Voya 2014 Annual Report Download - page 212

foreign interest rates (short-term or long-term), exchange rates, prepayment rates, equity markets or credit
ratings/spreads. The fair values of these embedded derivatives are determined using prices or valuation
techniques that require inputs that are both unobservable and significant to the overall fair value measurement.
For additional information regarding the valuation of and significant assumptions associated with embedded
derivatives and stand-alone derivatives associated with certain annuity contracts, see the “Reserves for Future
Policy Benefits” section.
In addition, we have entered into coinsurance with funds withheld reinsurance arrangements that contain
embedded derivatives. The fair value of the embedded derivatives is based on the change in the fair value of the
underlying assets held in the trust using the valuation methods and assumptions described for our investments held.
The valuation of derivatives 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, these assumptions used in such valuations can have a significant effect on
the results of operations.
For additional information regarding the fair value of our investments and derivatives, see the Fair Value
Measurements (excluding Consolidated Investment Entities) Note in our Consolidated Financial Statements in
Part II, Item 8. of this Annual Report on Form 10-K.
Impairments
We evaluate our available-for-sale general account investments quarterly to determine whether there has
been an other-than-temporary decline in fair value below the amortized cost basis. This evaluation process entails
considerable judgment and estimation. Factors considered in this analysis include, but are not limited to, the
length of time and the extent to which the fair value has been less than amortized cost, the issuer’s financial
condition and near-term prospects, future economic conditions and market forecasts, interest rate changes and
changes in ratings of the security. An extended and severe unrealized loss position on a fixed maturity may not
have any impact on: (a) the ability of the issuer to service all scheduled interest and principal payments and
(b) the evaluation of recoverability of all contractual cash flows or the ability to recover an amount at least equal
to its amortized cost based on the present value of the expected future cash flows to be collected. In contrast, for
certain equity securities, we give greater weight and consideration to a decline in market value and the likelihood
such market value decline will recover.
When assessing our intent to sell a security or if it is more likely than not we will be required to sell a
security before recovery of its amortized cost basis, we evaluate facts and circumstances such as, but not limited
to, decisions to rebalance the investment portfolio and sales of investments to meet cash flow or capital needs.
We use the following methodology and significant inputs to determine the amount of the OTTI credit loss:
• When determining collectability and the period over which the value is expected to recover for U.S.
and foreign corporate securities, foreign government securities and state and political subdivision
securities, we apply the same considerations utilized in our overall impairment evaluation process,
which incorporates information regarding the specific security, the industry and geographic area in
which the issuer operates and overall macroeconomic conditions. Projected future cash flows are
estimated using assumptions derived from our best estimates of likely scenario-based outcomes, after
giving consideration to a variety of variables that includes, but is not limited to: general payment terms
of the security; the likelihood that the issuer can service the scheduled interest and principal payments;
the quality and amount of any credit enhancements; the security’s position within the capital structure
of the issuer; possible corporate restructurings or asset sales by the issuer; and changes to the rating of
the security or the issuer by rating agencies.
• Additional considerations are made when assessing the unique features that apply to certain structured
securities, such as subprime, Alt-A, non-agency RMBS, CMBS and ABS. These additional factors for
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