Voya 2014 Annual Report Download - page 207

assumption reflecting meaningfully longer delays in utilization than the previous assumption. It is possible,
however, that policyholders may choose to withdraw sooner or later than the current best estimate assumes. We
expect customer decisions on withdrawal will be influenced by customers’ financial plans and needs as well as
by interest rate and market conditions over time and by the availability and features of competing products.
We also make estimates of expected lapse rates, which represent the probability that a policy will not remain
in force from one period to the next, for contracts in the CBVA segment. Lapse rates of our variable annuity
contracts may be significantly impacted by the value of guaranteed minimum benefits relative to the value of the
underlying separate accounts (account value or account balance). In general, policies with guarantees that are “in
the money” (i.e., where the notional benefit amount is in excess of the account value) are assumed to be less
likely to lapse. Conversely, “out of the money” guarantees are assumed to be more likely to lapse as the
policyholder has less incentive to retain the policy. Lapse rates could also be adversely affected generally by
developments that affect customer perception of us.
Our variable annuity lapse rate experience has varied significantly over the period from 2006 to the present,
reflecting among other factors, both pre- and post-financial crisis experience. Relative to our current
expectations, actual lapse rates have generally demonstrated a declining trend over the period from 2006 to the
present. We analyze actual experience over the entire period, as we believe that over the duration of the CBVA
policies we may experience the full range of policyholder behavior and market conditions. However,
management’s current best estimate of variable annuity policyholder lapse behavior is weighted more heavily
toward more recent experience, as the last three years of data have shown a more consistent trend of lapse
behavior.
We review overall policyholder experience at least annually (including lapse, annuitization, withdrawal and
mortality) and update these assumptions when deemed necessary based on additional information that becomes
available. If actual lapse rates are significantly different from those assumed, such could have a significant effect
on our reserve levels and related results of operations. During 2014, 2013, and 2012, we conducted our annual
review of assumptions, including projection model inputs.
In our most recent annual review of assumptions related to our CBVA contracts in the third quarter of 2014,
annual assumption changes and revisions to projection model inputs implemented resulted in a gain of $102.3
million (excluding a gain of $37.9 million due to changes in the technique used to estimate nonperformance risk).
This $102.3 million gain included a favorable $170.2 million resulting from policyholder behavior assumption
changes partially offset by an unfavorable $40.5 million resulting from changes to mortality assumptions. The
gain from policyholder behavior assumption changes was primarily due to an update to the utilization assumption
on GMWBL contracts, partially offset by an unfavorable result from an update to lapse assumptions. The 2013
result included a loss of $185.3 million (excluding a gain of $144.6 million due to changes in the technique used
to estimate nonperformance risk) due to annual assumption changes. This $185.3 million loss included an
unfavorable $117.9 million resulting from changes to mortality assumptions and an unfavorable $85.5 million
resulting from policyholder behavior assumption changes. The 2012 result included a loss of $151.7 million
(excluding the impact due to changes in the technique used to estimate nonperformance risk) due to annual
assumption changes, including $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.
See Quantitative and Qualitative Disclosures About Market Risk in Part II, Item 7A. of this Annual Report
on Form 10-K for additional information regarding the specific hedging strategies and reinsurance we utilize to
mitigate risk for the product guarantees, as well as sensitivities of the embedded derivative and stand-alone
derivative liabilities to changes in certain capital markets assumptions.
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