Voya 2014 Annual Report Download - page 206

The estimated fair value of the FIA contracts is based on the present value of the excess of interest payments
to the contract owners over the growth in the minimum guaranteed contract value. The excess interest payments
are determined as the excess of projected index driven benefits over the projected guaranteed benefits. The
projection horizon is over the anticipated life of the related contracts, which takes into account best estimate
actuarial assumptions, such as partial withdrawals, full surrenders, deaths, annuitizations and maturities.
The estimated fair value of the Stabilizer and MCG contracts is determined based on the present value of
projected future claims, minus the present value of future guaranteed premiums. At inception of the contract, we
project a guaranteed premium to be equal to the present value of the projected future claims. The income
associated with the contracts is projected using actuarial and capital market assumptions, including benefits and
related contract charges, over the anticipated life of the related contracts. The cash flow estimates are projected
under multiple capital market scenarios using observable risk-free rates and other best estimate assumptions.
The liabilities for the GMAB, GMWB, GMWBL, FIA and Stabilizer embedded derivatives and the MCG
stand-alone derivative include a risk margin to capture uncertainties related to policyholder behavior
assumptions. The margin represents additional compensation a market participant would require to assume these
risks.
The discount rate used to determine the fair value of the liabilities for our GMAB, GMWB, GMWBL, FIA
and Stabilizer embedded derivatives and the stand-alone derivative for MCG includes an adjustment to reflect the
risk that these obligations will not be fulfilled (“nonperformance risk”). Our nonperformance risk adjustment is
based on a blend of observable, similarly rated peer holding company credit default swap (“CDS”) spreads,
adjusted to reflect the credit quality of our individual insurance subsidiary that issued the guarantee as well as an
adjustment to reflect the priority of policyholder claims. The impact of the nonperformance risk adjustment on
the fair value of these liabilities was a reduction of approximately $785.0 million and $377.0 million as of
December 31, 2014 and 2013, respectively.
UL and Variable Universal Life (“VUL”): Reserves for UL and VUL secondary guarantees and paid-up
guarantees are calculated by estimating the expected value of death benefits payable and recognizing those
benefits ratably over the accumulation period based on total expected assessments. The reserve for such products
recognizes the portion of contract assessments received in early years used to compensate us for benefits
provided in later years. Assumptions used, such as the interest rate, lapse rate and mortality, are consistent with
assumptions used in estimating gross profits for purposes of amortizing DAC.
Assumptions and Periodic Review
We have only minimal experience on policyholder behavior for our GMIB products; as a result, future
experience could lead to significant changes in our assumptions. Our GMIB contracts, most of which were issued
during the period 2004 to 2006, have a ten-year waiting period before annuitization is available. These contracts
first become eligible to annuitize during the period 2014 to 2016, but contain significant incentives to delay
annuitization beyond the first eligibility date. As a result, although we have increased experience on policyholder
behavior for the first opportunity to annuitize, we have only a statistically small sample of experience used to set
annuitization rates beyond the first eligibility date. Therefore, we anticipate that observable experience data will
become statistically credible later this decade, when a large volume of GMIB benefits begin to reach their
maximum benefit over the four-year period from 2019 to 2022. It is possible, however, that policyholders may
choose to annuitize soon after the first annuitization date, rather than delay annuitization to receive increased
guarantee benefits, in which case we may have statistically credible experience as early as the period from 2015
through 2016.
Similarly, most of our GMWBL contracts are still in the first five to seven policy years, so our assumptions
for withdrawal from contracts with GMWBL benefits may change as experience emerges. In addition, like our
GMIB contracts, many of our GMWBL contracts contain significant incentives to delay withdrawal. Our
experience for GMWBL contracts has become more credible, which resulted in our current best estimate
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