staff were directed to prepare a new accreditation
proposal relating to captives, and on February 24, 2015, the NAIC F Committee exposed for public comment
such a proposal, in the form of a revised preamble to the NAIC accreditation standards. The proposal would
require states to apply the NAIC accreditation standards to captive reinsurers that assume (i) XXX/AXXX
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