Voya 2014 Annual Report Download - page 211

See the Investments (excluding Consolidated Investment Entities) Note and the Derivative Financial
Instruments Note in our Consolidated Financial Statements in Part II, Item 8. of this Annual Report on Form 10-
K for further information.
Investments
We measure the fair value of our financial assets and liabilities based on assumptions used by market
participants in pricing the assets or liability, which may include inherent risk, restrictions on the sale or use of an
asset or nonperformance risk, including our own credit risk. The estimate of fair value is the price that would be
received to sell an asset or transfer a liability (“exit price”) in an orderly transaction between market participants
in the principal market, or the most advantageous market in the absence of a principal market, for that asset or
liability. We use a number of valuation sources to determine the fair values of our financial assets and liabilities,
including quoted market prices, third-party commercial pricing services, third-party brokers and industry-
standard, vendor-provided software that models the value based on market observable inputs and other internal
modeling techniques based on projected cash flows.
We categorize our financial instruments into a three-level hierarchy based on the priority of the inputs to the
valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for
identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used
to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest
priority level input that is significant to the fair value measurement of the instrument.
When available, the estimated fair value of securities is based on quoted prices in active markets that are
readily and regularly obtainable. When quoted prices in active markets are not available, the determination of
estimated fair value is based on market standard valuation methodologies, including discounted cash flows,
matrix pricing or other similar techniques. Inputs to these methodologies include, but are not limited to, market
observable inputs such as benchmark yields, credit quality, issuer spreads, bids, offers and cash flow
characteristics of the security. For privately placed bonds, we also consider such factors as the net worth of the
borrower, value of the collateral, the capital structure of the borrower, the presence of guarantees and the
borrower’s ability to compete in its relevant market. Valuations are reviewed and validated monthly by an
internal valuation committee using price variance reports, comparisons to internal pricing models, back testing of
recent trades and monitoring of trading volumes, as appropriate.
The valuation of financial assets and liabilities involves considerable judgment, is subject to considerable
variability, is established using management’s best estimate and is revised as additional information becomes
available. As such, changes in, or deviations from, the assumptions used in such valuations can significantly
affect our results of operations. Financial markets are subject to significant movements in valuation and liquidity,
which can impact our ability to liquidate and the selling price that can be realized for our securities.
Derivatives
Derivatives are carried at fair value, which is determined by using observable key financial data, such as
yield curves, exchange rates, S&P 500 prices, LIBOR and Overnight Index Swap Rates (“OIS”) or through
values established by third-party sources, such as brokers. Valuations for our futures contracts are based on
unadjusted quoted prices from an active exchange. Counterparty credit risk is considered and incorporated in our
valuation process through counterparty credit rating requirements and monitoring of overall exposure. Our own
credit risk is also considered and incorporated in our valuation process.
We have certain CDS and options that are priced using models that primarily use market observable inputs,
but contain inputs that are not observable to market participants.
We also have investments in certain fixed maturities and have issued certain annuity products that contain
embedded derivatives whose fair value is at least partially determined by levels of or changes in domestic and/or
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